[House Report 106-289]
[From the U.S. Government Publishing Office]



106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    106-289
_______________________________________________________________________

                                     



 
                TAXPAYER REFUND AND RELIEF ACT OF 1999

                               ----------                              

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2488




                 August 4, 1999.--Ordered to be printed



106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    106-289
_______________________________________________________________________

                                     




                TAXPAYER REFUND AND RELIEF ACT OF 1999

                               __________

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2488




                 August 4, 1999.--Ordered to be printed

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
58-371                     WASHINGTON : 1999


                            C O N T E N T S

                              ----------                              

                         STATEMENT OF MANAGERS

                                                                   Page
   I. BROAD-BASED AND FAMILY TAX RELIEF.............................217
          A. Reduction in Individual Income Tax Rates and 
              Expansion of Lowest Individual Regular Income Tax 
              Rate Bracket (sec. 101 of the House bill and secs. 
              101-102 of the Senate amendment)...................   217
          B. Marriage Penalty Relief Provisions Relating to the 
              Rate Structure and Standard Deduction Amounts (sec. 
              111 of the House bill and secs. 201 and 209 of the 
              Senate amendment)..................................   219
          C. Marriage Penalty Relief Relating to the Earned 
              Income Credit (sec. 202 of the Senate amendment)...   223
          D. Individual Alternative Minimum Tax Provisions (sec. 
              121 of the House bill and secs. 206 and 1134 of the 
              Senate amendment)..................................   224
          E. Expand the Exclusion From Income for Certain Foster 
              Care Payments (sec. 1301 of the House bill and sec. 
              203 of the Senate amendment).......................   227
          F. Increase and Expand the Dependent Care Credit (sec. 
              204 of the Senate amendment).......................   229
          G. Tax Credit for Employer-Provided Child Care 
              Facilities (sec. 205 of the Senate amendment)......   230
          H. Extension and Expansion of the Adoption Credit (sec. 
              210 of the Senate amendment).......................   231
  II. SAVINGS AND INVESTMENT TAX RELIEF PROVISIONS..................233
          A. Partial Exclusion for Interest and Dividends (sec. 
              201 of the House bill).............................   233
          B. Individual Capital Gains (sec. 202 of the House bill 
              and sec. 207 of the Senate amendment)..............   234
          C. Apply Capital Gains Rates to Capital Gains Earned by 
              Designated Settlement Funds (sec. 203 of the House 
              bill)..............................................   238
          D. Exclusion of Gain on the Sale of a Principal 
              Residence by a Member of the Uniformed Service or 
              the Foreign Service of the United States or Certain 
              Other Individuals Relocated Outside of the United 
              States (sec. 204 of the House bill)................   239
          E. Clarify the Tax Treatment of Income and Losses on 
              Derivatives (sec. 205 of the House bill and sec. 
              1306 of the Senate amendment)......................   240
          F. Treatment of Loss on Worthless Stock of Subsidiary 
              (sec. 206 of the House bill).......................   241
          G. Individual Retirement Arrangements (sec. 113 of the 
              House bill and secs. 301-303, 304 and 321 of the 
              Senate amendment)..................................   241
          H. Creation of Individual Development Accounts (sec. 
              304 of the Senate amendment).......................   246
 III. BUSINESS INVESTMENT AND JOB CREATION PROVISIONS...............247
          A. Alternative Tax for Corporate Capital Gains (sec. 
              301 of the House bill).............................   247
          B. Corporate Alternative Minimum Tax (sec. 302(a) of 
              the House bill and sec. 1103 of the Senate 
              amendment).........................................   247
          C. Repeal of Limitation of Foreign Tax Credit under 
              Alternative Minimum Tax (sec. 302(b) of the House 
              bill and sec. 907 of the Senate amendment).........   251
  IV. EDUCATION TAX RELIEF PROVISIONS...............................252
          A. Student Loan Interest Deduction (secs. 112 and 406 
              of the House bill and sec. 401 of the Senate 
              amendment).........................................   252
          B. Expand Education Savings Accounts (sec. 401 of the 
              House bill)........................................   253
          C. Allow Tax-Free Distributions from State and Private 
              Education Programs (sec. 402 of the House bill and 
              the Senate amendment)..............................   258
          D. Eliminate Tax on Awards Under National Health 
              Service Corps Scholarship Program, F. Edward Hebert 
              Armed Forces Health Professions Scholarship and 
              Financial Assistance Program, National Institutes 
              of Health Undergraduate Scholarship Program and 
              Certain State-Sponsored Scholarship Programs (sec. 
              403 of the House bill and Senate amendment)........   262
          E. Exclusion for Employer-Provided Educational 
              Assistance (sec. 404 of the Senate amendment)......   264
          F. Liberalize Tax-Exempt Financing Rules for Public 
              School Construction (secs. 404-405 of the House 
              bill and secs. 405-407 of the Senate amendment)....   265
          G. Expansion of Deduction for Computer Donations to 
              Schools (sec. 1124 of the Senate amendment)........   269
          H. Credit for Computer Donations to Schools and Senior 
              Centers (sec. 1125 of the Senate amendment)........   271
          I. Two-Percent Floor Not To Apply to Professional 
              Development Expenses of Teachers (sec. 1123 of the 
              Senate amendment)..................................   272
          J. Exclusion for Education Benefits Provided by 
              Employers to Children of Employees (sec. 404 of the 
              Senate amendment)..................................   273
          K. Credit for Interest on Higher Education Loans (sec. 
              208 of the Senate amendment).......................   274
   V. HEALTH CARE TAX RELIEF PROVISIONS.............................275
          A. Above-the-Line Deduction for Health Insurance 
              Expenses (sec. 501 of the House bill and the Senate 
              amendment).........................................   275
          B. Provisions Relating to Long-Term Care Insurance 
              (secs. 501 and 502 of the House bill and the Senate 
              amendment).........................................   277
          C. Extend Availability of Medical Savings Accounts 
              (sec. 503 of the House bill).......................   281
          D. Additional Personal Exemption for Caretakers (sec. 
              504 of the House bill and sec. 503 of the Senate 
              amendment).........................................   285
          E. Expand Human Clinical Trials Expenses Qualifying for 
              the Orphan Drug Tax Credit (sec. 505 of the House 
              bill)..............................................   287
          F. Add Certain Vaccines Against Streptococcus 
              Pneumoniae to the List of Taxable Vaccines; Reduce 
              Vaccine Excise Tax (sec. 506 of the House bill and 
              sec. 504 of the Senate amendment)..................   288
          G. Above-the-Line Deduction for Prescription Drug 
              Insurance Coverage of Medicare Beneficiaries if 
              Certain Medicare and Low-Income Assistance 
              Provisions Are in Effect (sec. 507 of the House 
              bill)..............................................   290
          H. Credit for Employee Health Insurance Expenses of 
              Small Employers (sec. 609 of the Senate amendment).   291
  VI. ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX RELIEF 
      PROVISIONS....................................................292
          A. Phase in Repeal of Estate, Gift, and Generation-
              Skipping Taxes (secs. 601-603, 611, and 621 of the 
              House bill and secs. 701-702 of the Senate 
              amendment).........................................   292
          B. Modify Generation-Skipping Transfer Tax Rules.......   294
              1. Deemed allocation of the generation-skipping 
                  transfer (``GST'') tax exemption to lifetime 
                  transfers (sec. 631 of the House bill).........   294
              2. Retroactive allocation of the GST tax exemption 
                  (sec. 631 of the House bill and sec. 731 of the 
                  Senate amendment)..............................   297
              3. Severing of trusts holding property having an 
                  inclusion ratio of greater than zero (sec. 632 
                  of the House bill and sec. 732 of the Senate 
                  amendment).....................................   298
              4. Modification of certain valuation rules (sec. 
                  633 of the House bill and sec. 733 of the 
                  Senate amendment)..............................   299
              5. Relief from late elections (sec. 634 of the 
                  House bill and sec. 734 of the Senate 
                  amendment).....................................   300
              6. Substantial compliance (sec. 634 of the House 
                  bill and sec. 734 of the Senate amendment).....   300
          C. Expand Estate Tax Rule for Conservation Easements 
              (sec. 711 of the Senate amendment).................   301
          D. Increase Annual Gift Exclusion (sec. 721 of the 
              Senate amendment)..................................   302
          E. Increase in Estate Tax Deduction for Family-Owned 
              Business Interest (sec. 608 of the Senate 
              amendment).........................................   303
 VII. DISTRESSED COMMUNITIES AND INDUSTRIES PROVISIONS..............305
          A. Renewal Community Provisions (secs. 701-706 of the 
              House bill)........................................   305
          B. Provide That Federal Production Payments to Farmers 
              Are Taxable in the Year Received (sec. 711 of the 
              House bill)........................................   311
          C. Allow Net Operating Losses From Oil and Gas 
              Properties To Be Carried Back for Up to Five Years 
              (sec. 721 of the House bill and sec. 1104 of the 
              Senate amendment)..................................   312
          D. Deduction for Delay Rental Payments (sec. 722 of the 
              House bill and sec. 1106 of the Senate amendment)..   313
          E. Election to Expense Geological and Geophysical 
              Expenditures (sec. 723 of the House bill and sec. 
              1105 of the Senate amendment)......................   314
          F. Temporary Suspension of Limitation Based on 65 
              Percent of Taxable Income (sec. 724 of the House 
              bill)..............................................   315
          G. Modify Small Refiner Limit for Eligibility for 
              Percentage Depletion Deductions (sec. 725 of the 
              House bill)........................................   316
          H. Increase the Maximum Dollar Amount of Reforestation 
              Expenditures Eligible for Amortization and Credit 
              (sec. 731 of the House bill and sec. 1108 of the 
              Senate amendment)..................................   316
          I. Capital Gain Treatment Under Section 631(b) to Apply 
              to Outright Sales by Landowners (sec. 732 of the 
              House bill and sec. 1136 of the Senate amendment)..   318
          J. Minimum Tax Relief for the Steel Industry (sec. 741 
              of the House bill).................................   319
VIII. SMALL BUSINESS TAX RELIEF PROVISIONS..........................320
          A. Accelerate 100-Percent Self-Employed Health 
              Insurance Deduction (sec. 801 of the House bill and 
              sec. 601 of the Senate amendment)..................   320
          B. Increase Section 179 Expensing (sec. 802 of the 
              House bill and sec. 602 of the Senate amendment)...   321
          C. Repeal of Temporary Federal Unemployment Surtax 
              (sec. 803 of the House bill and sec. 603 of the 
              Senate amendment)..................................   322
          D. Farmer and Fishermen Income Averaging (sec. 604 of 
              the Senate amendment)..............................   323
          E. Farm, Fish, and Ranch Risk Management Accounts (sec. 
              605 of the Senate amendment).......................   324
          F. S Corporation Bank Provisions.......................   325
              1. Definition of passive investment income for 
                  banks (sec. 606 of the Senate amendment).......   325
              2. Bank director stock (sec. 607 of the Senate 
                  amendment).....................................   326
  IX. INTERNATIONAL TAX RELIEF PROVISIONS...........................327
          A. Allocate Interest Expense on Worldwide Basis (sec. 
              901 of the House bill and the Senate amendment)....   327
          B. Look-Through Rules to Apply to Dividends from 
              Noncontrolled Section 902 Corporations (sec. 902 of 
              the House bill and the Senate amendment)...........   338
          C. Subpart F Treatment of Pipeline Transportation 
              Income and Income from Transmission of High Voltage 
              Electricity (secs. 903-904 of the House bill and 
              the Senate amendment)..............................   340
          D. Recharacterization of Overall Domestic Loss (sec. 
              905 of the House bill).............................   341
          E. Treatment of Military Property of Foreign Sales 
              Corporations (sec. 906 of the House bill and sec. 
              908 of the Senate amendment).......................   343
          F. Modify Treatment of RIC Dividends Paid to Foreign 
              Persons (sec. 907 of the House bill)...............   344
          G. Repeal of Special Rules for Applying Foreign Tax 
              Credit in Case of Foreign Oil And Gas Income (sec. 
              908 of the House bill).............................   346
          H. Study of Proper Treatment of European Union under 
              Subpart F Same Country Exceptions (sec. 909 of the 
              House bill)........................................   347
          I. Provide Waiver From Denial of Foreign Tax Credits 
              (sec. 910 of the House bill).......................   348
          J. Prohibit Disclosure of APAs and APA Background Files 
              (sec. 911 of the House bill and sec. 905 of the 
              Senate amendment)..................................   349
          K. Increase Dollar Limitation on Section 911 Exclusion 
              (sec. 912 of the House bill).......................   354
          L. Exempt Certain Sales of Frequent-Flyer and Similar 
              Reduced-Fare Air Transportation Rights From 
              Aviation Excise Taxes (sec. 906 of the Senate 
              amendment).........................................   355
   X. TAX-EXEMPT ORGANIZATION PROVISIONS............................356
          A. Provide Tax Exemption for Organizations Created by a 
              State to Provide Property and Casualty Insurance 
              Coverage for Property for Which Such Coverage Is 
              Otherwise Unavailable (sec. 1001 of the House bill 
              and sec. 801 of the Senate amendment)..............   356
          B. Conform Provisions Relating to Arbitrage Treatment 
              to Reflect Proposed State Constitutional Amendments 
              (sec. 1002 of the House bill)......................   359
          C. Authorize Secretary of Treasury to Grant Waivers 
              from Section 4941 Prohibitions (sec. 1004 of the 
              House bill)........................................   360
          D. Extend Declaratory Judgment Procedures to Non-
              501(c)(3) Tax-Exempt Organizations (sec. 1005 of 
              the House bill)....................................   361
          E. Modify Section 512(b)(13) (sec. 1006 of the House 
              bill and sec. 802 of the Senate amendment).........   363
          F. Simplify Lobbying Expenditure Limitations (sec. 803 
              of the Senate amendment)...........................   364
          G. Tax-Free Withdrawals From IRAs for Charitable 
              Purposes (sec. 804 of the Senate amendment)........   366
          H. Provide Exclusion for Mileage Reimbursements by 
              Charitable Organizations (sec. 1302 of the House 
              bill and sec. 805 of the Senate amendment).........   368
          I. Charitable Contribution Deduction for Certain 
              Expenses in Support of Native Alaskan Subsistence 
              Whaling (sec. 806 of the Senate amendment).........   369
          J. Charitable Giving Provisions (secs. 807-809 of the 
              Senate amendment)..................................   370
          K. Modify Excess Business Holdings Rules for Publicly 
              Traded Stock (sec. 810 of the Senate amendment)....   372
          L. Certain Costs of Private Foundation in Removing 
              Hazardous Substances Treated as Qualifying 
              Distribution (sec. 811 of the Senate amendment)....   374
  XI. REAL ESTATE TAX RELIEF PROVISIONS.............................375
          A. Provisions Relating to REITs (secs. 1101-1106, 1111, 
              1121, 1131, 1141, and 1151 of the House bill and 
              secs. 1021-1026, 1031, 1041, 1051, 1061, and 1071 
              of the Senate amendment)...........................   375
          B. Modify At-Risk Rules for Publicly Traded Nonrecourse 
              Debt (sec. 1161 of the House bill).................   381
          C. Qualified Lessee Construction Allowances Not Limited 
              to Short-Term Leases for Certain Retailers (sec. 
              1171 of the House bill)............................   382
          D. Exclusion From Gross Income for Certain 
              Contributions to the Capital of Certain Retailers 
              (sec. 1172 of the House bill)......................   383
          E. Increase the Low-Income Housing Tax Credit Cap and 
              Make Other Modifications (secs. 1331-1337 of the 
              House bill and sec. 1001 of the Senate amendment)..   386
          F. Tax Credit for Renovating Historic Homes (sec. 1011 
              of the Senate amendment)...........................   391
          G. Accelerate the Scheduled Increase in State Volume 
              Limits on Tax-Exempt Private Activity Bonds 
              (sec.1351 of the House bill and sec. 1081 of the 
              Senate amendment)..................................   393
          H. Treatment of Leasehold Improvements (sec. 1091 of 
              the Senate amendment)..............................   395
 XII. PENSION REFORM PROVISIONS.....................................397
          A. Expanding Coverage..................................   397
              1. Increase in benefit and contribution limits 
                  (sec. 1201 of the House bill and sec. 312 of 
                  the Senate amendment)..........................   397
              2. Plans loans for Subchapter S shareholders, 
                  partners, and sole proprietors (sec. 1202 of 
                  the House bill and sec. 313 of the Senate 
                  amendment).....................................   400
              3. Modification of top-heavy rules (sec. 1203 of 
                  the House bill and sec. 319 of the Senate 
                  amendment).....................................   401
              4. Elective deferrals not taken into account for 
                  purposes of deduction limits (sec. 1204 of the 
                  House bill and sec. 314 of the Senate 
                  amendment).....................................   404
              5. Repeal of coordination requirements for deferred 
                  compensation plans of State and local 
                  governments and tax-exempt organizations (sec. 
                  1205 of the House bill)........................   405
              6. Eliminate IRS user fees for certain requests 
                  regarding employer plans (sec. 1206 of the 
                  House bill and sec. 317 of the Senate 
                  amendment).....................................   406
              7. Definition of compensation for purposes of 
                  deduction limits (sec. 1207 of the House bill).   407
              8. Option to treat elective deferrals as after-tax 
                  contributions (sec. 1208 of the House bill and 
                  sec. 311 of the Senate amendment)..............   408
              9. Increase minimum benefit under defined benefit 
                  plans (sec. 1209 of the House bill)............   410
              10. Reduced PBGC premiums for small and new plans 
                  (secs. 315-316 of the Senate amendment)........   410
              11. SAFE annuities and trusts (sec. 318 of the 
                  Senate amendment)..............................   412
          B. Enhancing Fairness for Women........................   415
              1. Additional catch-up contributions (sec. 1221 of 
                  the House bill and sec. 321 of the Senate 
                  amendment).....................................   415
              2. Equitable treatment for contributions of 
                  employees to defined contribution plans (sec. 
                  1222 of the House bill and sec. 322 of the 
                  Senate amendment)..............................   417
              3. Faster vesting of employer matching 
                  contributions (sec. 1223 of the House bill and 
                  sec. 325 of the Senate amendment)..............   418
              4. Simplify and update the minimum distribution 
                  rules (secs. 1224 and 1239 of the House bill)..   419
              5. Clarification of tax treatment of division of 
                  section 457 plan benefits upon divorce (sec. 
                  1225 of the House bill and sec. 323 of the 
                  Senate amendment)..............................   422
              6. Modification of safe harbor relief for hardship 
                  withdrawals from 401(k) plans (sec. 324 of the 
                  Senate amendment)..............................   423
          C. Increasing Portability for Participants.............   424
              1. Rollovers of retirement plan and IRA 
                  distributions (secs. 1231-1233 and 1239 of the 
                  House bill and secs. 331-333 and 339 of the 
                  Senate amendment)..............................   424
              2. Waiver of 60-day rule (sec. 1234 of the House 
                  bill and sec. 334 of the Senate amendment).....   428
              3. Treatment of forms of distribution (sec. 1235 of 
                  the House bill and sec. 335 of the Senate 
                  amendment).....................................   428
              4. Rationalization of restrictions on distributions 
                  (sec. 1236 of the House bill and sec. 336 of 
                  the Senate amendment)..........................   430
              5. Purchase of service credit under governmental 
                  pension plans (sec. 1237 of the House bill and 
                  sec. 337 of the Senate amendment)..............   431
              6. Employers may disregard rollovers for purposes 
                  of cash-out rules (sec. 1238 of the House bill 
                  and sec. 338 of the Senate amendment)..........   432
          D. Strengthening Pension Security and Enforcement......   433
              1. Phase in repeal of 150 percent of current 
                  liability funding limit; deduction for 
                  contributions to fund termination liability 
                  (secs. 1241-1242 of the House bill and secs. 
                  341 and 347 of the Senate amendment)...........   433
              2. Excise tax relief for sound pension funding 
                  (sec. 1243 of the House bill and sec. 343 of 
                  the Senate amendment)..........................   435
              3. Notice of significant reduction in plan benefit 
                  accruals (sec. 1244 of the House bill and sec. 
                  344 of the Senate amendment)...................   436
              4. Extension of PBGC missing participants program 
                  (sec. 342 of the Senate amendment).............   443
              5. Investment of employee contributions in 401(k) 
                  plans (sec. 345 of the Senate amendment).......   444
              6. Periodic pension benefit statements (sec. 351 of 
                  the Senate amendment)..........................   446
          E. Reducing Regulatory Burdens.........................   447
              1. Repeal of the multiple use test (sec. 1251 of 
                  the House bill)................................   447
              2. Modification of timing of plan valuations (sec. 
                  1252 of the House bill and sec. 362 of the 
                  Senate amendment)..............................   448
              3. Flexibility in nondiscrimination and line of 
                  business rules (sec. 1253 of the House bill and 
                  sec. 361 of the Senate amendment)..............   449
              4. ESOP dividends may be reinvested without loss of 
                  dividend deduction (sec. 1254 of the House bill 
                  and sec. 364 of the Senate amendment)..........   450
              5. Notice and consent period regarding 
                  distributions (sec. 1255 of the House bill and 
                  sec. 365 of the Senate amendment)..............   451
              6. Repeal transition rule relating to certain 
                  highly compensated employees (sec. 1256 of the 
                  House bill and sec. 366 of the Senate 
                  amendment).....................................   452
              7. Employees of tax-exempt entities (sec. 1257 of 
                  the House bill and sec. 367 of the Senate 
                  amendment).....................................   453
              8. Treatment of employer-provided retirement advice 
                  (sec. 1258 of the House bill and sec. 352 of 
                  the Senate amendment)..........................   454
              9. Provisions relating to plan amendments (sec. 
                  1259 of the House bill and sec. 371 of the 
                  Senate amendment)..............................   456
              10. Model plans for small businesses (sec. 1260 of 
                  the House bill)................................   456
              11. Reporting simplification (sec. 1261 of the 
                  House bill and sec. 370A of the Senate 
                  amendment).....................................   457
              12. Improvement to Employer Plans Compliance 
                  Resolution System (sec. 1262 of the House bill)   458
              13. Modifications to section 415 limits for 
                  multiemployer and governmental plans (secs. 
                  1263 of the House bill and sec. 346 and 348 of 
                  the Senate amendment)..........................   460
              14. Rules for substantial owner benefits in 
                  terminated plans (sec. 363 of the Senate 
                  amendment).....................................   461
              15. Extension to international organizations of 
                  moratorium on application of certain 
                  nondiscrimination rules applicable to State and 
                  local government plans (sec. 368 of the Senate 
                  amendment).....................................   462
              16. Annual report dissemination (sec. 369 of the 
                  Senate amendment)..............................   463
              17. Clarification of exclusion for employer-
                  provided transit passes (sec. 370 of the Senate 
                  amendment).....................................   463
XIII. MISCELLANEOUS PROVISIONS......................................464
          A. Expand Employer Reporting on Annual Wage and Tax 
              Statements (sec. 1303 of the House bill)...........   464
          B. Survivor Benefits of Public Safety Officers Killed 
              in the Line of Duty (sec. 1304 of the House bill)..   465
          C. Income from Publicly Traded Partnerships Treated as 
              Qualifying Income of Regulated Investment Companies 
              (secs. 1311-1312 of the House bill)................   465
          D. Equalize the Tax Treatment of Oversized ``Clean 
              Fuel'' Vehicles and Electric Vehicles (sec. 1313 of 
              the House bill)....................................   467
          E. Nuclear Decommissioning Costs (sec. 1314 of the 
              House bill)........................................   467
          F. Permit Consolidation of Life and Nonlife Insurance 
              Companies (sec. 1315 of the House bill and sec. 
              1113 of the Senate amendment)......................   470
          G. Consolidate Code Provisions Governing the Hazardous 
              Substance Superfund and the Leaking Underground 
              Storage Tank Trust Fund (sec. 1321 of the House 
              bill)..............................................   472
          H. Repeal Certain Excise Taxes on Rail Diesel Fuel and 
              Inland Waterway Barge Fuels (sec. 1322 of the House 
              bill and sec. 1101 of the Senate amendment)........   473
          I. Repeal Excise Tax on Fishing Tackle Boxes (sec. 1323 
              of the House bill).................................   474
          J. Modify Excise Tax on Arrow Components and 
              Accessories (sec. 1324 of the House bill and sec. 
              1109 of the Senate amendment)......................   475
          K. Entrepreneurial Equity Capital Formation 
              (``SSBICS'') (secs. 1341-1347 of the House bill)...   476
          L. Tax Treatment of Alaska Native Settlement Trusts 
              (sec. 1352 of the House bill and sec. 1102 of the 
              Senate amendment)..................................   477
          M. Increase Joint Committee on Taxation Refund Review 
              Threshold to $2 Million (sec. 1353 of the House 
              bill and sec. 1110 of the Senate amendment)........   479
          N. Clarification of Depreciation Study (sec. 1354 of 
              the House bill)....................................   479
          O. Tax Court Provisions................................   480
              1. Tax Court filing fee (sec. 1361 of the House 
                  bill)..........................................   481
              2. Use of practitioner fee (sec. 1362 of the House 
                  bill)..........................................   481
              3. Tax Court authority to apply equitable 
                  recoupment (sec. 1363 of the House bill).......   481
          P. Allow Certain Wholesale Distributors and Control 
              State Entities to Elect to Be Treated as Distilled 
              Spirits Plants Operators (secs. 1371-1377 of the 
              House bill)........................................   482
          Q. Simplify the Active Trade or Business Requirement 
              for Tax-Free Spin-Offs (sec. 1107 of the Senate 
              amendment).........................................   483
          R. Modify the Definition of Rural Airport Eligible for 
              Reduced Air Passenger Ticket Tax Rate (sec. 1111 of 
              the Senate amendment)..............................   485
          S. Dividends Paid by Cooperatives (sec. 1112 of the 
              Senate amendment)..................................   485
          T. Modify Personal Holding Company ``Lending or Finance 
              Business'' Exception (sec. 1113 of the Senate 
              amendment).........................................   486
          U. Tax Credit for Modifications to Inter-City Buses 
              Required Under the Americans With Disabilities Act 
              of 1990 (sec. 1115 of the Senate amendment)........   487
          V. Provisions Relating to Deduction for Business Meals.   489
              1. Increase deduction for business meals (sec. 804 
                  of the House bill).............................   489
              2. Increased deduction for business meals while 
                  operating under Department of Transportation 
                  hours of service limitations (sec. 1116 of the 
                  Senate amendment)..............................   490
          W. Authorize Limited Private Activity Tax-Exempt 
              Financing for Highway Construction (sec. 1117 of 
              the Senate amendment)..............................   491
          X. Provisions Relating to Tax Incentives for the 
              District of Columbia...............................   491
              1. Extend tax credit for first-time D.C. homebuyers 
                  (sec. 1118 of the Senate amendment)............   491
              2. Expand the zero-percent capital gains rate for 
                  D.C. zone assets (sec. 1119 of the Senate 
                  amendment).....................................   492
          Y. Establish a Seven-Year Recovery Period for Natural 
              Gas Gathering Lines (sec. 1120 of the Senate 
              amendment).........................................   493
          Z. Reclassify Air Transportation on Certain Small 
              Seaplanes as Non-Commercial Aviation for Excise Tax 
              Purposes (sec. 1121 of the Senate amendment).......   494
 XIV. ADDITIONAL MISCELLANEOUS PROVISIONS...........................495
          A. Exemption from Federal Income Tax for Amounts 
              Received by Holocaust Victims and Their Heirs (sec. 
              1122 of the Senate amendment)......................   495
          B. Medical Innovation Tax Credit (sec. 1137 of the 
              Senate amendment)..................................   496
          C. Capital Gain Holding Period for Horses (sec. 812 of 
              the Senate amendment)..............................   496
          D. Disclosure of Tax Return Information for Combined 
              Employment Tax Reporting (sec. 1131 of the Senate 
              amendment).........................................   497
          E. Tax Rates for Trusts with Disabled Beneficiary (sec. 
              211 of the Senate amendment).......................   498
          F. Taxation of Flights on Noncommercial Aircraft (sec. 
              370 of the Senate amendment).......................   499
          G. Exclusion for Certain Severance Payments (sec. 1135 
              of the Senate amendment)...........................   500
          H. FUTA Treatment of Maple Syrup Workers (sec. 1132 of 
              the Senate amendment)..............................   501
          I. Modify Rules Governing Tax-Exempt Bonds for Section 
              501(c)(3) Organizations as Applied to Organizations 
              Engaged in Timber Conservation Activities (sec. 
              1133 of the Senate amendment)......................   502
  XV. EXTENSION OF EXPIRING TAX PROVISIONS..........................503
          A. Extension of Research and Experimentation Credit and 
              Increase in the Rates for the Alternative 
              Incremental Research Credit (sec. 1401 of the House 
              bill and sec. 1201 of the Senate amendment)........   503
          B. Extend Exceptions Under Subpart F for Active 
              Financing Income (sec. 1402 of the House bill and 
              sec. 1202 of the Senate amendment).................   504
          C. Extend Suspension of Net Income Limitation on 
              Percentage Depletion From Marginal Oil and Gas 
              Wells (sec. 1403 of the House bill and sec. 1203 of 
              the Senate amendment)..............................   506
          D. Extend the Work Opportunity Tax Credit (sec. 1404 of 
              the House bill and sec. 1204 of the Senate 
              amendment).........................................   507
          E. Extend the Welfare-to-Work Tax Credit (sec. 1404 of 
              the House bill and sec. 1204 of the Senate 
              amendment).........................................   508
          F. Extend and Modify Tax Credit for Electricity 
              Produced by Wind and Closed-Loop Biomass Facilities 
              (sec. 1205 of the Senate amendment)................   510
          G. Extend Exemption from Diesel Dyeing Requirement for 
              Certain Areas in Alaska (sec. 1206 of the Senate 
              amendment).........................................   511
          H. Expensing of Environmental Remediation Expenditures 
              and Expansion of Qualifying Sites (sec. 1207 of the 
              Senate amendment)..................................   512
 XVI. REVENUE OFFSET PROVISIONS.....................................513
          A. Expand Reporting of Cancellation of Indebtedness 
              Income (sec. 1501 of the House bill and sec. 1302 
              of the Senate amendment)...........................   513
          B. Extension of IRS User Fees (sec. 1502 of the House 
              bill and sec. 1304 of the Senate amendment)........   514
          C. Impose Limitation on Prefunding of Certain Employee 
              Benefits (sec. 1503 of the House bill and sec. 1312 
              of the Senate amendment)...........................   515
          D. Increase Elective Withholding Rate for Nonperiodic 
              Distributions from Deferred Compensation Plans 
              (sec. 1504 of the House bill and sec. 1303 of the 
              Senate amendment)..................................   517
          E. Modify Treatment of Closely-Held REITs (sec. 1505 of 
              the House bill and sec. 1320 of the Senate 
              amendment).........................................   518
          F. Limit Conversion of Character of Income from 
              Constructive Ownership Transactions (sec. 1506 of 
              the House bill and sec. 1314 of the Senate 
              amendment).........................................   521
          G. Treatment of Excess Pension Assets Used for Retiree 
              Health Benefits (sec. 1507 of the House bill and 
              sec. 1305 of the Senate amendment).................   523
          H. Modify Installment Method and Prohibit Its Use by 
              Accrual Method Taxpayers (sec. 1508 of the House 
              bill and sec. 1313 of the Senate amendment)........   526
          I. Limitation on Use of Nonaccrual Experience Method of 
              Accounting (sec. 1509 of the House bill and sec. 
              1311 of the Senate amendment)......................   528
          J. Exclusion of Like-Kind Exchange Property from 
              Nonrecognition Treatment on the Sale or Exchange of 
              a Principal Residence (sec. 1510 of the House bill)   529
          K. Denial of Charitable Contribution Deduction for 
              Transfers Associated with Split-Dollar Insurance 
              Arrangements (sec. 1003 of the House bill and sec. 
              1315 of the Senate amendment)......................   530
          L. Modify Foreign Tax Credit Carryover Rules (sec. 1301 
              of the Senate amendment)...........................   533
          M. Modify Estimated Tax Rules for Closely Held REITs 
              (sec. 1316 of the Senate amendment)................   534
          N. Prohibited Allocations of Stock in an S Corporation 
              ESOP (sec. 1317 of the Senate amendment)...........   535
          O. Modify Anti-Abuse Rules Relating to Assumption of 
              Liabilities (sec. 1318 of the Senate amendment)....   537
          P. Require Consistent Treatment and Provide Basis 
              Allocation Rules for Transfers of Intangibles in 
              Certain Nonrecognition Transactions (sec. 1319 of 
              the Senate amendment)..............................   538
          Q. Distributions by a Partnership to a Corporate 
              Partner of Stock in Another Corporation (sec. 1321 
              of the Senate amendment)...........................   539
XVII. TAX TECHNICAL CORRECTIONS (secs. 1601-1605 of the House bill and 
      secs. 504(c) and 1401-1405 of the Senate amendment)...........542
XVIII. SENSE OF THE SENATE AND OTHER PROVISIONS                     543
          A. Sense of the Congress Regarding Empowerment Zones 
              (sec. 1128 of the Senate amendment)................   543
          B. Sense of the Senate Regarding Savings Incentives 
              (sec. 1127 of the Senate amendment)................   544
          C. Sense of the Congress Regarding Small Business 
              Incentives (sec. 1129 of the Senate amendment).....   544
          D. Direct Expenditure Block Grant (sec. 1126 of the 
              Senate amendment)..................................   545
 XIX. CONTINGENCY FOR RATE REDUCTIONS AND COMMITMENT TO DEBT REDUCTION 
      (secs. 101 and 1701 of the House bill)........................546
  XX. EXCLUSION FROM PAYGO SCORECARD (sec. 1801 of the House bill)..547
 XXI. COMPLIANCE WITH CONGRESSIONAL BUDGET ACT (sec. 1501 of the Senate 
      amendment)....................................................548
XXII. TAX COMPLEXITY ANALYSIS.......................................548


106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    106-289

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




                 TAXPAYER REFUND AND RELIEF ACT OF 1999

                                _______
                                

                 August 4, 1999.--Ordered to be printed

                                _______


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

                           CONFERENCE REPORT

                        [To accompany H.R. 2488]

      The committee of conference on the disagreeing votes of 
the two Houses on the amendment of the Senate to the bill (H.R. 
2488), to provide for reconciliation pursuant to sections 105 
and 211 of the concurrent resolution on the budget for fiscal 
year 2000, 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. SHORT TITLE; ETC.

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

Sec. 1. Short title; etc.

               TITLE I--BROAD-BASED AND FAMILY TAX RELIEF

            Subtitle A--Reduction in Individual Income Taxes

Sec. 101. Reduction in individual income taxes.

                      Subtitle B--Family Tax Relief

Sec. 111. Elimination of marriage penalty in standard deduction.
Sec. 112. Exclusion for foster care payments to apply to payments by 
          qualified placement agencies.
Sec. 113. Expansion of adoption credit.
Sec. 114. Modification of dependent care credit.
Sec. 115. Marriage penalty relief for earned income credit.

      Subtitle C--Repeal of Alternative Minimum Tax on Individuals

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

        TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS

                  Subtitle A--Capital Gains Tax Relief

Sec. 201. Reduction in individual capital gain tax rates.
Sec. 202. Indexing of certain assets acquired after December 31, 1999, 
          for purposes of determining gain.
Sec. 203. Capital gains tax rates applied to capital gains of designated 
          settlement funds.
Sec. 204. Special rule for members of uniformed services and Foreign 
          Service, and other employees, in determining exclusion of gain 
          from sale of principal residence.
Sec. 205. Tax treatment of income and loss on derivatives.
Sec. 206. Worthless securities of financial institutions.

             Subtitle B--Individual Retirement Arrangements

Sec. 211. Modification of deduction limits for IRA contributions.
Sec. 212. Modification of income limits on contributions and rollovers 
          to Roth IRAs.
Sec. 213. Deemed IRAs under employer plans.
Sec. 214. Catchup contributions to IRAs by individuals age 50 or over.

                TITLE III--ALTERNATIVE MINIMUM TAX REFORM

Sec. 301. Modification of alternative minimum tax on corporations.
Sec. 302. Repeal of 90 percent limitation on foreign tax credit.

                 TITLE IV--EDUCATION SAVINGS INCENTIVES

Sec. 401. Modifications to education individual retirement accounts.
Sec. 402. Modifications to qualified tuition programs.
Sec. 403. Exclusion of certain amounts received under the National 
          Health Service Corps Scholarship Program, the F. Edward Hebert 
          Armed Forces Health Professions Scholarship and Financial 
          Assistance Program, and certain other programs.
Sec. 404. Extension of exclusion for employer-provided educational 
          assistance.
Sec. 405. Additional increase in arbitrage rebate exception for 
          governmental bonds used to finance educational facilities.
Sec. 406. Modification of arbitrage rebate rules applicable to public 
          school construction bonds.
Sec. 407. Elimination of 60-month limit and increase in income 
          limitation on student loan interest deduction.
Sec. 408. 2-percent floor on miscellaneous itemized deductions not to 
          apply to qualified professional development expenses of 
          elementary and secondary school teachers.

                     TITLE V--HEALTH CARE PROVISIONS

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

                       TITLE VI--ESTATE TAX RELIEF

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

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

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

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

    Subtitle C--Unified Credit Replaced With Unified Exemption Amount

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

      Subtitle D--Modifications of Generation-Skipping Transfer Tax

Sec. 631. Deemed allocation of gst exemption to lifetime transfers to 
          trusts; retroactive allocations.
Sec. 632. Severing of trusts.
Sec. 633. Modification of certain valuation rules.
Sec. 634. Relief provisions.

                   Subtitle E--Conservation Easements

Sec. 641. Expansion of estate tax rule for conservation easements.

     TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES

           Subtitle A--American Community Renewal Act of 1999

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

                      Subtitle B--Farming Incentive

Sec. 711. Production flexibility contract payments.

                   Subtitle C--Oil and Gas Incentives

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

                      Subtitle D--Timber Incentives

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

                 TITLE VIII--RELIEF FOR SMALL BUSINESSES

Sec. 801. Deduction for 100 percent of health insurance costs of self-
          employed individuals.
Sec. 802. Increase in expense treatment for small businesses.
Sec. 803. Repeal of Federal unemployment surtax.
Sec. 804. Increased deduction for meal expenses; increased deductibility 
          of business meal expenses for individuals subject to Federal 
          limitations on hours of service.
Sec. 805. Income averaging for farmers and fishermen not to increase 
          alternative minimum tax liability.
Sec. 806. Farm, fishing, and ranch risk management accounts.
Sec. 807. Exclusion of investment securities income from passive income 
          test for bank S corporations.
Sec. 808. Treatment of qualifying director shares.

                   TITLE IX--INTERNATIONAL TAX RELIEF

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

        TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS

Sec. 1001. Exemption from income tax for State-created organizations 
          providing property and casualty insurance for property for 
          which such coverage is otherwise unavailable.
Sec. 1002. Modification of special arbitrage rule for certain funds.
Sec. 1003. Exemption procedure from taxes on self-dealing.
Sec. 1004. Expansion of declaratory judgment remedy to tax-exempt 
          organizations.
Sec. 1005. Modifications to section 512(b)(13).
Sec. 1006. Mileage reimbursements to charitable volunteers excluded from 
          gross income.
Sec. 1007. Charitable contribution deduction for certain expenses 
          incurred in support of Native Alaskan subsistence whaling.
Sec. 1008. Simplification of lobbying expenditure limitation.
Sec. 1009. Tax-free distributions from individual retirement accounts 
          for charitable purposes.

                    TITLE XI--REAL ESTATE PROVISIONS

          Subtitle A--Improvements in Low-Income Housing Credit

Sec. 1101. Modification of State ceiling on low-income housing credit.
Sec. 1102. Modification of criteria for allocating housing credits among 
          projects.
Sec. 1103. Additional responsibilities of housing credit agencies.
Sec. 1104. Modifications to rules relating to basis of building which is 
          eligible for credit.
Sec. 1105. Other modifications.
Sec. 1106. Carryforward rules.
Sec. 1107. Effective date.

    Subtitle B--Provisions Relating to Real Estate Investment Trusts

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

Sec. 1111. Modifications to asset diversification test.
Sec. 1112. Treatment of income and services provided by taxable REIT 
          subsidiaries.
Sec. 1113. Taxable REIT subsidiary.
Sec. 1114. Limitation on earnings stripping.
Sec. 1115. 100 percent tax on improperly allocated amounts.
Sec. 1116. Effective date.

                       Part II--Health Care REITs

Sec. 1121. Health care REITs.

      Part III--Conformity With Regulated Investment Company Rules

Sec. 1131. Conformity with regulated investment company rules.

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

Sec. 1141. Clarification of exception for independent operators.

           Part V--Modification of Earnings and Profits Rules

Sec. 1151. Modification of earnings and profits rules.

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

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

 Subtitle D--Treatment of Certain Contributions to Capital of Retailers

Sec. 1171. Exclusion from gross income for certain contributions to the 
          capital of certain retailers.

              Subtitle E--Private Activity Bond Volume Cap

Sec. 1181. Acceleration of phase-in of increase in volume cap on private 
          activity bonds.

           Subtitle F--Deduction for Renovating Historic Homes

Sec. 1191. Deduction for renovating historic homes.

               TITLE XII--PROVISIONS RELATING TO PENSIONS

                     Subtitle A--Expanding Coverage

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

                Subtitle B--Enhancing Fairness for Women

Sec. 1221. Catchup contributions for individuals age 50 or over.
Sec. 1222. Equitable treatment for contributions of employees to defined 
          contribution plans.
Sec. 1223. Faster vesting of certain employer matching contributions.
Sec. 1224. Simplify and update the minimum distribution rules.
Sec. 1225. Clarification of tax treatment of division of section 457 
          plan benefits upon divorce.
Sec. 1226. Modification of safe harbor relief for hardship withdrawals 
          from cash or deferred arrangements.

           Subtitle C--Increasing Portability for Participants

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

       Subtitle D--Strengthening Pension Security and Enforcement

Sec. 1241. Repeal of 150 percent of current liability funding limit.
Sec. 1242. Maximum contribution deduction rules modified and applied to 
          all defined benefit plans.
Sec. 1243. Missing participants.
Sec. 1244. Excise tax relief for sound pension funding.
Sec. 1245. Excise tax on failure to provide notice by defined benefit 
          plans significantly reducing future benefit accruals.
Sec. 1246. Protection of investment of employee contributions to 401(k) 
          plans.
Sec. 1247. Treatment of multiemployer plans under section 415.

                 Subtitle E--Reducing Regulatory Burdens

Sec. 1251. Modification of timing of plan valuations.
Sec. 1252. ESOP dividends may be reinvested without loss of dividend 
          deduction.
Sec. 1253. Repeal of transition rule relating to certain highly 
          compensated employees.
Sec. 1254. Employees of tax-exempt entities.
Sec. 1255. Clarification of treatment of employer-provided retirement 
          advice.
Sec. 1256. Reporting simplification.
Sec. 1257. Improvement of employee plans compliance resolution system.
Sec. 1258. Substantial owner benefits in terminated plans.
Sec. 1259. Modification of exclusion for employer provided transit 
          passes.
Sec. 1260. Repeal of the multiple use test.
Sec. 1261. Flexibility in nondiscrimination, coverage, and line of 
          business rules.
Sec. 1262. Extension to international organizations of moratorium on 
          application of certain nondiscrimination rules applicable to 
          State and local plans.

                       Subtitle F--Plan Amendments

Sec. 1271. Provisions relating to plan amendments.

                  TITLE XIII--MISCELLANEOUS PROVISIONS

         Subtitle A--Provisions Primarily Affecting Individuals

Sec. 1301. Consistent treatment of survivor benefits for public safety 
          officers killed in the line of duty.
Sec. 1302. Expansion of dc homebuyer tax credit.
Sec. 1303. No Federal income tax on amounts and lands received by 
          Holocaust victims or their heirs.

          Subtitle B--Provisions Primarily Affecting Businesses

Sec. 1311. Distributions from publicly traded partnerships treated as 
          qualifying income of regulated investment companies.
Sec. 1312. Special passive activity rule for publicly traded 
          partnerships to apply to regulated investment companies.
Sec. 1313. Large electric trucks, vans, and buses eligible for deduction 
          for clean-fuel vehicles in lieu of credit.
Sec. 1314. Modifications to special rules for nuclear decommissioning 
          costs.
Sec. 1315. Consolidation of life insurance companies with other 
          corporations.
Sec. 1316. Modification of active business definition under section 355.
Sec. 1317. Expansion of exemption from personal holding company tax for 
          lending or finance companies.
Sec. 1318. Extension of expensing of environmental remediation costs.

             Subtitle C--Provisions Relating to Excise Taxes

Sec. 1321. Consolidation of Hazardous Substance Superfund and Leaking 
          Underground Storage Tank Trust Fund.
Sec. 1322. Repeal of certain motor fuel excise taxes on fuel used by 
          railroads and on inland waterway transportation.
Sec. 1323. Repeal of excise tax on fishing tackle boxes.
Sec. 1324. Clarification of excise tax imposed on arrow components.
Sec. 1325. Exemption from ticket taxes for certain transportation 
          provided by small seaplanes.
Sec. 1326. Modification of rural airport definition.

                      Subtitle D--Other Provisions

Sec. 1331. Tax-exempt financing of qualified highway infrastructure 
          construction.
Sec. 1332. Tax treatment of Alaska Native Settlement Trusts.
Sec. 1333. Increase in threshold for Joint Committee reports on refunds 
          and credits.
Sec. 1334. Credit for clinical testing research expenses attributable to 
          certain qualified academic institutions including teaching 
          hospitals.
Sec. 1335. Payment of dividends on stock of cooperatives without 
          reducing patronage dividends.

                    Subtitle E--Tax Court Provisions

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

              TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS

Sec. 1401. Research credit.
Sec. 1402. Subpart F exemption for active financing income.
Sec. 1403. Taxable income limit on percentage depletion for marginal 
          production.
Sec. 1404. Work opportunity credit and welfare-to-work credit.
Sec. 1405. Extension and modification of credit for producing 
          electricity from certain renewable resources.

                        TITLE XV--REVENUE OFFSETS

Sec. 1501. Returns relating to cancellations of indebtedness by 
          organizations lending money.
Sec. 1502. Extension of Internal Revenue Service user fees.
Sec. 1503. Limitations on welfare benefit funds of 10 or more employer 
          plans.
Sec. 1504. Increase in elective withholding rate for nonperiodic 
          distributions from deferred compensation plans.
Sec. 1505. Controlled entities ineligible for REIT status.
Sec. 1506. Treatment of gain from constructive ownership transactions.
Sec. 1507. Transfer of excess defined benefit plan assets for retiree 
          health benefits.
Sec. 1508. Modification of installment method and repeal of installment 
          method for accrual method taxpayers.
Sec. 1509. Limitation on use of nonaccrual experience method of 
          accounting.
Sec. 1510. Charitable split-dollar life insurance, annuity, and 
          endowment contracts.
Sec. 1511. Restriction on use of real estate investment trusts to avoid 
          estimated tax payment requirements.
Sec. 1512. Modification of anti-abuse rules related to assumption of 
          liability.
Sec. 1513. Allocation of basis on transfers of intangibles in certain 
          nonrecognition transactions.
Sec. 1514. Distributions to a corporate partner of stock in another 
          corporation.
Sec. 1515. Prohibited allocations of S corporation stock held by an 
          ESOP.

                  TITLE XVI--COMPLIANCE WITH BUDGET ACT

Sec. 1601. Compliance with Budget Act.

               TITLE I--BROAD-BASED AND FAMILY TAX RELIEF

            Subtitle A--Reduction in Individual Income Taxes

SEC. 101. REDUCTION IN INDIVIDUAL INCOME TAXES.

    (a) Regular Income Tax Rates.--
            (1) In general.--Subsection (f) of section 1 is 
        amended by adding at the end the following new 
        paragraph:
            ``(8) Rate reductions.--The following adjustments 
        shall apply in prescribing the tables under paragraph 
        (1):
                    ``(A) Reduction in lowest rate.--With 
                respect to taxable years beginning after 
                December 31, 2000, the rate applicable to the 
                lowest income bracket shall be--
                            ``(i) 14.5 percent in the case of 
                        taxable years beginning during 2001 or 
                        2002, and
                            ``(ii) 14.0 percent in the case of 
                        taxable years beginning after 2002.
                    ``(B) Reduction in other rates.--With 
                respect to taxable years beginning after 
                December 31, 2004, each rate (other than the 
                rate referred to in subparagraph (A)) shall be 
                reduced by 1 percentage point.
                    ``(C) Phaseout of marriage penalty in 
                lowest bracket.--
                            ``(i) In general.--With respect to 
                        taxable years beginning after December 
                        31, 2004--
                                    ``(I) the maximum taxable 
                                income in the lowest rate 
                                bracket in the table contained 
                                in subsection (a) (and the 
                                minimum taxable income in the 
                                next higher taxable income 
                                bracket in such table) shall be 
                                the applicable percentage of 
                                the maximum taxable income in 
                                the lowest rate bracket in the 
                                table contained in subsection 
                                (c) (after any other adjustment 
                                under this subsection), and
                                    ``(II) the comparable 
                                taxable income amounts in the 
                                table contained in subsection 
                                (d) shall be \1/2\ of the 
                                amounts determined under 
                                subclause (I).
                            ``(ii) Applicable percentage.--For 
                        purposes of clause (i), the applicable 
                        percentage shall be determined in 
                        accordance with the following table:

``For taxable years beginning
                                                          The applicable
    in calendar year--
                                                         percentage is--
            2005..............................................    173.7 
            2006..............................................    176.1 
            2007..............................................    188.1 
            2008 and thereafter...............................   200.0. 

                    ``(D) Increase in maximum taxable income in 
                lowest bracket for other individuals.--
                            ``(i) In general.--With respect to 
                        taxable years beginning after December 
                        31, 2005, the maximum taxable income in 
                        the lowest rate bracket in the tables 
                        contained in subsections (b) and (c), 
                        after any other adjustment under this 
                        subsection (and the minimum taxable 
                        income in the next higher taxable 
                        income bracket in such tables, as so 
                        adjusted) shall be increased by $3,000.
                            ``(ii) Cost-of-living adjustment.--
                        In the case of any taxable year 
                        beginning in any calendar year after 
                        2006, the $3,000 amount in clause (i) 
                        shall be increased by an amount equal 
                        to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of living 
                                adjustment determined under 
                                paragraph (3) for the calendar 
                                year in which the taxable year 
                                begins, determined by 
                                substituting `calendar year 
                                2005' for `calendar year 1992' 
                                in subparagraph (B) thereof.''.
                            ``(iii) Any increase under clause 
                        (ii) shall be added to the amount it is 
                        increasing before such amount is 
                        rounded under paragraph (6).
            ``(9) Post-2001 rate reductions contingent on no 
        increase in interest on total united states debt.--
                    ``(A) In general.--If the calendar year 
                preceding any adjustment year is not a debt 
                reduction calendar year, then--
                            ``(i) such adjustment shall not 
                        take effect until the calendar year 
                        following the adjustment year, and
                            ``(ii) this subparagraph shall 
                        apply to such following calendar year 
                        as if it were an adjustment year.
                For purposes of this subparagraph, the term 
                `adjustment year' means, with respect to any 
                adjustment under subparagraph (A), (B), or (D) 
                of paragraph (8), the first calendar year for 
                which such adjustment takes effect without 
                regard to this paragraph.
                    ``(B) Debt reduction calendar year.--For 
                purposes of this paragraph, the term `debt 
                reduction calendar year' means any calendar 
                year after 2000 if the Secretary of the 
                Treasury (after consultation with the chairman 
                of the Federal Reserve Board) determines by 
                August 31 of such calendar year that the United 
                States interest expense for the 12-month period 
                ending on July 31 of such calendar year is not 
                more than $1,000,000,000 greater than the 
                United States interest expense for the 12-month 
                period ending on July 31 of the preceding 
                calendar year.
                    ``(C) United states interest expense.--For 
                purposes of this paragraph, the term `United 
                States interest expense' means interest on 
                obligations which are subject to the public 
                debt limit in section 3101 of title 31, United 
                States Code.''.
            (2) Technical amendments.--
                    (A) Subparagraph (B) of section 1(f)(2) is 
                amended by inserting ``except as provided in 
                paragraph (8),'' before ``by not changing''.
                    (B) Subparagraph (C) of section 1(f)(2) is 
                amended by inserting ``and the reductions under 
                paragraph (8) in the rates of tax'' before the 
                period.
                    (C) The heading for subsection (f) of 
                section 1 is amended by inserting ``Rate 
                Reductions;'' before ``Adjustments''.
                    (D) Section 1(g)(7)(B)(ii)(II) is amended 
                by striking ``15 percent'' and inserting ``the 
                percentage applicable to the lowest income 
                bracket in subsection (c)''.
                    (E) Subparagraphs (A)(ii)(I) and (B)(i) of 
                section 1(h)(1) are each amended by striking 
                ``28 percent'' and inserting ``27 percent''.
                    (F) Section 531 is amended by striking 
                ``39.6 percent of the accumulated taxable 
                income'' and inserting ``the product of the 
                accumulated taxable income and the percentage 
                applicable to the highest income bracket in 
                section 1(c)''.
                    (G) Section 541 is amended by striking 
                ``39.6 percent of the undistributed personal 
                holding company income'' and inserting ``the 
                product of the undistributed personal holding 
                company income and the percentage applicable to 
                the highest income bracket in section 1(c)''.
                    (H) Section 3402(p)(1)(B) is amended by 
                striking ``specified is 7, 15, 28, or 31 
                percent'' and all that follows and inserting 
                ``specified is--
                            ``(i) 7 percent,
                            ``(ii) a percentage applicable to 1 
                        of the 3 lowest income brackets in 
                        section 1(c), or
                            ``(iii) such other percentage as is 
                        permitted under regulations prescribed 
                        by the Secretary.''.
                    (I) Section 3402(p)(2) is amended by 
                striking ``15 percent of such payment'' and 
                inserting ``the product of such payment and the 
                percentage applicable to the lowest income 
                bracket in section 1(c)''.
                    (J) Section 3402(q)(1) is amended by 
                striking ``28 percent of such payment'' and 
                inserting ``the product of such payment and the 
                percentage applicable to the next to the lowest 
                income bracket in section 1(c)''.
                    (K) Section 3402(r)(3) is amended by 
                striking ``31 percent'' and inserting ``the 
                rate applicable to the third income bracket in 
                such section''.
                    (L) Section 3406(a)(1) is amended by 
                striking ``31 percent of such payment'' and 
                inserting ``the product of such payment and the 
                percentage applicable to the third income 
                bracket in section 1(c)''.
    (b) Minimum Tax Rates.--Subparagraph (A) of section 
55(b)(1) is amended by adding at the end the following new 
clause:
                            ``(iv) Rate reduction.--In the case 
                        of taxable years beginning after 
                        December 31, 2004, each rate in clause 
                        (i) shall be reduced by 1 percentage 
                        point.''
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

                     Subtitle B--Family Tax Relief

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

    (a) In General.--Paragraph (2) of section 63(c) (relating 
to standard deduction) is amended--
            (1) by striking ``$5,000'' in subparagraph (A) and 
        inserting ``200 percent of the dollar amount in effect 
        under subparagraph (C) for the taxable year'',
            (2) by adding ``or'' at the end of subparagraph 
        (B),
            (3) by striking ``in the case of'' and all that 
        follows in subparagraph (C) and inserting ``in any 
        other case.'', and
            (4) by striking subparagraph (D).
    (b) Phase-in.--Subsection (c) of section 63 is amended by 
adding at the end the following new paragraph:
            ``(7) Phase-in of increase in basic standard 
        deduction.--In the case of taxable years beginning 
        before January 1, 2005--
                    ``(A) paragraph (2)(A) shall be applied by 
                substituting for `200 percent'--
                            ``(i) `172.8 percent' in the case 
                        of taxable years beginning during 2001,
                            ``(ii) `180.1 percent' in the case 
                        of taxable years beginning during 2002,
                            ``(iii) `187.0 percent' in the case 
                        of taxable years beginning during 2003, 
                        and
                            ``(iv) `193.5 percent' in the case 
                        of taxable years beginning during 2004, 
                        and
                    ``(B) the basic standard deduction for a 
                married individual filing a separate return 
                shall be one-half of the amount applicable 
                under paragraph (2)(A).
        If any amount determined under subparagraph (A) is not 
        a multiple of $50, such amount shall be rounded to the 
        next lowest multiple of $50.''.
    (c) Technical Amendments.--
            (1) Subparagraph (B) of section 1(f)(6) is amended 
        by striking ``(other than with'' and all that follows 
        through ``shall be applied'' and inserting ``(other 
        than with respect to sections 63(c)(4) and 
        151(d)(4)(A)) shall be applied''.
            (2) Paragraph (4) of section 63(c) is amended by 
        adding at the end the following flush sentence:
        ``The preceding sentence shall not apply to the amount 
        referred to in paragraph (2)(A).''.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 112. EXCLUSION FOR FOSTER CARE PAYMENTS TO APPLY TO PAYMENTS BY 
                    QUALIFIED PLACEMENT AGENCIES.

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

SEC. 113. EXPANSION OF ADOPTION CREDIT.

    (a) In General.--Section 23(a)(1) (relating to allowance of 
credit) is amended to read as follows:
            ``(1) In general.--In the case of an individual, 
        there shall be allowed as a credit against the tax 
        imposed by this chapter--
                    ``(A) in the case of an adoption of a child 
                other than a child with special needs, the 
                amount of the qualified adoption expenses paid 
                or incurred by the taxpayer, and
                    ``(B) in the case of an adoption of a child 
                with special needs, $10,000.''.
    (b) Dollar Limitation.--Section 23(b)(1) is amended--
            (1) by striking ``($6,000, in the case of a child 
        with special needs)'', and
            (2) by striking ``subsection (a)'' and inserting 
        ``subsection (a)(1)''.
    (c) Year Credit Allowed.--Section 23(a)(2) is amended by 
adding at the end the following new flush sentence:
        ``In the case of the adoption of a child with special 
        needs, the credit allowed under paragraph (1) shall be 
        allowed for the taxable year in which the adoption 
        becomes final.''.
    (d) Definition of Eligible Child.--
            (1) In general.--Section 23(d)(2) is amended to 
        read as follows:
            ``(2) Eligible child.--The term `eligible child' 
        means any individual who--
                    ``(A) has not attained age 18, or
                    ``(B) is physically or mentally incapable 
                of caring for himself.''.
            (2) Clarification of termination.--Section 23 is 
        amended by adding at the end the following new 
        subsection:
    ``(i) Termination for Children Without Special Needs.--
Except in the case of a child with special needs, this section 
shall not apply to expenses paid or incurred after December 31, 
2001.''
    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 114. MODIFICATION OF DEPENDENT CARE CREDIT.

    (a) Increase in Percentage of Employment-Related Expenses 
Taken Into Account.--Subsection (a)(2) of section 21 (relating 
to expenses for household and dependent care services necessary 
for gainful employment) is amended--
            (1) by striking ``30 percent'' and inserting ``35 
        percent (40 percent in the case of taxable years 
        beginning after December 31, 2005)'',
            (2) by striking ``$2,000'' and inserting 
        ``$1,000'', and
            (3) by striking ``$10,000'' and inserting 
        ``$30,000''.
    (b) Indexing of Limit on Employment-Related Expenses.--
Section 21(c) (relating to dollar limit on amount creditable) 
is amended to read as follows:
    ``(c) Dollar Limit on Amount Creditable.--
            ``(1) In general.--The amount of the employment-
        related expenses incurred during any taxable year which 
        may be taken into account under subsection (a) shall 
        not exceed--
                    ``(A) an amount equal to 50 percent of the 
                amount determined under subparagraph (B) if 
                there is 1 qualifying individual with respect 
                to the taxpayer for such taxable year, or
                    ``(B) $4,800 if there are 2 or more 
                qualifying individuals with respect to the 
                taxpayer for such taxable year.
        The amount determined under subparagraph (A) or (B) 
        (whichever is applicable) shall be reduced by the 
        aggregate amount excludable from gross income under 
        section 129 for the taxable year.
            ``(2) Cost-of-living adjustment.--
                    ``(A) In general.--In the case of a taxable 
                year beginning after 2001, the $4,800 amount 
                under paragraph (1)(B) shall be increased by an 
                amount equal to--
                            ``(i) such dollar amount, 
                        multiplied by
                            ``(ii) the cost-of-living 
                        adjustment determined under section 
                        1(f)(3) for the calendar year in which 
                        the taxable year begins, determined by 
                        substituting `calendar year 2000' for 
                        `calendar year 1992' in subparagraph 
                        (B) thereof.
                    ``(B) Rounding rules.--If any amount after 
                adjustment under subparagraph (A) is not a 
                multiple of $50, such amount shall be rounded 
                to the next lower multiple of $50.''.
    (c) Minimum Dependent Care Credit Allowed for Stay-at-Home 
Parents.--Section 21(e) (relating to special rules) is amended 
by adding at the end the following:
            ``(11) Minimum credit allowed for stay-at-home 
        parents.--
                    ``(A) In general.--Notwithstanding 
                subsection (d), in the case of any taxpayer 
                with 1 or more qualifying individuals described 
                in subsection (b)(1)(A) under the age of 1, 
                such taxpayer shall be deemed to have 
                employment-related expenses for the taxable 
                year with respect to each such qualifying 
                individual in an amount equal to the sum of--
                            ``(i) $200 for each month in such 
                        taxable year during which such 
                        qualifying individual is under the age 
                        of 1, and
                            ``(ii) the amount of employment-
                        related expenses otherwise incurred for 
                        such qualifying individual for the 
                        taxable year (determined under this 
                        section without regard to this 
                        paragraph).
                    ``(B) Election to not apply this 
                paragraph.--This paragraph shall not apply with 
                respect to any qualifying individual for any 
                taxable year if the taxpayer elects to not have 
                this paragraph apply to such qualifying 
                individual for such taxable year.''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        December 31, 2001.
            (2) Subsection (c).--The amendment made by 
        subsection (c) shall apply to taxable years beginning 
        after December 31, 2005.

SEC. 115. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT.

    (a) In General.--Paragraph (2) of section 32(b) (relating 
to percentages and amounts) is amended--
            (1) by striking ``Amounts.--The earned'' and 
        inserting ``Amounts.--
                    ``(A) In general.--Subject to subparagraph 
                (B), the earned'', and
            (2) by adding at the end the following new 
        subparagraph:
                    ``(B) Joint returns.--In the case of a 
                joint return, the phaseout amount determined 
                under subparagraph (A) shall be increased by 
                $2,000.''.
    (b) Inflation adjustment.--Paragraph (1)(B) of section 
32(j) (relating to inflation adjustments) is amended to read as 
follows:
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for the 
                calendar year in which the taxable year begins, 
                determined--
                            ``(i) in the case of amounts in 
                        subsections (b)(1)(A) and (i)(1), by 
                        substituting `calendar year 1995' for 
                        `calendar year 1992' in subparagraph 
                        (B) thereof, and
                            ``(ii) in the case of the $2,000 
                        amount in subsection (b)(1)(B), by 
                        substituting `calendar year 2005' for 
                        `calendar year 1992' in subparagraph 
                        (B) of such section 1.''.
    (c) Rounding.--Section 32(j)(2)(A) (relating to rounding) 
is amended by striking ``subsection (b)(2)'' and inserting 
``subsection (b)(2)(A) (after being increased under 
subparagraph (B) thereof)''.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2005.

      Subtitle C--Repeal of Alternative Minimum Tax on Individuals

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

    (a) In General.--Subsection (a) of section 55 is amended by 
adding at the end the following new flush sentence:
``For purposes of this title, the tentative minimum tax on any 
taxpayer other than a corporation for any taxable year 
beginning after December 31, 2007, shall be zero.''.
    (b) Reduction of Tax on Individuals Prior to Repeal.--
Section 55 is amended by adding at the end the following new 
subsection:
    ``(f) Phaseout of Tax on Individuals.--
            ``(1) In general.--The tax imposed by this section 
        on a taxpayer other than a corporation for any taxable 
        year beginning after December 31, 2004, and before 
        January 1, 2008, shall be the applicable percentage of 
        the tax which would be imposed but for this subsection.
            ``(2) Applicable percentage.--For purposes of 
        paragraph (1), the applicable percentage shall be 
        determined in accordance with the following table:

``For taxable years beginning
                                                          The applicable
    in calendar year--
                                                         percentage is--
        2005..................................................   80     
        2006..................................................   70     
        2007..................................................60.''.    

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

       TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS

                  Subtitle A--Capital Gains Tax Relief

SEC. 201. REDUCTION IN INDIVIDUAL CAPITAL GAIN TAX RATES.

    (a) In General.--
            (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each 
        amended by striking ``10 percent'' and inserting ``8 
        percent''.
            (2) The following sections are each amended by 
        striking ``20 percent'' and inserting ``18 percent'':
                    (A) Section 1(h)(1)(C).
                    (B) Section 55(b)(3)(C).
                    (C) Section 1445(e)(1).
                    (D) The second sentence of section 
                7518(g)(6)(A).
                    (E) The second sentence of section 
                607(h)(6)(A) of the Merchant Marine Act, 1936.
            (3) Sections 1(h)(1)(D) and 55(b)(3)(D) are each 
        amended by striking ``25 percent'' and inserting ``23 
        percent''.
    (b) Conforming Amendments.--
            (1) Section 311 of the Taxpayer Relief Act of 1997 
        is amended by striking subsection (e).
            (2) Section 1(h) is amended--
                    (A) by striking paragraphs (2), (9), and 
                (13),
                    (B) by redesignating paragraphs (3) through 
                (8) as paragraphs (2) through (7), 
                respectively, and
                    (C) by redesignating paragraphs (10), (11), 
                and (12) as paragraphs (8), (9), and (10), 
                respectively.
            (3) Paragraph (3) of section 55(b) is amended by 
        striking ``In the case of taxable years beginning after 
        December 31, 2000, rules similar to the rules of 
        section 1(h)(2) shall apply for purposes of 
        subparagraphs (B) and (C).''.
            (4) Paragraph (7) of section 57(a) is amended--
                    (A) by striking ``42 percent'' and 
                inserting ``28 percent'', and
                    (B) by striking the last sentence.
    (c) Effective Dates.--
            (1) In general.--Except as otherwise provided by 
        this subsection, the amendments made by this section 
        shall apply to taxable years beginning after December 
        31, 1998.
            (2) Withholding.--The amendment made by subsection 
        (a)(2)(C) shall apply to amounts paid after the date of 
        the enactment of this Act.

SEC. 202. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 1999, 
                    FOR PURPOSES OF DETERMINING GAIN.

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

``SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 
                    1999, FOR PURPOSES OF DETERMINING GAIN.

    ``(a) General Rule.--
            ``(1) Indexed basis substituted for adjusted 
        basis.--Solely for purposes of determining gain on the 
        sale or other disposition by a taxpayer (other than a 
        corporation) of an indexed asset which has been held 
        for more than 1 year, the indexed basis of the asset 
        shall be substituted for its adjusted basis.
            ``(2) Exception for depreciation, etc.--The 
        deductions for depreciation, depletion, and 
        amortization shall be determined without regard to the 
        application of paragraph (1) to the taxpayer or any 
        other person.
            ``(3) Exception for principal residences.--
        Paragraph (1) shall not apply to any disposition of the 
        principal residence (within the meaning of section 121) 
        of the taxpayer .
    ``(b) Indexed Asset.--
            ``(1) In general.--For purposes of this section, 
        the term `indexed asset' means--
                    ``(A) common stock in a C corporation 
                (other than a foreign corporation), and
                    ``(B) tangible property,
        which is a capital asset or property used in the trade 
        or business (as defined in section 1231(b)).
            ``(2) Stock in certain foreign corporations 
        included.--For purposes of this section--
                    ``(A) In general.--The term `indexed asset' 
                includes common stock in a foreign corporation 
                which is regularly traded on an established 
                securities market.
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply to--
                            ``(i) stock of a foreign investment 
                        company (within the meaning of section 
                        1246(b)),
                            ``(ii) stock in a passive foreign 
                        investment company (as defined in 
                        section 1296),
                            ``(iii) stock in a foreign 
                        corporation held by a United States 
                        person who meets the requirements of 
                        section 1248(a)(2), and
                            ``(iv) stock in a foreign personal 
                        holding company (as defined in section 
                        552).
                    ``(C) Treatment of american depository 
                receipts.--An American depository receipt for 
                common stock in a foreign corporation shall be 
                treated as common stock in such corporation.
    ``(c) Indexed Basis.--For purposes of this section--
            ``(1) General rule.--The indexed basis for any 
        asset is--
                    ``(A) the adjusted basis of the asset, 
                increased by
                    ``(B) the applicable inflation adjustment.
            ``(2) Applicable inflation adjustment.--The 
        applicable inflation adjustment for any asset is an 
        amount equal to--
                    ``(A) the adjusted basis of the asset, 
                multiplied by
                    ``(B) the percentage (if any) by which--
                            ``(i) the chain-type price index 
                        for GDP for the last calendar quarter 
                        ending before the asset is disposed of, 
                        exceeds
                            ``(ii) the chain-type price index 
                        for GDP for the last calendar quarter 
                        ending before the asset was acquired by 
                        the taxpayer.
        The percentage under subparagraph (B) shall be rounded 
        to the nearest \1/10\ of 1 percentage point.
            ``(3) Chain-type price index for GDP.--The chain-
        type price index for GDP for any calendar quarter is 
        such index for such quarter (as shown in the last 
        revision thereof released by the Secretary of Commerce 
        before the close of the following calendar quarter).
    ``(d) Suspension of Holding Period Where Diminished Risk of 
Loss; Treatment of Short Sales.--
            ``(1) In general.--If the taxpayer (or a related 
        person) enters into any transaction which substantially 
        reduces the risk of loss from holding any asset, such 
        asset shall not be treated as an indexed asset for the 
        period of such reduced risk.
            ``(2) Short sales.--
                    ``(A) In general.--In the case of a short 
                sale of an indexed asset with a short sale 
                period in excess of 1 year, for purposes of 
                this title, the amount realized shall be an 
                amount equal to the amount realized (determined 
                without regard to this paragraph) increased by 
                the applicable inflation adjustment. In 
                applying subsection (c)(2) for purposes of the 
                preceding sentence, the date on which the 
                property is sold short shall be treated as the 
                date of acquisition and the closing date for 
                the sale shall be treated as the date of 
                disposition.
                    ``(B) Short sale period.--For purposes of 
                subparagraph (A), the short sale period begins 
                on the day that the property is sold and ends 
                on the closing date for the sale.
    ``(e) Treatment of Regulated Investment Companies and Real 
Estate Investment Trusts.--
            ``(1) Adjustments at entity level.--
                    ``(A) In general.--Except as otherwise 
                provided in this paragraph, the adjustment 
                under subsection (a) shall be allowed to any 
                qualified investment entity (including for 
                purposes of determining the earnings and 
                profits of such entity).
                    ``(B) Exception for corporate 
                shareholders.--Under regulations--
                            ``(i) in the case of a distribution 
                        by a qualified investment entity 
                        (directly or indirectly) to a 
                        corporation--
                                    ``(I) the determination of 
                                whether such distribution is a 
                                dividend shall be made without 
                                regard to this section, and
                                    ``(II) the amount treated 
                                as gain by reason of the 
                                receipt of any capital gain 
                                dividend shall be increased by 
                                the percentage by which the 
                                entity's net capital gain for 
                                the taxable year (determined 
                                without regard to this section) 
                                exceeds the entity's net 
                                capital gain for such year 
                                determined with regard to this 
                                section, and
                            ``(ii) there shall be other 
                        appropriate adjustments (including 
                        deemed distributions) so as to ensure 
                        that the benefits of this section are 
                        not allowed (directly or indirectly) to 
                        corporate shareholders of qualified 
                        investment entities.
                For purposes of the preceding sentence, any 
                amount includible in gross income under section 
                852(b)(3)(D) shall be treated as a capital gain 
                dividend and an S corporation shall not be 
                treated as a corporation.
                    ``(C) Exception for qualification 
                purposes.--This section shall not apply for 
                purposes of sections 851(b) and 856(c).
                    ``(D) Exception for certain taxes imposed 
                at entity level.--
                            ``(i) Tax on failure to distribute 
                        entire gain.--If any amount is subject 
                        to tax under section 852(b)(3)(A) for 
                        any taxable year, the amount on which 
                        tax is imposed under such section shall 
                        be increased by the percentage 
                        determined under subparagraph 
                        (B)(i)(II). A similar rule shall apply 
                        in the case of any amount subject to 
                        tax under paragraph (2) or (3) of 
                        section 857(b) to the extent 
                        attributable to the excess of the net 
                        capital gain over the deduction for 
                        dividends paid determined with 
                        reference to capital gain dividends 
                        only. The first sentence of this clause 
                        shall not apply to so much of the 
                        amount subject to tax under section 
                        852(b)(3)(A) as is designated by the 
                        company under section 852(b)(3)(D).
                            ``(ii) Other taxes.--This section 
                        shall not apply for purposes of 
                        determining the amount of any tax 
                        imposed by paragraph (4), (5), or (6) 
                        of section 857(b).
            ``(2) Adjustments to interests held in entity.--
                    ``(A) Regulated investment companies.--
                Stock in a regulated investment company (within 
                the meaning of section 851) shall be an indexed 
                asset for any calendar quarter in the same 
                ratio as--
                            ``(i) the average of the fair 
                        market values of the indexed assets 
                        held by such company at the close of 
                        each month during such quarter, bears 
                        to
                            ``(ii) the average of the fair 
                        market values of all assets held by 
                        such company at the close of each such 
                        month.
                    ``(B) Real estate investment trusts.--Stock 
                in a real estate investment trust (within the 
                meaning of section 856) shall be an indexed 
                asset for any calendar quarter in the same 
                ratio as--
                            ``(i) the fair market value of the 
                        indexed assets held by such trust at 
                        the close of such quarter, bears to
                            ``(ii) the fair market value of all 
                        assets held by such trust at the close 
                        of such quarter.
                    ``(C) Ratio of 80 percent or more.--If the 
                ratio for any calendar quarter determined under 
                subparagraph (A) or (B) would (but for this 
                subparagraph) be 80 percent or more, such ratio 
                for such quarter shall be 100 percent.
                    ``(D) Ratio of 20 percent or less.--If the 
                ratio for any calendar quarter determined under 
                subparagraph (A) or (B) would (but for this 
                subparagraph) be 20 percent or less, such ratio 
                for such quarter shall be zero.
                    ``(E) Look-thru of partnerships.--For 
                purposes of this paragraph, a qualified 
                investment entity which holds a partnership 
                interest shall be treated (in lieu of holding a 
                partnership interest) as holding its 
                proportionate share of the assets held by the 
                partnership.
            ``(3) Treatment of return of capital 
        distributions.--Except as otherwise provided by the 
        Secretary, a distribution with respect to stock in a 
        qualified investment entity which is not a dividend and 
        which results in a reduction in the adjusted basis of 
        such stock shall be treated as allocable to stock 
        acquired by the taxpayer in the order in which such 
        stock was acquired.
            ``(4) Qualified investment entity.--For purposes of 
        this subsection, the term `qualified investment entity' 
        means--
                    ``(A) a regulated investment company 
                (within the meaning of section 851), and
                    ``(B) a real estate investment trust 
                (within the meaning of section 856).
    ``(f) Other Pass-Thru Entities.--
            ``(1) Partnerships.--
                    ``(A) In general.--In the case of a 
                partnership, the adjustment made under 
                subsection (a) at the partnership level shall 
                be passed through to the partners.
                    ``(B) Special rule in the case of section 
                754 elections.--In the case of a transfer of an 
                interest in a partnership with respect to which 
                the election provided in section 754 is in 
                effect--
                            ``(i) the adjustment under section 
                        743(b)(1) shall, with respect to the 
                        transferor partner, be treated as a 
                        sale of the partnership assets for 
                        purposes of applying this section, and
                            ``(ii) with respect to the 
                        transferee partner, the partnership's 
                        holding period for purposes of this 
                        section in such assets shall be treated 
                        as beginning on the date of such 
                        adjustment.
            ``(2) S corporations.--In the case of an S 
        corporation, the adjustment made under subsection (a) 
        at the corporate level shall be passed through to the 
        shareholders. This section shall not apply for purposes 
        of determining the amount of any tax imposed by section 
        1374 or 1375.
            ``(3) Common trust funds.--In the case of a common 
        trust fund, the adjustment made under subsection (a) at 
        the trust level shall be passed through to the 
        participants.
            ``(4) Indexing adjustment disregarded in 
        determining loss on sale of interest in entity.--
        Notwithstanding the preceding provisions of this 
        subsection, for purposes of determining the amount of 
        any loss on a sale or exchange of an interest in a 
        partnership, S corporation, or common trust fund, the 
        adjustment made under subsection (a) shall not be taken 
        into account in determining the adjusted basis of such 
        interest.
    ``(g) Dispositions Between Related Persons.--
            ``(1) In general.--This section shall not apply to 
        any sale or other disposition of property between 
        related persons except to the extent that the basis of 
        such property in the hands of the transferee is a 
        substituted basis.
            ``(2) Related persons defined.--For purposes of 
        this section, the term `related persons' means--
                    ``(A) persons bearing a relationship set 
                forth in section 267(b), and
                    ``(B) persons treated as single employer 
                under subsection (b) or (c) of section 414.
    ``(h) Transfers To Increase Indexing Adjustment.--If any 
person transfers cash, debt, or any other property to another 
person and the principal purpose of such transfer is to secure 
or increase an adjustment under subsection (a), the Secretary 
may disallow part or all of such adjustment or increase.
    ``(i) Special Rules.--For purposes of this section--
            ``(1) Treatment of improvements, etc.--If there is 
        an addition to the adjusted basis of any tangible 
        property or of any stock in a corporation during the 
        taxable year by reason of an improvement to such 
        property or a contribution to capital of such 
        corporation--
                    ``(A) such addition shall never be taken 
                into account under subsection (c)(1)(A) if the 
                aggregate amount thereof during the taxable 
                year with respect to such property or stock is 
                less than $1,000, and
                    ``(B) such addition shall be treated as a 
                separate asset acquired at the close of such 
                taxable year if the aggregate amount thereof 
                during the taxable year with respect to such 
                property or stock is $1,000 or more.
        A rule similar to the rule of the preceding sentence 
        shall apply to any other portion of an asset to the 
        extent that separate treatment of such portion is 
        appropriate to carry out the purposes of this section.
            ``(2) Assets which are not indexed assets 
        throughout holding period.--The applicable inflation 
        adjustment shall be appropriately reduced for periods 
        during which the asset was not an indexed asset.
            ``(3) Treatment of certain distributions.--A 
        distribution with respect to stock in a corporation 
        which is not a dividend shall be treated as a 
        disposition.
            ``(4) Acquisition date where there has been prior 
        application of subsection (a)(1) with respect to the 
        taxpayer.--If there has been a prior application of 
        subsection (a)(1) to an asset while such asset was held 
        by the taxpayer, the date of acquisition of such asset 
        by the taxpayer shall be treated as not earlier than 
        the date of the most recent such prior application.
            ``(5) Collapsible corporations.--The application of 
        section 341(a) (relating to collapsible corporations) 
        shall be determined without regard to this section.
    ``(j) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.''.
    (b) Clerical Amendment.--The table of sections for part II 
of subchapter O of chapter 1 is amended by inserting after the 
item relating to section 1021 the following new item:

        ``Sec. 1022. Indexing of certain assets acquired after December 
                  31, 1999, for purposes of determining gain.''.

    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to the disposition of any property 
        the holding period of which begins after December 31, 
        1999.
            (2) Certain transactions between related persons.--
        The amendments made by this section shall not apply to 
        the disposition of any property acquired after December 
        31, 1999, from a related person (as defined in section 
        1022(g)(2) of the Internal Revenue Code of 1986, as 
        added by this section) if--
                    (A) such property was so acquired for a 
                price less than the property's fair market 
                value, and
                    (B) the amendments made by this section did 
                not apply to such property in the hands of such 
                related person.
    (d) Election To Recognize Gain on Assets Held on January 1, 
2000.--For purposes of the Internal Revenue Code of 1986--
            (1) In general.--A taxpayer other than a 
        corporation may elect to treat--
                    (A) any readily tradable stock (which is an 
                indexed asset) held by such taxpayer on January 
                1, 2000, and not sold before the next business 
                day after such date, as having been sold on 
                such next business day for an amount equal to 
                its closing market price on such next business 
                day (and as having been reacquired on such next 
                business day for an amount equal to such 
                closing market price), and
                    (B) any other indexed asset held by the 
                taxpayer on January 1, 2000, as having been 
                sold on such date for an amount equal to its 
                fair market value on such date (and as having 
                been reacquired on such date for an amount 
                equal to such fair market value).
            (2) Treatment of gain or loss.--
                    (A) Any gain resulting from an election 
                under paragraph (1) shall be treated as 
                received or accrued on the date the asset is 
                treated as sold under paragraph (1) and shall 
                be recognized notwithstanding any provision of 
                the Internal Revenue Code of 1986.
                    (B) Any loss resulting from an election 
                under paragraph (1) shall not be allowed for 
                any taxable year.
            (3) Election.--An election under paragraph (1) 
        shall be made in such manner as the Secretary of the 
        Treasury or his delegate may prescribe and shall 
        specify the assets for which such election is made. 
        Such an election, once made with respect to any asset, 
        shall be irrevocable.
            (4) Readily tradable stock.--For purposes of this 
        subsection, the term ``readily tradable stock'' means 
        any stock which, as of January 1, 2000, is readily 
        tradable on an established securities market or 
        otherwise.

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

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

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

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

SEC. 205. TAX TREATMENT OF INCOME AND LOSS ON DERIVATIVES.

    (a) In General.--Section 1221 (defining capital assets) is 
amended--
            (1) by striking ``For purposes'' and inserting the 
        following:
    ``(a) In General.--For purposes'',
            (2) by striking the period at the end of paragraph 
        (5) and inserting a semicolon, and
            (3) by adding at the end the following:
            ``(6) any commodities derivative financial 
        instrument held by a commodities derivatives dealer, 
        unless--
                    ``(A) it is established to the satisfaction 
                of the Secretary that such instrument has no 
                connection to the activities of such dealer as 
                a dealer, and
                    ``(B) such instrument is clearly identified 
                in such dealer's records as being described in 
                subparagraph (A) before the close of the day on 
                which it was acquired, originated, or entered 
                into (or such other time as the Secretary may 
                by regulations prescribe);
            ``(7) any hedging transaction which is clearly 
        identified as such before the close of the day on which 
        it was acquired, originated, or entered into (or such 
        other time as the Secretary may by regulations 
        prescribe); or
            ``(8) supplies of a type regularly used or consumed 
        by the taxpayer in the ordinary course of a trade or 
        business of the taxpayer.
    ``(b) Definitions and Special Rules.--
            ``(1) Commodities derivative financial 
        instruments.--For purposes of subsection (a)(6)--
                    ``(A) Commodities derivatives dealer.--The 
                term `commodities derivatives dealer' means a 
                person which regularly offers to enter into, 
                assume, offset, assign, or terminate positions 
                in commodities derivative financial instruments 
                with customers in the ordinary course of a 
                trade or business.
                    ``(B) Commodities derivative financial 
                instrument.--
                            ``(i) In general.--The term 
                        `commodities derivative financial 
                        instrument' means any contract or 
                        financial instrument with respect to 
                        commodities (other than a share of 
                        stock in a corporation, a beneficial 
                        interest in a partnership or trust, a 
                        note, bond, debenture, or other 
                        evidence of indebtedness, or a section 
                        1256 contract (as defined in section 
                        1256(b)), the value or settlement price 
                        of which is calculated by or determined 
                        by reference to a specified index.
                            ``(ii) Specified index.--The term 
                        `specified index' means any one or more 
                        or any combination of--
                                    ``(I) a fixed rate, price, 
                                or amount, or
                                    ``(II) a variable rate, 
                                price, or amount,
                        which is based on any current, 
                        objectively determinable financial or 
                        economic information with respect to 
                        commodities which is not within the 
                        control of any of the parties to the 
                        contract or instrument and is not 
                        unique to any of the parties' 
                        circumstances.
            ``(2) Hedging transaction.--
                    ``(A) In general.--For purposes of this 
                section, the term `hedging transaction' means 
                any transaction entered into by the taxpayer in 
                the normal course of the taxpayer's trade or 
                business primarily--
                            ``(i) to manage risk of price 
                        changes or currency fluctuations with 
                        respect to ordinary property which is 
                        held or to be held by the taxpayer,
                            ``(ii) to manage risk of interest 
                        rate or price changes or currency 
                        fluctuations with respect to borrowings 
                        made or to be made, or ordinary 
                        obligations incurred or to be incurred, 
                        by the taxpayer, or
                            ``(iii) to manage such other risks 
                        as the Secretary may prescribe in 
                        regulations.
                    ``(B) Treatment of nonidentification or 
                improper identification of hedging 
                transactions.--Notwithstanding subsection 
                (a)(7), the Secretary shall prescribe 
                regulations to properly characterize any 
                income, gain, expense, or loss arising from a 
                transaction--
                            ``(i) which is a hedging 
                        transaction but which was not 
                        identified as such in accordance with 
                        subsection (a)(7), or
                            ``(ii) which was so identified but 
                        is not a hedging transaction.
            ``(3) Regulations.--The Secretary shall prescribe 
        such regulations as are appropriate to carry out the 
        purposes of paragraph (6) and (7) of subsection (a) in 
        the case of transactions involving related parties.''.
    (b) Management of Risk.--
            (1) Section 475(c)(3) is amended by striking 
        ``reduces'' and inserting ``manages''.
            (2) Section 871(h)(4)(C)(iv) is amended by striking 
        ``to reduce'' and inserting ``to manage''.
            (3) Clauses (i) and (ii) of section 988(d)(2)(A) 
        are each amended by striking ``to reduce'' and 
        inserting ``to manage''.
            (4) Paragraph (2) of section 1256(e) is amended to 
        read as follows:
            ``(2) Definition of hedging transaction.--For 
        purposes of this subsection, the term `hedging 
        transaction' means any hedging transaction (as defined 
        in section 1221(b)(2)(A)) if, before the close of the 
        day on which such transaction was entered into (or such 
        earlier time as the Secretary may prescribe by 
        regulations), the taxpayer clearly identifies such 
        transaction as being a hedging transaction.''.
    (c) Conforming Amendments.--
            (1) Each of the following sections are amended by 
        striking ``section 1221'' and inserting ``section 
        1221(a)'':
                    (A) Section 170(e)(3)(A).
                    (B) Section 170(e)(4)(B).
                    (C) Section 367(a)(3)(B)(i).
                    (D) Section 818(c)(3).
                    (E) Section 865(i)(1).
                    (F) Section 1092(a)(3)(B)(ii)(II).
                    (G) Subparagraphs (C) and (D) of section 
                1231(b)(1).
                    (H) Section 1234(a)(3)(A).
            (2) Each of the following sections are amended by 
        striking ``section 1221(1)'' and inserting ``section 
        1221(a)(1)'':
                    (A) Section 198(c)(1)(A)(i).
                    (B) Section 263A(b)(2)(A).
                    (C) Clauses (i) and (iii) of section 
                267(f)(3)(B).
                    (D) Section 341(d)(3).
                    (E) Section 543(a)(1)(D)(i).
                    (F) Section 751(d)(1).
                    (G) Section 775(c).
                    (H) Section 856(c)(2)(D).
                    (I) Section 856(c)(3)(C).
                    (J) Section 856(e)(1).
                    (K) Section 856(j)(2)(B).
                    (L) Section 857(b)(4)(B)(i).
                    (M) Section 857(b)(6)(B)(iii).
                    (N) Section 864(c)(4)(B)(iii).
                    (O) Section 864(d)(3)(A).
                    (P) Section 864(d)(6)(A).
                    (Q) Section 954(c)(1)(B)(iii).
                    (R) Section 995(b)(1)(C).
                    (S) Section 1017(b)(3)(E)(i).
                    (T) Section 1362(d)(3)(C)(ii).
                    (U) Section 4662(c)(2)(C).
                    (V) Section 7704(c)(3).
                    (W) Section 7704(d)(1)(D).
                    (X) Section 7704(d)(1)(G).
                    (Y) Section 7704(d)(5).
            (3) Section 818(b)(2) is amended by striking 
        ``section 1221(2)'' and inserting ``section 
        1221(a)(2)''.
            (4) Section 1397B(e)(2) is amended by striking 
        ``section 1221(4)'' and inserting ``section 
        1221(a)(4)''.
    (d) Effective Date.--The amendments made by this section 
shall apply to any instrument held, acquired, or entered into, 
any transaction entered into, and supplies held or acquired on 
or after the date of enactment of this Act.

SEC. 206. WORTHLESS SECURITIES OF FINANCIAL INSTITUTIONS.

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

             Subtitle B--Individual Retirement Arrangements

SEC. 211. MODIFICATION OF DEDUCTION LIMITS FOR IRA CONTRIBUTIONS.

    (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 beginning in:              The deductible amount is:
        512001, 2002, and 2003..........................         $3,000 
        2004 and 2005...................................         $4,000 
        2006 and thereafter.............................         $5,000.

                    ``(B) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of 
                        any taxable year beginning in a 
                        calendar year after 2006, the $5,000 
                        amount under subparagraph (A) shall be 
                        increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for the 
                                calendar year in which the 
                                taxable year begins, determined 
                                by substituting `calendar year 
                                2005' for `calendar year 1992' 
                                in subparagraph (B) thereof.
                            ``(ii) Rounding rules.--If any 
                        amount after adjustment under clause 
                        (i) is not a multiple of $100, such 
                        amount shall be rounded to the next 
                        lower multiple of $100.''.
    (b) 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)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 212. MODIFICATION OF INCOME LIMITS ON CONTRIBUTIONS AND ROLLOVERS 
                    TO ROTH IRAS.

    (a) Repeal of AGI Limit on Contributions.--Section 
408A(c)(3) (relating to limits based on modified adjusted gross 
income) is amended--
            (1) by striking clause (ii) of subparagraph (A) and 
        inserting:
                            ``(ii) $10,000.'', and
            (2) by striking clause (ii) of subparagraph (C) and 
        inserting:
                            ``(ii) the applicable dollar amount 
                        is--
                                    ``(I) $200,000 in the case 
                                of a taxpayer filing a joint 
                                return, and
                                    ``(II) $100,000 in the case 
                                of any other taxpayer.''
    (b) Increase in AGI Limit for Rollover Contributions.--
Section 408A(c)(3)(B) (relating to rollover from IRA) is 
amended to read as follows:
                    ``(B) Rollover from ira.--A taxpayer shall 
                not be allowed to make a qualified rollover 
                contribution from an individual retirement plan 
                other than a Roth IRA during any taxable year 
                if, for the taxable year of the distribution to 
                which the contribution relates, the taxpayer's 
                adjusted gross income exceeds $100,000 
                ($200,000 in the case of a taxpayer filing a 
                joint return).''
    (c) Effective Dates.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2002.

SEC. 213. 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 contributions to such 
        account or annuity as contributions to an individual 
        retirement 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) 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), and
                    ``(B) any account or annuity described in 
                paragraph (1), and any contribution to the 
                account or annuity, shall not be subject to any 
                requirement of this title applicable to a 
                qualified employer plan or taken into account 
                in applying any such requirement to any other 
                contributions under the plan.
            ``(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).
                    ``(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, 1999.

SEC. 214. CATCHUP CONTRIBUTIONS TO IRAS BY INDIVIDUALS AGE 50 OR OVER.

    (a) In General.--Section 219(b), as amended by section 211, 
is amended by adding at the end the following new paragraph:
            ``(6) Catchup contributions.--
                    ``(A) In general.--In the case of an 
                individual who has attained the age of 50 
                before the close of the taxable year, the 
                dollar amount in effect under paragraph (1)(A) 
                for such taxable year shall be equal to the 
                applicable percentage of such amount determined 
                without regard to this paragraph.
                    ``(B) Applicable percentage.--For purposes 
                of this paragraph, the applicable percentage 
                shall be determined in accordance with the 
                following table:

``For taxable years beginning in:          The applicable percentage is:
        2001............................................    110 percent 
        2002............................................    120 percent 
        2003............................................    130 percent 
        2004............................................    140 percent 
        2005 and thereafter.............................  150percent.''.

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

               TITLE III--ALTERNATIVE MINIMUM TAX REFORM

SEC. 301. MODIFICATION OF ALTERNATIVE MINIMUM TAX ON CORPORATIONS.

    (a) Limitation on Use of Credit for Prior Year Minimum Tax 
Liability.--Subsection (c) of section 53, as amended by section 
121, is amended by redesignating paragraph (2) as paragraph (3) 
and by inserting after paragraph (1) the following new 
paragraph:
            ``(2) Corporations for taxable years beginning 
        after 2004.--In the case of a corporation for any 
        taxable year beginning after 2004, the limitation under 
        paragraph (1) shall be increased by the lesser of--
                    ``(A) 50 percent of the tentative minimum 
                tax for the taxable year, or
                    ``(B) the excess (if any) of the tentative 
                minimum tax for the taxable year over the 
                regular tax for the taxable year.''
    (b) Repeal of 90 Percent Limitation on NOL Deduction.--
Section 56(d)(1)(A) is amended by striking ``90 percent'' and 
inserting ``90 percent (100 percent in the case of a 
corporation)''.
    (c) Effective Dates.--
            (1) Subsection (a).--The amendment made by 
        subsection (a) shall apply to taxable years beginning 
        after December 31, 2004.
            (2) Subsection (b).--The amendment made by 
        subsection (b) shall apply to taxable years beginning 
        after December 31, 2001.

SEC. 302. REPEAL OF 90 PERCENT LIMITATION ON FOREIGN TAX CREDIT.

    (a) In General.--Section 59(a) (relating to alternative 
minimum tax foreign tax credit) is amended by striking 
paragraph (2) and by redesignating paragraphs (3) and (4) as 
paragraphs (2) and (3), respectively.
    (b) Conforming Amendment.--Section 53(d)(1)(B)(i)(II) is 
amended by striking ``and if section 59(a)(2) did not apply''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2001.

                 TITLE IV--EDUCATION SAVINGS INCENTIVES

SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.

    (a) Maximum Annual Contributions.--
            (1) In general.--Section 530(b)(1)(A)(iii) 
        (defining education individual retirement account) is 
        amended by striking ``$500'' and inserting ``$2,000''.
            (2) Conforming amendment.--Section 4973(e)(1)(A) is 
        amended by striking ``$500'' and inserting ``$2,000''.
    (b) Tax-Free Expenditures for Elementary and Secondary 
School Expenses.--
            (1) In general.--Section 530(b)(2) (defining 
        qualified higher education expenses) is amended to read 
        as follows:
            ``(2) Qualified education expenses.--
                    ``(A) In general.--The term `qualified 
                education expenses' means--
                            ``(i) qualified higher education 
                        expenses (as defined in section 
                        529(e)(3)), and
                            ``(ii) qualified elementary and 
                        secondary education expenses (as 
                        defined in paragraph (4)).
                    ``(B) Qualified state tuition programs.--
                Such term shall include any contribution to a 
                qualified State tuition program (as defined in 
                section 529(b)) on behalf of the designated 
                beneficiary (as defined in section 529(e)(1)); 
                but there shall be no increase in the 
                investment in the contract for purposes of 
                applying section 72 by reason of any portion of 
                such contribution which is not includible in 
                gross income by reason of subsection (d)(2).''.
            (2) Qualified elementary and secondary education 
        expenses.--Section 530(b) (relating to definitions and 
        special rules) is amended by adding at the end the 
        following new paragraph:
            ``(4) Qualified elementary and secondary education 
        expenses.--
                    ``(A) In general.--The term `qualified 
                elementary and secondary education expenses' 
                means--
                            ``(i) expenses for tuition, fees, 
                        academic tutoring, special needs 
                        services, books, supplies, computer 
                        equipment (including related software 
                        and services), and other equipment 
                        which are incurred in connection with 
                        the enrollment or attendance of the 
                        designated beneficiary of the trust as 
                        an elementary or secondary school 
                        student at a public, private, or 
                        religious school, and
                            ``(ii) expenses for room and board, 
                        uniforms, transportation, and 
                        supplementary items and services 
                        (including extended day programs) which 
                        are required or provided by a public, 
                        private, or religious school in 
                        connection with such enrollment or 
                        attendance.
                    ``(B) Special rule for homeschooling.--Such 
                term shall include expenses described in 
                subparagraph (A)(i) in connection with 
                education provided by homeschooling if the 
                requirements of any applicable State or local 
                law are met with respect to such education.
                    ``(C) School.--The term `school' means any 
                school which provides elementary education or 
                secondary education (kindergarten through grade 
                12), as determined under State law.''.
            (3) Conforming amendments.--Section 530 is 
        amended--
                    (A) by striking ``higher'' each place it 
                appears in subsections (b)(1) and (d)(2), and
                    (B) by striking ``higher'' in the heading 
                for subsection (d)(2).
    (c) Waiver of Age Limitations for Children With Special 
Needs.--Section 530(b)(1) (defining education individual 
retirement account) is amended by adding at the end the 
following flush sentence:
        ``The age limitations in subparagraphs (A)(ii) and (E) 
        and paragraphs (5) and (6) of subsection (d) shall not 
        apply to any designated beneficiary with special needs 
        (as determined under regulations prescribed by the 
        Secretary).''.
    (d) Entities Permitted To Contribute to Accounts.--Section 
530(c)(1) (relating to reduction in permitted contributions 
based on adjusted gross income) is amended by striking ``The 
maximum amount which a contributor'' and inserting ``In the 
case of a contributor who is an individual, the maximum amount 
the contributor''.
    (e) Time When Contributions Deemed Made.--
            (1) In general.--Section 530(b) (relating to 
        definitions and special rules), as amended by 
        subsection (b)(2), is amended by adding at the end the 
        following new paragraph:
            ``(5) Time when contributions deemed made.--An 
        individual shall be deemed to have made a contribution 
        to an education individual retirement account on the 
        last day of the preceding taxable year if the 
        contribution is made on account of such taxable year 
        and is made not later than the time prescribed by law 
        for filing the return for such taxable year (not 
        including extensions thereof).''.
            (2) Extension of time to return excess 
        contributions.--Subparagraph (C) of section 530(d)(4) 
        (relating to additional tax for distributions not used 
        for educational expenses) is amended--
                    (A) by striking clause (i) and inserting 
                the following new clause:
                            ``(i) such distribution is made 
                        before the 1st day of the 6th month of 
                        the taxable year following the taxable 
                        year, and'', and
                    (B) by striking ``due date of return'' in 
                the heading and inserting ``certain date''.
    (f) Coordination With Hope and Lifetime Learning Credits 
and Qualified Tuition Programs.--
            (1) In general.--Section 530(d)(2)(C) is amended to 
        read as follows:
                    ``(C) Coordination with hope and lifetime 
                learning credits and qualified tuition 
                programs.--For purposes of subparagraph (A)--
                            ``(i) Credit coordination.--The 
                        total amount of qualified higher 
                        education expenses with respect to an 
                        individual for the taxable year shall 
                        be reduced--
                                    ``(I) as provided in 
                                section 25A(g)(2), and
                                    ``(II) by the amount of 
                                such expenses which were taken 
                                into account in determining the 
                                credit allowed to the taxpayer 
                                or any other person under 
                                section 25A.
                            ``(ii) Coordination with qualified 
                        tuition programs.--If, with respect to 
                        an individual for any taxable year--
                                    ``(I) the aggregate 
                                distributions during such year 
                                to which subparagraph (A) and 
                                section 529(c)(3)(B) apply, 
                                exceed
                                    ``(II) the total amount of 
                                qualified education expenses 
                                (after the application of 
                                clause (i)) for such year,
                        the taxpayer shall allocate such 
                        expenses among such distributions for 
                        purposes of determining the amount of 
                        the exclusion under subparagraph (A) 
                        and section 529(c)(3)(B).''.
            (2) Conforming amendments.--
                    (A) Subsection (e) of section 25A is 
                amended to read as follows:
    ``(e) Election Not To Have Section Apply.--A taxpayer may 
elect not to have this section apply with respect to the 
qualified tuition and related expenses of an individual for any 
taxable year.''.
                    (B) Section 135(d)(2)(A) is amended by 
                striking ``allowable'' and inserting 
                ``allowed''.
                    (C) Section 530(d)(2)(D) is amended--
                            (i) by striking ``or credit'', and
                            (ii) by striking ``credit or'' in 
                        the heading.
                    (D) Section 4973(e)(1) is amended by adding 
                ``and'' at the end of subparagraph (A), by 
                striking subparagraph (B), and by redesignating 
                subparagraph (C) as subparagraph (B).
    (g) Renaming Education Individual Retirement Accounts as 
Education Savings Accounts.--
            (1) In general.--
                    (A) Section 530 (as amended by the 
                preceding provisions of this section) is 
                amended by striking ``education individual 
                retirement account'' each place it appears and 
                inserting ``education savings account''.
                    (B) The heading for paragraph (1) of 
                section 530(b) is amended by striking 
                ``Education individual retirement account'' and 
                inserting ``Education savings account''.
                    (C) The heading for section 530 is amended 
                to read as follows:

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

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

        ``Sec. 530. Education savings accounts.''.

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

SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.

    (a) Short Title.--This section may be cited as the 
``Collegiate Learning and Student Savings (CLASS) Act''.
    (b) Eligible Educational Institutions Permitted To Maintain 
Qualified Tuition Programs.--
            (1) In general.--Section 529(b)(1) (defining 
        qualified State tuition program) is amended by 
        inserting ``or by 1 or more eligible educational 
        institutions'' after ``maintained by a State or agency 
        or instrumentality thereof ''.
            (2) Private qualified tuition programs limited to 
        benefit plans.--Clause (ii) of section 529(b)(1)(A) is 
        amended by inserting ``in the case of a program 
        established and maintained by a State or agency or 
        instrumentality thereof,'' before ``may make''.
            (3) Conforming amendments.--
                    (A) Sections 72(e)(9), 135(c)(2)(C), 
                135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and 
                6693(a)(2)(C) are each amended by striking 
                ``qualified State tuition'' each place it 
                appears and inserting ``qualified tuition''.
                    (B) The headings for sections 72(e)(9) and 
                135(c)(2)(C) are each amended by striking 
                ``qualified state tuition'' and inserting 
                ``qualified tuition''.
                    (C) The headings for sections 529(b) and 
                530(b)(2)(B) are each amended by striking 
                ``Qualified state tuition'' and inserting 
                ``Qualified tuition''.
                    (D) The heading for section 529 is amended 
                by striking ``STATE''.
                    (E) The item relating to section 529 in the 
                table of sections for part VIII of subchapter F 
                of chapter 1 is amended by striking ``State''.
    (c) Exclusion From Gross Income of Education Distributions 
From Qualified Tuition Programs.--
            (1) In general.--Section 529(c)(3)(B) (relating to 
        distributions) is amended to read as follows:
                    ``(B) Distributions for qualified higher 
                education expenses.--For purposes of this 
                paragraph--
                            ``(i) In-kind distributions.--No 
                        amount shall be includible in gross 
                        income under subparagraph (A) by reason 
                        of a distribution which consists of 
                        providing a benefit to the distributee 
                        which, if paid for by the distributee, 
                        would constitute payment of a qualified 
                        higher education expense.
                            ``(ii) Cash distributions.--In the 
                        case of distributions not described in 
                        clause (i), if--
                                    ``(I) such distributions do 
                                not exceed the qualified higher 
                                education expenses (reduced by 
                                expenses described in clause 
                                (i)), no amount shall be 
                                includible in gross income, and
                                    ``(II) in any other case, 
                                the amount otherwise includible 
                                in gross income shall be 
                                reduced by an amount which 
                                bears the same ratio to such 
                                amount as such expenses bear to 
                                such distributions.
                            ``(iii) Exception for institutional 
                        programs.--In the case of any taxable 
                        year beginning before January 1, 2004, 
                        clauses (i) and (ii) shall not apply 
                        with respect to any distribution during 
                        such taxable year under a qualified 
                        tuition program established and 
                        maintained by 1 or more eligible 
                        educational institutions.
                            ``(iv) Treatment as 
                        distributions.--Any benefit furnished 
                        to a designated beneficiary under a 
                        qualified tuition program shall be 
                        treated as a distribution to the 
                        beneficiary for purposes of this 
                        paragraph.
                            ``(v) Coordination with hope and 
                        lifetime learning credits.--The total 
                        amount of qualified higher education 
                        expenses with respect to an individual 
                        for the taxable year shall be reduced--
                                    ``(I) as provided in 
                                section 25A(g)(2), and
                                    ``(II) by the amount of 
                                such expenses which were taken 
                                into account in determining the 
                                credit allowed to the taxpayer 
                                or any other person under 
                                section 25A.
                            ``(vi) Coordination with education 
                        individual retirement accounts.--If, 
                        with respect to an individual for any 
                        taxable year--
                                    ``(I) the aggregate 
                                distributions to which clauses 
                                (i) and (ii) and section 
                                530(d)(2)(A) apply, exceed
                                    ``(II) the total amount of 
                                qualified higher education 
                                expenses otherwise taken into 
                                account under clauses (i) and 
                                (ii) (after the application of 
                                clause (v)) for such year,
                        the taxpayer shall allocate such 
                        expenses among such distributions for 
                        purposes of determining the amount of 
                        the exclusion under clauses (i) and 
                        (ii) and section 530(d)(2)(A).''.
            (2) Conforming amendments.--
                    (A) Section 135(d)(2)(B) is amended by 
                striking ``the exclusion under section 
                530(d)(2)'' and inserting ``the exclusions 
                under sections 529(c)(3)(B)(i) and 530(d)(2)''.
                    (B) Section 221(e)(2)(A) is amended by 
                inserting ``529,'' after ``135,''.
    (d) Rollover to Different Program for Benefit of Same 
Designated Beneficiary.--Section 529(c)(3)(C) (relating to 
change in beneficiaries) is amended--
            (1) by striking ``transferred to the credit'' in 
        clause (i) and inserting ``transferred--
                                    ``(I) to another qualified 
                                tuition program for the benefit 
                                of the designated beneficiary, 
                                or
                                    ``(II) to the credit'',
            (2) by adding at the end the following new clause:
                            ``(iii) Limitation on certain 
                        rollovers.--Clause (i)(I) shall not 
                        apply to any amount transferred with 
                        respect to a designated beneficiary if, 
                        at any time during the 1-year period 
                        ending on the day of such transfer, any 
                        other amount was transferred with 
                        respect to such beneficiary which was 
                        not includible in gross income by 
                        reason of clause (i)(I).'', and
            (3) by inserting ``or programs'' after 
        ``beneficiaries'' in the heading.
    (e) Member of Family Includes First Cousin.--Section 
529(e)(2) (defining member of family) is amended by striking 
``and'' at the end of subparagraph (B), by striking the period 
at the end of subparagraph (C) and by inserting ``; and'', and 
by adding at the end the following new subparagraph:
                    ``(D) any first cousin of such 
                beneficiary.''.
    (f) Definition of Qualified Higher Education Expenses.--
            (1) In general.--Subparagraph (A) of section 
        529(e)(3) (relating to definition of qualified higher 
        education expenses) is amended to read as follows:
                    ``(A) In general.--The term `qualified 
                higher education expenses' means--
                            ``(i) tuition and fees required for 
                        the enrollment or attendance of a 
                        designated beneficiary at an eligible 
                        educational institution for courses of 
                        instruction of such beneficiary at such 
                        institution, and
                            ``(ii) expenses for books, 
                        supplies, and equipment which are 
                        incurred in connection with such 
                        enrollment or attendance, but not to 
                        exceed the allowance for books and 
                        supplies included in the cost of 
                        attendance (as defined in section 472 
                        of the Higher Education Act of 1965 (20 
                        U.S.C. 1087ll), as in effect on the 
                        date of enactment of the Taxpayer 
                        Refund and Relief Act of 1999) as 
                        determined by the eligible educational 
                        institution.''.
            (2) Exception for education involving sports, 
        etc.--Paragraph (3) of section 529(e) (relating to 
        qualified higher education expenses) is amended by 
        adding at the end the following new subparagraph:
                    ``(C) Exception for education involving 
                sports, etc.--The term `qualified higher 
                education expenses' shall not include expenses 
                with respect to any course or other education 
                involving sports, games, or hobbies unless such 
                course or other education is part of the 
                beneficiary's degree program or is taken to 
                acquire or improve job skills of the 
                beneficiary.''.
    (g) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        December 31, 1999.
            (2) Qualified higher education expenses.--The 
        amendments made by subsection (f) shall apply to 
        amounts paid for courses beginning after December 31, 
        1999.

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

    (a) In General.--Section 117(c) (relating to the exclusion 
from gross income amounts received as a qualified scholarship) 
is amended--
            (1) by striking ``Subsections (a)'' and inserting 
        the following:
            ``(1) In general.--Except as provided in paragraph 
        (2), subsections (a)'', and
            (2) by adding at the end the following new 
        paragraph:
            ``(2) Exceptions.--Paragraph (1) shall not apply to 
        any amount received by an individual under--
                    ``(A) the National Health Service Corps 
                Scholarship program under section 338A(g)(1)(A) 
                of the Public Health Service Act,
                    ``(B) the Armed Forces Health Professions 
                Scholarship and Financial Assistance program 
                under subchapter I of chapter 105 of title 10, 
                United States Code,
                    ``(C) the National Institutes of Health 
                Undergraduate Scholarship program under section 
                487D of the Public Health Service Act, or
                    ``(D) any State program determined by the 
                Secretary to have substantially similar 
                objectives as such programs.''.
    (b) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by subsection (a) shall apply 
        to amounts received in taxable years beginning after 
        December 31, 1993.
            (2) State programs.--Section 117(c)(2)(D) of the 
        Internal Revenue Code of 1986 (as added by the 
        amendments made by subsection (a)) shall apply to 
        amounts received in taxable years beginning after 
        December 31, 1999.

SEC. 404. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL 
                    ASSISTANCE.

    Section 127(d) (relating to termination of exclusion for 
educational assistance programs) is amended by striking ``May 
31, 2000'' and inserting ``December 31, 2003''.

SEC. 405. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR 
                    GOVERNMENTAL BONDS USED TO FINANCE EDUCATIONAL 
                    FACILITIES.

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

SEC. 406. MODIFICATION OF ARBITRAGE REBATE RULES APPLICABLE TO PUBLIC 
                    SCHOOL CONSTRUCTION BONDS.

    (a) In General.--Subparagraph (C) of section 148(f)(4) is 
amended by adding at the end the following new clause:
                            ``(xviii) 4-year spending 
                        requirement for public school 
                        construction issue.--
                                    ``(I) In general.--In the 
                                case of a public school 
                                construction issue, the 
                                spending requirements of clause 
                                (ii) shall be treated as met if 
                                at least 10 percent of the 
                                available construction proceeds 
                                of the construction issue are 
                                spent for the governmental 
                                purposes of the issue within 
                                the 1-year period beginning on 
                                the date the bonds are issued, 
                                30 percent of such proceeds are 
                                spent for such purposes within 
                                the 2-year period beginning on 
                                such date, 60 percent of such 
                                proceeds are spent for such 
                                purposes within the 3-year 
                                period beginning on such date, 
                                and 100 percent of such 
                                proceeds are spent for such 
                                purposes within the 4-year 
                                period beginning on such date.
                                    ``(II) Public school 
                                construction issue.--For 
                                purposes of this clause, the 
                                term `public school 
                                construction issue' means any 
                                construction issue if no bond 
                                which is part of such issue is 
                                a private activity bond and all 
                                of the available construction 
                                proceeds of such issue are to 
                                be used for the construction 
                                (as defined in clause (iv)) of 
                                public school facilities to 
                                provide education or training 
                                below the postsecondary level 
                                or for the acquisition of land 
                                that is functionally related 
                                and subordinate to such 
                                facilities.
                                    ``(III) Other rules to 
                                apply.--Rules similar to the 
                                rules of the preceding 
                                provisions of this subparagraph 
                                which apply to clause (ii) also 
                                apply to this clause.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to obligations issued after December 31, 1999.

SEC. 407. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME 
                    LIMITATION ON STUDENT LOAN INTEREST DEDUCTION.

    (a) Elimination of 60-Month Limit.--
            (1) In general.--Section 221 (relating to interest 
        on education loans) is amended by striking subsection 
        (d) and by redesignating subsections (e), (f), and (g) 
        as subsections (d), (e), and (f), respectively.
            (2) Conforming amendment.--Section 6050S(e) is 
        amended by striking ``section 221(e)(1)'' and inserting 
        ``section 221(d)(1)''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply with respect to any loan 
        interest paid after December 31, 1999, in taxable years 
        ending after such date.
    (b) Increase in Income Limitation.--
            (1) In general.--Section 221(b)(2)(B) (relating to 
        amount of reduction) is amended by striking clauses (i) 
        and (ii) and inserting the following:
                            ``(i) the excess of--
                                    ``(I) the taxpayer's 
                                modified adjusted gross income 
                                for such taxable year, over
                                    ``(II) $45,000 ($90,000 in 
                                the case of a joint return), 
                                bears to
                            ``(ii) $15,000.''.
            (2) Conforming amendment.--Section 221(g)(1) is 
        amended by striking ``$40,000 and $60,000 amounts'' and 
        inserting ``$45,000 and $90,000 amounts''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to taxable years ending after 
        December 31, 1999.

SEC. 408. 2-PERCENT FLOOR ON MISCELLANEOUS ITEMIZED DEDUCTIONS NOT TO 
                    APPLY TO QUALIFIED PROFESSIONAL DEVELOPMENT 
                    EXPENSES OF ELEMENTARY AND SECONDARY SCHOOL 
                    TEACHERS.

    (a) In General.--Section 67(b) (defining miscellaneous 
itemized deductions) is amended by striking ``and'' at the end 
of paragraph (11), by striking the period at the end of 
paragraph (12) and inserting ``, and'', and by adding at the 
end the following new paragraph:
            ``(13) any deduction allowable for the qualified 
        professional development expenses of an eligible 
        teacher.''.
    (b) Definitions.--Section 67 (relating to 2-percent floor 
on miscellaneous itemized deductions) is amended by adding at 
the end the following new subsection:
    ``(g) Qualified Professional Development Expenses of 
Eligible Teachers.--For purposes of subsection (b)(13)--
            ``(1) Qualified professional development 
        expenses.--
                    ``(A) In general.--The term `qualified 
                professional development expenses' means 
                expenses in an amount not to exceed $1,000 for 
                any taxable year--
                            ``(i) for tuition, fees, books, 
                        supplies, equipment, and transportation 
                        required for the enrollment or 
                        attendance of an individual in a 
                        qualified course of instruction, and
                            ``(ii) with respect to which a 
                        deduction is allowable under section 
                        162 (determined without regard to this 
                        section).
                    ``(B) Qualified course of instruction.--The 
                term `qualified course of instruction' means a 
                course of instruction which--
                            ``(i) is--
                                    ``(I) at an institution of 
                                higher education (as defined in 
                                section 481 of the Higher 
                                Education Act of 1965 (20 
                                U.S.C. 1088), as in effect on 
                                the date of the enactment of 
                                this subsection), or
                                    ``(II) a professional 
                                conference, and
                            ``(ii) is part of a program of 
                        professional development which is 
                        approved and certified by the 
                        appropriate local educational agency as 
                        furthering the individual's teaching 
                        skills.
                    ``(C) Local educational agency.--The term 
                `local educational agency' has the meaning 
                given such term by section 14101 of the 
                Elementary and Secondary Education Act of 1965, 
                as so in effect.
            ``(2) Eligible teacher.--
                    ``(A) In general.--The term `eligible 
                teacher' means an individual who is a 
                kindergarten through grade 12 classroom 
                teacher, instructor, counselor, aide, or 
                principal in an elementary or secondary school.
                    ``(B) Elementary or secondary school.--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 so 
                in effect.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000, 
and ending before January 1, 2005.

                    TITLE V--HEALTH CARE PROVISIONS

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

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

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

    ``(a) In General.--In the case of an individual, there 
shall be allowed as a deduction an amount equal to the 
applicable percentage of the amount paid during the taxable 
year for insurance which constitutes medical care for the 
taxpayer 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--
    2002, 2003, and 2004......................................    25    
    2005......................................................    35    
    2006......................................................    65    
    2007 and thereafter.......................................  100.    

    ``(c) Limitation Based on Other Coverage.--
            ``(1) Coverage under certain subsidized employer 
        plans.--
                    ``(A) In general.--Subsection (a) shall not 
                apply to any taxpayer for any calendar month 
                for which the taxpayer participates in any 
                health plan maintained by any employer of the 
                taxpayer or of the spouse of the taxpayer if 50 
                percent or more of the cost of coverage under 
                such plan (determined under section 4980B 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 subsections 
                (b), (c), (m), or (o) of section 414 were 
                treated as one health plan.
                    ``(D) Separate application to health 
                insurance and long-term care insurance.--
                Subparagraphs (A) and (C) shall be applied 
                separately with respect to--
                            ``(i) plans which include primarily 
                        coverage for qualified long-term care 
                        services or are qualified long-term 
                        care insurance contracts, and
                            ``(ii) plans which do not include 
                        such coverage and are not such 
                        contracts.
            ``(2) Coverage under certain federal programs.--
                    ``(A) In general.--Subsection (a) shall not 
                apply to any amount paid for any coverage for 
                an individual for any calendar month if, as of 
                the first day of such month, the individual is 
                covered under any medical care program 
                described in--
                            ``(i) title XVIII, XIX, or XXI of 
                        the Social Security Act,
                            ``(ii) chapter 55 of title 10, 
                        United States Code,
                            ``(iii) chapter 17 of title 38, 
                        United States Code,
                            ``(iv) chapter 89 of title 5, 
                        United States Code, or
                            ``(v) the Indian Health Care 
                        Improvement Act.
                    ``(B) Exceptions.--
                            ``(i) Qualified long-term care.--
                        Subparagraph (A) shall not apply to 
                        amounts paid for coverage under a 
                        qualified long-term care insurance 
                        contract.
                            ``(ii) Continuation coverage of 
                        fehbp.--Subparagraph (A)(iv) shall not 
                        apply to coverage which is comparable 
                        to continuation coverage under section 
                        4980B.
    ``(d) Long-Term Care Deduction Limited to Qualified Long-
Term Care Insurance Contracts.--In the case of a qualified 
long-term care insurance contract, only eligible long-term care 
premiums (as defined in section 213(d)(10)) may be taken into 
account under subsection (a).
    ``(e) 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. 502. LONG-TERM CARE INSURANCE PERMITTED TO BE OFFERED UNDER 
                    CAFETERIA PLANS AND FLEXIBLE SPENDING ARRANGEMENTS.

    (a) Cafeteria Plans.--
            (1) In general.--Subsection (f) of section 125 
        (defining qualified benefits) is amended by inserting 
        before the period at the end ``; except that such term 
        shall include the payment of premiums for any qualified 
        long-term care insurance contract (as defined in 
        section 7702B) to the extent the amount of such payment 
        does not exceed the eligible long-term care premiums 
        (as defined in section 213(d)(10)) for such contract''.
    (b) Flexible Spending Arrangements.--Section 106 (relating 
to contributions by employer to accident and health plans) is 
amended by striking subsection (c).
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2001.

SEC. 503. ADDITIONAL PERSONAL EXEMPTION FOR TAXPAYER CARING FOR ELDERLY 
                    FAMILY MEMBER IN TAXPAYER'S HOME.

    (a) In General.--Section 151 (relating to allowance of 
deductions for personal exemptions) is amended by redesignating 
subsection (e) as subsection (f) and by inserting after 
subsection (d) the following new subsection:
    ``(e) Additional Exemption for Certain Elderly Family 
Members Residing With Taxpayer.--
            ``(1) In general.--An exemption of the exemption 
        amount for each qualified family member of the 
        taxpayer.
            ``(2) Qualified family member.--For purposes of 
        this subsection, the term `qualified family member' 
        means, with respect to any taxable year, any 
        individual--
                    ``(A) who is an ancestor of the taxpayer or 
                of the taxpayer's spouse or who is the spouse 
                of any such ancestor,
                    ``(B) who is a member for the entire 
                taxable year of a household maintained by the 
                taxpayer, and
                    ``(C) who has been certified, before the 
                due date for filing the return of tax for the 
                taxable year (without extensions), by a 
                physician (as defined in section 1861(r)(1) of 
                the Social Security Act) as being an individual 
                with long-term care needs described in 
                paragraph (3) for a period--
                            ``(i) which is at least 180 
                        consecutive days, and
                            ``(ii) a portion of which occurs 
                        within the taxable year.
        Such term shall not include any individual otherwise 
        meeting the requirements of the preceding sentence 
        unless within the 39\1/2\ month period ending on such 
        due date (or such other period as the Secretary 
        prescribes) a physician (as so defined) has certified 
        that such individual meets such requirements.
            ``(3) Individuals with long-term care needs.--An 
        individual is described in this paragraph if the 
        individual--
                    ``(A) is unable to perform (without 
                substantial assistance from another individual) 
                at least 2 activities of daily living (as 
                defined in section 7702B(c)(2)(B)) due to a 
                loss of functional capacity, or
                    ``(B) requires substantial supervision to 
                protect such individual from threats to health 
                and safety due to severe cognitive impairment 
                and is unable to perform, without reminding or 
                cuing assistance, at least 1 activity of daily 
                living (as so defined) or to the extent 
                provided in regulations prescribed by the 
                Secretary (in consultation with the Secretary 
                of Health and Human Services), is unable to 
                engage in age appropriate activities.
            ``(4) Special rules.--Rules similar to the rules of 
        paragraphs (1), (2), (3), (4), and (5) of section 21(e) 
        shall apply for purposes of this subsection.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1999.

SEC. 504. EXPANDED HUMAN CLINICAL TRIALS QUALIFYING FOR ORPHAN DRUG 
                    CREDIT.

    (a) In General.--Subclause (I) of section 45C(b)(2)(A)(ii) 
is amended to read as follows:
                                    ``(I) after the date that 
                                the application is filed for 
                                designation under such section 
                                526, and''.
    (b) Conforming Amendment.--Clause (i) of section 
45C(b)(2)(A) is amended by inserting ``which is'' before 
``being'' and by inserting before the comma at the end ``and 
which is designated under section 526 of such Act''.
    (c) Effective Date.--The amendments made by this section 
shall apply to amounts paid or incurred after December 31, 
1999.

SEC. 505. INCLUSION OF CERTAIN VACCINES AGAINST STREPTOCOCCUS 
                    PNEUMONIAE TO LIST OF TAXABLE VACCINES; REDUCTION 
                    IN PER DOSE TAX RATE.

    (a) Inclusion of Vaccines.--
            (1) In general.--Section 4132(a)(1) (defining 
        taxable vaccine) is amended by adding at the end the 
        following new subparagraph:
                    ``(L) Any conjugate vaccine against 
                streptococcus pneumoniae.''.
            (2) Effective date.--
                    (A) Sales.--The amendment made by this 
                subsection shall apply to vaccine sales 
                beginning on the day after the date on which 
                the Centers for Disease Control makes a final 
                recommendation for routine administration to 
                children of any conjugate vaccine against 
                streptococcus pneumoniae, but shall not take 
                effect if subsection (c) does not take effect.
                    (B) Deliveries.--For purposes of 
                subparagraph (A), in the case of sales on or 
                before the date described in such subparagraph 
                for which delivery is made after such date, the 
                delivery date shall be considered the sale 
                date.
    (b) Reduction in Per Dose Tax Rate.--
            (1) In general.--Section 4131(b)(1) (relating to 
        amount of tax) is amended by striking ``75 cents'' and 
        inserting ``50 cents''.
            (2) Effective date.--
                    (A) Sales.--The amendment made by this 
                subsection shall apply to vaccine sales after 
                December 31, 2004, but shall not take effect if 
                subsection (c) does not take effect.
                    (B) Deliveries.--For purposes of 
                subparagraph (A), in the case of sales on or 
                before the date described in such subparagraph 
                for which delivery is made after such date, the 
                delivery date shall be considered the sale 
                date.
            (3) Limitation on certain credits or refunds.--For 
        purposes of applying section 4132(b) of the Internal 
        Revenue Code of 1986 with respect to any claim for 
        credit or refund filed after August 31, 2004, the 
        amount of tax taken into account shall not exceed the 
        tax computed under the rate in effect on January 1, 
        2005.
    (c) Vaccine Tax and Trust Fund Amendments.--
            (1) Sections 1503 and 1504 of the Vaccine Injury 
        Compensation Program Modification Act (and the 
        amendments made by such sections) are hereby repealed.
            (2) Subparagraph (A) of section 9510(c)(1) is 
        amended by striking ``August 5, 1997'' and inserting 
        ``October 21, 1998''.
            (3) The amendments made by this subsection shall 
        take effect as if included in the provisions of the Tax 
        and Trade Relief Extension Act of 1998 to which they 
        relate.

SEC. 506. DRUG BENEFITS FOR MEDICARE BENEFICIARIES.

    (a) In General.--Section 213 (relating to medical, dental, 
etc., expenses) is amended by redesignating subsection (e) as 
subsection (f) and by inserting after subsection (d) the 
following new subsection:
    ``(e) Drug Benefits for Medicare Beneficiaries.--
            ``(1) Deduction for certain former prescription 
        drugs.--
                    ``(A) In general.--Subsection (b) shall not 
                apply to amounts paid for eligible former 
                prescription drugs for a medicare beneficiary 
                who is the taxpayer or the taxpayer's spouse or 
                dependent (as defined in section 152).
                    ``(B) Eligible former prescription drug.--
                For purposes of subparagraph (A), the term 
                `eligible former prescription drug' means any 
                drug or biological which is not a prescribed 
                drug at the time purchased by the taxpayer but 
                was a prescribed drug at any prior time during 
                the calendar year in which so purchased or 
                during the 2 preceding calendar years.
            ``(2) Adjusted gross income threshold not to apply 
        to prescription drug insurance coverage for medicare 
        beneficiaries if certain conditions met.--The 7.5 
        percent adjusted gross income threshold in subsection 
        (a) shall not apply to the expenses paid during the 
        taxable year for prescription drug insurance coverage 
        for a medicare beneficiary who is the taxpayer or the 
        taxpayer's spouse or dependent (as defined in section 
        152) if--
                    ``(A) the Secretary certifies that, 
                throughout such taxable year, the conditions 
                specified in paragraph (3) are met, and
                    ``(B) the charge for such coverage is 
                either separately stated in the contract or 
                furnished to the policyholder by the insurance 
                company in a separate statement.
            ``(3) Conditions.--For purposes of paragraph (2), 
        the conditions specified in this paragraph are met if 
        all of the following are in effect:
                    ``(A) Assistance for prescription drugs for 
                low-income medicare beneficiaries.--
                            ``(i) Low-income assistance is 
                        available to enable the purchase of 
                        coverage of prescription drugs as 
                        described in subparagraph (B) or (C) 
                        for medicare beneficiaries with incomes 
                        under 135 percent of the applicable 
                        Federal poverty level, with such 
                        assistance phasing out for 
                        beneficiaries with incomes between 135 
                        percent and 150 percent of such level.
                            ``(ii) The Federal Government 
                        provides funding for the costs of such 
                        assistance.
                    ``(B) Authorizing medigap coverage solely 
                of prescription drugs.--At least 1 of the 
                benefit packages authorized to be offered under 
                a medicare supplemental policy under the Social 
                Security Act is a package which provides solely 
                for the coverage of costs of prescription 
                drugs.
                    ``(C) Structural medicare reform.--Coverage 
                for outpatient prescription drugs for medicare 
                beneficiaries is provided only through 
                integrated comprehensive health plans which 
                offer current medicare covered services and 
                maximum limitations on out-of-pocket spending 
                and such comprehensive plans sponsored by the 
                Health Care Financing Administration compete on 
                the same basis as private plans.
                    ``(D) Deduction for eligible former 
                prescription drugs.--The treatment under 
                paragraph (1) of expenses paid for eligible 
                former prescription drugs applies for such 
                taxable year.
            ``(4) Definition and special rule.--
                    ``(A) Medicare beneficiary.--For purposes 
                of this subsection, the term `medicare 
                beneficiary' means an individual who is 
                entitled to benefits under part A, or enrolled 
                under part B or C, of title XVIII of the Social 
                Security Act.
                    ``(B) Coordination with other expenses.--
                Expenses to which the 7.5 percent adjusted 
                gross income threshold in subsection (a) does 
                not apply by reason of paragraph (1) and (2) 
                shall not be taken into account in applying 
                such threshold to other expenses.''
    (b) Deduction for Prescription Drug Insurance Coverage 
Allowed Whether or Not Taxpayer Itemizes Other Deductions.--
Subsection (a) of section 62 (defining adjusted gross income) 
is amended by inserting after paragraph (18) the following new 
paragraph:
            ``(19) Prescription drug insurance coverage for 
        medicare beneficiaries.--The deduction allowed by 
        section 213(a) to the extent of the expenses to which 
        the 7.5 percent adjusted gross income threshold in 
        subsection (a) does not apply by reason of paragraph 
        (2) of section 213(e).''
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2002.

                      TITLE VI--ESTATE TAX RELIEF

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

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

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

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

    (a) Termination of Application of Section 1014.--Section 
1014 (relating to basis of property acquired from a decedent) 
is amended by adding at the end the following:
    ``(f) Termination.--In the case of a decedent dying after 
December 31, 2008, this section shall not apply to property for 
which basis is provided by section 1023.''.
    (b) Conforming Amendment.--Subsection (a) of section 1016 
(relating to adjustments to basis) is amended by striking 
``and'' at the end of paragraph (26), by striking the period at 
the end of paragraph (27) and inserting ``; and'', and by 
adding at the end the following:
            ``(28) to the extent provided in section 1023 
        (relating to basis for certain property acquired from a 
        decedent dying after December 31, 2008).''.

SEC. 603. CARRYOVER BASIS AT DEATH.

    (a) General Rule.--Part II of subchapter O of chapter 1 
(relating to basis rules of general application) is amended by 
inserting after section 1022, as added by section 202, the 
following:

``SEC. 1023. CARRYOVER BASIS FOR CERTAIN PROPERTY ACQUIRED FROM A 
                    DECEDENT DYING AFTER DECEMBER 31, 2008.

    ``(a) Carryover Basis.--Except as otherwise provided in 
this section, the basis of carryover basis property in the 
hands of a person acquiring such property from a decedent shall 
be determined under section 1015.
    ``(b) Carryover Basis Property Defined.--
            ``(1) In general.--For purposes of this section, 
        the term `carryover basis property' means any 
        property--
                    ``(A) which is acquired from or passed from 
                a decedent who died after December 31, 2008, 
                and
                    ``(B) which is not excluded pursuant to 
                paragraph (2).
        The property taken into account under subparagraph (A) 
        shall be determined under section 1014(b) without 
        regard to subparagraph (A) of the last sentence of 
        paragraph (9) thereof.
            ``(2) Certain property not carryover basis 
        property.--The term `carryover basis property' does not 
        include--
                    ``(A) any item of gross income in respect 
                of a decedent described in section 691,
                    ``(B) property which was acquired from the 
                decedent by the surviving spouse of the 
                decedent but only if the value of such property 
                would have been deductible from the value of 
                the taxable estate of the decedent under 
                section 2056, as in effect on the day before 
                the date of the enactment of the Taxpayer 
                Refund and Relief Act of 1999, and
                    ``(C) any includible property of the 
                decedent if the aggregate adjusted fair market 
                value of such property does not exceed 
                $2,000,000.
        For purposes of this subsection, the term `adjusted 
        fair market value' means, with respect to any property, 
        fair market value reduced by any indebtedness secured 
        by such property.
            ``(3) Limitation on exception for property acquired 
        by surviving spouse.--The adjusted fair market value of 
        property which is not carryover basis property by 
        reason of paragraph (2)(B) shall not exceed $3,000,000. 
        The executor shall allocate the limitation under the 
        preceding sentence among such property.
            ``(4) Phasein of carryover basis if property 
        exceeds $1,300,000.--
                    ``(A) In general.--If the aggregate 
                adjusted fair market value of the includible 
                property of the decedent exceeds $1,300,000, 
                but does not exceed $2,000,000, the amount of 
                the increase in the basis of includible 
                property which would (but for this paragraph) 
                result under section 1014 shall be reduced by 
                the amount which bears the same ratio to such 
                increase as such excess bears to $700,000.
                    ``(B) Allocation of reduction.--The 
                reduction under subparagraph (A) shall be 
                allocated among only the excepted includible 
                property having net appreciation and shall be 
                allocated in proportion to the respective 
                amounts of such net appreciation. For purposes 
                of the preceding sentence, the term `net 
                appreciation' means the excess of the adjusted 
                fair market value over the decedent's adjusted 
                basis immediately before such decedent's death.
            ``(5) Includible property.--
                    ``(A) In general.--For purposes of this 
                subsection, the term `includible property' 
                means property which would be included in the 
                gross estate of the decedent under any of the 
                following provisions as in effect on the day 
                before the date of the enactment of the 
                Taxpayer Refund and Relief Act of 1999:
                            ``(i) Section 2033.
                            ``(ii) Section 2038.
                            ``(iii) Section 2040.
                            ``(iv) Section 2041.
                            ``(v) Section 2042(1).
                    ``(B) Exclusion of property acquired by 
                spouse.--Such term shall not include property 
                which is not carryover basis property by reason 
                of paragraph (2)(B).
    ``(c) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary to carry out the purposes of 
this section.''.
    (b) Miscellaneous Amendments Related To Carryover Basis.--
            (1) Capital gain treatment for inherited art work 
        or similar property.--
                    (A) In general.--Subparagraph (C) of 
                section 1221(3) (defining capital asset) is 
                amended by inserting ``(other than by reason of 
                section 1023)'' after ``is determined''.
                    (B) Coordination with section 170.--
                Paragraph (1) of section 170(e) (relating to 
                certain contributions of ordinary income and 
                capital gain property) is amended by adding at 
                the end the following: ``For purposes of this 
                paragraph, the determination of whether 
                property is a capital asset shall be made 
                without regard to the exception contained in 
                section 1221(3)(C) for basis determined under 
                section 1023.''.
            (2) Definition of Executor.--Section 7701(a) 
        (relating to definitions) is amended by adding at the 
        end the following:
            ``(47) Executor.--The term `executor' means the 
        executor or administrator of the decedent, or, if there 
        is no executor or administrator appointed, qualified, 
        and acting within the United States, then any person in 
        actual or constructive possession of any property of 
        the decedent.''.
            (3) Clerical amendment.--The table of sections for 
        part II of subchapter O of chapter 1 is amended by 
        adding at the end the following new item:

        ``Sec. 1023. Carryover basis for certain property acquired from 
                  a decedent dying after December 31, 2008.''.

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

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

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

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

  ``Over $2,500,000.$1,025,800, plus 50% of the excess over ............
                    $2,500,000.''.

            (2) Phase-in of reduced rate.--Subsection (c) of 
        section 2001 is amended by adding at the end the 
        following new paragraph:
            ``(3) Phase-in of reduced rate.--In the case of 
        decedents dying, and gifts made, during 2001, the last 
        item in the table contained in paragraph (1) shall be 
        applied by substituting `53%' for `50%'.''.
    (b) Repeal of Phaseout of Graduated Rates.--Subsection (c) 
of section 2001 is amended by striking paragraph (2) and 
redesignating paragraph (3), as added by subsection (a), as 
paragraph (2).
    (c) Additional Reductions of Rates of Tax.--Subsection (c) 
of section 2001, as so amended, is amended by adding at the end 
the following new paragraph:
            ``(3) Phasedown of tax.--In the case of estates of 
        decedents dying, and gifts made, during any calendar 
        year after 2004 and before 2009--
                    ``(A) In general.--Except as provided in 
                subparagraph (C), the tentative tax under this 
                subsection shall be determined by using a table 
                prescribed by the Secretary (in lieu of using 
                the table contained in paragraph (1)) which is 
                the same as such table; except that--
                            ``(i) each of the rates of tax 
                        shall be reduced by the number of 
                        percentage points determined under 
                        subparagraph (B), and
                            ``(ii) the amounts setting forth 
                        the tax shall be adjusted to the extent 
                        necessary to reflect the adjustments 
                        under clause (i).
                    ``(B) Percentage points of reduction.--

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

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

   Subtitle C--Unified Credit Replaced With Unified Exemption Amount

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

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

``SEC. 2052. EXEMPTION.

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

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

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

``SEC. 2521. EXEMPTION.

    ``In computing taxable gifts for any calendar year, there 
shall be allowed as a deduction in the case of a citizen or 
resident of the United States an amount equal to the excess 
of--
            ``(1) the exemption amount determined under section 
        2052 for such calendar year, over
            ``(2) the sum of--
                    ``(A) the aggregate amount allowed as an 
                exemption under this section for all preceding 
                calendar years after 2000, and
                    ``(B) the aggregate amount of gifts for 
                which credit was allowed by section 2505 (as in 
                effect on the day before the date of the 
                enactment of the Taxpayer Refund and Relief Act 
                of 1999).''
    (b) Repeal of Unified Credits.--
            (1) Section 2010 (relating to unified credit 
        against estate tax) is hereby repealed.
            (2) Section 2505 (relating to unified credit 
        against gift tax) is hereby repealed.
    (c) Conforming Amendments.--
            (1) Subparagraph (B) of section 2001(b)(1) is 
        amended by inserting before the comma ``reduced by the 
        amount described in section 2052(a)(2)(B)''.
            (2)(A) Subsection (b) of section 2011 is amended--
                    (i) by striking ``adjusted'' in the table, 
                and
                    (ii) by striking the last sentence.
            (B) Subsection (f) of section 2011 is amended by 
        striking ``, reduced by the amount of the unified 
        credit provided by section 2010''.
            (3) Subsection (a) of section 2012 is amended by 
        striking ``and the unified credit provided by section 
        2010''.
            (4)(A) Subsection (b) of section 2013 is amended by 
        inserting before the period at the end of the first 
        sentence ``and increased by the exemption allowed under 
        section 2052 or 2106(a)(4) (or the corresponding 
        provisions of prior law) in determining the taxable 
        estate of the transferor for purposes of the estate 
        tax''.
            (B) Subparagraph (A) of section 2013(c)(1) is 
        amended by striking ``2010,''.
            (5) Paragraph (2) of section 2014(b) is amended by 
        striking ``2010,''.
            (6) Clause (ii) of section 2056A(b)(12)(C) is 
        amended to read as follows:
                            ``(ii) to treat any reduction in 
                        the tax imposed by paragraph (1)(A) by 
                        reason of the credit allowable under 
                        section 2010 (as in effect on the day 
                        before the date of the enactment of the 
                        Taxpayer Refund and Relief Act of 1999) 
                        or the exemption allowable under 
                        section 2052 with respect to the 
                        decedent as a credit under section 2505 
                        (as so in effect) or exemption under 
                        section 2521 (as the case may be) 
                        allowable to such surviving spouse for 
                        purposes of determining the amount of 
                        the exemption allowable under section 
                        2521 with respect to taxable gifts made 
                        by the surviving spouse during the year 
                        in which the spouse becomes a citizen 
                        or any subsequent year,''.
            (7) Paragraph (3) of section 2057(a) is amended to 
        read as follows:
            ``(3) Coordination with exemption amount.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), if this section applies to an 
                estate, the exemption amount under section 2052 
                shall be $625,000.
                    ``(B) Increase in exemption amount if 
                deduction is less than $675,000.--If the 
                deduction allowed by this section is less than 
                $675,000, the amount of the exemption amount 
                under section 2052 shall be increased (but not 
                above the amount which would apply to the 
                estate without regard to this section) by the 
                excess of $675,000 over the amount of the 
                deduction allowed.''
            (8)(A) Subparagraph (B) of section 2101(b)(1) is 
        amended by inserting before the comma ``reduced by the 
        aggregate amount of gifts for which credit was allowed 
        by section 2505 (as in effect on the day before the 
        date of the enactment of the Taxpayer Refund and Relief 
        Act of 1999)''.
            (B) Subsection (b) of section 2101 is amended by 
        striking the last sentence.
            (9) Section 2102 is amended by striking subsection 
        (c).
            (10) Subsection (a) of section 2106 is amended by 
        adding at the end the following new paragraph:
            ``(4) Exemption.--
                    ``(A) In general.--An exemption of $60,000.
                    ``(B) Residents of possessions of the 
                united states.--In the case of a decedent who 
                is considered to be a nonresident not a citizen 
                of the United States under section 2209, the 
                exemption under this paragraph shall be the 
                greater of--
                            ``(i) $60,000, or
                            ``(ii) that proportion of $175,000 
                        which the value of that part of the 
                        decedent's gross estate which at the 
                        time of his death is situated in the 
                        United States bears to the value of his 
                        entire gross estate wherever situated.
                    ``(C) Special rules.--
                            ``(i) Coordination with treaties.--
                        To the extent required under any treaty 
                        obligation of the United States, the 
                        exemption allowed under this paragraph 
                        shall be equal to the amount which 
                        bears the same ratio to the exemption 
                        amount under section 2052 (for the 
                        calendar year in which the decedent 
                        died) as the value of the part of the 
                        decedent's gross estate which at the 
                        time of his death is situated in the 
                        United States bears to the value of his 
                        entire gross estate wherever situated. 
                        For purposes of the preceding sentence, 
                        property shall not be treated as 
                        situated in the United States if such 
                        property is exempt from the tax imposed 
                        by this subchapter under any treaty 
                        obligation of the United States.
                            ``(ii) Coordination with gift tax 
                        exemption and unified credit.--If an 
                        exemption has been allowed under 
                        section 2521 (or a credit has been 
                        allowed under section 2505 as in effect 
                        on the day before the date of the 
                        enactment of the Taxpayer Refund and 
                        Relief Act of 1999) with respect to any 
                        gift made by the decedent, each dollar 
                        amount contained in subparagraph (A) or 
                        (B) or the exemption amount applicable 
                        under clause (i) of this subparagraph 
                        (whichever applies) shall be reduced by 
                        the exemption so allowed under 2521 
                        (or, in the case of such a credit, by 
                        the amount of the gift for which the 
                        credit was so allowed).''
            (11)(A) Subsection (a) of section 2107 is amended 
        by adding at the end the following new paragraph:
            ``(3) Limitation on exemption amount.--
        Subparagraphs (B) and (C) of section 2106(a)(4) shall 
        not apply in applying section 2106 for purposes of this 
        section.''
            (B) Subsection (c) of section 2107 is amended--
                            (i) by striking paragraph (1) and 
                        by redesignating paragraphs (2) and (3) 
                        as paragraphs (1) and (2), 
                        respectively, and
                            (ii) by striking the second 
                        sentence of paragraph (2) (as so 
                        redesignated).
            (12) Section 2206 is amended by striking ``the 
        taxable estate'' in the first sentence and inserting 
        ``the sum of the taxable estate and the amount of the 
        exemption allowed under section 2052 or 2106(a)(4) in 
        computing the taxable estate''.
            (13) Section 2207 is amended by striking ``the 
        taxable estate'' in the first sentence and inserting 
        ``the sum of the taxable estate and the amount of the 
        exemption allowed under section 2052 or 2106(a)(4) in 
        computing the taxable estate''.
            (14) Subparagraph (B) of section 2207B(a)(1) is 
        amended to read as follows:
                    ``(B) the sum of the taxable estate and the 
                amount of the exemption allowed under section 
                2052 or 2106(a)(4) in computing the taxable 
                estate.''
            (15) Subsection (a) of section 2503 is amended by 
        striking ``section 2522'' and inserting ``section 
        2521''.
            (16) Paragraph (1) of section 6018(a) is amended by 
        striking ``the applicable exclusion amount in effect 
        under section 2010(c)'' and inserting ``the exemption 
        amount under section 2052''.
            (17) Subparagraph (A) of section 6601(j)(2) is 
        amended to read as follows:
                    ``(A) the amount of the tax which would be 
                imposed by chapter 11 on an amount of taxable 
                estate equal to $1,000,000, or''.
            (18) The table of sections for part II of 
        subchapter A of chapter 11 is amended by striking the 
        item relating to section 2010.
            (19) The table of sections for part IV of 
        subchapter A of chapter 11 is amended by inserting 
        after the item relating to section 2051 the following 
        new item:

        ``Sec. 2052. Exemption.''

            (20) The table of sections for subchapter A of 
        chapter 12 is amended by striking the item relating to 
        section 2505.
            (21) The table of sections for subchapter C of 
        chapter 12 is amended by inserting before the item 
        relating to section 2522 the following new item:

        ``Sec. 2521. Exemption.''

    (d) Effective Date.--The amendments made by this section--
            (1) insofar as they relate to the tax imposed by 
        chapter 11 of the Internal Revenue Code of 1986, shall 
        apply to estates of decedents dying after December 31, 
        2000, and
            (2) insofar as they relate to the tax imposed by 
        chapter 12 of such Code, shall apply to gifts made 
        after December 31, 2000.

     Subtitle D--Modifications of Generation-Skipping Transfer Tax

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

    (a) In General.--Section 2632 (relating to special rules 
for allocation of GST exemption) is amended by redesignating 
subsection (c) as subsection (e) and by inserting after 
subsection (b) the following new subsections:
    ``(c) Deemed Allocation to Certain Lifetime Transfers to 
GST Trusts.--
            ``(1) In general.--If any individual makes an 
        indirect skip during such individual's lifetime, any 
        unused portion of such individual's GST exemption shall 
        be allocated to the property transferred to the extent 
        necessary to make the inclusion ratio for such property 
        zero. If the amount of the indirect skip exceeds such 
        unused portion, the entire unused portion shall be 
        allocated to the property transferred.
            ``(2) Unused portion.--For purposes of paragraph 
        (1), the unused portion of an individual's GST 
        exemption is that portion of such exemption which has 
        not previously been--
                    ``(A) allocated by such individual,
                    ``(B) treated as allocated under subsection 
                (b) with respect to a direct skip occurring 
                during or before the calendar year in which the 
                indirect skip is made, or
                    ``(C) treated as allocated under paragraph 
                (1) with respect to a prior indirect skip.
            ``(3) Definitions.--
                    ``(A) Indirect skip.--For purposes of this 
                subsection, the term `indirect skip' means any 
                transfer of property (other than a direct skip) 
                subject to the tax imposed by chapter 12 made 
                to a GST trust.
                    ``(B) GST trust.--The term `GST trust' 
                means a trust that could have a generation-
                skipping transfer with respect to the 
                transferor unless--
                            ``(i) the trust instrument provides 
                        that more than 25 percent of the trust 
                        corpus must be distributed to or may be 
                        withdrawn by 1 or more individuals who 
                        are non-skip persons--
                                    ``(I) before the date that 
                                the individual attains age 46,
                                    ``(II) on or before 1 or 
                                more dates specified in the 
                                trust instrument that will 
                                occur before the date that such 
                                individual attains age 46, or
                                    ``(III) upon the occurrence 
                                of an event that, in accordance 
                                with regulations prescribed by 
                                the Secretary, may reasonably 
                                be expected to occur before the 
                                date that such individual 
                                attains age 46;
                            ``(ii) the trust instrument 
                        provides that more than 25 percent of 
                        the trust corpus must be distributed to 
                        or may be withdrawn by 1 or more 
                        individuals who are non-skip persons 
                        and who are living on the date of death 
                        of another person identified in the 
                        instrument (by name or by class) who is 
                        more than 10 years older than such 
                        individuals;
                            ``(iii) the trust instrument 
                        provides that, if 1 or more individuals 
                        who are non-skip persons die on or 
                        before a date or event described in 
                        clause (i) or (ii), more than 25 
                        percent of the trust corpus either must 
                        be distributed to the estate or estates 
                        of 1 or more of such individuals or is 
                        subject to a general power of 
                        appointment exercisable by 1 or more of 
                        such individuals;
                            ``(iv) the trust is a trust any 
                        portion of which would be included in 
                        the gross estate of a non-skip person 
                        (other than the transferor) if such 
                        person died immediately after the 
                        transfer;
                            ``(v) the trust is a charitable 
                        lead annuity trust (within the meaning 
                        of section 2642(e)(3)(A)) or a 
                        charitable remainder annuity trust or a 
                        charitable remainder unitrust (within 
                        the meaning of section 664(d)); or
                            ``(vi) the trust is a trust with 
                        respect to which a deduction was 
                        allowed under section 2522 for the 
                        amount of an interest in the form of 
                        the right to receive annual payments of 
                        a fixed percentage of the net fair 
                        market value of the trust property 
                        (determined yearly) and which is 
                        required to pay principal to a non-skip 
                        person if such person is alive when the 
                        yearly payments for which the deduction 
                        was allowed terminate.
                For purposes of this subparagraph, the value of 
                transferred property shall not be considered to 
                be includible in the gross estate of a non-skip 
                person or subject to a right of withdrawal by 
                reason of such person holding a right to 
                withdraw so much of such property as does not 
                exceed the amount referred to in section 
                2503(b) with respect to any transferor, and it 
                shall be assumed that powers of appointment 
                held by non-skip persons will not be exercised.
            ``(4) Automatic allocations to certain gst 
        trusts.--For purposes of this subsection, an indirect 
        skip to which section 2642(f) applies shall be deemed 
        to have been made only at the close of the estate tax 
        inclusion period. The fair market value of such 
        transfer shall be the fair market value of the trust 
        property at the close of the estate tax inclusion 
        period.
            ``(5) Applicability and effect.--
                    ``(A) In general.--An individual--
                            ``(i) may elect to have this 
                        subsection not apply to--
                                    ``(I) an indirect skip, or
                                    ``(II) any or all transfers 
                                made by such individual to a 
                                particular trust, and
                            ``(ii) may elect to treat any trust 
                        as a GST trust for purposes of this 
                        subsection with respect to any or all 
                        transfers made by such individual to 
                        such trust.
                    ``(B) Elections.--
                            ``(i) Elections with respect to 
                        indirect skips.--An election under 
                        subparagraph (A)(i)(I) shall be deemed 
                        to be timely if filed on a timely filed 
                        gift tax return for the calendar year 
                        in which the transfer was made or 
                        deemed to have been made pursuant to 
                        paragraph (4) or on such later date or 
                        dates as may be prescribed by the 
                        Secretary.
                            ``(ii) Other elections.--An 
                        election under clause (i)(II) or (ii) 
                        of subparagraph (A) may be made on a 
                        timely filed gift tax return for the 
                        calendar year for which the election is 
                        to become effective.
    ``(d) Retroactive Allocations.--
            ``(1) In general.--If--
                    ``(A) a non-skip person has an interest or 
                a future interest in a trust to which any 
                transfer has been made,
                    ``(B) such person--
                            ``(i) is a lineal descendant of a 
                        grandparent of the transferor or of a 
                        grandparent of the transferor's spouse 
                        or former spouse, and
                            ``(ii) is assigned to a generation 
                        below the generation assignment of the 
                        transferor, and
                    ``(C) such person predeceases the 
                transferor,
        then the transferor may make an allocation of any of 
        such transferor's unused GST exemption to any previous 
        transfer or transfers to the trust on a chronological 
        basis.
            ``(2) Special rules.--If the allocation under 
        paragraph (1) by the transferor is made on a gift tax 
        return filed on or before the date prescribed by 
        section 6075(b) for gifts made within the calendar year 
        within which the non-skip person's death occurred--
                    ``(A) the value of such transfer or 
                transfers for purposes of section 2642(a) shall 
                be determined as if such allocation had been 
                made on a timely filed gift tax return for each 
                calendar year within which each transfer was 
                made,
                    ``(B) such allocation shall be effective 
                immediately before such death, and
                    ``(C) the amount of the transferor's unused 
                GST exemption available to be allocated shall 
                be determined immediately before such death.
            ``(3) Future interest.--For purposes of this 
        subsection, a person has a future interest in a trust 
        if the trust may permit income or corpus to be paid to 
        such person on a date or dates in the future.''.
    (b) Conforming Amendment.--Paragraph (2) of section 2632(b) 
is amended by striking ``with respect to a direct skip'' and 
inserting ``or subsection (c)(1)''.
    (c) Effective Dates.--
            (1) Deemed allocation.--Section 2632(c) of the 
        Internal Revenue Code of 1986 (as added by subsection 
        (a)), and the amendment made by subsection (b), shall 
        apply to transfers subject to chapter 11 or 12 made 
        after December 31, 1999, and to estate tax inclusion 
        periods ending after December 31, 1999.
            (2) Retroactive allocations.--Section 2632(d) of 
        the Internal Revenue Code of 1986 (as added by 
        subsection (a)) shall apply to deaths of non-skip 
        persons occurring after the date of the enactment of 
        this Act.

SEC. 632. SEVERING OF TRUSTS.

    (a) In General.--Subsection (a) of section 2642 (relating 
to inclusion ratio) is amended by adding at the end the 
following new paragraph:
            ``(3) Severing of trusts.--
                    ``(A) In general.--If a trust is severed in 
                a qualified severance, the trusts resulting 
                from such severance shall be treated as 
                separate trusts thereafter for purposes of this 
                chapter.
                    ``(B) Qualified severance.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The term 
                        `qualified severance' means the 
                        division of a single trust and the 
                        creation (by any means available under 
                        the governing instrument or under local 
                        law) of 2 or more trusts if--
                                    ``(I) the single trust was 
                                divided on a fractional basis, 
                                and
                                    ``(II) the terms of the new 
                                trusts, in the aggregate, 
                                provide for the same succession 
                                of interests of beneficiaries 
                                as are provided in the original 
                                trust.
                            ``(ii) Trusts with inclusion ratio 
                        greater than zero.--If a trust has an 
                        inclusion ratio of greater than zero 
                        and less than 1, a severance is a 
                        qualified severance only if the single 
                        trust is divided into 2 trusts, one of 
                        which receives a fractional share of 
                        the total value of all trust assets 
                        equal to the applicable fraction of the 
                        single trust immediately before the 
                        severance. In such case, the trust 
                        receiving such fractional share shall 
                        have an inclusion ratio of zero and the 
                        other trust shall have an inclusion 
                        ratio of 1.
                            ``(iii) Regulations.--The term 
                        `qualified severance' includes any 
                        other severance permitted under 
                        regulations prescribed by the 
                        Secretary.
                    ``(C) Timing and manner of severances.--A 
                severance pursuant to this paragraph may be 
                made at any time. The Secretary shall prescribe 
                by forms or regulations the manner in which the 
                qualified severance shall be reported to the 
                Secretary.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to severances after the date of the enactment of 
this Act.

SEC. 633. MODIFICATION OF CERTAIN VALUATION RULES.

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

SEC. 634. RELIEF PROVISIONS.

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

                   Subtitle E--Conservation Easements

SEC. 641. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASEMENTS.

    (a) Where Land Is Located.--
            (1) In general.--Clause (i) of section 
        2031(c)(8)(A) (defining land subject to a conservation 
        easement) is amended--
                    (A) by striking ``25 miles'' both places it 
                appears and inserting ``50 miles'', and
                    (B) striking ``10 miles'' and inserting 
                ``25 miles''.
            (2) Effective date.--The amendments made by this 
        subsection shall apply to estates of decedents dying 
        after December 31, 1999.
    (b) Clarification of Date for Determining Value of Land and 
Easement.--
            (1) In general.--Section 2031(c)(2) (defining 
        applicable percentage) is amended by adding at the end 
        the following new sentence: ``The values taken into 
        account under the preceding sentence shall be such 
        values as of the date of the contribution referred to 
        in paragraph (8)(B).''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to estates of decedents dying 
        after December 31, 1997.

    TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES

           Subtitle A--American Community Renewal Act of 1999

SEC. 701. SHORT TITLE.

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

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

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

                  ``Subchapter X--Renewal Communities

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

                         ``PART I--DESIGNATION

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

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

    ``(a) Designation.--
            ``(1) Definitions.--For purposes of this title, the 
        term `renewal community' means any area--
                    ``(A) which is nominated by one or more 
                local governments and the State or States in 
                which it is located for designation as a 
                renewal community (hereinafter in this section 
                referred to as a `nominated area'); and
                    ``(B) which the Secretary of Housing and 
                Urban Development designates as a renewal 
                community, after consultation with--
                            ``(i) the Secretaries of 
                        Agriculture, Commerce, Labor, and the 
                        Treasury; the Director of the Office of 
                        Management and Budget; and the 
                        Administrator of the Small Business 
                        Administration; and
                            ``(ii) in the case of an area on an 
                        Indian reservation, the Secretary of 
                        the Interior.
            ``(2) Number of designations.--
                    ``(A) In general.--The Secretary of Housing 
                and Urban Development may designate not more 
                than 20 nominated areas as renewal communities.
                    ``(B) Minimum designation in rural areas.--
                Of the areas designated under paragraph (1), at 
                least 4 must be areas--
                            ``(i) which are within a local 
                        government jurisdiction or 
                        jurisdictions with a population of less 
                        than 50,000,
                            ``(ii) which are outside of a 
                        metropolitan statistical area (within 
                        the meaning of section 143(k)(2)(B)), 
                        or
                            ``(iii) which are determined by the 
                        Secretary of Housing and Urban 
                        Development, after consultation with 
                        the Secretary of Commerce, to be rural 
                        areas.
            ``(3) Areas designated based on degree of poverty, 
        etc.--
                    ``(A) In general.--Except as otherwise 
                provided in this section, the nominated areas 
                designated as renewal communities under this 
                subsection shall be those nominated areas with 
                the highest average ranking with respect to the 
                criteria described in subparagraphs (B), (C), 
                and (D) of subsection (c)(3). For purposes of 
                the preceding sentence, an area shall be ranked 
                within each such criterion on the basis of the 
                amount by which the area exceeds such 
                criterion, with the area which exceeds such 
                criterion by the greatest amount given the 
                highest ranking.
                    ``(B) Exception where inadequate course of 
                action, etc.--An area shall not be designated 
                under subparagraph (A) if the Secretary of 
                Housing and Urban Development determines that 
                the course of action described in subsection 
                (d)(2) with respect to such area is inadequate.
                    ``(C) Priority for empowerment zones and 
                enterprise communities with respect to first 
                half of designations.--With respect to the 
                first 10 designations made under this section--
                            ``(i) all shall be chosen from 
                        nominated areas which are empowerment 
                        zones or enterprise communities (and 
                        are otherwise eligible for designation 
                        under this section); and
                            ``(ii) 2 shall be areas described 
                        in paragraph (2)(B).
            ``(4) Limitation on designations.--
                    ``(A) Publication of regulations.--The 
                Secretary of Housing and Urban Development 
                shall prescribe by regulation no later than 4 
                months after the date of the enactment of this 
                section, after consultation with the officials 
                described in paragraph (1)(B)--
                            ``(i) the procedures for nominating 
                        an area under paragraph (1)(A);
                            ``(ii) the parameters relating to 
                        the size and population characteristics 
                        of a renewal community; and
                            ``(iii) the manner in which 
                        nominated areas will be evaluated based 
                        on the criteria specified in subsection 
                        (d).
                    ``(B) Time limitations.--The Secretary of 
                Housing and Urban Development may designate 
                nominated areas as renewal communities only 
                during the 24-month period beginning on the 
                first day of the first month following the 
                month in which the regulations described in 
                subparagraph (A) are prescribed.
                    ``(C) Procedural rules.--The Secretary of 
                Housing and Urban Development shall not make 
                any designation of a nominated area as a 
                renewal community under paragraph (2) unless--
                            ``(i) the local governments and the 
                        States in which the nominated area is 
                        located have the authority--
                                    ``(I) to nominate such area 
                                for designation as a renewal 
                                community;
                                    ``(II) to make the State 
                                and local commitments described 
                                in subsection (d); and
                                    ``(III) to provide 
                                assurances satisfactory to the 
                                Secretary of Housing and Urban 
                                Development that such 
                                commitments will be fulfilled,
                            ``(ii) a nomination regarding such 
                        area is submitted in such a manner and 
                        in such form, and contains such 
                        information, as the Secretary of 
                        Housing and Urban Development shall by 
                        regulation prescribe; and
                            ``(iii) the Secretary of Housing 
                        and Urban Development determines that 
                        any information furnished is reasonably 
                        accurate.
            ``(5) Nomination process for indian reservations.--
        For purposes of this subchapter, in the case of a 
        nominated area on an Indian reservation, the 
        reservation governing body (as determined by the 
        Secretary of the Interior) shall be treated as being 
        both the State and local governments with respect to 
        such area.
    ``(b) Period for Which Designation Is in Effect.--
            ``(1) al.--Any designation of an area as a renewal 
        community shall remain in effect during the period 
        beginning on the date of the designation and ending on 
        the earliest of--
                    ``(A) December 31, 2007,
                    ``(B) the termination date designated by 
                the State and local governments in their 
                nomination, or
                    ``(C) the date the Secretary of Housing and 
                Urban Development revokes such designation.
            ``(2) Revocation of designation.--The Secretary of 
        Housing and Urban Development may revoke the 
        designation under this section of an area if such 
        Secretary determines that the local government or the 
        State in which the area is located--
                    ``(A) has modified the boundaries of the 
                area, or
                    ``(B) is not complying substantially with, 
                or fails to make progress in achieving, the 
                State or local commitments, respectively, 
                described in subsection (d).
    ``(c) Area and Eligibility Requirements.--
            ``(1) In general.--The Secretary of Housing and 
        Urban Development may designate a nominated area as a 
        renewal community under subsection (a) only if the area 
        meets the requirements of paragraphs (2) and (3) of 
        this subsection.
            ``(2) Area requirements.--A nominated area meets 
        the requirements of this paragraph if--
                    ``(A) the area is within the jurisdiction 
                of one or more local governments;
                    ``(B) the boundary of the area is 
                continuous; and
                    ``(C) the area--
                            ``(i) has a population, of at 
                        least--
                                    ``(I) 4,000 if any portion 
                                of such area (other than a 
                                rural area described in 
                                subsection (a)(2)(B)(i)) is 
                                located within a metropolitan 
                                statistical area (within the 
                                meaning of section 
                                143(k)(2)(B)) which has a 
                                population of 50,000 or 
                                greater; or
                                    ``(II) 1,000 in any other 
                                case; or
                            ``(ii) is entirely within an Indian 
                        reservation (as determined by the 
                        Secretary of the Interior).
            ``(3) Eligibility requirements.--A nominated area 
        meets the requirements of this paragraph if the State 
        and the local governments in which it is located 
        certify (and the Secretary of Housing and Urban 
        Development, after such review of supporting data as he 
        deems appropriate, accepts such certification) that--
                    ``(A) the area is one of pervasive poverty, 
                unemployment, and general distress;
                    ``(B) the unemployment rate in the area, as 
                determined by the most recent available data, 
                was at least 1\1/2\ times the national 
                unemployment rate for the period to which such 
                data relate;
                    ``(C) the poverty rate for each population 
                census tract within the nominated area is at 
                least 20 percent; and
                    ``(D) in the case of an urban area, at 
                least 70 percent of the households living in 
                the area have incomes below 80 percent of the 
                median income of households within the 
                jurisdiction of the local government 
                (determined in the same manner as under section 
                119(b)(2) of the Housing and Community 
                Development Act of 1974).
            ``(4) Consideration of high incidence of crime.--
        The Secretary of Housing and Urban Development shall 
        take into account, in selecting nominated areas for 
        designation as renewal communities under this section, 
        the extent to which such areas have a high incidence of 
        crime.
            ``(5) Consideration of communities identified in 
        gao study.--The Secretary of Housing and Urban 
        Development shall take into account, in selecting 
        nominated areas for designation as renewal communities 
        under this section, if the area has census tracts 
        identified in the May 12, 1998, report of the 
        Government Accounting Office regarding the 
        identification of economically distressed areas.
    ``(d) Required State and Local Commitments.--
            ``(1) In general.--The Secretary of Housing and 
        Urban Development may designate any nominated area as a 
        renewal community under subsection (a) only if--
                    ``(A) the local government and the State in 
                which the area is located agree in writing 
                that, during any period during which the area 
                is a renewal community, such governments will 
                follow a specified course of action which meets 
                the requirements of paragraph (2) and is 
                designed to reduce the various burdens borne by 
                employers or employees in such area; and
                    ``(B) the economic growth promotion 
                requirements of paragraph (3) are met.
            ``(2) Course of action.--
                    ``(A) In general.--A course of action meets 
                the requirements of this paragraph if such 
                course of action is a written document, signed 
                by a State (or local government) and 
                neighborhood organizations, which evidences a 
                partnership between such State or government 
                and community-based organizations and which 
                commits each signatory to specific and 
                measurable goals, actions, and timetables. Such 
                course of action shall include at least five of 
                the following:
                            ``(i) A reduction of tax rates or 
                        fees applying within the renewal 
                        community.
                            ``(ii) An increase in the level of 
                        efficiency of local services within the 
                        renewal community.
                            ``(iii) Crime reduction strategies, 
                        such as crime prevention (including the 
                        provision of such services by 
                        nongovernmental entities).
                            ``(iv) Actions to reduce, remove, 
                        simplify, or streamline governmental 
                        requirements applying within the 
                        renewal community.
                            ``(v) Involvement in the program by 
                        private entities, organizations, 
                        neighborhood organizations, and 
                        community groups, particularly those in 
                        the renewal community, including a 
                        commitment from such private entities 
                        to provide jobs and job training for, 
                        and technical, financial, or other 
                        assistance to, employers, employees, 
                        and residents from the renewal 
                        community.
                            ``(vi) State or local income tax 
                        benefits for fees paid for services 
                        performed by a nongovernmental entity 
                        which were formerly performed by a 
                        governmental entity.
                            ``(vii) The gift (or sale at below 
                        fair market value) of surplus real 
                        property (such as land, homes, and 
                        commercial or industrial structures) in 
                        the renewal community to neighborhood 
                        organizations, community development 
                        corporations, or private companies.
                    ``(B) Recognition of past efforts.--For 
                purposes of this section, in evaluating the 
                course of action agreed to by any State or 
                local government, the Secretary of Housing and 
                Urban Development shall take into account the 
                past efforts of such State or local government 
                in reducing the various burdens borne by 
                employers and employees in the area involved.
            ``(3) Economic growth promotion requirements.--The 
        economic growth promotion requirements of this 
        paragraph are met with respect to a nominated area if 
        the local government and the State in which such area 
        is located certify in writing that such government and 
        State, respectively, have repealed or otherwise will 
        not enforce within the area, if such area is designated 
        as a renewal community--
                    ``(A) licensing requirements for 
                occupations that do not ordinarily require a 
                professional degree;
                    ``(B) zoning restrictions on home-based 
                businesses which do not create a public 
                nuisance;
                    ``(C) permit requirements for street 
                vendors who do not create a public nuisance;
                    ``(D) zoning or other restrictions that 
                impede the formation of schools or child care 
                centers; and
                    ``(E) franchises or other restrictions on 
                competition for businesses providing public 
                services, including but not limited to 
                taxicabs, jitneys, cable television, or trash 
                hauling,
        except to the extent that such regulation of businesses 
        and occupations is necessary for and well-tailored to 
        the protection of health and safety.
    ``(e) Coordination With Treatment of Empowerment Zones and 
Enterprise Communities.--For purposes of this title, if there 
are in effect with respect to the same area both--
            ``(1) a designation as a renewal community; and
            ``(2) a designation as an empowerment zone or 
        enterprise community,
both of such designations shall be given full effect with 
respect to such area.
    ``(f) Definitions and Special Rules.--For purposes of this 
subchapter--
            ``(1) Governments.--If more than one government 
        seeks to nominate an area as a renewal community, any 
        reference to, or requirement of, this section shall 
        apply to all such governments.
            ``(2) State.--The term `State' includes Puerto 
        Rico, the Virgin Islands of the United States, Guam, 
        American Samoa, the Northern Mariana Islands, and any 
        other possession of the United States.
            ``(3) Local government.--The term `local 
        government' means--
                    ``(A) any county, city, town, township, 
                parish, village, or other general purpose 
                political subdivision of a State;
                    ``(B) any combination of political 
                subdivisions described in subparagraph (A) 
                recognized by the Secretary of Housing and 
                Urban Development; and
                    ``(C) the District of Columbia.
            ``(4) Application of rules relating to census 
        tracts and census data.--The rules of sections 
        1392(b)(4) and 1393(a)(9) shall apply.

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

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

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

    ``(a) General Rule.--Gross income does not include any 
qualified capital gain recognized on the sale or exchange of a 
qualified community asset held for more than 5 years.
    ``(b) Qualified Community Asset.--For purposes of this 
section--
            ``(1) In general.--The term `qualified community 
        asset' means--
                    ``(A) any qualified community stock;
                    ``(B) any qualified community partnership 
                interest; and
                    ``(C) any qualified community business 
                property.
            ``(2) Qualified community stock.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified community 
                stock' means any stock in a domestic 
                corporation if--
                            ``(i) such stock is acquired by the 
                        taxpayer after December 31, 2000, and 
                        before January 1, 2008, at its original 
                        issue (directly or through an 
                        underwriter) from the corporation 
                        solely in exchange for cash;
                            ``(ii) as of the time such stock 
                        was issued, such corporation was a 
                        renewal community business (or, in the 
                        case of a new corporation, such 
                        corporation was being organized for 
                        purposes of being a renewal community 
                        business); and
                            ``(iii) during substantially all of 
                        the taxpayer's holding period for such 
                        stock, such corporation qualified as a 
                        renewal community business.
                    ``(B) Redemptions.--A rule similar to the 
                rule of section 1202(c)(3) shall apply for 
                purposes of this paragraph.
            ``(3) Qualified community partnership interest.--
        The term `qualified community partnership interest' 
        means any capital or profits interest in a domestic 
        partnership if--
                    ``(A) such interest is acquired by the 
                taxpayer after December 31, 2000, and before 
                January 1, 2008;
                    ``(B) as of the time such interest was 
                acquired, such partnership was a renewal 
                community business (or, in the case of a new 
                partnership, such partnership was being 
                organized for purposes of being a renewal 
                community business); and
                    ``(C) during substantially all of the 
                taxpayer's holding period for such interest, 
                such partnership qualified as a renewal 
                community business.
        A rule similar to the rule of paragraph (2)(B) shall 
        apply for purposes of this paragraph.
            ``(4) Qualified community business property.--
                    ``(A) In general.--The term `qualified 
                community business property' means tangible 
                property if--
                            ``(i) such property was acquired by 
                        the taxpayer by purchase (as defined in 
                        section 179(d)(2)) after December 31, 
                        2000, and before January 1, 2008;
                            ``(ii) the original use of such 
                        property in the renewal community 
                        commences with the taxpayer; and
                            ``(iii) during substantially all of 
                        the taxpayer's holding period for such 
                        property, substantially all of the use 
                        of such property was in a renewal 
                        community business of the taxpayer.
                    ``(B) Special rule for substantial 
                improvements.--The requirements of clauses (i) 
                and (ii) of subparagraph (A) shall be treated 
                as satisfied with respect to--
                            ``(i) property which is 
                        substantially improved (within the 
                        meaning of section 1400B(b)(4)(B)(ii)) 
                        by the taxpayer before January 1, 2008; 
                        and
                            ``(ii) any land on which such 
                        property is located.
    ``(c) Certain Rules To Apply.--Rules similar to the rules 
of paragraphs (5), (6), and (7) of subsection (b), and 
subsections (e), (f), and (g), of section 1400B shall apply for 
purposes of this section.

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

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

                ``PART III--FAMILY DEVELOPMENT ACCOUNTS

        ``Sec. 1400H. Family development accounts for renewal community 
                  EITC recipients.
        ``Sec. 1400I. Designation of earned income tax credit payments 
                  for deposit to family development account.

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

    ``(a) Allowance of Deduction.--
            ``(1) In general.--There shall be allowed as a 
        deduction--
                    ``(A) in the case of a qualified 
                individual, the amount paid in cash for the 
                taxable year by such individual to any family 
                development account for such individual's 
                benefit; and
                    ``(B) in the case of any person other than 
                a qualified individual, the amount paid in cash 
                for the taxable year by such person to any 
                family development account for the benefit of a 
                qualified individual but only if the amount so 
                paid is designated for purposes of this section 
                by such individual.
            ``(2) Limitation.--
                    ``(A) In general.--The amount allowable as 
                a deduction to any individual for any taxable 
                year by reason of paragraph (1)(A) shall not 
                exceed the lesser of--
                            ``(i) $2,000, or
                            ``(ii) an amount equal to the 
                        compensation includible in the 
                        individual's gross income for such 
                        taxable year.
                    ``(B) Persons donating to family 
                development accounts of others.--The amount 
                which may be designated under paragraph (1)(B) 
                by any qualified individual for any taxable 
                year of such individual shall not exceed 
                $1,000.
            ``(3) Special rules for certain married 
        individuals.--Rules similar to rules of section 219(c) 
        shall apply to the limitation in paragraph (2)(A).
            ``(4) Coordination with iras.--No deduction shall 
        be allowed under this section for any taxable year to 
        any person by reason of a payment to an account for the 
        benefit of a qualified individual if any amount is paid 
        for such taxable year into an individual retirement 
        account (including a Roth IRA) for the benefit of such 
        individual.
            ``(5) Rollovers.--No deduction shall be allowed 
        under this section with respect to any rollover 
        contribution.
    ``(b) Tax Treatment of Distributions.--
            ``(1) Inclusion of amounts in gross income.--Except 
        as otherwise provided in this subsection, any amount 
        paid or distributed out of a family development account 
        shall be included in gross income by the payee or 
        distributee, as the case may be.
            ``(2) Exclusion of qualified family development 
        distributions.--Paragraph (1) shall not apply to any 
        qualified family development distribution.
    ``(c) Qualified Family Development Distribution.--For 
purposes of this section--
            ``(1) In general.--The term `qualified family 
        development distribution' means any amount paid or 
        distributed out of a family development account which 
        would otherwise be includible in gross income, to the 
        extent that such payment or distribution is used 
        exclusively to pay qualified family development 
        expenses for the holder of the account or the spouse or 
        dependent (as defined in section 152) of such holder.
            ``(2) Qualified family development expenses.--The 
        term `qualified family development expenses' means any 
        of the following:
                    ``(A) Qualified higher education expenses.
                    ``(B) Qualified first-time homebuyer costs.
                    ``(C) Qualified business capitalization 
                costs.
                    ``(D) Qualified medical expenses.
                    ``(E) Qualified rollovers.
            ``(3) Qualified higher education expenses.--
                    ``(A) In general.--The term `qualified 
                higher education expenses' has the meaning 
                given such term by section 72(t)(7), determined 
                by treating postsecondary vocational 
                educational schools as eligible educational 
                institutions.
                    ``(B) Postsecondary vocational education 
                school.--The term `postsecondary vocational 
                educational school' means an area vocational 
                education school (as defined in subparagraph 
                (C) or (D) of section 521(4) of the Carl D. 
                Perkins Vocational and Applied Technology 
                Education Act (20 U.S.C. 2471(4))) which is in 
                any State (as defined in section 521(33) of 
                such Act), as such sections are in effect on 
                the date of the enactment of this section.
                    ``(C) Coordination with other benefits.--
                The amount of qualified higher education 
                expenses for any taxable year shall be reduced 
                as provided in section 25A(g)(2).
            ``(4) Qualified first-time homebuyer costs.--The 
        term `qualified first-time homebuyer costs' means 
        qualified acquisition costs (as defined in section 
        72(t)(8) without regard to subparagraph (B) thereof) 
        with respect to a principal residence (within the 
        meaning of section 121) for a qualified first-time 
        homebuyer (as defined in section 72(t)(8)).
            ``(5) Qualified business capitalization costs.--
                    ``(A) In general.--The term `qualified 
                business capitalization costs' means qualified 
                expenditures for the capitalization of a 
                qualified business pursuant to a qualified 
                plan.
                    ``(B) Qualified expenditures.--The term 
                `qualified expenditures' means expenditures 
                included in a qualified plan, including 
                capital, plant, equipment, working capital, and 
                inventory expenses.
                    ``(C) Qualified business.--The term 
                `qualified business' means any trade or 
                business other than any trade or business--
                            ``(i) which consists of the 
                        operation of any facility described in 
                        section 144(c)(6)(B), or
                            ``(ii) which contravenes any law.
                    ``(D) Qualified plan.--The term `qualified 
                plan' means a business plan which meets such 
                requirements as the Secretary may specify.
            ``(6) Qualified medical expenses.--The term 
        `qualified medical expenses' means any amount paid 
        during the taxable year, not compensated for by 
        insurance or otherwise, for medical care (as defined in 
        section 213(d)) of the taxpayer, his spouse, or his 
        dependent (as defined in section 152).
            ``(7) Qualified rollovers.--The term `qualified 
        rollover' means any amount paid from a family 
        development account of a taxpayer into another such 
        account established for the benefit of--
                    ``(A) such taxpayer, or
                    ``(B) any qualified individual who is--
                            ``(i) the spouse of such taxpayer, 
                        or
                            ``(ii) any dependent (as defined in 
                        section 152) of the taxpayer.
        Rules similar to the rules of section 408(d)(3) shall 
        apply for purposes of this paragraph.
    ``(d) Tax Treatment of Accounts.--
            ``(1) In general.--Any family development account 
        is exempt from taxation under this subtitle unless such 
        account has ceased to be a family development account 
        by reason of paragraph (2). Notwithstanding the 
        preceding sentence, any such account is subject to the 
        taxes imposed by section 511 (relating to imposition of 
        tax on unrelated business income of charitable, etc., 
        organizations). Notwithstanding any other provision of 
        this title (including chapters 11 and 12), the basis of 
        any person in such an account is zero.
            ``(2) Loss of exemption in case of prohibited 
        transactions.--For purposes of this section, rules 
        similar to the rules of section 408(e) shall apply.
            ``(3) Other rules to apply.--Rules similar to the 
        rules of paragraphs (4), (5), and (6) of section 408(d) 
        shall apply for purposes of this section.
    ``(e) Family Development Account.--For purposes of this 
title, the term `family development account' means a trust 
created or organized in the United States for the exclusive 
benefit of a qualified individual or his beneficiaries, but 
only if the written governing instrument creating the trust 
meets the following requirements:
            ``(1) Except in the case of a qualified rollover 
        (as defined in subsection (c)(7))--
                    ``(A) no contribution will be accepted 
                unless it is in cash; and
                    ``(B) contributions will not be accepted 
                for the taxable year in excess of $3,000.
            ``(2) The requirements of paragraphs (2) through 
        (6) of section 408(a) are met.
    ``(f) Qualified Individual.--For purposes of this section, 
the term `qualified individual' means, for any taxable year, an 
individual--
            ``(1) who is a bona fide resident of a renewal 
        community throughout the taxable year; and
            ``(2) to whom a credit was allowed under section 32 
        for the preceding taxable year.
    ``(g) Other Definitions and Special Rules.--
            ``(1) Compensation.--The term `compensation' has 
        the meaning given such term by section 219(f)(1).
            ``(2) Married individuals.--The maximum deduction 
        under subsection (a) shall be computed separately for 
        each individual, and this section shall be applied 
        without regard to any community property laws.
            ``(3) Time when contributions deemed made.--For 
        purposes of this section, a taxpayer shall be deemed to 
        have made a contribution to a family development 
        account on the last day of the preceding taxable year 
        if the contribution is made on account of such taxable 
        year and is made not later than the time prescribed by 
        law for filing the return for such taxable year (not 
        including extensions thereof).
            ``(4) Employer payments; custodial accounts.--Rules 
        similar to the rules of sections 219(f)(5) and 408(h) 
        shall apply for purposes of this section.
            ``(5) Reports.--The trustee of a family development 
        account shall make such reports regarding such account 
        to the Secretary and to the individual for whom the 
        account is maintained with respect to contributions 
        (and the years to which they relate), distributions, 
        and such other matters as the Secretary may require 
        under regulations. The reports required by this 
        paragraph--
                    ``(A) shall be filed at such time and in 
                such manner as the Secretary prescribes in such 
                regulations; and
                    ``(B) shall be furnished to individuals--
                            ``(i) not later than January 31 of 
                        the calendar year following the 
                        calendar year to which such reports 
                        relate; and
                            ``(ii) in such manner as the 
                        Secretary prescribes in such 
                        regulations.
            ``(6) Investment in collectibles treated as 
        distributions.--Rules similar to the rules of section 
        408(m) shall apply for purposes of this section.
    ``(h) Penalty for Distributions Not Used for Qualified 
Family Development Expenses.--
            ``(1) In general.--If any amount is distributed 
        from a family development account and is not used 
        exclusively to pay qualified family development 
        expenses for the holder of the account or the spouse or 
        dependent (as defined in section 152) of such holder, 
        the tax imposed by this chapter for the taxable year of 
        such distribution shall be increased by 10 percent of 
        the portion of such amount which is includible in gross 
        income.
            ``(2) Exception for certain distributions.--
        Paragraph (1) shall not apply to distributions which 
        are--
                    ``(A) made on or after the date on which 
                the account holder attains age 59\1/2\,
                    ``(B) made to a beneficiary (or the estate 
                of the account holder) on or after the death of 
                the account holder, or
                    ``(C) attributable to the account holder's 
                being disabled within the meaning of section 
                72(m)(7).
    ``(i) Application of Section.--This section shall apply to 
amounts paid to a family development account for any taxable 
year beginning after December 31, 2000, and before January 1, 
2008.

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

    ``(a) In General.--With respect to the return of any 
qualified individual (as defined in section 1400H(f)) for the 
taxable year of the tax imposed by this chapter, such 
individual may designate that a specified portion (not less 
than $1) of any overpayment of tax for such taxable year which 
is attributable to the earned income tax credit shall be 
deposited by the Secretary into a family development account of 
such individual. The Secretary shall so deposit such portion 
designated under this subsection.
    ``(b) Manner and Time of Designation.--A designation under 
subsection (a) may be made with respect to any taxable year--
            ``(1) at the time of filing the return of the tax 
        imposed by this chapter for such taxable year, or
            ``(2) at any other time (after the time of filing 
        the return of the tax imposed by this chapter for such 
        taxable year) specified in regulations prescribed by 
        the Secretary.
Such designation shall be made in such manner as the Secretary 
prescribes by regulations.
    ``(c) Portion Attributable to Earned Income Tax Credit.--
For purposes of subsection (a), an overpayment for any taxable 
year shall be treated as attributable to the earned income tax 
credit to the extent that such overpayment does not exceed the 
credit allowed to the taxpayer under section 32 for such 
taxable year.
    ``(d) Overpayments Treated as Refunded.--For purposes of 
this title, any portion of an overpayment of tax designated 
under subsection (a) shall be treated as being refunded to the 
taxpayer as of the last date prescribed for filing the return 
of tax imposed by this chapter (determined without regard to 
extensions) or, if later, the date the return is filed.
    ``(e) Termination.--This section shall not apply to any 
taxable year beginning after December 31, 2007.

                    ``PART IV--ADDITIONAL INCENTIVES

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

``SEC. 1400K. COMMERCIAL REVITALIZATION DEDUCTION.

    ``(a) General Rule.--At the election of the taxpayer, 
either--
            ``(1) one-half of any qualified revitalization 
        expenditures chargeable to capital account with respect 
        to any qualified revitalization building shall be 
        allowable as a deduction for the taxable year in which 
        the building is placed in service, or
            ``(2) a deduction for all such expenditures shall 
        be allowable ratably over the 120-month period 
        beginning with the month in which the building is 
        placed in service.
The deduction provided by this section with respect to such 
expenditure shall be in lieu of any depreciation deduction 
otherwise allowable on account of such expenditure.
    ``(b) Qualified Revitalization Buildings and 
Expenditures.--For purposes of this section--
            ``(1) Qualified revitalization building.--The term 
        `qualified revitalization building' means any building 
        (and its structural components) if--
                    ``(A) such building is located in a renewal 
                community and is placed in service after 
                December 31, 2000;
                    ``(B) a commercial revitalization deduction 
                amount is allocated to the building under 
                subsection (d); and
                    ``(C) depreciation (or amortization in lieu 
                of depreciation) is allowable with respect to 
                the building (without regard to this section).
            ``(2) Qualified revitalization expenditure.--
                    ``(A) In general.--The term `qualified 
                revitalization expenditure' means any amount 
                properly chargeable to capital account--
                            ``(i) for property for which 
                        depreciation is allowable under section 
                        168 (without regard to this section) 
                        and which is--
                                    ``(I) nonresidential real 
                                property; or
                                    ``(II) an addition or 
                                improvement to property 
                                described in subclause (I);
                            ``(ii) in connection with the 
                        construction of any qualified 
                        revitalization building which was not 
                        previously placed in service or in 
                        connection with the substantial 
                        rehabilitation (within the meaning of 
                        section 47(c)(1)(C)) of a building 
                        which was placed in service before the 
                        beginning of such rehabilitation; and
                            ``(iii) for land (including land 
                        which is functionally related to such 
                        property and subordinate thereto).
                    ``(B) Dollar limitation.--The aggregate 
                amount which may be treated as qualified 
                revitalization expenditures with respect to any 
                qualified revitalization building for any 
                taxable year shall not exceed the excess of--
                            ``(i) $10,000,000, reduced by
                            ``(ii) any such expenditures with 
                        respect to the building taken into 
                        account by the taxpayer or any 
                        predecessor in determining the amount 
                        of the deduction under this section for 
                        all preceding taxable years.
                    ``(C) Certain expenditures not included.--
                The term `qualified revitalization expenditure' 
                does not include--
                            ``(i) Acquisition costs.--The costs 
                        of acquiring any building or interest 
                        therein and any land in connection with 
                        such building to the extent that such 
                        costs exceed 30 percent of the 
                        qualified revitalization expenditures 
                        determined without regard to this 
                        clause.
                            ``(ii) Credits.--Any expenditure 
                        which the taxpayer may take into 
                        account in computing any credit 
                        allowable under this title unless the 
                        taxpayer elects to take the expenditure 
                        into account only for purposes of this 
                        section.
    ``(c) When Expenditures Taken Into Account.--Qualified 
revitalization expenditures with respect to any qualified 
revitalization building shall be taken into account for the 
taxable year in which the qualified revitalization building is 
placed in service. For purposes of the preceding sentence, a 
substantial rehabilitation of a building shall be treated as a 
separate building.
    ``(d) Limitation on Aggregate Deductions Allowable With 
Respect to Buildings Located in a State.--
            ``(1) In general.--The amount of the deduction 
        determined under this section for any taxable year with 
        respect to any building shall not exceed the commercial 
        revitalization deduction amount (in the case of an 
        amount determined under subsection (a)(2), the present 
        value of such amount as determined under the rules of 
        section 42(b)(2)(C) by substituting `100 percent' for 
        `72 percent' in clause (ii) thereof) allocated to such 
        building under this subsection by the commercial 
        revitalization agency. Such allocation shall be made at 
        the same time and in the same manner as under 
        paragraphs (1) and (7) of section 42(h).
            ``(2) Commercial revitalization deduction amount 
        for agencies.--
                    ``(A) In general.--The aggregate commercial 
                revitalization deduction amount which a 
                commercial revitalization agency may allocate 
                for any calendar year is the amount of the 
                State commercial revitalization deduction 
                ceiling determined under this paragraph for 
                such calendar year for such agency.
                    ``(B) State commercial revitalization 
                deduction ceiling.--The State commercial 
                revitalization deduction ceiling applicable to 
                any State--
                            ``(i) for each calendar year after 
                        2000 and before 2008 is $6,000,000 for 
                        each renewal community in the State; 
                        and
                            ``(ii) zero for each calendar year 
                        thereafter.
                    ``(C) Commercial revitalization agency.--
                For purposes of this section, the term 
                `commercial revitalization agency' means any 
                agency authorized by a State to carry out this 
                section.
    ``(e) Responsibilities of Commercial Revitalization 
Agencies.--
            ``(1) Plans for allocation.--Notwithstanding any 
        other provision of this section, the commercial 
        revitalization deduction amount with respect to any 
        building shall be zero unless--
                    ``(A) such amount was allocated pursuant to 
                a qualified allocation plan of the commercial 
                revitalization agency which is approved (in 
                accordance with rules similar to the rules of 
                section 147(f)(2) (other than subparagraph 
                (B)(ii) thereof)) by the governmental unit of 
                which such agency is a part; and
                    ``(B) such agency notifies the chief 
                executive officer (or its equivalent) of the 
                local jurisdiction within which the building is 
                located of such allocation and provides such 
                individual a reasonable opportunity to comment 
                on the allocation.
            ``(2) Qualified allocation plan.--For purposes of 
        this subsection, the term `qualified allocation plan' 
        means any plan--
                    ``(A) which sets forth selection criteria 
                to be used to determine priorities of the 
                commercial revitalization agency which are 
                appropriate to local conditions;
                    ``(B) which considers--
                            ``(i) the degree to which a project 
                        contributes to the implementation of a 
                        strategic plan that is devised for a 
                        renewal community through a citizen 
                        participation process;
                            ``(ii) the amount of any increase 
                        in permanent, full-time employment by 
                        reason of any project; and
                            ``(iii) the active involvement of 
                        residents and nonprofit groups within 
                        the renewal community; and
                    ``(C) which provides a procedure that the 
                agency (or its agent) will follow in monitoring 
                compliance with this section.
    ``(f) Regulations.--For purposes of this section, the 
Secretary shall, by regulations, provide for the application of 
rules similar to the rules of section 49 and subsections (a) 
and (b) of section 50.
    ``(g) Termination.--This section shall not apply to any 
building placed in service after December 31, 2007.

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

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

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

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

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

    (a) Extension.--Subsection (c) of section 51 (relating to 
termination) is amended by adding at the end the following new 
paragraph:
            ``(5) Extension of credit for renewal 
        communities.--
                    ``(A) In general.--In the case of an 
                individual who begins work for the employer 
                after the date contained in paragraph (4)(B), 
                for purposes of section 38--
                            ``(i) in lieu of applying 
                        subsection (a), the amount of the work 
                        opportunity credit determined under 
                        this section for the taxable year shall 
                        be equal to--
                                    ``(I) 15 percent of the 
                                qualified first-year wages for 
                                such year; and
                                    ``(II) 30 percent of the 
                                qualified second-year wages for 
                                such year;
                            ``(ii) subsection (b)(3) shall be 
                        applied by substituting `$10,000' for 
                        `$6,000';
                            ``(iii) paragraph (4)(B) shall be 
                        applied by substituting for the date 
                        contained therein the last day for 
                        which the designation under section 
                        1400E of the renewal community referred 
                        to in subparagraph (B)(i) is in effect; 
                        and
                            ``(iv) rules similar to the rules 
                        of section 51A(b)(5)(C) shall apply.
                    ``(B) Qualified first- and second-year 
                wages.--For purposes of subparagraph (A)--
                            ``(i) In general.--The term 
                        `qualified wages' means, with respect 
                        to each 1-year period referred to in 
                        clause (ii) or (iii), as the case may 
                        be, the wages paid or incurred by the 
                        employer during the taxable year to any 
                        individual but only if--
                                    ``(I) the employer is 
                                engaged in a trade or business 
                                in a renewal community 
                                throughout such 1-year period;
                                    ``(II) the principal place 
                                of abode of such individual is 
                                in such renewal community 
                                throughout such 1-year period; 
                                and
                                    ``(III) substantially all 
                                of the services which such 
                                individual performs for the 
                                employer during such 1-year 
                                period are performed in such 
                                renewal community.
                            ``(ii) Qualified first-year 
                        wages.--The term `qualified first-year 
                        wages' means, with respect to any 
                        individual, qualified wages 
                        attributable to service rendered during 
                        the 1-year period beginning with the 
                        day the individual begins work for the 
                        employer.
                            ``(iii) Qualified second-year 
                        wages.--The term `qualified second-year 
                        wages' means, with respect to any 
                        individual, qualified wages 
                        attributable to service rendered during 
                        the 1-year period beginning on the day 
                        after the last day of the 1-year period 
                        with respect to such individual 
                        determined under clause (ii).''.
    (b) Congruent Treatment of Renewal Communities and 
Enterprise Zones for Purposes of Youth Residence 
Requirements.--
            (1) High-risk youth.--Subparagraphs (A)(ii) and (B) 
        of section 51(d)(5) are each amended by striking 
        ``empowerment zone or enterprise community'' and 
        inserting ``empowerment zone, enterprise community, or 
        renewal community''.
            (2) Qualified summer youth employee.--Clause (iv) 
        of section 51(d)(7)(A) is amended by striking 
        ``empowerment zone or enterprise community'' and 
        inserting ``empowerment zone, enterprise community, or 
        renewal community''.
            (3) Headings.--Paragraphs (5)(B) and (7)(C) of 
        section 51(d) are each amended by inserting ``or 
        community'' in the heading after ``zone''.
            (4) Effective date.--The amendments made by this 
        subsection shall apply to individuals who begin work 
        for the employer after December 31, 2000.

SEC. 705. CONFORMING AND CLERICAL AMENDMENTS.

    (a) Deduction for Contributions to Family Development 
Accounts Allowable Whether or Not Taxpayer Itemizes.--
Subsection (a) of section 62 (relating to adjusted gross income 
defined) is amended by inserting after paragraph (19) the 
following new paragraph:
            ``(20) Family development accounts.--The deduction 
        allowed by section 1400H(a)(1).''.
    (b) Tax on Excess Contributions.--
            (1) Tax imposed.--Subsection (a) of section 4973 is 
        amended by striking ``or'' at the end of paragraph (3), 
        adding ``or'' at the end of paragraph (4), and 
        inserting after paragraph (4) the following new 
        paragraph:
            ``(5) a family development account (within the 
        meaning of section 1400H(e)),''.
            (2) Excess contributions.--Section 4973 is amended 
        by adding at the end the following new subsection:
    ``(g) Family Development Accounts.--For purposes of this 
section, in the case of family development accounts, the term 
`excess contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed for the 
                taxable year to the accounts (other than a 
                qualified rollover, as defined in section 
                1400H(c)(7)), over
                    ``(B) the amount allowable as a deduction 
                under section 1400H for such contributions; and
            ``(2) the amount determined under this subsection 
        for the preceding taxable year reduced by the sum of--
                    ``(A) the distributions out of the accounts 
                for the taxable year which were included in the 
                gross income of the payee under section 
                1400H(b)(1);
                    ``(B) the distributions out of the accounts 
                for the taxable year to which rules similar to 
                the rules of section 408(d)(5) apply by reason 
                of section 1400H(d)(3); and
                    ``(C) the excess (if any) of the maximum 
                amount allowable as a deduction under section 
                1400H for the taxable year over the amount 
                contributed to the account for the taxable 
                year.
For purposes of this subsection, any contribution which is 
distributed from the family development account in a 
distribution to which rules similar to the rules of section 
408(d)(4) apply by reason of section 1400H(d)(3) shall be 
treated as an amount not contributed.''.
    (c) Tax on Prohibited Transactions.--Section 4975 is 
amended--
            (1) by adding at the end of subsection (c) the 
        following new paragraph:
            ``(6) Special rule for family development 
        accounts.--An individual for whose benefit a family 
        development account is established and any contributor 
        to such account shall be exempt from the tax imposed by 
        this section with respect to any transaction concerning 
        such account (which would otherwise be taxable under 
        this section) if, with respect to such transaction, the 
        account ceases to be a family development account by 
        reason of the application of section 1400H(d)(2) to 
        such account.''; and
            (2) in subsection (e)(1), by striking ``or'' at the 
        end of subparagraph (E), by redesignating subparagraph 
        (F) as subparagraph (G), and by inserting after 
        subparagraph (E) the following new subparagraph:
                    ``(F) a family development account 
                described in section 1400H(e), or''.
    (d) Information Relating to Certain Trusts and Annuity 
Plans.--Subsection (c) of section 6047 is amended--
            (1) by inserting ``or section 1400H'' after 
        ``section 219''; and
            (2) by inserting ``, of any family development 
        account described in section 1400H(e),'', after 
        ``section 408(a)''.
    (e) Inspection of Applications for Tax Exemption.--Clause 
(i) of section 6104(a)(1)(B) is amended by inserting ``a family 
development account described in section 1400H(e),'' after 
``section 408(a),''.
    (f) Failure To Provide Reports on Family Development 
Accounts.--Paragraph (2) of section 6693(a) is amended by 
striking ``and'' at the end of subparagraph (C), by striking 
the period and inserting ``, and'' at the end of subparagraph 
(D), and by adding at the end the following new subparagraph:
                    ``(E) section 1400H(g)(6) (relating to 
                family development accounts).''.
    (g) Conforming Amendments Regarding Commercial 
Revitalization Deduction.--
            (1) Section 172 is amended by redesignating 
        subsection (j) as subsection (k) and by inserting after 
        subsection (i) the following new subsection:
    ``(j) No Carryback of Section 1400K Deduction Before Date 
of the Enactment.--No portion of the net operating loss for any 
taxable year which is attributable to any commercial 
revitalization deduction determined under section 1400K may be 
carried back to a taxable year ending before the date of the 
enactment of section 1400K.''.
            (2) Subparagraph (B) of section 48(a)(2) is amended 
        by inserting ``or commercial revitalization'' after 
        ``rehabilitation'' each place it appears in the text 
        and heading.
            (3) Subparagraph (C) of section 469(i)(3) is 
        amended--
                    (A) by inserting ``or section 1400K'' after 
                ``section 42''; and
                    (B) by inserting ``and commercial 
                revitalization deduction'' after ``credit'' in 
                the heading.
    (h) Clerical Amendments.--The table of subchapters for 
chapter 1 is amended by adding at the end the following new 
item:

                 ``Subchapter X. Renewal Communities.''.

                     Subtitle B--Farming Incentive

SEC. 711. PRODUCTION FLEXIBILITY CONTRACT PAYMENTS.

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

                   Subtitle C--Oil and Gas Incentives

SEC. 721. 5-YEAR NET OPERATING LOSS CARRYBACK FOR LOSSES ATTRIBUTABLE 
                    TO OPERATING MINERAL INTERESTS OF INDEPENDENT OIL 
                    AND GAS PRODUCERS.

    (a) In General.--Paragraph (1) of section 172(b) (relating 
to years to which loss may be carried) is amended by adding at 
the end the following new subparagraph:
                    ``(H) Losses on operating mineral interests 
                of independent oil and gas producers.--In the 
                case of a taxpayer--
                            ``(i) which has an eligible oil and 
                        gas loss (as defined in subsection (j)) 
                        for a taxable year, and
                            ``(ii) which is not an integrated 
                        oil company (as defined in section 
                        291(b)(4)),
                such eligible oil and gas loss shall be a net 
                operating loss carryback to each of the 5 
                taxable years preceding the taxable year of 
                such loss.''.
    (b) Eligible Oil and Gas Loss.--Section 172 is amended by 
redesignating subsection (j) as subsection (k) and by inserting 
after subsection (i) the following new subsection:
    ``(j) Eligible Oil and Gas Loss.--For purposes of this 
section--
            ``(1) In general.--The term `eligible oil and gas 
        loss' means the lesser of--
                    ``(A) the amount which would be the net 
                operating loss for the taxable year if only 
                income and deductions attributable to operating 
                mineral interests (as defined in section 
                614(d)) in oil and gas wells are taken into 
                account, or
                    ``(B) the amount of the net operating loss 
                for such taxable year.
            ``(2) Coordination with subsection (b)(2).--For 
        purposes of applying subsection (b)(2), an eligible oil 
        and gas loss for any taxable year shall be treated in a 
        manner similar to the manner in which a specified 
        liability loss is treated.
            ``(3) Election.--Any taxpayer entitled to a 5-year 
        carryback under subsection (b)(1)(H) from any loss year 
        may elect to have the carryback period with respect to 
        such loss year determined without regard to subsection 
        (b)(1)(H).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to net operating losses for taxable years beginning 
after December 31, 1998.

SEC. 722. DEDUCTION FOR DELAY RENTAL PAYMENTS.

    (a) In General.--Section 263 (relating to capital 
expenditures) is amended by adding after subsection (i) the 
following new subsection:
    ``(j) Delay Rental Payments for Domestic Oil and Gas 
Wells.--
            ``(1) In general.--Notwithstanding subsection (a), 
        a taxpayer may elect to treat delay rental payments 
        incurred in connection with the development of oil or 
        gas within the United States (as defined in section 
        638) as payments which are not chargeable to capital 
        account. Any payments so treated shall be allowed as a 
        deduction in the taxable year in which paid or 
        incurred.
            ``(2) Delay rental payments.--For purposes of 
        paragraph (1), the term `delay rental payment' means an 
        amount paid for the privilege of deferring development 
        of an oil or gas well.''.
    (b) Conforming Amendment.--Section 263A(c)(3) is amended by 
inserting ``263(j),'' after ``263(i),''.
    (c) Effective Date.--The amendments made by this section 
shall apply to amounts paid or incurred in taxable years 
beginning after December 31, 1999.

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

    (a) In General.--Section 263 (relating to capital 
expenditures) is amended by adding after subsection (j) the 
following new subsection:
    ``(k) Geological and Geophysical Expenditures for Domestic 
Oil and Gas Wells.--Notwithstanding subsection (a), a taxpayer 
may elect to treat geological and geophysical expenses incurred 
in connection with the exploration for, or development of, oil 
or gas within the United States (as defined in section 638) as 
expenses which are not chargeable to capital account. Any 
expenses so treated shall be allowed as a deduction in the 
taxable year in which paid or incurred.''.
    (b) Conforming Amendment.--Section 263A(c)(3) is amended by 
inserting ``263(k),'' after ``263(j),''.
    (c) Effective Date.--The amendments made by this section 
shall apply to costs paid or incurred in taxable years 
beginning after December 31, 1999.

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

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

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

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

                     Subtitle D--Timber Incentives

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

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

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

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

                TITLE VIII--RELIEF FOR SMALL BUSINESSES

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

    (a) In General.--Paragraph (1) of section 162(l) is amended 
to read as follows:
            ``(1) Allowance of deduction.--In the case of an 
        individual who is an employee within the meaning of 
        section 401(c)(1), there shall be allowed as a 
        deduction under this section an amount equal to 100 
        percent of the amount paid during the taxable year for 
        insurance which constitutes medical care for the 
        taxpayer 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, 1999.

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

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

SEC. 803. REPEAL OF FEDERAL UNEMPLOYMENT SURTAX.

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

SEC. 804. INCREASED DEDUCTION FOR MEAL EXPENSES; INCREASED 
                    DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR 
                    INDIVIDUALS SUBJECT TO FEDERAL LIMITATIONS ON HOURS 
                    OF SERVICE.

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

``For taxable years beginning
                                                          The applicable
    in calendar year--
                                                         percentage is--
            2000 through 2005.................................       50 
            2006..............................................       55 
            2007 and thereafter...............................    60.''.

    (c) Individuals Subject to Federal Limitations on Hours of 
Service.--The table in section 274(n)(4)(B) (relating to 
special rule for individuals subject to Federal hours of 
service), as redesignated by subsection (b), is amended--
            (1) by striking ``or 2007'', and
            (2) by striking ``2008'' and inserting ``2007''.
    (d) Conforming Amendments.--
            (1) The heading for subsection (n) of section 274 
        is amended by striking ``50 Percent'' and inserting 
        ``Limited Percentages''.
            (2) Subparagraph (A) of section 274(n)(4), as 
        redesignated by subsection (b), is amended by striking 
        ``50 percent'' and inserting ``the allowable 
        percentage''.
    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1999.

SEC. 805. INCOME AVERAGING FOR FARMERS AND FISHERMEN NOT TO INCREASE 
                    ALTERNATIVE MINIMUM TAX LIABILITY.

    (a) In General.--Section 55(c) (defining regular tax) is 
amended by redesignating paragraph (2) as paragraph (3) and by 
inserting after paragraph (1) the following:
            ``(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, 1999.

SEC. 806. 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:

``SEC. 468C. FARM 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 (A) or (B) 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:
            ``(4) a FFARRM Account (within the meaning of 
        section 468C(d)), or''.
            (2) Section 4973 is amended by adding at the end 
        the following:
    ``(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:

        ``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:
            ``(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:
                    ``(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:
                    ``(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:

        ``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. 807. EXCLUSION OF INVESTMENT SECURITIES INCOME FROM PASSIVE INCOME 
                    TEST FOR BANK S CORPORATIONS.

    (a) In General.--Section 1362(d)(3)(C) (defining passive 
investment income) is amended by adding at the end the 
following:
                            ``(v) Exception for banks; etc.--In 
                        the case of a bank (as defined in 
                        section 581), a bank holding company 
                        (as defined in section 
                        246A(c)(3)(B)(ii)), or a qualified 
                        subchapter S subsidiary bank, the term 
                        `passive investment income' shall not 
                        include--
                                    ``(I) interest income 
                                earned by such bank, bank 
                                holding company, or qualified 
                                subchapter S subsidiary bank, 
                                or
                                    ``(II) dividends on assets 
                                required to be held by such 
                                bank, bank holding company, or 
                                qualified subchapter S 
                                subsidiary bank to conduct a 
                                banking business, including 
                                stock in the Federal Reserve 
                                Bank, the Federal Home Loan 
                                Bank, or the Federal 
                                Agricultural Mortgage Bank or 
                                participation certificates 
                                issued by a Federal 
                                Intermediate Credit Bank.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1999.

SEC. 808. TREATMENT OF QUALIFYING DIRECTOR SHARES.

    (a) In General.--Section 1361 is amended by adding at the 
end the following:
    ``(f) Treatment of Qualifying Director Shares.--
            ``(1) In general.--For purposes of this 
        subchapter--
                    ``(A) qualifying director shares shall not 
                be treated as a second class of stock, and
                    ``(B) no person shall be treated as a 
                shareholder of the corporation by reason of 
                holding qualifying director shares.
            ``(2) Qualifying director shares defined.--For 
        purposes of this subsection, the term `qualifying 
        director shares' means any shares of stock in a bank 
        (as defined in section 581) or in a bank holding 
        company registered as such with the Federal Reserve 
        System--
                            ``(i) which are held by an 
                        individual solely by reason of status 
                        as a director of such bank or company 
                        or its controlled subsidiary; and
                            ``(ii) which are subject to an 
                        agreement pursuant to which the holder 
                        is required to dispose of the shares of 
                        stock upon termination of the holder's 
                        status as a director at the same price 
                        as the individual acquired such shares 
                        of stock.
            ``(3) Distributions.--A distribution (not in part 
        or full payment in exchange for stock) made by the 
        corporation with respect to qualifying director shares 
        shall be includible as ordinary income of the holder 
        and deductible to the corporation as an expense in 
        computing taxable income under section 1363(b) in the 
        year such distribution is received.''.
    (b) Conforming Amendments.--
            (1) Section 1361(b)(1) is amended by inserting ``, 
        except as provided in subsection (f),'' before ``which 
        does not''.
            (2) Section 1366(a) is amended by adding at the end 
        the following:
            ``(3) Allocation with respect to qualifying 
        director shares.--The holders of qualifying director 
        shares (as defined in section 1361(f)) shall not, with 
        respect to such shares of stock, be allocated any of 
        the items described in paragraph (1).''.
            (3) Section 1373(a) 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 
        adding at the end the following:
            ``(3) no amount of an expense deductible under this 
        subchapter by reason of section 1361(f)(3) shall be 
        apportioned or allocated to such income.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1999.

                   TITLE IX--INTERNATIONAL TAX RELIEF

SEC. 901. INTEREST ALLOCATION RULES.

    (a) Election To Allocate Interest on a Worldwide Basis.--
Subsection (e) of section 864 (relating to rules for allocating 
interest, etc.) is amended by redesignating paragraphs (6) and 
(7) as paragraphs (7) and (8), respectively, and by inserting 
after paragraph (5) the following new paragraph:
            ``(6) Election to allocate interest on a worldwide 
        basis.--
                    ``(A) In general.--Except as provided in 
                this paragraph, this subsection shall be 
                applied by treating a worldwide affiliated 
                group for which an election under this 
                paragraph is in effect as an affiliated group 
                solely for purposes of allocating and 
                apportioning interest expense of each domestic 
                corporation which is a member of such group.
                    ``(B) Worldwide affiliated group.--For 
                purposes of this paragraph, the term `worldwide 
                affiliated group' means the group of 
                corporations which consists of--
                            ``(i) all corporations in an 
                        affiliated group (as defined in section 
                        1504 without regard to paragraphs (2) 
                        and (4) of section 1504(b)), and
                            ``(ii) all foreign corporations 
                        (other than a FSC, as defined in 
                        section 922(a)) with respect to which 
                        corporations described in clause (i) 
                        own stock meeting the ownership 
                        requirements of section 957(a).
                For purposes of clause (ii), ownership shall be 
                determined under section 958; except that 
                paragraphs (3) and (4) of section 318(a) shall 
                not apply for purposes of section 958(b).
                    ``(C) Treatment of worldwide affiliated 
                group.--For purposes of applying paragraph (1), 
                the taxable income of the domestic members of a 
                worldwide affiliated group from sources outside 
                the United States shall be determined by 
                allocating and apportioning the interest 
                expense of such domestic members to such income 
                in an amount equal to the excess (if any) of--
                            ``(i) the total interest expense of 
                        the worldwide affiliated group 
                        multiplied by the ratio which the 
                        foreign assets of the worldwide 
                        affiliated group bears to all the 
                        assets of the worldwide affiliated 
                        group, over
                            ``(ii) the interest expense of all 
                        foreign corporations which are members 
                        of the worldwide affiliated group to 
                        the extent such interest expense of 
                        such foreign corporations would have 
                        been allocated and apportioned to 
                        foreign source income if this 
                        subsection were applied to a group 
                        consisting of all the foreign 
                        corporations in such worldwide 
                        affiliated group.
                    ``(D) Assets and interest expense of 
                foreign corporations.--
                            ``(i) In general.--For purposes of 
                        subparagraph (C), only the applicable 
                        percentage of the interest expense and 
                        assets of a foreign corporation 
                        described in subparagraph (B)(ii) shall 
                        be taken into account.
                            ``(ii) Applicable percentage.--For 
                        purposes of this paragraph, the term 
                        `applicable percentage' means, with 
                        respect to any foreign corporation, the 
                        percentage equal to the ratio which the 
                        value of the stock in such corporation 
                        taken into account under subparagraph 
                        (B)(ii) (without regard to stock 
                        considered as owned under section 
                        958(b)) bears to the aggregate value of 
                        all stock in such corporation.
                    ``(E) Election.--An election under this 
                paragraph with respect to any worldwide 
                affiliated group may be made only by the common 
                parent of the affiliated group referred to in 
                subparagraph (B)(i) and may be made only for 
                the first taxable year beginning after December 
                31, 2001, in which a worldwide affiliated group 
                exists which includes such affiliated group and 
                at least 1 corporation described in 
                subparagraph (B)(ii). Such an election, once 
                made, shall apply to such common parent and all 
                other corporations which are members of such 
                worldwide affiliated group for such taxable 
                year and all subsequent years unless revoked 
                with the consent of the Secretary.''.
    (b) Election To Allocate Interest Within Financial 
Institution Groups and Subsidiary Groups.--Section 864 is 
amended by redesignating subsection (f) as subsection (g) and 
by inserting after subsection (e) the following new subsection:
    ``(f) Election To Apply Subsection (e) on Basis of 
Financial Institution Group and Subsidiary Groups.--
            ``(1) In general.--In the case of a worldwide 
        affiliated group for which an election under subsection 
        (e)(6) is in effect, subsection (e) shall be applied--
                    ``(A) by treating an electing financial 
                institution group as if it were a separate 
                worldwide affiliated group, and
                    ``(B) by treating each electing subsidiary 
                group as if it were a separate worldwide 
                affiliated group for purposes of allocating 
                interest expense with respect to qualified 
                indebtedness of members of an electing 
                subsidiary group.
        Subsection (e) shall apply to any such electing group 
        in the same manner as subsection (e) applies to the 
        pre-election worldwide affiliated group of which such 
        electing group is a part.
            ``(2) Electing financial institution group.--For 
        purposes of this subsection--
                    ``(A) In general.--The term `electing 
                financial institution group' means any group of 
                corporations if--
                            ``(i) such group consists only of 
                        all of the financial corporations in 
                        the pre-election worldwide affiliated 
                        group, and
                            ``(ii) an election under this 
                        paragraph is in effect for such group 
                        of corporations.
                    ``(B) Financial corporation.--
                            ``(i) In general.--The term 
                        `financial corporation' means any 
                        corporation if at least 80 percent of 
                        its gross income is income described in 
                        section 904(d)(2)(C)(ii) and the 
                        regulations thereunder which is derived 
                        from transactions with unrelated 
                        persons.
                            ``(ii) Income from related 
                        financial corporations.--Dividend 
                        income, and income described in section 
                        904(d)(2)(C)(ii) and the regulations 
                        thereunder, which is derived directly 
                        or indirectly from a financial 
                        corporation (as defined in clause (i) 
                        without regard to this clause) which is 
                        not an unrelated person shall be 
                        treated as income described in clause 
                        (i).
                            ``(iii) Bank holding companies.--To 
                        the extent provided in regulations 
                        prescribed by the Secretary, a bank 
                        holding company (within the meaning of 
                        section 2(a) of the Bank Holding 
                        Company Act of 1956) shall be treated 
                        as a corporation meeting the 
                        requirements of clause (i).
                            ``(iv) Antiabuse rule.--For 
                        purposes of this subparagraph, there 
                        shall be disregarded any item of income 
                        or gain from a transaction or series of 
                        transactions a principal purpose of 
                        which is the qualification of any 
                        corporation as a financial corporation.
                    ``(C) Effect of certain transactions.--
                Rules similar to the rules of paragraph (3)(D) 
                shall apply to transactions between any member 
                of the electing financial institution group and 
                any member of the pre-election worldwide 
                affiliated group (other than a member of the 
                electing financial institution group).
                    ``(D) Election.--An election under this 
                paragraph with respect to any financial 
                institution group may be made only by the 
                common parent of the pre-election worldwide 
                affiliated group and may be made only for the 
                first taxable year beginning after December 31, 
                2001, in which such affiliated group includes 1 
                or more financial corporations described in 
                subparagraph (B). Such an election, once made, 
                shall apply to such taxable year and all 
                subsequent years unless revoked with the 
                consent of the Secretary.
            ``(3) Electing subsidiary groups.--
                    ``(A) In general.--The term `electing 
                subsidiary group' means any group of 
                corporations if--
                            ``(i) such group consists only of 
                        corporations in the pre-election 
                        worldwide affiliated group,
                            ``(ii) such group includes--
                                    ``(I) a domestic 
                                corporation (which is not the 
                                common parent of the pre-
                                election worldwide affiliated 
                                group or a member of an 
                                electing financial institution 
                                group) which incurs interest 
                                expense with respect to 
                                qualified indebtedness, and
                                    ``(II) every other 
                                corporation (other than a 
                                member of an electing financial 
                                institution group) which is in 
                                the pre-election worldwide 
                                affiliated group and which 
                                would be a member of an 
                                affiliated group having such 
                                domestic corporation as the 
                                common parent, and
                            ``(iii) an election under this 
                        paragraph is in effect for such group.
                    ``(B) Equalization rule.--All interest 
                expense of a domestic corporation which is a 
                member of a pre-election worldwide affiliated 
                group (other than subsidiary group interest 
                expense) shall be treated as allocated to 
                foreign source income to the extent such 
                expense does not exceed the excess (if any) 
                of--
                            ``(i) the interest expense of the 
                        pre-election worldwide affiliated group 
                        (including subsidiary group interest 
                        expense) which would (but for any 
                        election under this paragraph) be 
                        allocated to foreign source income, 
                        over
                            ``(ii) the subsidiary group 
                        interest expense allocated to foreign 
                        source income.
                For purposes of the preceding sentence, the 
                subsidiary group interest expense is the 
                interest expense to which subsection (e) applies 
                separately by reason of paragraph (1)(B).
                    ``(C) Qualified indebtedness.--For purposes 
                of this subsection, the term `qualified 
                indebtedness' means any indebtedness of a 
                domestic corporation--
                            ``(i) which is held by an unrelated 
                        person, and
                            ``(ii) which is not guaranteed (or 
                        otherwise supported) by any corporation 
                        which is a member of the pre-election 
                        worldwide affiliated group other than a 
                        corporation which is a member of the 
                        electing subsidiary group.
                    ``(D) Effect of certain transactions on 
                qualified indebtedness.--In the case of a 
                corporation which is a member of an electing 
                subsidiary group, to the extent that such 
                corporation--
                            ``(i) distributes dividends or 
                        makes other distributions with respect 
                        to its stock after the date of the 
                        enactment of this paragraph to any 
                        member of the pre-election worldwide 
                        affiliated group (other than to a 
                        member of the electing subsidiary 
                        group) in excess of the greater of--
                                    ``(I) its average annual 
                                dividend (expressed as a 
                                percentage of current earnings 
                                and profits) during the 5-
                                taxable-year period ending with 
                                the taxable year preceding the 
                                taxable year, or
                                    ``(II) 25 percent of its 
                                average annual earnings and 
                                profits for such 5 taxable year 
                                period, or
                            ``(ii) deals with any person in any 
                        manner not clearly reflecting the 
                        income of the corporation (as 
                        determined under principles similar to 
                        the principles of section 482),
                except as provided by the Secretary, an amount 
                of qualified indebtedness equal to the excess 
                distribution or the understatement or 
                overstatement of income, as the case may be, 
                shall be recharacterized (for the taxable year 
                and subsequent taxable years) for purposes of 
                this subsection as indebtedness which is not 
                qualified indebtedness. If a corporation has 
                not been in existence for 5 taxable years, this 
                subparagraph shall be applied with respect to 
                the period it was in existence.
                    ``(E) Election.--An election under this 
                paragraph with respect to any electing 
                subsidiary group may be made only by the common 
                parent of the pre-election worldwide affiliated 
                group. Such an election, once made, shall apply 
                to the taxable year for which made and the 4 
                succeeding taxable years unless revoked with 
                the consent of the Secretary. No election may 
                be made under this paragraph if the effect of 
                the election would be to have the same member 
                of the pre-election worldwide affiliated group 
                included in more than 1 electing subsidiary 
                group.
            ``(4) Pre-election worldwide affiliated group.--For 
        purposes of this subsection, the term `pre-election 
        worldwide affiliated group' means, with respect to a 
        corporation, the worldwide affiliated group of which 
        such corporation would (but for an election under this 
        subsection) be a member for purposes of applying 
        subsection (e).
            ``(5) Unrelated person.--For purposes of this 
        subsection, the term `unrelated person' means any 
        person not bearing a relationship specified in section 
        267(b) or 707(b)(1) to the corporation.
            ``(6) Regulations.--The Secretary shall prescribe 
        such regulations as may be appropriate to carry out 
        this subsection and subsection (e), including 
        regulations--
                    ``(A) providing for the direct allocation 
                of interest expense in other circumstances 
                where such allocation would be appropriate to 
                carry out the purposes of this subsection,
                    ``(B) preventing assets or interest expense 
                from being taken into account more than once, 
                and
                    ``(C) dealing with changes in members of 
                any group (through acquisitions or otherwise) 
                treated under this subsection as an affiliated 
                group for purposes of subsection (e).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2001.

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

    (a) In General.--Section 904(d)(4) (relating to application 
of look-thru rules to dividends from noncontrolled section 902 
corporations) is amended to read as follows:
            ``(4) Look-thru applies to dividends from 
        noncontrolled section 902 corporations.--
                    ``(A) In general.--For purposes of this 
                subsection, any dividend from a noncontrolled 
                section 902 corporation with respect to the 
                taxpayer shall be treated as income in a 
                separate category in proportion to the ratio 
                of--
                            ``(i) the portion of earnings and 
                        profits attributable to income in such 
                        category, to
                            ``(ii) the total amount of earnings 
                        and profits.
                    ``(B) Special rules.--For purposes of this 
                paragraph--
                            ``(i) In general.--Rules similar to 
                        the rules of paragraph (3)(F) shall 
                        apply; except that the term `separate 
                        category' shall include the category of 
                        income described in paragraph (1)(I).
                            ``(ii) Earnings and profits.--
                                    ``(I) In general.--The 
                                rules of section 316 shall 
                                apply.
                                    ``(II) Regulations.--The 
                                Secretary may prescribe 
                                regulations regarding the 
                                treatment of distributions out 
                                of earnings and profits for 
                                periods before the taxpayer's 
                                acquisition of the stock to 
                                which the distributions relate.
                            ``(iii) Dividends not allocable to 
                        separate category.--The portion of any 
                        dividend from a noncontrolled section 
                        902 corporation which is not treated as 
                        income in a separate category under 
                        subparagraph (A) shall be treated as a 
                        dividend to which subparagraph (A) does 
                        not apply.
                            ``(iv) Look-thru with respect to 
                        carryforwards of credit.--Rules similar 
                        to subparagraph (A) also shall apply to 
                        any carryforward under subsection (c) 
                        from a taxable year beginning before 
                        January 1, 2002, of tax allocable to a 
                        dividend from a noncontrolled section 
                        902 corporation with respect to the 
                        taxpayer.''.
    (b) Conforming Amendments.--
            (1) Subparagraph (E) of section 904(d)(1), as in 
        effect both before and after the amendments made by 
        section 1105 of the Taxpayer Relief Act of 1997, is 
        hereby repealed.
            (2) Section 904(d)(2)(C)(iii), as so in effect, is 
        amended by striking subclause (II) and by redesignating 
        subclause (III) as subclause (II).
            (3) The last sentence of section 904(d)(2)(D), as 
        so in effect, is amended to read as follows: ``Such 
        term does not include any financial services income.''.
            (4) Section 904(d)(2)(E) is amended by striking 
        clauses (ii) and (iv) and by redesignating clause (iii) 
        as clause (ii).
            (5) Section 904(d)(3)(F) is amended by striking 
        ``(D), or (E)'' and inserting ``or (D)''.
            (6) Section 864(d)(5)(A)(i) is amended by striking 
        ``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2001.

SEC. 903. CLARIFICATION OF TREATMENT OF PIPELINE TRANSPORTATION INCOME.

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

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

    (a) In General.--Paragraph (2) of section 954(e) (relating 
to foreign base company services income) is amended by striking 
``or'' at the end of subparagraph (A), by striking the period 
at the end of subparagraph (B) and inserting ``, or'', and by 
inserting after subparagraph (B) the following new 
subparagraph:
                    ``(C) the transmission of high voltage 
                electricity.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years of controlled foreign corporations 
beginning after December 31, 2001, and taxable years of United 
States shareholders with or within which such taxable years of 
controlled foreign corporations end.

SEC. 905. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.

    (a) General Rule.--Section 904 is amended by redesignating 
subsections (g), (h), (i), (j), and (k) as subsections (h), 
(i), (j), (k), and (l), respectively, and by inserting after 
subsection (f) the following new subsection:
    ``(g) Recharacterization of Overall Domestic Loss.--
            ``(1) General rule.--For purposes of this subpart 
        and section 936, in the case of any taxpayer who 
        sustains an overall domestic loss for any taxable year 
        beginning after December 31, 2005, that portion of the 
        taxpayer's taxable income from sources within the 
        United States for each succeeding taxable year which is 
        equal to the lesser of--
                    ``(A) the amount of such loss (to the 
                extent not used under this paragraph in prior 
                taxable years), or
                    ``(B) 50 percent of the taxpayer's taxable 
                income from sources within the United States 
                for such succeeding taxable year,
        shall be treated as income from sources without the 
        United States (and not as income from sources within 
        the United States).
            ``(2) Overall domestic loss defined.--For purposes 
        of this subsection--
                    ``(A) In general.--The term `overall 
                domestic loss' means any domestic loss to the 
                extent such loss offsets taxable income from 
                sources without the United States for the 
                taxable year or for any preceding taxable year 
                by reason of a carryback. For purposes of the 
                preceding sentence, the term `domestic loss' 
                means the amount by which the gross income for 
                the taxable year from sources within the United 
                States is exceeded by the sum of the deductions 
                properly apportioned or allocated thereto 
                (determined without regard to any carryback 
                from a subsequent taxable year).
                    ``(B) Taxpayer must have elected foreign 
                tax credit for year of loss.--The term `overall 
                domestic loss' shall not include any loss for 
                any taxable year unless the taxpayer chose the 
                benefits of this subpart for such taxable year.
            ``(3) Characterization of subsequent income.--
                    ``(A) In general.--Any income from sources 
                within the United States that is treated as 
                income from sources without the United States 
                under paragraph (1) shall be allocated among 
                and increase the income categories in 
                proportion to the loss from sources within the 
                United States previously allocated to those 
                income categories.
                    ``(B) Income category.--For purposes of 
                this paragraph, the term `income category' has 
                the meaning given such term by subsection 
                (f)(5)(E)(i).
            ``(4) Coordination with subsection (f).--The 
        Secretary shall prescribe such regulations as may be 
        necessary to coordinate the provisions of this 
        subsection with the provisions of subsection (f).''.
    (b) Conforming Amendments.--
            (1) Section 535(d)(2) is amended by striking 
        ``section 904(g)(6)'' and inserting ``section 
        904(h)(6)''.
            (2) Subparagraph (A) of section 936(a)(2) is 
        amended by striking ``section 904(f)'' and inserting 
        ``subsections (f) and (g) of section 904''.
    (c) Effective Date.--The amendments made by this section 
shall apply to losses for taxable years beginning after 
December 31, 2005.

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

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

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

    (a) Treatment of Certain Dividends.--
            (1) Nonresident alien individuals.--Section 871 
        (relating to tax on nonresident alien individuals) is 
        amended by redesignating subsection (k) as subsection 
        (l) and by inserting after subsection (j) the following 
        new subsection:
    ``(k) Exemption for Certain Dividends of Regulated 
Investment Companies.--
            ``(1) Interest-related dividends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no tax shall be imposed under 
                paragraph (1)(A) of subsection (a) on any 
                interest-related dividend received from a 
                regulated investment company.
                    ``(B) Exceptions.--Subparagraph (A) shall 
                not apply--
                            ``(i) to any interest-related 
                        dividend received from a regulated 
                        investment company by a person to the 
                        extent such dividend is attributable to 
                        interest (other than interest described 
                        in clause (i), (iii), or the last 
                        sentence of subparagraph (E)) received 
                        by such company on indebtedness issued 
                        by such person or by any corporation or 
                        partnership with respect to which such 
                        person is a 10-percent shareholder,
                            ``(ii) to any interest-related 
                        dividend with respect to stock of a 
                        regulated investment company unless the 
                        person who would otherwise be required 
                        to deduct and withhold tax from such 
                        dividend under chapter 3 receives a 
                        statement (which meets requirements 
                        similar to the requirements of 
                        subsection (h)(5)) that the beneficial 
                        owner of such stock is not a United 
                        States person, and
                            ``(iii) to any interest-related 
                        dividend paid to any person within a 
                        foreign country (or any interest-
                        related dividend payment addressed to, 
                        or for the account of, persons within 
                        such foreign country) during any period 
                        described in subsection (h)(6) with 
                        respect to such country.
                Clause (iii) shall not apply to any dividend 
                with respect to any stock the holding period of 
                which begins on or before the date of the 
                publication of the Secretary's determination 
                under subsection (h)(6).
                    ``(C) Interest-related dividend.--For 
                purposes of this paragraph, an interest-related 
                dividend is any dividend (or part thereof) 
                which is designated by the regulated investment 
                company as an interest-related dividend in a 
                written notice mailed to its shareholders not 
                later than 60 days after the close of its 
                taxable year. If the aggregate amount so 
                designated with respect to a taxable year of 
                the company (including amounts so designated 
                with respect to dividends paid after the close 
                of the taxable year described in section 855) 
                is greater than the qualified net interest 
                income of the company for such taxable year, 
                the portion of each distribution which shall be 
                an interest-related dividend shall be only that 
                portion of the amounts so designated which such 
                qualified net interest income bears to the 
                aggregate amount so designated.
                    ``(D) Qualified net interest income.--For 
                purposes of subparagraph (C), the term 
                `qualified net interest income' means the 
                qualified interest income of the regulated 
                investment company reduced by the deductions 
                properly allocable to such income.
                    ``(E) Qualified interest income.--For 
                purposes of subparagraph (D), the term 
                `qualified interest income' means the sum of 
                the following amounts derived by the regulated 
                investment company from sources within the 
                United States:
                            ``(i) Any amount includible in 
                        gross income as original issue discount 
                        (within the meaning of section 1273) on 
                        an obligation payable 183 days or less 
                        from the date of original issue 
                        (without regard to the period held by 
                        the company).
                            ``(ii) Any interest includible in 
                        gross income (including amounts 
                        recognized as ordinary income in 
                        respect of original issue discount or 
                        market discount or acquisition discount 
                        under part V of subchapter P and such 
                        other amounts as regulations may 
                        provide) on an obligation which is in 
                        registered form; except that this 
                        clause shall not apply to--
                                    ``(I) any interest on an 
                                obligation issued by a 
                                corporation or partnership if 
                                the regulated investment 
                                company is a 10-percent 
                                shareholder in such corporation 
                                or partnership, and
                                    ``(II) any interest which 
                                is treated as not being 
                                portfolio interest under the 
                                rules of subsection (h)(4).
                            ``(iii) Any interest referred to in 
                        subsection (i)(2)(A) (without regard to 
                        the trade or business of the regulated 
                        investment company).
                            ``(iv) Any interest-related 
                        dividend includable in gross income 
                        with respect to stock of another 
                        regulated investment company.
                Such term includes any interest derived by the 
                regulated investment company from sources 
                outside the United States other than interest 
                that is subject to a tax imposed by a foreign 
                jurisdiction if the amount of such tax is 
                reduced (or eliminated) by a treaty with the 
                United States.
                    ``(F) 10-percent shareholder.--For purposes 
                of this paragraph, the term `10-percent 
                shareholder' has the meaning given such term by 
                subsection (h)(3)(B).
            ``(2) Short-term capital gain dividends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no tax shall be imposed under 
                paragraph (1)(A) of subsection (a) on any 
                short-term capital gain dividend received from 
                a regulated investment company.
                    ``(B) Exception for aliens taxable under 
                subsection (a)(2).--Subparagraph (A) shall not 
                apply in the case of any nonresident alien 
                individual subject to tax under subsection 
                (a)(2).
                    ``(C) Short-term capital gain dividend.--
                For purposes of this paragraph, a short-term 
                capital gain dividend is any dividend (or part 
                thereof) which is designated by the regulated 
                investment company as a short-term capital gain 
                dividend in a written notice mailed to its 
                shareholders not later than 60 days after the 
                close of its taxable year. If the aggregate 
                amount so designated with respect to a taxable 
                year of the company (including amounts so 
                designated with respect to dividends paid after 
                the close of the taxable year described in 
                section 855) is greater than the qualified 
                short-term gain of the company for such taxable 
                year, the portion of each distribution which 
                shall be a short-term capital gain dividend 
                shall be only that portion of the amounts so 
                designated which such qualified short-term gain 
                bears to the aggregate amount so designated.
                    ``(D) Qualified short-term gain.--For 
                purposes of subparagraph (C), the term 
                `qualified short-term gain' means the excess of 
                the net short-term capital gain of the 
                regulated investment company for the taxable 
                year over the net long-term capital loss (if 
                any) of such company for such taxable year. For 
                purposes of this subparagraph--
                            ``(i) the net short-term capital 
                        gain of the regulated investment 
                        company shall be computed by treating 
                        any short-term capital gain dividend 
                        includible in gross income with respect 
                        to stock of another regulated 
                        investment company as a short-term 
                        capital gain, and
                            ``(ii) the excess of the net short-
                        term capital gain for a taxable year 
                        over the net long-term capital loss for 
                        a taxable year (to which an election 
                        under section 4982(e)(4) does not 
                        apply) shall be determined without 
                        regard to any net capital loss or net 
                        short-term capital loss attributable to 
                        transactions after October 31 of such 
                        year, and any such net capital loss or 
                        net short-term capital loss shall be 
                        treated as arising on the 1st day of 
                        the next taxable year.
                To the extent provided in regulations, clause 
                (ii) shall apply also for purposes of computing 
                the taxable income of the regulated investment 
                company.''.
            (2) Foreign corporations.--Section 881 (relating to 
        tax on income of foreign corporations not connected 
        with United States business) is amended by 
        redesignating subsection (e) as subsection (f) and by 
        inserting after subsection (d) the following new 
        subsection:
    ``(e) Tax Not To Apply to Certain Dividends of Regulated 
Investment Companies.--
            ``(1) Interest-related dividends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no tax shall be imposed under 
                paragraph (1) of subsection (a) on any 
                interest-related dividend (as defined in 
                section 871(k)(1)) received from a regulated 
                investment company.
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply--
                            ``(i) to any dividend referred to 
                        in section 871(k)(1)(B), and
                            ``(ii) to any interest-related 
                        dividend received by a controlled 
                        foreign corporation (within the meaning 
                        of section 957(a)) to the extent such 
                        dividend is attributable to interest 
                        received by the regulated investment 
                        company from a person who is a related 
                        person (within the meaning of section 
                        864(d)(4)) with respect to such 
                        controlled foreign corporation.
                    ``(C) Treatment of dividends received by 
                controlled foreign corporations.--The rules of 
                subsection (c)(5)(A) shall apply to any 
                interest-related dividend received by a 
                controlled foreign corporation (within the 
                meaning of section 957(a)) to the extent such 
                dividend is attributable to interest received 
                by the regulated investment company which is 
                described in clause (ii) of section 
                871(k)(1)(E) (and not described in clause (i), 
                (iii), or the last sentence of such section).
            ``(2) Short-term capital gain dividends.--No tax 
        shall be imposed under paragraph (1) of subsection (a) 
        on any short-term capital gain dividend (as defined in 
        section 871(k)(2)) received from a regulated investment 
        company.''.
            (3) Withholding taxes.--
                    (A) Section 1441(c) (relating to 
                exceptions) is amended by adding at the end the 
                following new paragraph:
            ``(12) Certain dividends received from regulated 
        investment companies.--
                    ``(A) In general.--No tax shall be required 
                to be deducted and withheld under subsection 
                (a) from any amount exempt from the tax imposed 
                by section 871(a)(1)(A) by reason of section 
                871(k).
                    ``(B) Special rule.--For purposes of 
                subparagraph (A), clause (i) of section 
                871(k)(1)(B) shall not apply to any dividend 
                unless the regulated investment company knows 
                that such dividend is a dividend referred to in 
                such clause. A similar rule shall apply with 
                respect to the exception contained in section 
                871(k)(2)(B).''.
                    (B) Section 1442(a) (relating to 
                withholding of tax on foreign corporations) is 
                amended--
                            (i) by striking ``and the reference 
                        in section 1441(c)(10)'' and inserting 
                        ``the reference in section 
                        1441(c)(10)'', and
                            (ii) by inserting before the period 
                        at the end the following: ``, and the 
                        references in section 1441(c)(12) to 
                        sections 871(a) and 871(k) shall be 
                        treated as referring to sections 881(a) 
                        and 881(e) (except that for purposes of 
                        applying subparagraph (A) of section 
                        1441(c)(12), as so modified, clause 
                        (ii) of section 881(e)(1)(B) shall not 
                        apply to any dividend unless the 
                        regulated investment company knows that 
                        such dividend is a dividend referred to 
                        in such clause)''.
    (b) Estate Tax Treatment of Interest in Certain Regulated 
Investment Companies.--Section 2105 (relating to property 
without the United States for estate tax purposes) is amended 
by adding at the end the following new subsection:
    ``(d) Stock in a RIC.--
            ``(1) In general.--For purposes of this subchapter, 
        stock in a regulated investment company (as defined in 
        section 851) owned by a nonresident not a citizen of 
        the United States shall not be deemed property within 
        the United States in the proportion that, at the end of 
        the quarter of such investment company's taxable year 
        immediately preceding a decedent's date of death (or at 
        such other time as the Secretary may designate in 
        regulations), the assets of the investment company that 
        were qualifying assets with respect to the decedent 
        bore to the total assets of the investment company.
            ``(2) Qualifying assets.--For purposes of this 
        subsection, qualifying assets with respect to a 
        decedent are assets that, if owned directly by the 
        decedent, would have been--
                    ``(A) amounts, deposits, or debt 
                obligations described in subsection (b) of this 
                section,
                    ``(B) debt obligations described in the 
                last sentence of section 2104(c), or
                    ``(C) other property not within the United 
                States.''.
    (c) Treatment of Regulated Investment Companies Under 
Section 897.--
            (1) Paragraph (1) of section 897(h) is amended by 
        striking ``REIT'' each place it appears and inserting 
        ``qualified investment entity''.
            (2) Paragraphs (2) and (3) of section 897(h) are 
        amended to read as follows:
            ``(2) Sale of stock in domestically controlled 
        entity not taxed.--The term `United States real 
        property interest' does not include any interest in a 
        domestically controlled qualified investment entity.
            ``(3) Distributions by domestically controlled 
        qualified investment entities.--In the case of a 
        domestically controlled qualified investment entity, 
        rules similar to the rules of subsection (d) shall 
        apply to the foreign ownership percentage of any 
        gain.''.
            (3) Subparagraphs (A) and (B) of section 897(h)(4) 
        are amended to read as follows:
                    ``(A) Qualified investment entity.--The 
                term `qualified investment entity' means any 
                real estate investment trust and any regulated 
                investment company.
                    ``(B) Domestically controlled.--The term 
                `domestically controlled qualified investment 
                entity' means any qualified investment entity 
                in which at all times during the testing period 
                less than 50 percent in value of the stock was 
                held directly or indirectly by foreign 
                persons.''.
            (4) Subparagraphs (C) and (D) of section 897(h)(4) 
        are each amended by striking ``REIT'' and inserting 
        ``qualified investment entity''.
            (5) The subsection heading for subsection (h) of 
        section 897 is amended by striking ``REITS'' and 
        inserting ``Certain Investment Entities''.
    (d) Effective Date.--
            (1) In general.--Except as otherwise provided in 
        this subsection, the amendments made by this section 
        shall apply to dividends with respect to taxable years 
        of regulated investment companies beginning after 
        December 31, 2004.
            (2) Estate tax treatment.--The amendment made by 
        subsection (b) shall apply to estates of decedents 
        dying after December 31, 2004.
            (3) Certain other provisions.--The amendments made 
        by subsection (c) (other than paragraph (1) thereof) 
        shall take effect on January 1, 2005.

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

    (a) In General.--Section 907 (relating to special rules in 
case of foreign oil and gas income) is repealed.
    (b) Conforming Amendments.--
            (1) Each of the following provisions are amended by 
        striking ``907,'':
                    (A) Section 245(a)(10).
                    (B) Section 865(h)(1)(B).
                    (C) Section 904(d)(1).
                    (D) Section 904(g)(10)(A).
            (2) Section 904(f)(5)(E)(iii) is amended by 
        inserting ``, as in effect before its repeal by the 
        Taxpayer Refund and Relief Act of 1999'' after 
        ``section 907(c)(4)(B)''.
            (3) Section 954(g)(1) is amended by inserting ``, 
        as in effect before its repeal by the Taxpayer Refund 
        and Relief Act of 1999'' after ``907(c)''.
            (4) Section 6501(i) is amended--
                    (A) by striking ``, or under section 907(f) 
                (relating to carryback and carryover of 
                disallowed oil and gas extraction taxes)'', and
                    (B) by striking ``or 907(f)''.
            (5) The table of sections for subpart A of part III 
        of subchapter N of chapter 1 is amended by striking the 
        item relating to section 907.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2007.

SEC. 909. ADVANCE PRICING AGREEMENTS TREATED AS CONFIDENTIAL TAXPAYER 
                    INFORMATION.

    (a) In General.--
            (1) Treatment as return information.--Paragraph (2) 
        of section 6103(b) (defining return information) is 
        amended by striking ``and'' at the end of subparagraph 
        (A), by inserting ``and'' at the end of subparagraph 
        (B), and by inserting after subparagraph (B) the 
        following new subparagraph:
                    ``(C) any advance pricing agreement entered 
                into by a taxpayer and the Secretary and any 
                background information related to such 
                agreement or any application for an advance 
                pricing agreement,''.
            (2) Exception from public inspection as written 
        determination.--Paragraph (1) of section 6110(b) 
        (defining written determination) is amended by adding 
        at the end the following new sentence: ``Such term 
        shall not include any advance pricing agreement entered 
        into by a taxpayer and the Secretary and any background 
        information related to such agreement or any 
        application for an advance pricing agreement.''.
            (3) Effective date.--The amendments made by this 
        subsection shall take effect on the date of the 
        enactment of this Act.
    (b) Annual Report Regarding Advance Pricing Agreements.--
            (1) In general.--Not later than 90 days after the 
        end of each calendar year, the Secretary of the 
        Treasury shall prepare and publish a report regarding 
        advance pricing agreements.
            (2) Contents of report.--The report shall include 
        the following for the calendar year to which such 
        report relates:
                    (A) Information about the structure, 
                composition, and operation of the advance 
                pricing agreement program office.
                    (B) A copy of each model advance pricing 
                agreement.
                    (C) The number of--
                            (i) applications filed during such 
                        calendar year for advanced pricing 
                        agreements;
                            (ii) advance pricing agreements 
                        executed cumulatively to date and 
                        during such calendar year;
                            (iii) renewals of advanced pricing 
                        agreements issued;
                            (iv) pending requests for advance 
                        pricing agreements;
                            (v) pending renewals of advance 
                        pricing agreements;
                            (vi) for each of the items in 
                        clauses (ii) through (v), the number 
                        that are unilateral, bilateral, and 
                        multilateral, respectively;
                            (vii) advance pricing agreements 
                        revoked or canceled, and the number of 
                        withdrawals from the advance pricing 
                        agreement program; and
                            (viii) advanced pricing agreements 
                        finalized or renewed by industry.
                    (D) General descriptions of--
                            (i) the nature of the relationships 
                        between the related organizations, 
                        trades, or businesses covered by 
                        advance pricing agreements;
                            (ii) the covered transactions and 
                        the business functions performed and 
                        risks assumed by such organizations, 
                        trades, or businesses;
                            (iii) the related organizations, 
                        trades, or businesses whose prices or 
                        results are tested to determine 
                        compliance with transfer pricing 
                        methodologies prescribed in advanced 
                        pricing agreements;
                            (iv) methodologies used to evaluate 
                        tested parties and transactions and the 
                        circumstances leading to the use of 
                        those methodologies;
                            (v) critical assumptions made and 
                        sources of comparables used;
                            (vi) comparable selection criteria 
                        and the rationale used in determining 
                        such criteria;
                            (vii) the nature of adjustments to 
                        comparables or tested parties;
                            (viii) the nature of any ranges 
                        agreed to, including information 
                        regarding when no range was used and 
                        why, when interquartile ranges were 
                        used, and when there was a statistical 
                        narrowing of the comparables;
                            (ix) adjustment mechanisms provided 
                        to rectify results that fall outside of 
                        the agreed upon advance pricing 
                        agreement range;
                            (x) the various term lengths for 
                        advance pricing agreements, including 
                        rollback years, and the number of 
                        advance pricing agreements with each 
                        such term length;
                            (xi) the nature of documentation 
                        required; and
                            (xii) approaches for sharing of 
                        currency or other risks.
                    (E) Statistics regarding the amount of time 
                taken to complete new and renewal advance 
                pricing agreements.
                    (F) A detailed description of the Secretary 
                of the Treasury's efforts to ensure compliance 
                with existing advance pricing agreements.
            (3) Confidentiality.--The reports required by this 
        subsection shall be treated as authorized by the 
        Internal Revenue Code of 1986 for purposes of section 
        6103 of such Code, but the reports shall not include 
        information--
                    (A) which would not be permitted to be 
                disclosed under section 6110(c) of such Code if 
                such report were a written determination as 
                defined in section 6110 of such Code, or
                    (B) which can be associated with, or 
                otherwise identify, directly or indirectly, a 
                particular taxpayer.
            (4) First report.--The report for calendar year 
        1999 shall include prior calendar years after 1990.
    (c) User Fee.--Section 7527, as added by title XV of this 
Act, is amended by redesignating subsection (c) as subsection 
(d) and by inserting after subsection (b) the following new 
subsection:
    ``(c) Advance Pricing Agreements.--
            ``(1) In general.--In addition to any fee otherwise 
        imposed under this section, the fee imposed for 
        requests for advance pricing agreements shall be 
        increased by $500.
            ``(2) Reduced fee for small businesses.--The 
        Secretary shall provide an appropriate reduction in the 
        amount imposed by reason of paragraph (1) for requests 
        for advance pricing agreements for small businesses.''.
    (d) Regulations.--The Secretary of the Treasury or the 
Secretary's delegate shall prescribe such regulations as may be 
necessary or appropriate to carry out the purposes of section 
6103(b)(2)(C), and the last sentence of section 6110(b)(1), of 
the Internal Revenue Code of 1986, as added by this section.

SEC. 910. INCREASE IN DOLLAR LIMITATION ON SECTION 911 EXCLUSION.

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

``For calendar year--                          The exclusion amount is--
        2000............................................        $76,000 
        2001............................................         78,000 
        2002............................................         80,000 
        2003............................................         83,000 
        2004............................................         86,000 
        2005............................................         89,000 
        2006............................................         92,000 
        2007 and thereafter.............................      95,000.''.

    (b) Conforming Amendment.--Clause (ii) of section 
911(b)(2)(D) is amended by striking ``$80,000'' and inserting 
``$95,000''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1999.

SEC. 911. AIRLINE MILEAGE AWARDS TO CERTAIN FOREIGN PERSONS.

    (a) In General.--Paragraph (3) of section 4261(e) is 
amended by redesignating subparagraph (C) as subparagraph (D) 
and by inserting after subparagraph (B) the following new 
subparagraph:
                    ``(C) Mileage awards issued to individuals 
                residing outside the united states.--The tax 
                imposed by subsection (a) shall not apply to 
                amounts attributable to mileage awards credited 
                to individuals whose mailing addresses on 
                record with the person providing the right to 
                air transportation are outside the United 
                States.''
    (b) Effective Date.--The amendment made by this section 
shall apply to amounts paid after December 31, 2004.

        TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS

SEC. 1001. EXEMPTION FROM INCOME TAX FOR STATE-CREATED ORGANIZATIONS 
                    PROVIDING PROPERTY AND CASUALTY INSURANCE FOR 
                    PROPERTY FOR WHICH SUCH COVERAGE IS OTHERWISE 
                    UNAVAILABLE.

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

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

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

SEC. 1003. EXEMPTION PROCEDURE FROM TAXES ON SELF-DEALING.

    (a) In General.--Subsection (d) of section 4941 (relating 
to taxes on self-dealing) is amended by adding at the end the 
following new paragraph:
            ``(3) Special exemption.--The Secretary shall 
        establish an exemption procedure for purposes of this 
        subsection. Pursuant to such procedure, the Secretary 
        may grant a conditional or unconditional exemption of 
        any disqualified person or transaction or class of 
        disqualified persons or transactions, from all or part 
        of the restrictions imposed by paragraph (1). The 
        Secretary may not grant an exemption under this 
        paragraph unless he finds that such exemption is--
                    ``(A) administratively feasible,
                    ``(B) in the interests of the private 
                foundation, and
                    ``(C) protective of the rights of the 
                private foundation.
        Before granting an exemption under this paragraph, the 
        Secretary shall require adequate notice to be given to 
        interested persons and shall publish notice in the 
        Federal Register of the pendency of such exemption and 
        shall afford interested persons an opportunity to 
        present views.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to transactions occurring after the date of the 
enactment of this Act.

SEC. 1004. EXPANSION OF DECLARATORY JUDGMENT REMEDY TO TAX-EXEMPT 
                    ORGANIZATIONS.

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

SEC. 1005. MODIFICATIONS TO SECTION 512(B)(13).

    (a) In General.--Paragraph (13) of section 512(b) is 
amended by redesignating subparagraph (E) as subparagraph (F) 
and by inserting after subparagraph (D) the following new 
paragraph:
                    ``(E) Paragraph to apply only to excess 
                payments.--
                            ``(i) In general.--Subparagraph (A) 
                        shall apply only to the portion of a 
                        specified payment received by the 
                        controlling organization that exceeds 
                        the amount which would have been paid 
                        if such payment met the requirements 
                        prescribed under section 482.
                            ``(ii) Addition to tax for 
                        valuation misstatements.--The tax 
                        imposed by this chapter on the 
                        controlling organization shall be 
                        increased by an amount equal to 20 
                        percent of such excess.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by this section 
        shall apply to payments received or accrued after 
        December 31, 1999.
            (2) Payments subject to binding contract transition 
        rule.--If the amendments made by section 1041 of the 
        Taxpayer Relief Act of 1997 do not apply to any amount 
        received or accrued after the date of the enactment of 
        this Act under any contract described in subsection 
        (b)(2) of such section, such amendments also shall not 
        apply to amounts received or accrued under such 
        contract before January 1, 2000.

SEC. 1006. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS EXCLUDED 
                    FROM GROSS INCOME.

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

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

    ``(a) In General.--Gross income of an individual does not 
include amounts received, from an organization described in 
section 170(c), as reimbursement of operating expenses with 
respect to use of a passenger automobile for the benefit of 
such organization for which a deduction would otherwise be 
allowable under section 170. The preceding sentence shall apply 
only to the extent that such reimbursement would be deductible 
under section 274(d) (determined by applying the standard 
business mileage rate established pursuant to section 274(d)) 
if the organization were not so described and such individual 
were an employee of such organization.
    ``(b) No Double Benefit.--Subsection (a) shall not apply 
with respect to any expenses if the individual claims a 
deduction or credit for such expenses under any other provision 
of this title.
    ``(c) Exemption From Reporting Requirements.--Section 6041 
shall not apply with respect to reimbursements excluded from 
income under subsection (a).''.
    (b) Clerical Amendment.--The table of sections for part III 
of subchapter B of chapter 1 is amended by inserting after the 
item relating to section 138 the following new items:

        ``Sec. 138A. Reimbursement for use of passenger automobile for 
                  charity.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1999.

SEC. 1007. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN EXPENSES 
                    INCURRED IN SUPPORT OF NATIVE ALASKAN SUBSISTENCE 
                    WHALING.

    (a) In General.--Section 170 (relating to charitable, etc., 
contributions and gifts) is amended by redesignating subsection 
(m) as subsection (n) and by inserting after subsection (l) the 
following new subsection:
    ``(m) Expenses Paid by Certain Whaling Captains in Support 
of Native Alaskan Subsistence Whaling.--
            ``(1) In general.--In the case of an individual who 
        is recognized by the Alaska Eskimo Whaling Commission 
        as a whaling captain charged with the responsibility of 
        maintaining and carrying out sanctioned whaling 
        activities and who engages in such activities during 
        the taxable year, the amount described in paragraph (2) 
        (to the extent such amount does not exceed $7,500 for 
        the taxable year) shall be treated for purposes of this 
        section as a charitable contribution.
            ``(2) Amount described.--
                    ``(A) In general.--The amount described in 
                this paragraph is the aggregate of the 
                reasonable and necessary whaling expenses paid 
                by the taxpayer during the taxable year in 
                carrying out sanctioned whaling activities.
                    ``(B) Whaling expenses.--For purposes of 
                subparagraph (A), the term `whaling expenses' 
                includes expenses for--
                            ``(i) the acquisition and 
                        maintenance of whaling boats, weapons, 
                        and gear used in sanctioned whaling 
                        activities,
                            ``(ii) the supplying of food for 
                        the crew and other provisions for 
                        carrying out such activities, and
                            ``(iii) storage and distribution of 
                        the catch from such activities.
            ``(3) Sanctioned whaling activities.--For purposes 
        of this subsection, the term `sanctioned whaling 
        activities' means subsistence bowhead whale hunting 
        activities conducted pursuant to the management plan of 
        the Alaska Eskimo Whaling Commission.''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall apply to taxable years beginning after December 31, 1999.

SEC. 1008. SIMPLIFICATION OF LOBBYING EXPENDITURE LIMITATION.

    (a) Repeal of Grassroots Expenditure Limit.--Paragraph (1) 
of section 501(h) (relating to expenditures by public charities 
to influence legislation) is amended to read as follows:
            ``(1) General rule.--In the case of an organization 
        to which this subsection applies, exemption from 
        taxation under subsection (a) shall be denied because a 
        substantial part of the activities of such organization 
        consists of carrying on propaganda, or otherwise 
        attempting, to influence legislation, but only if such 
        organization normally makes lobbying expenditures in 
        excess of the lobbying ceiling amount for such 
        organization for each taxable year.''.
    (b) Conforming Amendments.--
            (1) Section 501(h)(2) is amended by striking 
        subparagraphs (C) and (D).
            (2) Section 4911(b) is amended to read as follows:
    ``(b) Excess Lobbying Expenditures.--For purposes of this 
section, the term `excess lobbying expenditures' means, for a 
taxable year, the amount by which the lobbying expenditures 
made by the organization during the taxable year exceed the 
lobbying nontaxable amount for such organization for such 
taxable year.''.
            (3) Section 4911(c) is amended by striking 
        paragraphs (3) and (4).
            (4) Paragraph (1)(A) of section 4911(f) is amended 
        by striking ``limits of section 501(h)(1) have'' and 
        inserting ``limit of section 501(h)(1) has''.
            (5) Paragraph (1)(C) of section 4911(f) is amended 
        by striking ``limits of section 501(h)(1) are'' and 
        inserting ``limit of section 501(h)(1) is''.
            (6) Paragraphs (4)(A) and (4)(B) of section 4911(f) 
        are each amended by striking ``limits of section 
        501(h)(1)'' and inserting ``limit of section 
        501(h)(1)''.
            (7) Paragraph (8) of section 6033(b) (relating to 
        certain organizations described in section 501(c)(3)) 
        is amended by inserting ``and'' at the end of 
        subparagraph (A) and by striking subparagraphs (C) and 
        (D).
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1999.

SEC. 1009. 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 from an 
                individual retirement account to an 
                organization described in section 170(c), no 
                amount shall be includible in the gross income 
                of the distributee.
                    ``(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 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, 2002.

                    TITLE XI--REAL ESTATE PROVISIONS

         Subtitle A--Improvements in Low-Income Housing Credit

SEC. 1101. 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) the applicable amount 
                                under subparagraph (H) 
                                multiplied by the State 
                                population, or
                                    ``(II) $2,000,000,''.
    (b) Applicable Amount.--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) Applicable amount of state ceiling.--
                For purposes of subparagraph (C)(ii), the 
                applicable amount shall be determined under the 
                following table:

``For calendar year:                           The applicable amount is:
            2000.............................................. $1.35    
            2001............................................    1.45    
            2002............................................    1.55    
            2003............................................    1.65    
            2004 and thereafter............................    1.75.    

    (d) Adjustment of State Ceiling for Increases in Cost-of-
Living.--Paragraph (3) of section 42(h) (relating to housing 
credit dollar amount for agencies), as amended by subsection 
(c), is amended by adding at the end the following new 
subparagraph:
                    ``(I) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of a 
                        calendar year after 2004, the 
                        $2,000,000 in subparagraph (C) and the 
                        $1.75 amount in subparagraph (H) 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 2003' for 
                                `calendar year 1992' in 
                                subparagraph (B) thereof.
                            ``(ii) Rounding.--
                                    ``(I) In the case of the 
                                amount in subparagraph (C), 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 
                                amount in subparagraph (H), any 
                                increase under clause (i) which 
                                is not a multiple of 5 cents 
                                shall be rounded to the next 
                                lowest multiple of 5 cents.''.
    (e) 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)''.
    (f) Effective Date.--The amendments made by this section 
shall apply to calendar years after 2000 but shall not take 
effect if sections 1102 and 1103 do not take effect.

SEC. 1102. 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. 1103. 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. 1104. 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 1 facility.
                            ``(iii) Community service 
                        facility.--For purposes of this 
                        subparagraph, the term `community 
                        service facility' means any facility 
                        designed to serve primarily individuals 
                        whose income is 60 percent or less of 
                        area median income (within the meaning 
                        of subsection (g)(1)(B)).''.
    (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. 1105. 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. 1106. 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. 1107. EFFECTIVE DATE.

    Except as otherwise provided in this subtitle, the 
amendments made by this subtitle shall apply to--
            (1) housing credit dollar amounts allocated after 
        December 31, 1999, and
            (2) buildings placed in service after such date to 
        the extent paragraph (1) of section 42(h) of the 
        Internal Revenue Code of 1986 does not apply to any 
        building by reason of paragraph (4) thereof, but only 
        with respect to bonds issued after such date.

    Subtitle B--Provisions Relating to Real Estate Investment Trusts

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

SEC. 1111. MODIFICATIONS TO ASSET DIVERSIFICATION TEST.

    (a) In General.--Subparagraph (B) of section 856(c)(4) is 
amended to read as follows:
                    ``(B)(i) not more than 25 percent of the 
                value of its total assets is represented by 
                securities (other than those includible under 
                subparagraph (A)), and
                    ``(ii) except with respect to a taxable 
                REIT subsidiary and securities includible under 
                subparagraph (A)--
                            ``(I) not more than 5 percent of 
                        the value of its total assets is 
                        represented by securities of any 1 
                        issuer,
                            ``(II) the trust does not hold 
                        securities possessing more than 10 
                        percent of the total voting power of 
                        the outstanding securities of any 1 
                        issuer, and
                            ``(III) the trust does not hold 
                        securities having a value of more than 
                        10 percent of the total value of the 
                        outstanding securities of any 1 
                        issuer.''.
    (b) Exception for Straight Debt Securities.--Subsection (c) 
of section 856 is amended by adding at the end the following 
new paragraph:
            ``(7) Straight debt safe harbor in applying 
        paragraph (4).--Securities of an issuer which are 
        straight debt (as defined in section 1361(c)(5) without 
        regard to subparagraph (B)(iii) thereof) shall not be 
        taken into account in applying paragraph 
        (4)(B)(ii)(III) if--
                    ``(A) the issuer is an individual, or
                    ``(B) the only securities of such issuer 
                which are held by the trust or a taxable REIT 
                subsidiary of the trust are straight debt (as 
                so defined), or
                    ``(C) the issuer is a partnership and the 
                trust holds at least a 20 percent profits 
                interest in the partnership.''.

SEC. 1112. TREATMENT OF INCOME AND SERVICES PROVIDED BY TAXABLE REIT 
                    SUBSIDIARIES.

    (a) Income From Taxable REIT Subsidiaries Not Treated as 
Impermissible Tenant Service Income.--Clause (i) of section 
856(d)(7)(C) (relating to exceptions to impermissible tenant 
service income) is amended by inserting ``or through a taxable 
REIT subsidiary of such trust'' after ``income''.
    (b) Certain Income From Taxable REIT Subsidiaries Not 
Excluded From Rents From Real Property.--
            (1) In general.--Subsection (d) of section 856 
        (relating to rents from real property defined) is 
        amended by adding at the end the following new 
        paragraphs:
            ``(8) Special rule for taxable reit subsidiaries.--
        For purposes of this subsection, amounts paid to a real 
        estate investment trust by a taxable REIT subsidiary of 
        such trust shall not be excluded from rents from real 
        property by reason of paragraph (2)(B) if the 
        requirements of either of the following subparagraphs 
        are met:
                    ``(A) Limited rental exception.--The 
                requirements of this subparagraph are met with 
                respect to any property if at least 90 percent 
                of the leased space of the property is rented 
                to persons other than taxable REIT subsidiaries 
                of such trust and other than persons described 
                in section 856(d)(2)(B). The preceding sentence 
                shall apply only to the extent that the amounts 
                paid to the trust as rents from real property 
                (as defined in paragraph (1) without regard to 
                paragraph (2)(B)) from such property are 
                substantially comparable to such rents made by 
                the other tenants of the trust's property for 
                comparable space.
                    ``(B) Exception for certain lodging 
                facilities.--The requirements of this 
                subparagraph are met with respect to an 
                interest in real property which is a qualified 
                lodging facility leased by the trust to a 
                taxable REIT subsidiary of the trust if the 
                property is operated on behalf of such 
                subsidiary by a person who is an eligible 
                independent contractor.
            ``(9) Eligible independent contractor.--For 
        purposes of paragraph (8)(B)--
                    ``(A) In general.--The term `eligible 
                independent contractor' means, with respect to 
                any qualified lodging facility, any independent 
                contractor if, at the time such contractor 
                enters into a management agreement or other 
                similar service contract with the taxable REIT 
                subsidiary to operate the facility, such 
                contractor (or any related person) is actively 
                engaged in the trade or business of operating 
                qualified lodging facilities for any person who 
                is not a related person with respect to the 
                real estate investment trust or the taxable 
                REIT subsidiary.
                    ``(B) Special rules.--Solely for purposes 
                of this paragraph and paragraph (8)(B), a 
                person shall not fail to be treated as an 
                independent contractor with respect to any 
                qualified lodging facility by reason of any of 
                the following:
                            ``(i) The taxable REIT subsidiary 
                        bears the expenses for the operation of 
                        the facility pursuant to the management 
                        agreement or other similar service 
                        contract.
                            ``(ii) The taxable REIT subsidiary 
                        receives the revenues from the 
                        operation of such facility, net of 
                        expenses for such operation and fees 
                        payable to the operator pursuant to 
                        such agreement or contract.
                            ``(iii) The real estate investment 
                        trust receives income from such person 
                        with respect to another property that 
                        is attributable to a lease of such 
                        other property to such person that was 
                        in effect as of the later of--
                                    ``(I) January 1, 1999, or
                                    ``(II) the earliest date 
                                that any taxable REIT 
                                subsidiary of such trust 
                                entered into a management 
                                agreement or other similar 
                                service contract with such 
                                person with respect to such 
                                qualified lodging facility.
                    ``(C) Renewals, etc., of existing leases.--
                For purposes of subparagraph (B)(iii)--
                            ``(i) a lease shall be treated as 
                        in effect on January 1, 1999, without 
                        regard to its renewal after such date, 
                        so long as such renewal is pursuant to 
                        the terms of such lease as in effect on 
                        whichever of the dates under 
                        subparagraph (B)(iii) is the latest, 
                        and
                            ``(ii) a lease of a property 
                        entered into after whichever of the 
                        dates under subparagraph (B)(iii) is 
                        the latest shall be treated as in 
                        effect on such date if--
                                    ``(I) on such date, a lease 
                                of such property from the trust 
                                was in effect, and
                                    ``(II) under the terms of 
                                the new lease, such trust 
                                receives a substantially 
                                similar or lesser benefit in 
                                comparison to the lease 
                                referred to in subclause (I).
                    ``(D) Qualified lodging facility.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term 
                        `qualified lodging facility' means any 
                        lodging facility unless wagering 
                        activities are conducted at or in 
                        connection with such facility by any 
                        person who is engaged in the business 
                        of accepting wagers and who is legally 
                        authorized to engage in such business 
                        at or in connection with such facility.
                            ``(ii) Lodging facility.--The term 
                        `lodging facility' means a hotel, 
                        motel, or other establishment more than 
                        one-half of the dwelling units in which 
                        are used on a transient basis.
                            ``(iii) Customary amenities and 
                        facilities.--The term `lodging 
                        facility' includes customary amenities 
                        and facilities operated as part of, or 
                        associated with, the lodging facility 
                        so long as such amenities and 
                        facilities are customary for other 
                        properties of a comparable size and 
                        class owned by other owners unrelated 
                        to such real estate investment trust.
                    ``(E) Operate includes manage.--References 
                in this paragraph to operating a property shall 
                be treated as including a reference to managing 
                the property.
                    ``(F) Related person.--Persons shall be 
                treated as related to each other if such 
                persons are treated as a single employer under 
                subsection (a) or (b) of section 52.''.
            (2) Conforming amendment.--Subparagraph (B) of 
        section 856(d)(2) is amended by inserting ``except as 
        provided in paragraph (8),'' after ``(B)''.
            (3) Determining rents from real property.--
                    (A)(i) Paragraph (1) of section 856(d) is 
                amended by striking ``adjusted bases'' each 
                place it occurs and inserting ``fair market 
                values''.
                    (ii) The amendment made by this 
                subparagraph shall apply to taxable years 
                beginning after December 31, 2000.
                    (B)(i) Clause (i) of section 856(d)(2)(B) 
                is amended by striking ``number'' and inserting 
                ``value''.
                    (ii) The amendment made by this 
                subparagraph shall apply to amounts received or 
                accrued in taxable years beginning after 
                December 31, 2000, except for amounts paid 
                pursuant to leases in effect on July 12, 1999, 
                or pursuant to a binding contract in effect on 
                such date and at all times thereafter.

SEC. 1113. TAXABLE REIT SUBSIDIARY.

    (a) In General.--Section 856 is amended by adding at the 
end the following new subsection:
    ``(l) Taxable REIT Subsidiary.--For purposes of this part--
            ``(1) In general.--The term `taxable REIT 
        subsidiary' means, with respect to a real estate 
        investment trust, a corporation (other than a real 
        estate investment trust) if--
                    ``(A) such trust directly or indirectly 
                owns stock in such corporation, and
                    ``(B) such trust and such corporation 
                jointly elect that such corporation shall be 
                treated as a taxable REIT subsidiary of such 
                trust for purposes of this part.
        Such an election, once made, shall be irrevocable 
        unless both such trust and corporation consent to its 
        revocation. Such election, and any revocation thereof, 
        may be made without the consent of the Secretary.
            ``(2) 35 percent ownership in another taxable reit 
        subsidiary.--The term `taxable REIT subsidiary' 
        includes, with respect to any real estate investment 
        trust, any corporation (other than a real estate 
        investment trust) with respect to which a taxable REIT 
        subsidiary of such trust owns directly or indirectly--
                    ``(A) securities possessing more than 35 
                percent of the total voting power of the 
                outstanding securities of such corporation, or
                    ``(B) securities having a value of more 
                than 35 percent of the total value of the 
                outstanding securities of such corporation.
        The preceding sentence shall not apply to a qualified 
        REIT subsidiary (as defined in subsection (i)(2)). The 
        rule of section 856(c)(7) shall apply for purposes of 
        subparagraph (B).
            ``(3) Exceptions.--The term `taxable REIT 
        subsidiary' shall not include--
                    ``(A) any corporation which directly or 
                indirectly operates or manages a lodging 
                facility or a health care facility, and
                    ``(B) any corporation which directly or 
                indirectly provides to any other person (under 
                a franchise, license, or otherwise) rights to 
                any brand name under which any lodging facility 
                or health care facility is operated.
        Subparagraph (B) shall not apply to rights provided to 
        an eligible independent contractor to operate or manage 
        a lodging facility if such rights are held by such 
        corporation as a franchisee, licensee, or in a similar 
        capacity and such lodging facility is either owned by 
        such corporation or is leased to such corporation from 
        the real estate investment trust.
            ``(4) Definitions.--For purposes of paragraph (3)--
                    ``(A) Lodging facility.--The term `lodging 
                facility' has the meaning given to such term by 
                paragraph (9)(D)(ii).
                    ``(B) Health care facility.--The term 
                `health care facility' has the meaning given to 
                such term by subsection (e)(6)(D)(ii).''.
    (b) Conforming Amendment.--Paragraph (2) of section 856(i) 
is amended by adding at the end the following new sentence: 
``Such term shall not include a taxable REIT subsidiary.''.

SEC. 1114. LIMITATION ON EARNINGS STRIPPING.

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

SEC. 1115. 100 PERCENT TAX ON IMPROPERLY ALLOCATED AMOUNTS.

    (a) In General.--Subsection (b) of section 857 (relating to 
method of taxation of real estate investment trusts and holders 
of shares or certificates of beneficial interest) is amended by 
redesignating paragraphs (7) and (8) as paragraphs (8) and (9), 
respectively, and by inserting after paragraph (6) the 
following new paragraph:
            ``(7) Income from redetermined rents, redetermined 
        deductions, and excess interest.--
                    ``(A) Imposition of tax.--There is hereby 
                imposed for each taxable year of the real 
                estate investment trust a tax equal to 100 
                percent of redetermined rents, redetermined 
                deductions, and excess interest.
                    ``(B) Redetermined rents.--
                            ``(i) In general.--The term 
                        `redetermined rents' means rents from 
                        real property (as defined in subsection 
                        856(d)) the amount of which would (but 
                        for subparagraph (E)) be reduced on 
                        distribution, apportionment, or 
                        allocation under section 482 to clearly 
                        reflect income as a result of services 
                        furnished or rendered by a taxable REIT 
                        subsidiary of the real estate 
                        investment trust to a tenant of such 
                        trust.
                            ``(ii) Exception for certain 
                        services.--Clause (i) shall not apply 
                        to amounts received directly or 
                        indirectly by a real estate investment 
                        trust for services described in 
                        paragraph (1)(B) or (7)(C)(i) of 
                        section 856(d).
                            ``(iii) Exception for de minimis 
                        amounts.--Clause (i) shall not apply to 
                        amounts described in section 
                        856(d)(7)(A) with respect to a property 
                        to the extent such amounts do not 
                        exceed the one percent threshold 
                        described in section 856(d)(7)(B) with 
                        respect to such property.
                            ``(iv) Exception for comparably 
                        priced services.--Clause (i) shall not 
                        apply to any service rendered by a 
                        taxable REIT subsidiary of a real 
                        estate investment trust to a tenant of 
                        such trust if--
                                    ``(I) such subsidiary 
                                renders a significant amount of 
                                similar services to persons 
                                other than such trust and 
                                tenants of such trust who are 
                                unrelated (within the meaning 
                                of section 856(d)(8)(F)) to 
                                such subsidiary, trust, and 
                                tenants, but
                                    ``(II) only to the extent 
                                the charge for such service so 
                                rendered is substantially 
                                comparable to the charge for 
                                the similar services rendered 
                                to persons referred to in 
                                subclause (I).
                            ``(v) Exception for certain 
                        separately charged services.--Clause 
                        (i) shall not apply to any service 
                        rendered by a taxable REIT subsidiary 
                        of a real estate investment trust to a 
                        tenant of such trust if--
                                    ``(I) the rents paid to the 
                                trust by tenants (leasing at 
                                least 25 percent of the net 
                                leasable space in the trust's 
                                property) who are not receiving 
                                such service from such 
                                subsidiary are substantially 
                                comparable to the rents paid by 
                                tenants leasing comparable 
                                space who are receiving such 
                                service from such subsidiary, 
                                and
                                    ``(II) the charge for such 
                                service from such subsidiary is 
                                separately stated.
                            ``(vi) Exception for certain 
                        services based on subsidiary's income 
                        from the services.--Clause (i) shall 
                        not apply to any service rendered by a 
                        taxable REIT subsidiary of a real 
                        estate investment trust to a tenant of 
                        such trust if the gross income of such 
                        subsidiary from such service is not 
                        less than 150 percent of such 
                        subsidiary's direct cost in furnishing 
                        or rendering the service.
                            ``(vii) Exceptions granted by 
                        secretary.--The Secretary may waive the 
                        tax otherwise imposed by subparagraph 
                        (A) if the trust establishes to the 
                        satisfaction of the Secretary that 
                        rents charged to tenants were 
                        established on an arms' length basis 
                        even though a taxable REIT subsidiary 
                        of the trust provided services to such 
                        tenants.
                    ``(C) Redetermined deductions.--The term 
                `redetermined deductions' means deductions 
                (other than redetermined rents) of a taxable 
                REIT subsidiary of a real estate investment 
                trust if the amount of such deductions would 
                (but for subparagraph (E)) be decreased on 
                distribution, apportionment, or allocation 
                under section 482 to clearly reflect income as 
                between such subsidiary and such trust.
                    ``(D) Excess interest.--The term `excess 
                interest' means any deductions for interest 
                payments by a taxable REIT subsidiary of a real 
                estate investment trust to such trust to the 
                extent that the interest payments are in excess 
                of a rate that is commercially reasonable.
                    ``(E) Coordination with section 482.--The 
                imposition of tax under subparagraph (A) shall 
                be in lieu of any distribution, apportionment, 
                or allocation under section 482.
                    ``(F) Regulatory authority.--The Secretary 
                shall prescribe such regulations as may be 
                necessary or appropriate to carry out the 
                purposes of this paragraph. Until the Secretary 
                prescribes such regulations, real estate 
                investment trusts and their taxable REIT 
                subsidiaries may base their allocations on any 
                reasonable method.''.
    (b) Amount Subject to Tax Not Required To Be Distributed.--
Subparagraph (E) of section 857(b)(2) (relating to real estate 
investment trust taxable income) is amended by striking 
``paragraph (5)'' and inserting ``paragraphs (5) and (7)''.

SEC. 1116. EFFECTIVE DATE.

    (a) In General.--The amendments made by this part shall 
apply to taxable years beginning after December 31, 2000.
    (b) Transitional Rules Related to Section 1111.--
            (1) Existing arrangements.--
                    (A) In general.--Except as otherwise 
                provided in this paragraph, the amendment made 
                by section 1111 shall not apply to a real 
                estate investment trust with respect to--
                            (i) securities of a corporation 
                        held directly or indirectly by such 
                        trust on July 12, 1999,
                            (ii) securities of a corporation 
                        held by an entity on July 12, 1999, if 
                        such trust acquires control of such 
                        entity pursuant to a written binding 
                        contract in effect on such date and at 
                        all times thereafter before such 
                        acquisition,
                            (iii) securities received by such 
                        trust (or a successor) in exchange for, 
                        or with respect to, securities 
                        described in clause (i) or (ii) in a 
                        transaction in which gain or loss is 
                        not recognized, and
                            (iv) securities acquired directly 
                        or indirectly by such trust as part of 
                        a reorganization (as defined in section 
                        368(a)(1) of the Internal Revenue Code 
                        of 1986) with respect to such trust if 
                        such securities are described in clause 
                        (i), (ii), or (iii) with respect to any 
                        other real estate investment trust.
                    (B) New trade or business or substantial 
                new assets.--Subparagraph (A) shall cease to 
                apply to securities of a corporation as of the 
                first day after July 12, 1999, on which such 
                corporation engages in a substantial new line 
                of business, or acquires any substantial asset, 
                other than--
                            (i) pursuant to a binding contract 
                        in effect on such date and at all times 
                        thereafter before the acquisition of 
                        such asset,
                            (ii) in a transaction in which gain 
                        or loss is not recognized by reason of 
                        section 1031 or 1033 of the Internal 
                        Revenue Code of 1986, or
                            (iii) in a reorganization (as so 
                        defined) with another corporation the 
                        securities of which are described in 
                        paragraph (1)(A) of this subsection.
                    (C) Limitation on transition rules.--
                Subparagraph (A) shall cease to apply to 
                securities of a corporation held, acquired, or 
                received, directly or indirectly, by a real 
                estate investment trust as of the first day 
                after July 12, 1999, on which such trust 
                acquires any additional securities of such 
                corporation other than--
                            (i) pursuant to a binding contract 
                        in effect on July 12, 1999, and at all 
                        times thereafter, or
                            (ii) in a reorganization (as so 
                        defined) with another corporation the 
                        securities of which are described in 
                        paragraph (1)(A) of this subsection.
            (2) Tax-free conversion.--If--
                    (A) at the time of an election for a 
                corporation to become a taxable REIT 
                subsidiary, the amendment made by section 1021 
                does not apply to such corporation by reason of 
                paragraph (1), and
                    (B) such election first takes effect before 
                January 1, 2004,
        such election shall be treated as a reorganization 
        qualifying under section 368(a)(1)(A) of such Code.

                       PART II--HEALTH CARE REITS

SEC. 1121. HEALTH CARE REITS.

    (a) Special Foreclosure Rule for Health Care Properties.--
Subsection (e) of section 856 (relating to special rules for 
foreclosure property) is amended by adding at the end the 
following new paragraph:
            ``(6) Special rule for qualified health care 
        properties.--For purposes of this subsection--
                    ``(A) Acquisition at expiration of lease.--
                The term `foreclosure property' shall include 
                any qualified health care property acquired by 
                a real estate investment trust as the result of 
                the termination of a lease of such property 
                (other than a termination by reason of a 
                default, or the imminence of a default, on the 
                lease).
                    ``(B) Grace period.--In the case of a 
                qualified health care property which is 
                foreclosure property solely by reason of 
                subparagraph (A), in lieu of applying 
                paragraphs (2) and (3)--
                            ``(i) the qualified health care 
                        property shall cease to be foreclosure 
                        property as of the close of the second 
                        taxable year after the taxable year in 
                        which such trust acquired such 
                        property, and
                            ``(ii) if the real estate 
                        investment trust establishes to the 
                        satisfaction of the Secretary that an 
                        extension of the grace period in clause 
                        (i) is necessary to the orderly leasing 
                        or liquidation of the trust's interest 
                        in such qualified health care property, 
                        the Secretary may grant 1 or more 
                        extensions of the grace period for such 
                        qualified health care property.
                Any such extension shall not extend the grace 
                period beyond the close of the 6th year after 
                the taxable year in which such trust acquired 
                such qualified health care property.
                    ``(C) Income from independent 
                contractors.--For purposes of applying 
                paragraph (4)(C) with respect to qualified 
                health care property which is foreclosure 
                property by reason of subparagraph (A) or 
                paragraph (1), income derived or received by 
                the trust from an independent contractor shall 
                be disregarded to the extent such income is 
                attributable to--
                            ``(i) any lease of property in 
                        effect on the date the real estate 
                        investment trust acquired the qualified 
                        health care property (without regard to 
                        its renewal after such date so long as 
                        such renewal is pursuant to the terms 
                        of such lease as in effect on such 
                        date), or
                            ``(ii) any lease of property 
                        entered into after such date if--
                                    ``(I) on such date, a lease 
                                of such property from the trust 
                                was in effect, and
                                    ``(II) under the terms of 
                                the new lease, such trust 
                                receives a substantially 
                                similar or lesser benefit in 
                                comparison to the lease 
                                referred to in subclause (I).
                    ``(D) Qualified health care property.--
                            ``(i) In general.--The term 
                        `qualified health care property' means 
                        any real property (including interests 
                        therein), and any personal property 
                        incident to such real property, which--
                                    ``(I) is a health care 
                                facility, or
                                    ``(II) is necessary or 
                                incidental to the use of a 
                                health care facility.
                            ``(ii) Health care facility.--For 
                        purposes of clause (i), the term 
                        `health care facility' means a 
                        hospital, nursing facility, assisted 
                        living facility, congregate care 
                        facility, qualified continuing care 
                        facility (as defined in section 
                        7872(g)(4)), or other licensed facility 
                        which extends medical or nursing or 
                        ancillary services to patients and 
                        which, immediately before the 
                        termination, expiration, default, or 
                        breach of the lease of or mortgage 
                        secured by such facility, was operated 
                        by a provider of such services which 
                        was eligible for participation in the 
                        medicare program under title XVIII of 
                        the Social Security Act with respect to 
                        such facility.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2000.

      PART III--CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES

SEC. 1131. CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES.

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

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

SEC. 1141. CLARIFICATION OF EXCEPTION FOR INDEPENDENT OPERATORS.

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

           PART V--MODIFICATION OF EARNINGS AND PROFITS RULES

SEC. 1151. MODIFICATION OF EARNINGS AND PROFITS RULES.

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

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

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

    (a) In General.--Subparagraph (A) of section 465(b)(6) 
(relating to qualified nonrecourse financing treated as amount 
at risk) is amended by striking ``share of'' and all that 
follows and inserting ``share of--
                            ``(i) any qualified nonrecourse 
                        financing which is secured by real 
                        property used in such activity, and
                            ``(ii) any other financing which--
                                    ``(I) would (but for 
                                subparagraph (B)(ii)) be 
                                qualified nonrecourse 
                                financing,
                                    ``(II) is qualified 
                                publicly traded debt, and
                                    ``(III) is not borrowed by 
                                the taxpayer from a person 
                                described in subclause (I), 
                                (II), or (III) of section 
                                49(a)(1)(D)(iv).''.
    (b) Qualified Publicly Traded Debt.--Paragraph (6) of 
section 465(b) is amended by adding at the end the following 
new subparagraph:
                    ``(F) Qualified publicly traded debt.--For 
                purposes of subparagraph (A), the term 
                `qualified publicly traded debt' means any debt 
                instrument which is readily tradable on an 
                established securities market. Such term shall 
                not include any debt instrument which has a 
                yield to maturity which equals or exceeds the 
                limitation in section 163(i)(1)(B).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to debt instruments issued after December 31, 1999.

 Subtitle D--Treatment of Certain Contributions to Capital of Retailers

SEC. 1171. EXCLUSION FROM GROSS INCOME FOR CERTAIN CONTRIBUTIONS TO THE 
                    CAPITAL OF CERTAIN RETAILERS.

    (a) In General.--Section 118 (relating to contributions to 
the capital of a corporation) is amended by redesignating 
subsections (d) and (e) as subsections (e) and (f), 
respectively, and by inserting after subsection (c) the 
following new subsection:
    ``(d) Safe Harbor for Contributions to Certain Retailers.--
            ``(1) General rule.--For purposes of this section, 
        the term `contribution to the capital of the taxpayer' 
        includes any amount of money or other property received 
        by the taxpayer if--
                    ``(A) the taxpayer has entered into an 
                agreement to operate (or cause to be operated) 
                a qualified retail business at a particular 
                location for a period of at least 15 years,
                    ``(B)(i) immediately after the receipt of 
                such money or other property, the taxpayer owns 
                the land and the structure to be used by the 
                taxpayer in carrying on a qualified retail 
                business at such location, or
                    ``(ii) the taxpayer uses such amount to 
                acquire ownership of at least such land and 
                structure,
                    ``(C) such amount meets the requirements of 
                the expenditure rule of paragraph (2), and
                    ``(D) the contributor of such amount does 
                not hold a beneficial interest in any property 
                located on the premises of such qualified 
                retail business other than de minimis amounts 
                of property associated with the operation of 
                property adjacent to such premises.
            ``(2) Expenditure rule.--An amount meets the 
        requirements of this paragraph if--
                    ``(A) an amount equal to such amount is 
                expended for the acquisition of land or for 
                acquisition or construction of other property 
                described in section 1231(b)--
                            ``(i) which was the purpose 
                        motivating the contribution, and
                            ``(ii) which is used predominantly 
                        in a qualified retail business at the 
                        location referred to in paragraph 
                        (1)(A),
                    ``(B) the expenditure referred to in 
                subparagraph (A) occurs before the end of the 
                second taxable year after the year in which 
                such amount was received, and
                    ``(C) accurate records are kept of the 
                amounts contributed and expenditures made on 
                the basis of the project for which the 
                contribution was made and on the basis of the 
                year of the contribution expenditure.
            ``(3) Definition of qualified retail business.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified retail 
                business' means a trade or business of selling 
                tangible personal property to the general 
                public if the premises on which such trade or 
                business is conducted is in close proximity to 
                property that the contributor of the amount 
                referred to in paragraph (1) is developing or 
                operating for profit (or, in the case of a 
                contributor which is a governmental entity, is 
                attempting to revitalize).
                    ``(B) Services.--A trade or business shall 
                not fail to be treated as a qualified retail 
                business by reason of sales of services if such 
                sales are incident to the sale of tangible 
                personal property or if the services are de 
                minimis in amount.
            ``(4) Special rules.--
                    ``(A) Leases.--For purposes of paragraph 
                (1)(B)(i), property shall be treated as owned 
                by the taxpayer if the taxpayer is the lessee 
                of such property under a lease having a term of 
                at least 30 years and on which only nominal 
                rent is required.
                    ``(B) Controlled groups.--For purposes of 
                this subsection, all persons treated as a 
                single employer under subsection (a) or (b) of 
                section 52 shall be treated as 1 person.
            ``(5) Disallowance of deductions and credits; 
        adjusted basis.--Notwithstanding any other provision of 
        this subtitle, no deduction or credit shall be allowed 
        for, or by reason of, any amount received by the 
        taxpayer which constitutes a contribution to capital to 
        which this subsection applies. The adjusted basis of 
        any property acquired with the contributions to which 
        this subsection applies shall be reduced by the amount 
        of the contributions to which this subsection applies.
            ``(6) Regulations.--The Secretary shall prescribe 
        such regulations are appropriate to prevent the abuse 
        of the purposes of the subsection, including 
        regulations which allocate income and deductions (or 
        adjust the amount excludable under this subsection) in 
        cases in which--
                    ``(A) payments in excess of fair market 
                value are paid to the contributor by the 
                taxpayer, or
                    ``(B) the contributor and the taxpayer are 
                related parties.''.
    (b) Conforming Amendment.--Subsection (e) of section 118 
(as redesignated by subsection (a)) is amended by adding at the 
end the following flush sentence:
``Rules similar to the rules of the preceding sentence shall 
apply to any amount treated as a contribution to the capital of 
the taxpayer under subsection (d).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to amounts received after December 31, 1999.

              Subtitle E--Private Activity Bond Volume Cap

SEC. 1181. ACCELERATION OF PHASE-IN OF INCREASE IN VOLUME CAP ON 
                    PRIVATE ACTIVITY BONDS.

    (a) In General.--The table contained in section 146(d)(2) 
(relating to per capita limit; aggregate limit) is amended to 
read as follows:


        Calendar Year            Per Capita Limit      Aggregate Limit

  2000.......................         $55.00             165,000,000
  2001.......................          60.00             180,000,000
  2002.......................          65.00             195,000,000
  2003.......................          70.00             210,000,000
  2004 and thereafter........          75.00            225,000,000.''



    (b) Effective Date.--The amendment made by this section 
shall apply to calendar years beginning after 1999.

          Subtitle F--Deduction for Renovating Historic Homes

SEC. 1191. DEDUCTION FOR RENOVATING HISTORIC HOMES.

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

``SEC. 223. HISTORIC HOMEOWNERSHIP REHABILITATION DEDUCTION.

    ``(a) General Rule.--In the case of an individual, there 
shall be allowed as a deduction an amount equal to 50 percent 
of the qualified rehabilitation expenditures made by the 
taxpayer with respect to a qualified historic home.
    ``(b) Dollar Limitation.--The deduction allowed by 
subsection (a) with respect to any residence of a taxpayer 
shall not exceed $50,000 ($25,000 in the case of a married 
individual filing a separate return).
    ``(c) Qualified Rehabilitation Expenditure.--For purposes 
of this section--
            ``(1) In general.--The term `qualified 
        rehabilitation expenditure' means any amount properly 
        chargeable to capital account--
                    ``(A) in connection with the certified 
                rehabilitation of a qualified historic home, 
                and
                    ``(B) for property for which depreciation 
                would be allowable under section 168 if the 
                qualified historic home were used in a trade or 
                business.
            ``(2) Certain expenditures not included.--
                    ``(A) Exterior.--Such term shall not 
                include any expenditure in connection with the 
                rehabilitation of a building unless at least 5 
                percent of the total expenditures made in the 
                rehabilitation process are allocable to the 
                rehabilitation of the exterior of such 
                building.
                    ``(B) Other rules to apply.--Rules similar 
                to the rules of clauses (ii) and (iii) of 
                section 47(c)(2)(B) shall apply.
            ``(3) Mixed use or multifamily building.--If only a 
        portion of a building is used as the principal 
        residence of the taxpayer, only qualified 
        rehabilitation expenditures which are properly 
        allocable to such portion shall be taken into account 
        under this section.
    ``(d) Certified Rehabilitation.--For purposes of this 
section:
            ``(1) In general.--Except as otherwise provided in 
        this subsection, the term `certified rehabilitation' 
        has the meaning given such term by section 47(c)(2)(C).
            ``(2) Factors to be considered in the case of 
        targeted area residences, etc.--
                    ``(A) In general.--For purposes of applying 
                section 47(c)(2)(C) under this section with 
                respect to the rehabilitation of a building to 
                which this paragraph applies, consideration 
                shall be given to--
                            ``(i) the feasibility of preserving 
                        existing architectural and design 
                        elements of the interior of such 
                        building,
                            ``(ii) the risk of further 
                        deterioration or demolition of such 
                        building in the event that 
                        certification is denied because of the 
                        failure to preserve such interior 
                        elements, and
                            ``(iii) the effects of such 
                        deterioration or demolition on 
                        neighboring historic properties.
                    ``(B) Buildings to which this paragraph 
                applies.--This paragraph shall apply with 
                respect to any building--
                            ``(i) any part of which is a 
                        targeted area residence within the 
                        meaning of section 143(j)(1), or
                            ``(ii) which is located within an 
                        enterprise community or empowerment 
                        zone as designated under section 1391,
                but shall not apply with respect to any 
                building which is listed in the National 
                Register.
            ``(3) Approved state program.--The term `certified 
        rehabilitation' includes a certification made by--
                    ``(A) a State Historic Preservation Officer 
                who administers a State Historic Preservation 
                Program approved by the Secretary of the 
                Interior pursuant to section 101(b)(1) of the 
                National Historic Preservation Act, as in 
                effect on July 21, 1999, or
                    ``(B) a local government, certified 
                pursuant to section 101(c)(1) of the National 
                Historic Preservation Act, as in effect on July 
                21, 1999, and authorized by a State Historic 
                Preservation Officer, or the Secretary of the 
                Interior where there is no approved State 
                program),
        subject to such terms and conditions as may be 
        specified by the Secretary of the Interior for the 
        rehabilitation of buildings within the jurisdiction of 
        such officer (or local government) for purposes of this 
        section.
    ``(e) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified historic home.--The term `qualified 
        historic home' means a certified historic structure--
                    ``(A) which has been substantially 
                rehabilitated, and
                    ``(B) which (or any portion of which)--
                            ``(i) is owned by the taxpayer, and
                            ``(ii) is used (or will, within a 
                        reasonable period, be used) by such 
                        taxpayer as his principal residence.
            ``(2) Substantially rehabilitated.--The term 
        `substantially rehabilitated' has the meaning given 
        such term by section 47(c)(1)(C); except that, in the 
        case of any building described in subsection (d)(2), 
        clause (i)(I) of section 47(c)(1)(C) shall not apply.
            ``(3) Principal residence.--The term `principal 
        residence' has the same meaning as when used in section 
        121.
            ``(4) Certified historic structure.--
                    ``(A) In general.--The term `certified 
                historic structure' means any building (and its 
                structural components) which--
                            ``(i) is listed in the National 
                        Register, or
                            ``(ii) is located in a registered 
                        historic district (as defined in 
                        section 47(c)(3)(B)) within which only 
                        qualified census tracts (or portions 
                        thereof) are located, and is certified 
                        by the Secretary of the Interior to the 
                        Secretary as being of historic 
                        significance to the district.
                    ``(B) Certain structures included.--Such 
                term includes any building (and its structural 
                components) which is designated as being of 
                historic significance under a statute of a 
                State or local government, if such statute is 
                certified by the Secretary of the Interior to 
                the Secretary as containing criteria which will 
                substantially achieve the purpose of preserving 
                and rehabilitating buildings of historic 
                significance.
                    ``(C) Qualified census tracts.--For 
                purposes of subparagraph (A)(ii)--
                            ``(i) In general.--The term 
                        `qualified census tract' means a census 
                        tract in which the median family income 
                        is less than twice the statewide median 
                        family income.
                            ``(ii) Data used.--The 
                        determination under clause (i) shall be 
                        made on the basis of the most recent 
                        decennial census for which data are 
                        available.
            ``(5) Rehabilitation not complete before 
        certification.--A rehabilitation shall not be treated 
        as complete before the date of the certification 
        referred to in subsection (d).
            ``(6) Lessees.--A taxpayer who leases his principal 
        residence shall, for purposes of this section, be 
        treated as the owner thereof if the remaining term of 
        the lease (as of the date determined under regulations 
        prescribed by the Secretary) is not less than such 
        minimum period as the regulations require.
            ``(7) Tenant-stockholder in cooperative housing 
        corporation.--If the taxpayer holds stock as a tenant-
        stockholder (as defined in section 216) in a 
        cooperative housing corporation (as defined in such 
        section), such stockholder shall be treated as owning 
        the house or apartment which the taxpayer is entitled 
        to occupy as such stockholder.
            ``(8) Allocation of expenditures relating to 
        exterior of building containing cooperative or 
        condominium units.--The percentage of the total 
        expenditures made in the rehabilitation of a building 
        containing cooperative or condominium residential units 
        allocated to the rehabilitation of the exterior of the 
        building shall be attributed proportionately to each 
        cooperative or condominium residential unit in such 
        building for which a deduction under this section is 
        claimed.
    ``(f) When Expenditures Taken Into Account.--Qualified 
rehabilitation expenditures shall be treated for purposes of 
this section as made on the date the rehabilitation is 
completed.
    ``(g) Recapture.--
            ``(1) In general.--If, before the end of the 5-year 
        period beginning on the date on which the 
        rehabilitation of the building is completed--
                    ``(A) the taxpayer disposes of such 
                taxpayer's interest in such building, or
                    ``(B) such building ceases to be used as 
                the principal residence of the taxpayer,
        the taxpayer's gross income for the taxable year in 
        which such disposition or cessation occurs shall be 
        increased by the recapture percentage of the deduction 
        allowed under this section for all prior taxable years 
        with respect to such rehabilitation.
            ``(2) Recapture percentage.--For purposes of 
        paragraph (1), the recapture percentage shall be 
        determined in accordance with the following table:



                                                                 The
                                                              recapture
     ``If the disposition or cessation occurs within--        percentage
                                                                 is--

(i) One full year after the taxpayer becomes entitled to             100
 the deduction.............................................
(ii) One full year after the close of the period described           805
 in clause (i).............................................
(iii) One full year after the close of the period described           60
 in clause (ii)............................................
(iv) One full year after the close of the period described            40
 in clause (iii)...........................................
(v) One full year after the close of the period described         20.''.
 in clause (iv)............................................



    ``(h) Basis Adjustments.--For purposes of this subtitle, if 
a deduction is allowed under this section for any expenditure 
with respect to any property, the increase in the basis of such 
property which would (but for this subsection) result from such 
expenditure shall be reduced by the amount of the deduction so 
allowed.
    ``(i) Denial of Double Benefit.--No deduction shall be 
allowed under this section for any amount for which credit is 
allowed under section 47.
    ``(j) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out the purposes of 
this section, including regulations where less than all of a 
building is used as a principal residence and where more than 1 
taxpayer use the same dwelling unit as their principal 
residence.''.
    (b) Conforming Amendments.--
            (1) Clause (i) of section 56(b)(1)(A) is amended by 
        inserting before the comma ``other than the deduction 
        under section 223 (relating to historic homeownership 
        rehabilitation deduction)''.
            (2) Subsection (a) of section 1016 is amended by 
        striking ``and'' at the end of paragraph (27), by 
        striking the period at the end of paragraph (28) and 
        inserting ``, and'', and by adding at the end the 
        following new item:
            ``(29) to the extent provided in section 223(h).''.
    (c) Clerical Amendment.--The table of sections for part VII 
of subchapter B of chapter 1 is amended by striking the item 
relating to section 223 and inserting the following new items:

        ``Sec. 223. Historic homeownership rehabilitation deduction.
        ``Sec. 224. Cross reference.''

    (d) Effective Date.--The amendments made by this section 
shall apply to expenses paid or incurred in taxable years 
beginning after December 31, 1999.

               TITLE XII--PROVISIONS RELATING TO PENSIONS

                     Subtitle A--Expanding Coverage

SEC. 1201. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

    (a) Defined Benefit Plans.--
            (1) Dollar limit.--
                    (A) Subparagraph (A) of section 415(b)(1) 
                (relating to limitation for defined benefit 
                plans) is amended by striking ``$90,000'' and 
                inserting ``$160,000''.
                    (B) Subparagraphs (C) and (D) of section 
                415(b)(2) are each amended by striking 
                ``$90,000'' each place it appears in the 
                headings and the text and inserting 
                ``$160,000''.
                    (C) Paragraph (7) of section 415(b) 
                (relating to benefits under certain 
                collectively bargained plans) is amended by 
                striking ``the greater of $68,212 or one-half 
                the amount otherwise applicable for such year 
                under paragraph (1)(A) for `$90,000' '' and 
                inserting ``one-half the amount otherwise 
                applicable for such year under paragraph (1)(A) 
                for `$160,000' ''.
            (2) Limit reduced when benefit begins before age 
        62.--Subparagraph (C) of section 415(b)(2) is amended 
        by striking ``the social security retirement age'' each 
        place it appears in the heading and text and inserting 
        ``age 62''.
            (3) Limit increased when benefit begins after age 
        65.--Subparagraph (D) of section 415(b)(2) is amended 
        by striking ``the social security retirement age'' each 
        place it appears in the heading and text and inserting 
        ``age 65''.
            (4) Cost-of-living adjustments.--Subsection (d) of 
        section 415 (related to cost-of-living adjustments) is 
        amended--
                    (A) 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 amendment.--Section 415(b)(2) is 
        amended by striking subparagraph (F).
    (b) Defined Contribution Plans.--
            (1) Dollar limit.--Subparagraph (A) of section 
        415(c)(1) (relating to limitation for defined 
        contribution plans) is amended by striking ``$30,000'' 
        and inserting ``$40,000''.
            (2) Cost-of-living adjustments.--Subsection (d) of 
        section 415 (related to cost-of-living adjustments) is 
        amended--
                    (A) 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''.
    (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 specified in the table in 
                subparagraph (A) at the same time and in the 
                same manner as under section 415(d), except 
                that the base period shall be the calendar 
                quarter beginning July 1, 2004, and any 
                increase under this paragraph which is not a 
                multiple of $500 shall be rounded to the next 
                lowest multiple of $500.''.
    (f) Simple Retirement Accounts.--
            (1) Limitation.--Clause (ii) of section 
        408(p)(2)(A) (relating to general rule for qualified 
        salary reduction arrangement) is amended by striking 
        ``$6,000'' and inserting ``the applicable dollar 
        amount''.
            (2) Applicable dollar amount.--Subparagraph (E) of 
        408(p)(2) is amended to read as follows:
                    ``(E) Applicable dollar amount; cost-of-
                living adjustment.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(ii), the applicable 
                        dollar amount shall be the amount 
                        determined in accordance with the 
                        following table:

        ``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) Clause (I) of section 401(k)(11)(B)(i) 
                is amended by striking ``$6,000'' and inserting 
                ``the amount in effect under section 
                408(p)(2)(A)(ii)''.
                    (B) Section 401(k)(11) is amended by 
                striking subparagraph (E).
    (g) Rounding Rule Relating to Defined Benefit Plans and 
Defined Contribution Plans.--Paragraph (4) of section 415(d) is 
amended to read as follows:
            ``(4) Rounding.--
                    ``(A) $160,000 amount.--Any increase under 
                subparagraph (A) of paragraph (1) which is not 
                a multiple of $5,000 shall be rounded to the 
                next lowest multiple of $5,000.
                    ``(B) $40,000 amount.--Any increase under 
                subparagraph (C) of paragraph (1) which is not 
                a multiple of $1,000 shall be rounded to the 
                next lowest multiple of $1,000.''.
    (h) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

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

    (a) Amendment to 1986 Code.--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 to 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 amendments made by this section 
shall apply to loans made after December 31, 2000.

SEC. 1203. MODIFICATION OF TOP-HEAVY RULES.

    (a) Simplification of Definition of Key Employee.--
            (1) In general.--Section 416(i)(1)(A) (defining key 
        employee) is amended--
                    (A) by striking ``or any of the 4 preceding 
                plan years'' in the matter preceding clause 
                (i),
                    (B) by striking clause (i) and inserting 
                the following:
                            ``(i) an officer of the employer 
                        having an annual compensation greater 
                        than $150,000,'',
                    (C) by striking clause (ii) and 
                redesignating clauses (iii) and (iv) as clauses 
                (ii) and (iii), respectively, and
                    (D) by striking the second sentence in the 
                matter following clause (iii), as redesignated 
                by subparagraph (C).
            (2) Conforming amendment.--Section 
        416(i)(1)(B)(iii) is amended by striking ``and 
        subparagraph (A)(ii)''.
    (b) Matching Contributions Taken Into Account for Minimum 
Contribution Requirements.--Section 416(c)(2)(A) (relating to 
defined contribution plans) is amended by adding at the end the 
following: ``Employer matching contributions (as defined in 
section 401(m)(4)(A)) shall be taken into account for purposes 
of this subparagraph.''.
    (c) Distributions During Last Year Before Determination 
Date Taken Into Account.--
            (1) In general.--Paragraph (3) of section 416(g) is 
        amended to read as follows:
            ``(3) Distributions during last year before 
        determination date taken into account.--
                    ``(A) In general.--For purposes of 
                determining--
                            ``(i) the present value of the 
                        cumulative accrued benefit for any 
                        employee, or
                            ``(ii) the amount of the account of 
                        any employee,
                such present value or amount shall be increased 
                by the aggregate distributions made with 
                respect to such employee under the plan during 
                the 1-year period ending on the determination 
                date. The preceding sentence shall also apply 
                to distributions under a terminated plan which 
                if it had not been terminated would have been 
                required to be included in an aggregation 
                group.
                    ``(B) 5-year period in case of in-service 
                distribution.--In the case of any distribution 
                made for a reason other than separation from 
                service, death, or disability, subparagraph (A) 
                shall be applied by substituting `5-year 
                period' for `1-year period'.''.
            (2) Benefits not taken into account.--Subparagraph 
        (E) of section 416(g)(4) is amended--
                    (A) by striking ``last 5 years'' in the 
                heading and inserting ``last year before 
                determination date'', and
                    (B) by striking ``5-year period'' and 
                inserting ``1-year period''.
    (d) Definition of Top-Heavy Plans.--Paragraph (4) of 
section 416(g) (relating to other special rules for top-heavy 
plans) is amended by adding at the end the following new 
subparagraph:
                    ``(H) Cash or deferred arrangements using 
                alternative methods of meeting 
                nondiscrimination requirements.--The term `top-
                heavy plan' shall not include a plan which 
                consists solely of--
                            ``(i) a cash or deferred 
                        arrangement which meets the 
                        requirements of section 401(k)(12), and
                            ``(ii) matching contributions with 
                        respect to which the requirements of 
                        section 401(m)(11) are met.
                If, but for this subparagraph, a plan would be 
                treated as a top-heavy plan because it is a 
                member of an aggregation group which is a top-
                heavy group, contributions under the plan may 
                be taken into account in determining whether 
                any other plan in the group meets the 
                requirements of subsection (c)(2).''.
    (e) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined 
benefit plans) is amended--
                    (A) 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 employee 
                        or former 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. 1204. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF 
                    DEDUCTION LIMITS.

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

SEC. 1205. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED 
                    COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS 
                    AND TAX-EXEMPT ORGANIZATIONS.

    (a) In General.--Subsection (c) of section 457 (relating to 
deferred compensation plans of State and local governments and 
tax-exempt organizations), as amended by section 1201, 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. 1206. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING 
                    PENSION PLANS.

    (a) Elimination of Certain User Fees.--The Secretary of the 
Treasury or the Secretary's delegate shall not require payment 
of user fees under the program established under section 7527 
of the Internal Revenue Code of 1986 for requests to the 
Internal Revenue Service for determination letters with respect 
to the qualified status of a pension benefit plan maintained 
solely by one or more eligible employers or any trust which is 
part of the plan. The preceding sentence shall not apply to any 
request--
            (1) made after the 5th plan year the pension 
        benefit plan is in existence, 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) Effective Date.--The provisions of this section shall 
apply with respect to requests made after December 31, 2000.

SEC. 1207. DEDUCTION LIMITS.

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

SEC. 1208. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX 
                    CONTRIBUTIONS.

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

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

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

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

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

SEC. 1209. REDUCED PBGC PREMIUM FOR NEW PLANS OF SMALL EMPLOYERS.

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

SEC. 1210. 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 its first 5 plan 
years if, during the 36-month period ending on the date of the 
adoption of the plan, the sponsor and each member of any 
controlled group including the sponsor (or any predecessor of 
either) did not establish or maintain a plan to which this 
title applies with respect to which benefits were accrued for 
substantially the same employees as are in the new plan.''.
    (b) Small Plans.--Paragraph (3) of section 4006(a) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)) is amended--
            (1) 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 2 or more contributing 
sponsors, the employees of all contributing sponsors and their 
controlled groups shall be aggregated for purposes of 
determining whether 25-or-fewer-employees limitation has been 
satisfied.''.
    (c) Effective Dates.--
            (1) Subsection (a).--The amendments made by 
        subsection (a) shall apply to plans established after 
        December 31, 2000.
            (2) Subsection (b).--The amendments made by 
        subsection (b) shall apply to plan years beginning 
        after December 31, 2000.

                Subtitle B--Enhancing Fairness for Women

SEC. 1221. CATCHUP 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) Catchup 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 percentage of 
                        the applicable dollar amount for such 
                        elective deferrals for such year, 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 percentage.--For purposes 
                of this paragraph, the applicable percentage 
                shall be determined in accordance with the 
                following table:

``For taxable years beginning in:          The applicable percentage is:
        2001............................................     10 percent 
        2002............................................     20 percent 
        2003............................................     30 percent 
        2004............................................     40 percent 
        2005 and thereafter.............................     50 percent.

            ``(3) Treatment of contributions.--In the case of 
        any contribution to a plan under paragraph (1)--
                    ``(A) such contribution shall not, with 
                respect to the year in which the contribution 
                is made--
                            ``(i) be subject to any otherwise 
                        applicable limitation contained in 
                        section 402(g), 402(h), 403(b), 404(a), 
                        404(h), 408, 415, or 457, or
                            ``(ii) be taken into account in 
                        applying such limitations to other 
                        contributions or benefits under such 
                        plan or any other such plan, and
                    ``(B) such plan shall not be treated as 
                failing to meet the requirements of section 
                401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 
                401(k)(12), 401(m), 403(b)(12), 408(k), 408(p), 
                408B, 410(b), or 416 by reason of the making of 
                (or the right to make) such contribution.
            ``(4) 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 contained in the terms of the 
                plan.
            ``(5) Other definitions and rules.--For purposes of 
        this subsection--
                    ``(A) Applicable dollar amount.--The term 
                `applicable dollar amount' means, with respect 
                to any year, the amount in effect under section 
                402(g)(1)(B), 408(p)(2)(E)(i), or 
                457(e)(15)(A), whichever is applicable to an 
                applicable employer plan, for such year.
                    ``(B) 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).
                    ``(C) Elective deferral.--The term 
                `elective deferral' has the meaning given such 
                term by subsection (u)(2)(C).
                    ``(D) Exception for section 457 plans.--
                This subsection shall not apply to an 
                applicable employer plan described in 
                subparagraph (B)(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. 1222. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO 
                    DEFINED CONTRIBUTION PLANS.

    (a) Equitable Treatment.--
            (1) In general.--Subparagraph (B) of section 
        415(c)(1) (relating to limitation for defined 
        contribution plans) is amended by striking ``25 
        percent'' and inserting ``100 percent''.
            (2) Application to section 403(b).--Section 403(b) 
        is amended--
                    (A) by striking ``the exclusion allowance 
                for such taxable year'' in paragraph (1) and 
                inserting ``the applicable limit under section 
                415'',
                    (B) by striking paragraph (2), and
                    (C) by inserting ``or any amount received 
                by a former employee after the 5th taxable year 
                following the taxable year in which such 
                employee was terminated'' before the period at 
                the end of the second sentence of paragraph 
                (3).
            (3) Conforming amendments.--
                    (A) Subsection (f) of section 72 is amended 
                by striking ``section 403(b)(2)(D)(iii))'' and 
                inserting ``section 403(b)(2)(D)(iii), as in 
                effect before the enactment of the Taxpayer 
                Refund and Relief Act of 1999)''.
                    (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 1201) is amended by 
                inserting before the period at the end the 
                following: ``(as in effect before the enactment 
                of the Taxpayer Refund and Relief Act of 
                1999)''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to years beginning after 
        December 31, 2000.
    (b) Special Rules for Sections 403(b) and 408.--
            (1) In general.--Subsection (k) of section 415 is 
        amended by adding at the end the following new 
        paragraph:
            ``(4) Special rules for sections 403(b) and 408.--
        For purposes of this section, any annuity contract 
        described in section 403(b) for the benefit of a 
        participant shall be treated as a defined contribution 
        plan maintained by each employer with respect to which 
        the participant has the control required under 
        subsection (b) or (c) of section 414 (as modified by 
        subsection (h)). For purposes of this section, any 
        contribution by an employer to a simplified employee 
        pension plan for an individual for a taxable year shall 
        be treated as an employer contribution to a defined 
        contribution plan for such individual for such year.''.
            (2) Effective date.--
                    (A) In general.--The amendment made by 
                paragraph (1) shall apply to limitation years 
                beginning after December 31, 1999.
                    (B) Exclusion allowance.--Effective for 
                limitation years beginning in 2000, in the case 
                of any annuity contract described in section 
                403(b) of the Internal Revenue Code of 1986, 
                the amount of the contribution disqualified by 
                reason of section 415(g) of such Code shall 
                reduce the exclusion allowance as provided in 
                section 403(b)(2) of such Code.
            (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. 1223. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

    (a) Amendments to 1986 Code.--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):

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

    (b) Amendments to 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) Faster vesting for matching contributions.--
        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):

``Years of service:                    The nonforfeitable 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 1 or more collective 
        bargaining agreements between employee representatives 
        and 1 or more employers ratified by the date of 
        enactment of this Act, the amendments made by this 
        section shall not apply to contributions 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 enactment), or
                            (ii) January 1, 2001, or
                    (B) January 1, 2005.
            (3) Service required.--With respect to any plan, 
        the amendments made by this section shall not apply to 
        any employee before the date that such employee has 1 
        hour of service under such plan in any plan year to 
        which the amendments made by this section apply.

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

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

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

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

SEC. 1226. MODIFICATION OF SAFE HARBOR RELIEF FOR HARDSHIP WITHDRAWALS 
                    FROM CASH OR DEFERRED ARRANGEMENTS.

    (a) 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.
    (b) Effective Date.--The revised regulations under 
subsection (a) shall apply to years beginning after December 
31, 2000.

          Subtitle C--Increasing Portability for Participants

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

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

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

    (a) In General.--Subparagraph (A) of section 408(d)(3) 
(relating to rollover amounts) is amended by adding ``or'' at 
the end of clause (i), by striking clauses (ii) and (iii), and 
by adding at the end the following:
                            ``(ii) the entire amount received 
                        (including money and any other 
                        property) is paid into an eligible 
                        retirement plan for the benefit of such 
                        individual not later than the 60th day 
                        after the date on which the payment or 
                        distribution is received, except that 
                        the maximum amount which may be paid 
                        into such plan may not exceed the 
                        portion of the amount received which is 
                        includible in gross income (determined 
                        without regard to this paragraph).
                For purposes of clause (ii), the term `eligible 
                retirement plan' 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. 1233. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

    (a) Rollovers From Exempt Trusts.--Paragraph (2) of section 
402(c) (relating to maximum amount which may be rolled over) is 
amended by adding at the end the following: ``The preceding 
sentence shall not apply to such distribution to the extent--
                    ``(A) such portion is transferred in a 
                direct trustee-to-trustee transfer to a 
                qualified trust which is part of a plan which 
                is a defined contribution plan and which agrees 
                to separately account for amounts so 
                transferred, including separately accounting 
                for the portion of such distribution which is 
                includible in gross income and the portion of 
                such distribution which is not so includible, 
                or
                    ``(B) such portion is transferred to an 
                eligible retirement plan described in clause 
                (i) or (ii) of paragraph (8)(B).''.
    (b) Optional Direct Transfer of Eligible Rollover 
Distributions.--Subparagraph (B) of section 401(a)(31) 
(relating to limitation) is amended by adding at the end the 
following: ``The preceding sentence shall not apply to such 
distribution if the plan to which such distribution is 
transferred--
                            ``(i) agrees to separately account 
                        for amounts so transferred, including 
                        separately accounting for the portion 
                        of such distribution which is 
                        includible in gross income and the 
                        portion of such distribution which is 
                        not so includible, or
                            ``(ii) is an eligible retirement 
                        plan described in clause (i) or (ii) of 
                        section 402(c)(8)(B).''.
    (c) Rules for Applying Section 72 to IRAs.--Paragraph (3) 
of section 408(d) (relating to special rules for applying 
section 72) is amended by inserting at the end the following:
                    ``(H) Application of section 72.--
                            ``(i) In general.--If--
                                    ``(I) a distribution is 
                                made from an individual 
                                retirement plan, and
                                    ``(II) a rollover 
                                contribution is made to an 
                                eligible retirement plan 
                                described in section 
                                402(c)(8)(B)(iii), (iv), (v), 
                                or (vi) with respect to all or 
                                part of such distribution,
                        then, notwithstanding paragraph (2), 
                        the rules of clause (ii) shall apply 
                        for purposes of applying section 72.
                            ``(ii) Applicable rules.--In the 
                        case of a distribution described in 
                        clause (i)--
                                    ``(I) section 72 shall be 
                                applied separately to such 
                                distribution,
                                    ``(II) notwithstanding the 
                                pro rata allocation of income 
                                on, and investment in, the 
                                contract to distributions under 
                                section 72, the portion of such 
                                distribution rolled over to an 
                                eligible retirement plan 
                                described in clause (i) shall 
                                be treated as from income on 
                                the contract (to the extent of 
                                the aggregate income on the 
                                contract from all individual 
                                retirement plans of the 
                                distributee), and
                                    ``(III) appropriate 
                                adjustments shall be made in 
                                applying section 72 to other 
                                distributions in such taxable 
                                year and subsequent taxable 
                                years.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to distributions made after December 31, 2000.

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

    (a) Exempt Trusts.--Paragraph (3) of section 402(c) 
(relating to transfer must be made within 60 days of receipt) 
is amended to read as follows:
            ``(3) Transfer must be made within 60 days of 
        receipt.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), paragraph (1) shall not apply 
                to any transfer of a distribution made after 
                the 60th day following the day on which the 
                distributee received the property distributed.
                    ``(B) Hardship exception.--The Secretary 
                may waive the 60-day requirement under 
                subparagraph (A) where the failure to waive 
                such requirement would be against equity or 
                good conscience, including casualty, disaster, 
                or other events beyond the reasonable control 
                of the individual subject to such 
                requirement.''.
    (b) IRAs.--Paragraph (3) of section 408(d) (relating to 
rollover contributions), as amended by section 1233, is amended 
by adding after subparagraph (H) the following new 
subparagraph:
                    ``(I) Waiver of 60-day requirement.--The 
                Secretary may waive the 60-day requirement 
                under subparagraphs (A) and (D) where the 
                failure to waive such requirement would be 
                against equity or good conscience, including 
                casualty, disaster, or other events beyond the 
                reasonable control of the individual subject to 
                such requirement.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to distributions after December 31, 2000.

SEC. 1235. TREATMENT OF FORMS OF DISTRIBUTION.

    (a) Plan Transfers.--
            (1) Amendment to internal revenue code of 1986.--
        Paragraph (6) of section 411(d) (relating to accrued 
        benefit not to be decreased by amendment) is amended by 
        adding at the end the following:
                    ``(D) Plan transfers.--
                            ``(i) A defined contribution plan 
                        (in this subparagraph referred to as 
                        the `transferee plan') shall not be 
                        treated as failing to meet the 
                        requirements of this subsection merely 
                        because the transferee plan does not 
                        provide some or all of the forms of 
                        distribution previously available under 
                        another defined contribution plan (in 
                        this subparagraph referred to as the 
                        `transferor plan') to the extent that--
                                    ``(I) the forms of 
                                distribution previously 
                                available under the transferor 
                                plan applied to the account of 
                                a participant or beneficiary 
                                under the transferor plan that 
                                was transferred from the 
                                transferor plan to the 
                                transferee plan pursuant to a 
                                direct transfer rather than 
                                pursuant to a distribution from 
                                the transferor plan,
                                    ``(II) the terms of both 
                                the transferor plan and the 
                                transferee plan authorize the 
                                transfer described in subclause 
                                (I),
                                    ``(III) the transfer 
                                described in subclause (I) was 
                                made pursuant to a voluntary 
                                election by the participant or 
                                beneficiary whose account was 
                                transferred to the transferee 
                                plan,
                                    ``(IV) the election 
                                described in subclause (III) 
                                was made after the participant 
                                or beneficiary received a 
                                notice describing the 
                                consequences of making the 
                                election,
                                    ``(V) if the transferor 
                                plan provides for an annuity as 
                                the normal form of distribution 
                                under the plan in accordance 
                                with section 417, the transfer 
                                is made with the consent of the 
                                participant's spouse (if any), 
                                and such consent meets 
                                requirements similar to the 
                                requirements imposed by section 
                                417(a)(2), and
                                    ``(VI) the transferee plan 
                                allows the participant or 
                                beneficiary described in 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.
                            ``(ii) Clause (i) shall apply to 
                        plan mergers and other transactions 
                        having the effect of a direct transfer, 
                        including consolidations of benefits 
                        attributable to different employers 
                        within a multiple employer plan.
                    ``(E) Elimination of form of 
                distribution.--Except to the extent provided in 
                regulations, a defined contribution plan shall 
                not be treated as failing to meet the 
                requirements of this section merely because of 
                the elimination of a form of distribution 
                previously available thereunder. This 
                subparagraph shall not apply to the elimination 
                of a form of distribution with respect to any 
                participant unless--
                            ``(i) a single sum payment is 
                        available to such participant at the 
                        same time or times as the form of 
                        distribution being eliminated, and
                            ``(ii) such single sum payment is 
                        based on the same or greater portion of 
                        the participant's account as the form 
                        of distribution being eliminated.''.
            (2) Amendment to 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;
            ``(v) if the transferor plan provides for an 
        annuity as the normal form of distribution under the 
        plan in accordance with section 205, the transfer is 
        made with the consent of the participant's spouse (if 
        any), and such consent meets requirements similar to 
        the requirements imposed by section 205(c)(2); and
            ``(vi) 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) 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 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 to internal revenue code of 1986.--
        The last sentence of paragraph (6)(B) of section 411(d) 
        (relating to accrued benefit not to be decreased by 
        amendment) is amended to read as follows: ``The 
        Secretary shall by regulations provide that this 
        subparagraph shall not apply to any plan amendment that 
        does not adversely affect the rights of participants in 
        a material manner.''.
            (2) Amendment to erisa.--The last sentence of 
        section 204(g)(2) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1054(g)(2)) is amended 
        to read as follows: ``The Secretary of the Treasury 
        shall by regulations provide that this paragraph shall 
        not apply to any plan amendment that does not adversely 
        affect the rights of participants in a material 
        manner.''.
            (3) Secretary directed.--Not later than December 
        31, 2001, the Secretary of the Treasury is directed to 
        issue final regulations under section 411(d)(6) of the 
        Internal Revenue Code of 1986 and section 204(g) of the 
        Employee Retirement Income Security Act of 1974, 
        including the regulations required by the amendments 
        made by this subsection. Such regulations shall apply 
        to plan years beginning after December 31, 2001, or 
        such earlier date as is specified by the Secretary of 
        the Treasury.

SEC. 1236. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

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

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

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

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

    (a) Qualified Plans.--
            (1) Amendment to internal revenue code of 1986.--
        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 to 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. 1239. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 
                    457 PLANS.

    (a) Minimum Distribution Requirements.--Paragraph (2) of 
section 457(d) (relating to distribution requirements) is 
amended to read as follows:
            ``(2) Minimum distribution requirements.--A plan 
        meets the minimum distribution requirements of this 
        paragraph if such plan meets the requirements of 
        section 401(a)(9).''.
    (b) Inclusion in Gross Income.--
            (1) Year of inclusion.--Subsection (a) of section 
        457 (relating to year of inclusion in gross income) is 
        amended to read as follows:
    ``(a) Year of Inclusion in Gross Income.--
            ``(1) In general.--Any amount of compensation 
        deferred under an eligible deferred compensation plan, 
        and any income attributable to the amounts so deferred, 
        shall be includible in gross income only for the 
        taxable year in which such compensation or other 
        income--
                    ``(A) is paid to the participant or other 
                beneficiary, in the case of a plan of an 
                eligible employer described in subsection 
                (e)(1)(A), and
                    ``(B) is paid or otherwise made available 
                to the participant or other beneficiary, in the 
                case of a plan of an eligible employer 
                described in subsection (e)(1)(B).
            ``(2) Special rule for rollover amounts.--To the 
        extent provided in section 72(t)(9), section 72(t) 
        shall apply to any amount includible in gross income 
        under this subsection.''.
            (2) Conforming 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 D--Strengthening Pension Security and Enforcement

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

    (a) Amendment to Internal Revenue Code of 1986.--Section 
412(c)(7) (relating to full-funding limitation) is amended--
            (1) by striking ``the applicable percentage'' in 
        subparagraph (A)(i)(I) and inserting ``in the case of 
        plan years beginning before January 1, 2004, the 
        applicable percentage'', and
            (2) by amending subparagraph (F) to read as 
        follows:
                    ``(F) Applicable percentage.--For purposes 
                of subparagraph (A)(i)(I), the applicable 
                percentage shall be determined in accordance 
                with the following table:

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

    (b) Amendment to 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 year beginning iThe applicable 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. 1242. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO 
                    ALL DEFINED BENEFIT PLANS.

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

SEC. 1243. MISSING PARTICIPANTS.

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

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

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

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

    (a) Amendment to 1986 Code.--Chapter 43 of subtitle D 
(relating to qualified pension, etc., plans) is amended by 
adding at the end the following new section:

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

    ``(a) Imposition of Tax.--There is hereby imposed a tax on 
the failure of any applicable pension plan to meet the 
requirements of subsection (e) with respect to any applicable 
individual.
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any 
        applicable individual shall be $100 for each day in the 
        noncompliance period with respect to such failure.
            ``(2) Noncompliance period.--For purposes of this 
        section, the term `noncompliance period' means, with 
        respect to any failure, the period beginning on the 
        date the failure first occurs and ending on the date 
        the failure is corrected.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Overall limitation for unintentional 
        failures.--In the case of failures that are due to 
        reasonable cause and not to willful neglect, the tax 
        imposed by subsection (a) for failures during the 
        taxable year of the employer (or, in the case of a 
        multiemployer plan, the taxable year of the trust 
        forming part of the plan) shall not exceed $500,000. 
        For purposes of the preceding sentence, all 
        multiemployer plans of which the same trust forms a 
        part shall be treated as 1 plan. For purposes of this 
        paragraph, if not all persons who are treated as a 
        single employer for purposes of this section have the 
        same taxable year, the taxable years taken into account 
        shall be determined under principles similar to the 
        principles of section 1561.
            ``(2) Waiver by secretary.--In the case of a 
        failure which is due to reasonable cause and not to 
        willful neglect, the Secretary may waive part or all of 
        the tax imposed by subsection (a) to the extent that 
        the payment of such tax would be excessive relative to 
        the failure involved.
    ``(d) Liability for Tax.--The following shall be liable for 
the tax imposed by subsection (a):
            ``(1) In the case of a plan other than a 
        multiemployer plan, the employer.
            ``(2) In the case of a multiemployer plan, the 
        plan.
    ``(e) Notice Requirements for Plans Significantly Reducing 
Benefit Accruals.--
            ``(1) In general.--If an applicable pension plan is 
        amended to provide for a significant reduction in the 
        rate of future benefit accrual, the plan administrator 
        shall provide written notice to each applicable 
        individual (and to each employee organization 
        representing applicable individuals).
            ``(2) Notice.--The notice required by paragraph (1) 
        shall be written in a manner calculated to be 
        understood by the average plan participant and shall 
        provide sufficient information (as determined in 
        accordance with regulations prescribed by the 
        Secretary) to allow applicable individuals to 
        understand the effect of the plan amendment.
            ``(3) Timing of notice.--Except as provided in 
        regulations, the notice required by paragraph (1) shall 
        be provided within a reasonable time before the 
        effective date of the plan amendment.
            ``(4) Designees.--Any notice under paragraph (1) 
        may be provided to a person designated, in writing, by 
        the person to which it would otherwise be provided.
            ``(5) Notice before adoption of amendment.--A plan 
        shall not be treated as failing to meet the 
        requirements of paragraph (1) merely because notice is 
        provided before the adoption of the plan amendment if 
        no material modification of the amendment occurs before 
        the amendment is adopted.
    ``(f) Applicable Individual; Applicable Pension Plan.--For 
purposes of this section--
            ``(1) Applicable individual.--The term `applicable 
        individual' means, with respect to any plan amendment--
                    ``(A) any participant in the plan, and
                    ``(B) any beneficiary who is an alternate 
                payee (within the meaning of section 414(p)(8)) 
                under an applicable qualified domestic 
                relations order (within the meaning of section 
                414(p)(1)(A)),
        who may reasonably be expected to be affected by such 
        plan amendment.
            ``(2) Applicable pension plan.--The term 
        `applicable pension plan' means--
                    ``(A) any defined benefit plan, or
                    ``(B) an individual account plan which is 
                subject to the funding standards of section 
                412,
        which had 100 or more participants who had accrued a 
        benefit, or with respect to whom contributions were 
        made, under the plan (whether or not vested) as of the 
        last day of the plan year preceding the plan year in 
        which the plan amendment becomes effective. 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.''.
    (b) Amendment to ERISA.--Section 204(h) of the Employee 
Retirement Income Security Act or 1974 (29 U.S.C. 1054(h)) is 
amended by adding at the end the following new paragraph:
    ``(3)(A) A 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).
    ``(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 individuals to understand 
the effect of the plan amendment.
    ``(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) 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.''.
    (c) Clerical Amendment.--The table of sections for chapter 
43 of subtitle D is amended by adding at the end the following 
new item:

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

    (d) 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 rule.--The period for providing any 
        notice required by the amendments made by this section 
        shall not end before the date which is 3 months after 
        the date of the enactment of this Act.

SEC. 1246. 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. 1247. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

    (a) Compensation Limit.--Paragraph (11) of section 415(b) 
(relating to limitation for defined benefit plans) is amended 
to read as follows:
            ``(11) Special limitation rule for governmental and 
        multiemployer plans.--In the case of a governmental 
        plan (as defined in section 414(d)) or a multiemployer 
        plan (as defined in section 414(f)), subparagraph (B) 
        of paragraph (1) shall not apply.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to years beginning after December 31, 2000.

                Subtitle E--Reducing Regulatory Burdens

SEC. 1251. MODIFICATION OF TIMING OF PLAN VALUATIONS.

    (a) In General.--Section 412(c)(9) (relating to annual 
valuation) is amended--
            (1) by striking ``For purposes'' and inserting the 
        following:
                    ``(A) In general.--For purposes'', and
            (2) by adding at the end the following:
                    ``(B) Election to use prior year 
                valuation.--
                            ``(i) In general.--Except as 
                        provided in clause (ii), if, for any 
                        plan year--
                                    ``(I) an election is in 
                                effect under this subparagraph 
                                with respect to a plan, and
                                    ``(II) the assets of the 
                                plan are not less than 125 
                                percent of the plan's current 
                                liability (as defined in 
                                paragraph (7)(B)), determined 
                                as of the valuation date for 
                                the preceding plan year,
                        then this section shall be applied 
                        using the information available as of 
                        such valuation date.
                            ``(ii) Exceptions.--
                                    ``(I) Actual valuation 
                                every 3 years.--Clause (i) 
                                shall not apply for more than 2 
                                consecutive plan years and 
                                valuation shall be under 
                                subparagraph (A) with respect 
                                to any plan year to which 
                                clause (i) does not apply by 
                                reason of this subclause.
                                    ``(II) Regulations.--Clause 
                                (i) shall not apply to the 
                                extent that more frequent 
                                valuations are required under 
                                the regulations under 
                                subparagraph (A).
                            ``(iii) Adjustments.--Information 
                        under clause (i) shall, in accordance 
                        with regulations, be actuarially 
                        adjusted to reflect significant 
                        differences in participants.
                            ``(iv) Election.--An election under 
                        this subparagraph, once made, shall be 
                        irrevocable without the consent of the 
                        Secretary.''.
    (b) Amendments to 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), if, for any 
plan year--
            ``(I) an election is in effect under this 
        subparagraph with respect to a plan, and
            ``(II) the assets of the plan are not less than 125 
        percent of the plan's current liability (as defined in 
        paragraph (7)(B)), determined as of the valuation date 
        for the preceding plan year,
then this section shall be applied using the information 
available as of such valuation date.
    ``(ii)(I) Clause (i) shall not apply for more than 2 
consecutive plan years and valuation shall be under 
subparagraph (A) with respect to any plan year to which clause 
(i) does not apply by reason of this subclause.
    ``(II) Clause (i) shall not apply to the extent that more 
frequent valuations are required under the regulations under 
subparagraph (A).
    ``(iii) Information under clause (i) shall, in accordance 
with regulations, be actuarially adjusted to reflect 
significant differences in participants.
    ``(iv) An election under this subparagraph, 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. 1252. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND 
                    DEDUCTION.

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

SEC. 1253. 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, 1999.

SEC. 1254. 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. 1255. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT 
                    ADVICE.

    (a) In General.--Subsection (a) of section 132 (relating to 
exclusion from gross income) is amended by striking ``or'' at 
the end of paragraph (5), by striking the period at the end of 
paragraph (6) and inserting ``, or'', and by adding at the end 
the following new paragraph:
            ``(7) qualified retirement planning services.''.
    (b) Qualified Retirement Planning Services Defined.--
Section 132 is amended by redesignating subsection (m) as 
subsection (n) and by inserting after subsection (l) the 
following:
    ``(m) Qualified Retirement Planning Services.--
            ``(1) In general.--For purposes of this section, 
        the term `qualified retirement planning services' means 
        any retirement planning service provided to an employee 
        and his spouse by an employer maintaining a 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. 1256. 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 a retirement plan 
which covers less than 25 employees on the 1st day of the plan 
year and meets the requirements described in subparagraphs (B), 
(D), and (E) of subsection (a)(2), the Secretary of the 
Treasury shall provide for the filing of a simplified annual 
return that is substantially similar to the annual return 
required to be filed by a one-participant retirement plan.
    (c) Effective Date.--The provisions of this section shall 
take effect on January 1, 2001.

SEC. 1257. 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. 1258. 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:
            ``(3) If assets available for allocation under 
        paragraph (4) of subsection (a) are insufficient to 
        satisfy in full the benefits of all individuals who are 
        described in that paragraph, the assets shall be 
        allocated first to benefits described in subparagraph 
        (A) of that paragraph. Any remaining assets shall then 
        be allocated to benefits described in subparagraph (B) 
        of that paragraph. If assets allocated to such 
        subparagraph (B) are insufficient to satisfy in full 
        the benefits described in that subparagraph, the assets 
        shall be allocated pro rata among individuals on the 
        basis of the present value (as of the termination date) 
        of their respective benefits described in that 
        subparagraph.''.
    (c) Conforming Amendments.--
            (1) Section 4021 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1321) is amended--
                    (A) in subsection (b)(9), by striking ``as 
                defined in section 4022(b)(6)'', and
                    (B) by adding at the end the following:
    ``(d) For purposes of subsection (b)(9), the term 
`substantial owner' means an individual who, at any time during 
the 60-month period ending on the date the determination is 
being made--
            ``(1) owns the entire interest in an unincorporated 
        trade or business,
            ``(2) in the case of a partnership, is a partner 
        who owns, directly or indirectly, more than 10 percent 
        of either the capital interest or the profits interest 
        in such partnership, or
            ``(3) in the case of a corporation, owns, directly 
        or indirectly, more than 10 percent in value of either 
        the voting stock of that corporation or all the stock 
        of that corporation.
For purposes of paragraph (3), the constructive ownership rules 
of section 1563(e) of the Internal Revenue Code of 1986 shall 
apply (determined without regard to section 1563(e)(3)(C)).''.
    (2) Section 4043(c)(7) of such Act (29 U.S.C. 1343(c)(7)) 
is amended by striking ``section 4022(b)(6)'' and inserting 
``section 4021(d)''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        plan terminations--
                    (A) under section 4041(c) of the Employee 
                Retirement Income Security Act of 1974 (29 
                U.S.C. 1341(c)) with respect to which notices 
                of intent to terminate are provided under 
                section 4041(a)(2) of such Act (29 U.S.C. 
                1341(a)(2)) after December 31, 2000, and
                    (B) under section 4042 of such Act (29 
                U.S.C. 1342) with respect to which proceedings 
                are instituted by the corporation after such 
                date.
            (2) Conforming amendments.--The amendments made by 
        subsection (c) shall take effect on the date of 
        enactment of this Act.

SEC. 1259. MODIFICATION OF EXCLUSION FOR EMPLOYER PROVIDED TRANSIT 
                    PASSES.

    (a) In General.--Section 132(f)(3) (relating to cash 
reimbursements) is amended by striking the last sentence.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1999.

SEC. 1260. 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. 1261. 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, 2000.
                    (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, 2000.
                    (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, 2000, 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. 1262. EXTENSION TO INTERNATIONAL ORGANIZATIONS OF MORATORIUM ON 
                    APPLICATION OF CERTAIN NONDISCRIMINATION RULES 
                    APPLICABLE TO STATE AND LOCAL PLANS.

    (a) In General.--Subparagraph (G) of section 401(a)(5), 
subparagraph (H) of section 401(a)(26), 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 inserting ``or 
by an international organization which is described in section 
414(d)'' after ``or instrumentality thereof)''.
    (b) Conforming Amendments.--
            (1) The headings for subparagraph (G) of section 
        401(a)(5) and subparagraph (H) of section 401(a)(26) 
        are each amended by inserting ``and international 
        organization'' after ``governmental''.
            (2) Subparagraph (G) of section 401(k)(3) is 
        amended by inserting ``State and local governmental and 
        international organization plans.--'' after ``(G)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

                      Subtitle F--Plan Amendments

SEC. 1271. PROVISIONS RELATING TO PLAN AMENDMENTS.

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

                  TITLE XIII--MISCELLANEOUS PROVISIONS

         Subtitle A--Provisions Primarily Affecting Individuals

SEC. 1301. CONSISTENT TREATMENT OF SURVIVOR BENEFITS FOR PUBLIC SAFETY 
                    OFFICERS KILLED IN THE LINE OF DUTY.

    Subsection (b) of section 1528 of the Taxpayer Relief Act 
of 1997 (Public Law 105-34) is amended by striking the period 
and inserting `, and to amounts received in taxable years 
beginning after December 31, 1999, with respect to individuals 
dying on or before December 31, 1996.''.

SEC. 1302. EXPANSION OF DC HOMEBUYER TAX CREDIT.

    (a) Expansion of Income Limitation.--Section 1400C(b)(1) 
(relating to limitation based on modified adjusted gross 
income) is amended--
            (1) by striking ``$110,000'' in subparagraph (A)(i) 
        and inserting ``$140,000'', and
            (2) by inserting ``($40,000 in the case of a joint 
        return)'' after ``$20,000'' in subparagraph (B).
    (b) Effective Date.--The amendments made by this section 
shall apply to purchases on or after the date of the enactment 
of this Act.

SEC. 1303. NO FEDERAL INCOME TAX ON AMOUNTS AND LANDS RECEIVED BY 
                    HOLOCAUST VICTIMS OR THEIR HEIRS.

    (a) In General.--For purposes of the Internal Revenue Code 
of 1986, gross income shall not include--
            (1) any amount received by an individual (or any 
        heir of the individual)--
                    (A) from the Swiss Humanitarian Fund 
                established by the Government of Switzerland or 
                from any similar fund established by any 
                foreign country, or
                    (B) as a result of the settlement of the 
                action entitled ``In re Holocaust Victims' 
                Asset Litigation'', (E.D. NY), C.A. No. 96-
                4849, or as a result of any similar action; and
            (2) the value of any land (including structures 
        thereon) recovered by an individual (or any heir of the 
        individual) from a government of a foreign country as a 
        result of a settlement of a claim arising out of the 
        confiscation of such land in connection with the 
        Holocaust.
    (b) Effective Date.--This section shall apply to any amount 
received on or after the date of the enactment of this Act.

         Subtitle B--Provisions Primarily Affecting Businesses

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

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

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

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

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

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

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

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

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

    (a) In General.--Section 1504(b) (defining includible 
corporation) is amended by striking paragraph (2).
    (b) Conforming Amendments.--
            (1) Subsection (c) of section 1503 is amended by 
        striking paragraph (2) (relating to losses of recent 
        nonlife affiliates).
            (2) Section 1504 is amended by striking subsection 
        (c) and by redesignating subsections (d), (e), and (f) 
        as subsections (c), (d), and (e), respectively.
            (3) Section 1503(c)(1) (relating to special rule 
        for application of certain losses against income of 
        insurance companies taxed under section 801) is amended 
        by striking ``an election under section 1504(c)(2) is 
        in effect for the taxable year and''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        December 31, 2000.
            (2) Losses of recent nonlife affiliates.--The 
        amendment made by subsection (b)(1) shall apply to 
        taxable years beginning after December 31, 2005.
    (d) No Carryback Before January 1, 2006.--To the extent 
that a consolidated net operating loss is allowed or increased 
by reason of the amendments made by this section, such loss may 
not be carried back to a taxable year beginning before January 
1, 2006.
    (e) Nontermination of Group.--No affiliated group shall 
terminate solely as a result of the amendments made by this 
section.
    (f) Waiver of 5-Year Waiting Period.--Under regulations 
prescribed by the Secretary of the Treasury or his delegate, an 
automatic waiver from the 5-year waiting period for 
reconsolidation provided in section 1504(a)(3) of the Internal 
Revenue Code of 1986 shall be granted to any corporation which 
was previously an includible corporation but was subsequently 
deemed a nonincludible corporation as a result of becoming a 
subsidiary of a corporation which was not an includible 
corporation solely by operation of section 1504(c)(2) of such 
Code (as in effect on the day before the date of the enactment 
of this Act).

SEC. 1316. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER SECTION 
                    355.

    (a) In General.--Section 355(b) (defining active conduct of 
a trade or business) is amended by adding at the end the 
following new paragraph:
            ``(3) Special rules relating to active business 
        requirement.--
                    ``(A) In general.--For purposes of 
                determining whether a corporation meets the 
                requirement of paragraph (2)(A), all members of 
                such corporation's separate affiliated group 
                shall be treated as 1 corporation. For purposes 
                of the preceding sentence, a corporation's 
                separate affiliated group is the affiliated 
                group which would be determined under section 
                1504(a) if such corporation were the common 
                parent and section 1504(b) did not apply.
                    ``(B) Control.--For purposes of paragraph 
                (2)(D), all distributee corporations which are 
                members of the same affiliated group (as 
                defined in section 1504(a) without regard to 
                section 1504(b)) shall be treated as 1 
                distributee corporation.''.
    (b) Conforming Amendments.--
            (1) Subparagraph (A) of section 355(b)(2) is 
        amended to read as follows:
                    ``(A) it is engaged in the active conduct 
                of a trade or business,''.
            (2) Section 355(b)(2) is amended by striking the 
        last sentence.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to distributions after the date of 
        the enactment of this Act.
            (2) Transition rule.--The amendments made by this 
        section shall not apply to any distribution pursuant to 
        a transaction which is--
                    (A) made pursuant to an agreement which was 
                binding on such date and at all times 
                thereafter,
                    (B) described in a ruling request submitted 
                to the Internal Revenue Service on or before 
                such date, or
                    (C) described on or before such date in a 
                public announcement or in a filing with the 
                Securities and Exchange Commission.
            (3) Election to have amendments apply.--Paragraph 
        (2) shall not apply if the distributing corporation 
        elects not to have such paragraph apply to 
        distributions of such corporation. Any such election, 
        once made, shall be irrevocable.

SEC. 1317. EXPANSION OF EXEMPTION FROM PERSONAL HOLDING COMPANY TAX FOR 
                    LENDING OR FINANCE COMPANIES.

    (a) In General.--Paragraph (6) of section 542(c) (defining 
personal holding company) is amended--
            (1) by striking ``rents,'' in subparagraph (B), and
            (2) by adding ``and'' at the end of subparagraph 
        (B),
            (3) by striking subparagraph (C), and
            (4) by redesignating subparagraph (D) as 
        subparagraph (C).
    (b) Exception for Lending or Finance Companies Determined 
on Affiliated Group Basis.--Subsection (d) of section 542 is 
amended by striking paragraphs (1) and (2) and inserting the 
following new paragraphs:
            ``(1) Lending or finance business defined.-- For 
        purposes of subsection (c)(6), the term `lending or 
        finance business' means a business of--
                    ``(A) making loans,
                    ``(B) purchasing or discounting accounts 
                receivable, notes, or installment obligations,
                    ``(C) engaging in leasing (including 
                entering into leases and purchasing, servicing, 
                and disposing of leases and leased assets),
                    ``(D) rendering services or making 
                facilities available in the ordinary course of 
                a lending or finance business.
                    ``(E) rendering services or making 
                facilities available in connection with 
                activities described in subparagraphs (A), (B), 
                and (C) carried on by the corporation rendering 
                services or making facilities available, or
                    ``(F) rendering services or making 
                facilities available to another corporation 
                which is engaged in the lending or finance 
                business (within the meaning of this 
                paragraph), if such services or facilities are 
                related to the lending or finance business 
                (within such meaning) of such other corporation 
                and such other corporation and the corporation 
                rendering services or making facilities 
                available are members of the same affiliated 
                group (as defined in section 1504).
            ``(2) Exception determined on an affiliated group 
        basis.--In the case of a lending or finance company 
        which is a member of an affiliated group (as defined in 
        section 1504), such company shall be treated as meeting 
        the requirements of subsection (c)(6) if such group 
        (determined by taking into account only members of such 
        group which are engaged in a lending or finance 
        business) meets such requirements.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after December 31, 1999.

SEC. 1318. EXTENSION OF EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

    (a) Expansion of Qualified Contaminated Site.--Section 
198(c) 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(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 (2), 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 State 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) Effective Date.--The amendment made by this section 
shall apply to expenditures paid or incurred after December 31, 
1999.

            Subtitle C--Provisions Relating to Excise Taxes

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

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

``SEC. 9507. ENVIRONMENTAL REMEDIATION TRUST FUND.

    ``(a) Creation of Trust Fund.--There is established in the 
Treasury of the United States a trust fund to be known as the 
`Environmental Remediation Trust Fund' consisting of such 
amounts as may be--
            ``(1) appropriated to the Environmental Remediation 
        Trust Fund as provided in this section,
            ``(2) appropriated to the Environmental Remediation 
        Trust Fund pursuant to section 517(b) of the Superfund 
        Revenue Act of 1986, or
            ``(3) credited to the Environmental Remediation 
        Trust Fund as provided in section 9602(b).
    ``(b) Transfers to Environmental Remediation Trust Fund.--
            ``(1) In general.--There are hereby appropriated to 
        the Environmental Remediation Trust Fund amounts 
        equivalent to--
                    ``(A) the taxes received in the Treasury 
                under--
                            ``(i) section 59A, 4611, 4661, or 
                        4671 (relating to environmental taxes),
                            ``(ii) section 4041(d) (relating to 
                        additional taxes on motor fuels),
                            ``(iii) section 4081 (relating to 
                        tax on gasoline, diesel fuel, and 
                        kerosene) to the extent attributable to 
                        the Environmental Remediation Trust 
                        Fund financing rate under such section,
                            ``(iv) section 4091 (relating to 
                        tax on aviation fuel) to the extent 
                        attributable to the Environmental 
                        Remediation Trust Fund financing rate 
                        under such section, and
                            ``(v) section 4042 (relating to tax 
                        on fuel used in commercial 
                        transportation on inland waterways) to 
                        the extent attributable to the 
                        Environmental Remediation Trust Fund 
                        financing rate under such section,
                    ``(B) amounts recovered on behalf of the 
                Environmental Remediation Trust Fund under the 
                Comprehensive Environmental Response, 
                Compensation, and Liability Act of 1980 
                (hereinafter in this section referred to as 
                `CERCLA'),
                    ``(C) all moneys recovered or collected 
                under section 311(b)(6)(B) of the Clean Water 
                Act,
                    ``(D) penalties assessed under title I of 
                CERCLA,
                    ``(E) punitive damages under section 
                107(c)(3) of CERCLA, and
                    ``(F) amounts received in the Treasury and 
                collected under section 9003(h)(6) of the Solid 
                Waste Disposal Act.
            ``(2) Limitation on transfers.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no amount may be appropriated 
                or credited to the Environmental Remediation 
                Trust Fund on and after the date of any 
                expenditure from any such Trust Fund which is 
                not permitted by this section. The 
                determination of whether an expenditure is so 
                permitted shall be made without regard to--
                            ``(i) any provision of law which is 
                        not contained or referenced in this 
                        title or in a revenue Act, and
                            ``(ii) whether such provision of 
                        law is a subsequently enacted provision 
                        or directly or indirectly seeks to 
                        waive the application of this 
                        paragraph.
                    ``(B) Exception for prior obligations.--
                Subparagraph (A) shall not apply to any 
                expenditure to liquidate any contract entered 
                into (or for any amount otherwise obligated) in 
                accordance with the provisions of this 
                section.''.
    ``(c) Expenditures From Environmental Remediation Trust 
Fund.--
            ``(1) In general.--Amounts in the Environmental 
        Remediation Trust Fund shall be available, as provided 
        in appropriation Acts, only for purposes of making 
        expenditures--
                    ``(A) to carry out the purposes of--
                            ``(i) paragraphs (1), (2), (5), and 
                        (6) of section 111(a) of CERCLA as in 
                        effect on July 12, 1999,
                            ``(ii) section 111(c) of CERCLA (as 
                        so in effect), other than paragraphs 
                        (1) and (2) thereof, and
                            ``(iii) section 111(m) of CERCLA 
                        (as so in effect), or
                    ``(B) to carry out section 9003(h) of the 
                Solid Waste Disposal Act as in effect on July 
                12, 1999.
            ``(2) Exception for certain transfers, etc., of 
        hazardous substances.--No amount in the Environmental 
        Remediation Trust Fund or derived from the 
        Environmental Remediation Trust Fund shall be available 
        or used for the transfer or disposal of hazardous waste 
        carried out pursuant to a cooperative agreement between 
        the Administrator of the Environmental Protection 
        Agency and a State if the following conditions apply--
                    ``(A) the transfer or disposal, if made on 
                December 13, 1985, would not comply with a 
                State or local requirement,
                    ``(B) the transfer is to a facility for 
                which a final permit under section 3005(a) of 
                the Solid Waste Disposal Act was issued after 
                January 1, 1983, and before November 1, 1984, 
                and
                    ``(C) the transfer is from a facility 
                identified as the McColl Site in Fullerton, 
                California.
            ``(3) Transfers from trust fund for certain 
        repayments and credits.--
                    ``(A) In general.--The Secretary shall pay 
                from time to time from the Environmental 
                Remediation Trust Fund into the general fund of 
                the Treasury amounts equivalent to--
                            ``(i) amounts paid under--
                                    ``(I) section 6420 
                                (relating to amounts paid in 
                                respect of gasoline used on 
                                farms),
                                    ``(II) section 6421 
                                (relating to amounts paid in 
                                respect of gasoline used for 
                                certain nonhighway purposes or 
                                by local transit systems), and
                                    ``(III) section 6427 
                                (relating to fuels not used for 
                                taxable purposes), and
                            ``(ii) credits allowed under 
                        section 34,
                with respect to the taxes imposed by section 
                4041(d) or by sections 4081 and 4091 (to the 
                extent attributable to the Leaking Underground 
                Storage Tank Trust Fund financing rate or the 
                Environmental Remediation Trust Fund financing 
                rate under such sections).
                    ``(B) Transfers based on estimates.--
                Transfers under subparagraph (A) shall be made 
                on the basis of estimates by the Secretary, and 
                proper adjustments shall be made in amounts 
                subsequently transferred to the extent prior 
                estimates were in excess of or less than the 
                amounts required to be transferred.
    ``(d) Liability of United States Limited to Amount in Trust 
Fund.--
            ``(1) General rule.--Any claim filed against the 
        Environmental Remediation Trust Fund may be paid only 
        out of the Environmental Remediation Trust Fund.
            ``(2) Coordination with other provisions.--Nothing 
        in CERCLA or the Superfund Amendments and 
        Reauthorization Act of 1986 (or in any amendment made 
        by either of such Acts) shall authorize the payment by 
        the United States Government of any amount with respect 
        to any such claim out of any source other than the 
        Environmental Remediation Trust Fund.
            ``(3) Order in which unpaid claims are to be 
        paid.--If at any time the Environmental Remediation 
        Trust Fund has insufficient funds to pay all of the 
        claims payable out of the Environmental Remediation 
        Trust Fund at such time, such claims shall, to the 
        extent permitted under paragraph (1), be paid in full 
        in the order in which they were finally determined.
    ``(e) Separate Accounting if Superfund Reauthorized.--
            ``(1) In general.--If a Federal law is enacted 
        after September 30, 1999, which authorizes expenditures 
        out of the Environmental Remediation Trust Fund for 
        purposes of carrying out provisions of CERCLA not 
        described in subsection (c)(1)(A), this section shall 
        be applied as if such Fund consisted of 2 accounts: a 
        Superfund Account and a Leaking Underground Storage 
        Tank Account.
            ``(2) Amounts in accounts.--
                    ``(A) Leaking underground storage tank 
                account.--The Leaking Underground Storage Tank 
                Account--
                            ``(i) shall consist of amounts 
                        which would have been appropriated or 
                        credited to the Leaking Underground 
                        Storage Tank Trust Fund but for the 
                        amendments made by section 1321 of the 
                        Taxpayer Refund and Relief Act of 1999, and
                            ``(ii) shall be available, as 
                        provided in appropriation Acts, for the 
                        purposes for which the Leaking 
                        Underground Storage Tank Trust Fund was 
                        available (as in effect on the day 
                        before the date of the enactment of 
                        such amendments).
                    ``(B) Superfund account.--The Superfund 
                Account--
                            ``(i) shall consist of amounts 
                        which would have been appropriated or 
                        credited to the Hazardous Substance 
                        Superfund but for such amendments, and
                            ``(ii) shall be available, as 
                        provided in appropriation Acts, for the 
                        purposes for which the Hazardous 
                        Substance Superfund was available (as 
                        so in effect).
            ``(3) Opening balances.--
                    ``(A) Leaking underground storage tank 
                account.--The balance in the Leaking 
                Underground Storage Tank Account as of the date 
                of the enactment of the Federal law referred to 
                in paragraph (1) shall be the sum of--
                            ``(i) the amount which bears the 
                        same ratio to the balance in such Trust 
                        Fund as of such date, bears to the sum 
                        of the balances (as of the close of 
                        September 30, 1999) in Leaking 
                        Underground Storage Tank Trust Fund and 
                        the Hazardous Substance Superfund, and
                            ``(ii) the aggregate amount 
                        appropriated to the Environmental 
                        Remediation Trust Fund after September 
                        30, 1999, by reason of taxes received 
                        in the Treasury.
                    ``(B) Superfund account.--The balance in 
                the Superfund Account as of the date of the 
                enactment of the Federal law referred to in 
                paragraph (1) shall be the excess of the 
                balance in such Trust Fund as of such date over 
                the balance of the Leaking Underground Storage 
                Tank Account determined under subparagraph (A).
            ``(4) Special transfer rule.--If the balance in the 
        Environmental Remediation Trust Fund as of the date of 
        the enactment of the Federal law referred to in 
        paragraph (1) is less than the required balance for the 
        Leaking Underground Storage Tank Account, amounts 
        otherwise required to be deposited in the Superfund 
        Account shall be reduced (to the extent of the 
        shortfall) and deposited into the Leaking Underground 
        Storage Tank Account.''.
    (b) Conforming Amendments.--
            (1) Subsections (c) and (e) of section 4611 are 
        each amended by striking ``Hazardous Substance 
        Superfund'' each place it appears and inserting 
        ``Environmental Remediation Trust Fund''.
            (2) Subsection (c) of section 4661 is amended by 
        striking ``Hazardous Substance Superfund'' and 
        inserting ``Environmental Remediation Trust Fund''.
            (3) Sections 4041(d), 4042(b), 4081(a)(2)(B), 
        4081(d)(3), 4091(b), 4092(b), 6421(f), and 6427(l) are 
        each amended by striking ``Leaking Underground Storage 
        Tank'' each place it appears (other than the headings) 
        and inserting ``Environmental Remediation''.
            (4) The heading for subsection (d) of section 4041 
        is amended by striking ``Leaking Underground Storage 
        Tank'' and inserting ``Environmental Remediation''.
            (5) The headings for subsections (a)(2)(B) and 
        (d)(3) of section 4081 and section 4091(b)(2) are each 
        amended by striking ``Leaking underground storage 
        tank'' and inserting ``Environmental remediation''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on October 1, 1999.
    (d) Environmental Remediation Trust Fund Treated as 
Continuation of Old Trust Funds.--The Environmental Remediation 
Trust Fund established by the amendments made by this section 
shall be treated for all purposes of law as a continuation of 
both the Hazardous Substance Superfund and the Leaking 
Underground Storage Tank Trust Fund. Any reference in any law 
to the Hazardous Substance Superfund or the Leaking Underground 
Storage Tank Trust Fund shall be deemed to include (wherever 
appropriate) a reference to the Environmental Remediation Trust 
Fund established by such amendments.

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

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

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

    (a) Repeal.--Paragraph (6) of section 4162(a) (defining 
sport fishing equipment) is amended by striking subparagraph 
(C) and by redesignating subparagraphs (D) through (J) as 
subparagraphs (C) through (I), respectively.
    (b) Modification of Transfer to Aquatic Resources Trust 
Fund.--Section 9503(b)(4)(D) is amended--
            (1) by striking ``11.5 cents'' in clause (i) and 
        inserting ``11.7 cents'',
            (2) by striking ``13 cents'' in clause (ii) and 
        inserting ``13.2 cents'', and
            (3) by striking ``13.5 cents'' in clause (iii) and 
        inserting ``13.7 cents''.
    (c) Effective Date.--The amendments made by this section 
shall take effect 30 days after the date of the enactment of 
this Act.

SEC. 1324. CLARIFICATION OF EXCISE TAX IMPOSED ON ARROW COMPONENTS.

    (a) In General.--Paragraph (2) of section 4161(b) (relating 
to bows and arrows, etc.) is amended to read as follows:
            ``(2) Arrows.--
                    ``(A) In general.--There is hereby imposed 
                on the sale by the manufacturer, producer, or 
                importer of any shaft, point, article used to 
                attach a point to a shaft, nock, or vane of a 
                type used in the manufacture of any arrow which 
                after its assembly--
                            ``(i) measures 18 inches overall or 
                        more in length, or
                            ``(ii) measures less than 18 inches 
                        overall in length but is suitable for 
                        use with a bow described in paragraph 
                        (1)(A),
                a tax equal to 12.4 percent of the price for 
                which so sold.
                    ``(B) Reduced rate on certain hunting 
                points.--Subparagraph (A) shall be applied by 
                substituting `11 percent' for `12.4 percent' in 
                the case of a point which is designed primarily 
                for use in hunting fish or large animals.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to articles sold by the manufacturer, producer, or 
importer after the close of the first calendar month ending 
more than 30 days after the date of the enactment of this Act.

SEC. 1325. EXEMPTION FROM TICKET TAXES FOR CERTAIN TRANSPORTATION 
                    PROVIDED BY SMALL SEAPLANES.

    (a) In General.--Section 4281 (relating to small aircraft 
on nonestablished lines) is amended to read as follows:

``SEC. 4281. SMALL AIRCRAFT.

    ``The taxes imposed by sections 4261 and 4271 shall not 
apply to--
            ``(1) transportation by an aircraft having a 
        maximum certificated takeoff weight of 6,000 pounds or 
        less, except when such aircraft is operated on an 
        established line, and
            ``(2) transportation by a seaplane having a maximum 
        certificated takeoff weight of 6,000 pounds or less 
        with respect to any segment consisting of a takeoff 
        from, and a landing on, water.
For purposes of the preceding sentence, the term `maximum 
certificated takeoff weight' means the maximum such weight 
contained in the type certificate or airworthiness 
certificate.''.
    (b) Clerical Amendment.--The table of sections for part III 
of subchapter C of chapter 33 is amended by striking ``on 
nonestablished lines'' in the item relating to section 4281.
    (c) Effective Date.--The amendments made by this section 
shall apply to amounts paid for transportation beginning after 
December 31, 1999, but shall not apply to any amount paid on or 
before such date with respect to taxes imposed by sections 4261 
and 4271 of the Internal Revenue Code of 1986.

SEC. 1326. MODIFICATION OF RURAL AIRPORT DEFINITION.

    (a) In General.--Clause (ii) of section 4261(e)(1)(B) 
(defining rural airport) is amended by striking the period at 
the end of subclause (II) and inserting ``, or'', and by adding 
at the end the following new subclause:
                                    ``(III) is not connected by 
                                paved roads to another 
                                airport.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to calendar years beginning after 1999.

                      Subtitle D--Other Provisions

SEC. 1331. TAX-EXEMPT FINANCING OF QUALIFIED HIGHWAY INFRASTRUCTURE 
                    CONSTRUCTION.

    (a) Treatment as Exempt Facility Bond.--A bond described in 
subsection (b) shall be treated as described in section 
141(e)(1)(A) of the Internal Revenue Code of 1986, except 
that--
            (1) section 146 of such Code shall not apply to 
        such bond, and
            (2) section 147(c)(1) of such Code shall be applied 
        by substituting ``any portion of'' for ``25 percent or 
        more''.
    (b) Bond Described.--
            (1) In general.--A bond is described in this 
        subsection if such bond is issued after December 31, 
        1999, as part of an issue--
                    (A) 95 percent or more of the net proceeds 
                of which are to be used to provide a qualified 
                highway infrastructure project, and
                    (B) to which there has been allocated a 
                portion of the allocation to the project under 
                paragraph (2)(C)(ii) which is equal to the 
                aggregate face amount of bonds to be issued as 
                part of such issue.
            (2) Qualified highway infrastructure projects.--
                    (A) In general.--For purposes of paragraph 
                (1), the term ``qualified highway 
                infrastructure project'' means a project--
                            (i) for the construction or 
                        reconstruction of a highway, and
                            (ii) designated under subparagraph 
                        (B) as an eligible pilot project.
                    (B) Eligible pilot project.--
                            (i) In general.--The Secretary of 
                        Transportation, in consultation with 
                        the Secretary of the Treasury, shall 
                        select not more than 15 highway 
                        infrastructure projects to be pilot 
                        projects eligible for tax-exempt 
                        financing.
                            (ii) Eligibility criteria.--In 
                        determining the criteria necessary for 
                        the eligibility of pilot projects, the 
                        Secretary of Transportation shall 
                        include the following:
                                    (I) The project must serve 
                                the general public.
                                    (II) The project is 
                                necessary to evaluate the 
                                potential of the private 
                                sector's participation in the 
                                provision of the highway 
                                infrastructure of the United 
                                States.
                                    (III) The project must be 
                                located on publicly-owned 
                                rights-of-way.
                                    (IV) The project must be 
                                publicly owned or the ownership 
                                of the highway constructed or 
                                reconstructed under the project 
                                must revert to the public.
                                    (V) The project must be 
                                consistent with a 
                                transportation plan developed 
                                pursuant to section 134(g) or 
                                135(e) of title 23, United 
                                States Code.
                    (C) Aggregate face amount of tax-exempt 
                financing.--
                            (i) In general.--The aggregate face 
                        amount of bonds issued pursuant to this 
                        section shall not exceed 
                        $15,000,000,000, determined without 
                        regard to any bond the proceeds of 
                        which are used exclusively to refund 
                        (other than to advance refund) a bond 
                        issued pursuant to this section (or a 
                        bond which is a part of a series of 
                        refundings of a bond so issued) if the 
                        amount of the refunding bond does not 
                        exceed the outstanding amount of the 
                        refunded bond.
                            (ii) Allocation.--The Secretary of 
                        Transportation, in consultation with 
                        the Secretary of the Treasury, shall 
                        allocate the amount described in clause 
                        (i) among the eligible pilot projects 
                        designated under subparagraph (B).
                            (iii) Reallocation.--If any portion 
                        of an allocation under clause (ii) is 
                        unused on the date which is 3 years 
                        after such allocation, the Secretary of 
                        Transportation, in consultation with 
                        the Secretary of the Treasury, may 
                        reallocate such portion among the 
                        remaining eligible pilot projects.

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

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

``SEC. 646. ELECTING ALASKA NATIVE SETTLEMENT TRUSTS.

    ``(a) In General.--Except as otherwise provided in this 
section, the provisions of this subchapter and section 1(e) 
shall apply to all Settlement Trusts.
    ``(b) Beneficiaries of Electing Trust Not Taxed on 
Contributions.--
            ``(1) In general.--In the case of a Settlement 
        Trust for which an election under paragraph (2) is in 
        effect for any taxable year, no amount shall be 
        includible in the gross income of a beneficiary of the 
        Settlement Trust by reason of a contribution to the 
        Settlement Trust made during such taxable year.
            ``(2) One-time election.--
                    ``(A) In general.--A Settlement Trust may 
                elect to have the provisions of this section 
                apply to the trust and its beneficiaries.
                    ``(B) Time and method of election.--An 
                election under subparagraph (A) shall be made--
                            ``(i) on or before the due date 
                        (including extensions) for filing the 
                        Settlement Trust's return of tax for 
                        the 1st taxable year of the Settlement 
                        Trust ending after December 31, 1999, 
                        and
                            ``(ii) by attaching to such return 
                        of tax a statement specifically 
                        providing for such election.
                    ``(C) Period election in effect.--Except as 
                provided in paragraph (3), an election under 
                subparagraph (A)--
                            ``(i) shall apply to the 1st 
                        taxable year described in subparagraph 
                        (B)(i) and all subsequent taxable 
                        years, and
                            ``(ii) may not be revoked once it 
                        is made.
    ``(c) Special Rules Where Transfer Restrictions Modified.--
            ``(1) Transfer of beneficial interests.--If, at any 
        time, a beneficial interest in a Settlement Trust may 
        be disposed of to a person in a manner which would not 
        be permitted by section 7(h) of the Alaska Native Claims 
        Settlement Act (43 U.S.C. 1606(h)) if the interest were 
        Settlement Common Stock--
                    ``(A) no election may be made under 
                subsection (b)(2) with respect to such trust, 
                and
                    ``(B) if such an election is in effect as 
                of such time, such election shall cease to 
                apply for purposes of subsection (b)(1) as of 
                the 1st day of the taxable year following the 
                taxable year in which such disposition is first 
                permitted.
            ``(2) Stock in corporation.--If--
                    ``(A) the Settlement Common Stock in any 
                Native Corporation which transferred assets to 
                a Settlement Trust making an election under 
                subsection (b)(2) may be disposed of to a 
                person in a manner not permitted by section 
                7(h) of the Alaska Native Claims Settlement Act 
                (43 U.S.C. 1606(h)), and
                    ``(B) at any time after such disposition of 
                stock is first permitted, such corporation 
                transfers assets to such trust,
        subparagraph (B) of paragraph (1) shall be applied to 
        such trust on and after the date of the transfer in the 
        same manner as if the trust permitted dispositions of 
        beneficial interests in the trust in a manner not 
        permitted by such section 7(h).
    ``(c) Tax Treatment of Distributions to Beneficiaries.--
            ``(1) In general.--In the case of a Settlement 
        Trust for which an election under subsection (b)(2) is 
        in effect for any taxable year, any distribution to a 
        beneficiary shall be included in gross income of the 
        beneficiary as ordinary income to the extent such 
        distribution reduces the earnings and profits of any 
        Native Corporation making a contribution to such Trust.
            ``(2) Earnings and profits.--The earnings and 
        profits of any Native Corporation making a contribution 
        to a Settlement Trust shall not be reduced on account 
        thereof at the time of such contribution, but such 
        earnings and profits shall be reduced (up to the amount 
        of such contribution) as distributions are thereafter 
        made by the Settlement Trust which exceed the sum of--
                    ``(A) such Trust's total undistributed net 
                income for all prior years during which an 
                election under subsection (b)(2) is in effect, 
                and
                    ``(B) such Trust's distributable net 
                income.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Native corporation.--The term `Native 
        Corporation' has the meaning given such term by section 
        3(m) of the Alaska Native Claims Settlement Act (43 
        U.S.C. 1602(m)).
            ``(2) Settlement trust.--The term `Settlement 
        Trust' means a trust which constitutes a Settlement 
        Trust under section 39 of the Alaska Native Claims 
        Settlement Act (43 U.S.C. 1629e).''.
    (b) Withholding on Distributions by Electing ANCSA 
Settlement Trusts.--Section 3402 is amended by adding at the 
end the following new subsection:
    ``(t) Tax Withholding on Distributions by Electing ANCSA 
Settlement Trusts.--
            ``(1) In general.--Any Settlement Trust (as defined 
        in section 646(d)) for which an election under section 
        646(b)(2) is in effect (in this subsection referred to 
        as an `electing trust') and which makes a payment to 
        any beneficiary which is includable in gross income 
        under section 646(c) shall deduct and withhold from 
        such payment a tax in an amount equal to such payment's 
        proportionate share of the annualized tax.
            ``(2) Exception.--The tax imposed by paragraph (1) 
        shall not apply to any payment to the extent that such 
        payment, when annualized, does not exceed an amount 
        equal to the amount in effect under section 
        6012(a)(1)(A)(i) for taxable years beginning in the 
        calendar year in which the payment is made.
            ``(3) Annualized tax.--For purposes of paragraph 
        (1), the term `annualized tax' means, with respect to 
        any payment, the amount of tax which would be imposed 
        by section 1(c) (determined without regard to any rate 
        of tax in excess of 31 percent) on an amount of taxable 
        income equal to the excess of--
                    ``(A) the annualized amount of such 
                payment, over
                    ``(B) the amount determined under paragraph 
                (2).
            ``(4) Annualization.--For purposes of this 
        subsection, amounts shall be annualized in the manner 
        prescribed by the Secretary.
            ``(5) Alternate withholding procedures.--At the 
        election of an electing trust, the tax imposed by this 
        subsection on any payment made by such trust shall be 
        determined in accordance with such tables or 
        computational procedures as may be specified in 
        regulations prescribed by the Secretary (in lieu of in 
        accordance with paragraphs (2) and (3)).
            ``(6) Coordination with other sections.--For 
        purposes of this chapter and so much of subtitle F as 
        relates to this chapter, payments which are subject to 
        withholding under this subsection shall be treated as 
        if they were wages paid by an employer to an 
        employee.''.
    (c) Reporting.--Section 6041 is amended by adding at the 
end the following new subsection:
    ``(f) Application to Alaska Native Settlement Trusts.--In 
the case of any distribution from a Settlement Trust (as 
defined in section 646(d)) to a beneficiary which is includable 
in gross income under section 646(c), this section shall apply, 
except that--
            ``(1) this section shall apply to such distribution 
        without regard to the amount thereof,
            ``(2) the Settlement Trust shall include on any 
        return or statement required by this section 
        information as to the character of such distribution 
        (if applicable) and the amount of tax imposed by 
        chapter 1 which has been deducted and withheld from 
        such distribution, and
            ``(3) the filing of any return or statement 
        required by this section shall satisfy any requirement 
        to file any other form or schedule under this title 
        with respect to distributive share information 
        (including any form or schedule to be included with the 
        trust's tax return).''.
    (d) Clerical Amendment.--The table of sections for subpart 
A of part I of subchapter J of chapter 1 is amended by adding 
at the end the following new item:

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

    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years of Settlement Trusts ending after 
December 31, 1999, and to contributions to such trusts after 
such date.

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

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

SEC. 1334. CREDIT FOR CLINICAL TESTING RESEARCH EXPENSES ATTRIBUTABLE 
                    TO CERTAIN QUALIFIED ACADEMIC INSTITUTIONS 
                    INCLUDING TEACHING HOSPITALS.

    (a) In General.--Subpart D of part IV of subchapter A of 
chapter 1 (relating to business related credits) is amended by 
inserting after section 41 the following:

``SEC. 41A. CREDIT FOR MEDICAL INNOVATION EXPENSES.

    ``(a) General Rule.--For purposes of section 38, the 
medical innovation credit determined under this section for the 
taxable year shall be an amount equal to 40 percent of the 
excess (if any) of--
            ``(1) the qualified medical innovation expenses for 
        the taxable year, over
            ``(2) the medical innovation base period amount.
    ``(b) Qualified Medical Innovation Expenses.--For purposes 
of this section--
            ``(1) In general.--The term `qualified medical 
        innovation expenses' means the amounts which are paid 
        or incurred by the taxpayer during the taxable year 
        directly or indirectly to any qualified academic 
        institution for clinical testing research activities.
            ``(2) Clinical testing research activities.--
                    ``(A) In general.--The term `clinical 
                testing research activities' means human 
                clinical testing conducted at any qualified 
                academic institution in the development of any 
                product, which occurs before--
                            ``(i) the date on which an 
                        application with respect to such 
                        product is approved under section 
                        505(b), 506, or 507 of the Federal 
                        Food, Drug, and Cosmetic Act (as in 
                        effect on the date of the enactment of 
                        this section),
                            ``(ii) the date on which a license 
                        for such product is issued under 
                        section 351 of the Public Health 
                        Service Act (as so in effect), or
                            ``(iii) the date classification or 
                        approval of such product which is a 
                        device intended for human use is given 
                        under section 513, 514, or 515 of the 
                        Federal Food, Drug, and Cosmetic Act 
                        (as so in effect).
                    ``(B) Product.--The term `product' means 
                any drug, biologic, or medical device.
            ``(3) Qualified academic institution.--The term 
        `qualified academic institution' means any of the 
        following institutions:
                    ``(A) Educational institution.--A qualified 
                organization described in section 
                170(b)(1)(A)(iii) which is owned by, or 
                affiliated with, an institution of higher 
                education (as defined in section 3304(f)).
                    ``(B) Teaching hospital.--A teaching 
                hospital which--
                            ``(i) is publicly supported or 
                        owned by an organization described in 
                        section 501(c)(3), and
                            ``(ii) is affiliated with an 
                        organization meeting the requirements 
                        of subparagraph (A).
                    ``(C) Foundation.--A medical research 
                organization described in section 501(c)(3) 
                (other than a private foundation) which is 
                affiliated with, or owned by--
                            ``(i) an organization meeting the 
                        requirements of subparagraph (A), or
                            ``(ii) a teaching hospital meeting 
                        the requirements of subparagraph (B).
                    ``(D) Charitable research hospital.--A 
                hospital that is designated as a cancer center 
                by the National Cancer Institute.
            ``(4) Exclusion for amounts funded by grants, 
        etc.--The term `qualified medical innovation expenses' 
        shall not include any amount to the extent such amount 
        is funded by any grant, contract, or otherwise by 
        another person (or any governmental entity).
    ``(c) Medical Innovation Base Period Amount.--For purposes 
of this section, the term `medical innovation base period 
amount' means the average annual qualified medical innovation 
expenses paid by the taxpayer during the 3-taxable year period 
ending with the taxable year immediately preceding the first 
taxable year of the taxpayer beginning after December 31, 1998.
    ``(d) Special Rules.--
            ``(1) Limitation on foreign testing.--No credit 
        shall be allowed under this section with respect to any 
        clinical testing research activities conducted outside 
        the United States.
            ``(2) Certain rules made applicable.--Rules similar 
        to the rules of subsections (f) and (g) of section 41 
        shall apply for purposes of this section.
            ``(3) Election.--This section shall apply to any 
        taxpayer for any taxable year only if such taxpayer 
        elects to have this section apply for such taxable 
        year.
            ``(4) Coordination with credit for increasing 
        research expenditures and with credit for clinical 
        testing expenses for certain drugs for rare diseases.--
        Any qualified medical innovation expense for a taxable 
        year to which an election under this section applies 
        shall not be taken into account for purposes of 
        determining the credit allowable under section 41 or 
        45C for such taxable year.''.
    (b) Credit To Be Part of General Business Credit.--
            (1) In general.--Section 38(b) (relating to current 
        year business credits) 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:
            ``(13) the medical innovation expenses credit 
        determined under section 41A(a).''.
            (2) Transition rule.--Section 39(d) is amended by 
        adding at the end the following new paragraph:
            ``(9) No carryback of section 41a credit before 
        enactment.--No portion of the unused business credit 
        for any taxable year which is attributable to the 
        medical innovation credit determined under section 41A 
        may be carried back to a taxable year beginning before 
        January 1, 1999.''.
    (c) Denial of Double Benefit.--Section 280C is amended by 
adding at the end the following new subsection:
    ``(d) Credit for Increasing Medical Innovation Expenses.--
            ``(1) In general.--No deduction shall be allowed 
        for that portion of the qualified medical innovation 
        expenses (as defined in section 41A(b)) otherwise 
        allowable as a deduction for the taxable year which is 
        equal to the amount of the credit determined for such 
        taxable year under section 41A(a).
            ``(2) Certain rules to apply.--Rules similar to the 
        rules of paragraphs (2), (3), and (4) of subsection (c) 
        shall apply for purposes of this subsection.''.
    (d) Deduction for Unused Portion of Credit.--Section 196(c) 
(defining qualified business credits) is amended by 
redesignating paragraphs (5) through (8) as paragraphs (6) 
through (9), respectively, and by inserting after paragraph (4) 
the following new paragraph:
            ``(5) the medical innovation expenses credit 
        determined under section 41A(a) (other than such credit 
        determined under the rules of section 280C(d)(2)),''.
    (e) Clerical Amendment.--The table of sections for subpart 
D of part IV of subchapter A of chapter 1 is amended by adding 
after the item relating to section 41 the following:

        ``Sec. 41A. Credit for medical innovation expenses.''.

    (f) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1998.

SEC. 1335. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITHOUT 
                    REDUCING PATRONAGE DIVIDENDS.

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

                    Subtitle E--Tax Court Provisions

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

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

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

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

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

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

              TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS

SEC. 1401. RESEARCH CREDIT.

    (a) Extension.--
            (1) In general.--Paragraph (1) of section 41(h) 
        (relating to termination) is amended--
                    (A) by striking ``June 30, 1999'' and 
                inserting ``June 30, 2004'', and
                    (B) by striking the material following 
                subparagraph (B).
            (2) Technical amendment.--Subparagraph (D) of 
        section 45C(b)(1) is amended by striking ``June 30, 
        1999'' and inserting ``June 30, 2004''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to amounts paid or incurred 
        after June 30, 1999.
    (b) Increase in Percentages Under Alternative Incremental 
Credit.--
            (1) In general.--Subparagraph (A) of section 
        41(c)(4) is amended--
                    (A) by striking ``1.65 percent'' and 
                inserting ``2.65 percent'',
                    (B) by striking ``2.2 percent'' and 
                inserting ``3.2 percent'', and
                    (C) by striking ``2.75 percent'' and 
                inserting ``3.75 percent''.
            (2) Effective date.--The amendments made by this 
        subsection shall apply to taxable years beginning after 
        June 30, 1999.

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

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

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

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

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

    (a) Temporary Extension.--Sections 51(c)(4)(B) and 51A(f) 
(relating to termination) are each amended by striking ``June 
30, 1999'' and inserting ``December 31, 2001''.
    (b) Clarification of First Year of Employment.--Paragraph 
(2) of section 51(i) is amended by striking ``during which he 
was not a member of a targeted group''.
    (c) Effective Date.--The amendments made by this section 
shall apply to individuals who begin work for the employer 
after June 30, 1999.

SEC. 1405. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING 
                    ELECTRICITY FROM CERTAIN RENEWABLE RESOURCES.

    (a) Extension and Modification of Placed-in-Service 
Rules.--Paragraph (3) of section 45(c) is amended to read as 
follows:
            ``(3) Qualified facility.--
                    ``(A) Wind facility.--In the case of a 
                facility using wind to produce electricity, the 
                term `qualified facility' means any facility 
                owned by the taxpayer which is originally 
                placed in service after December 31, 1993, and 
                before July 1, 2003.
                    ``(B) Closed-loop biomass facility.--In the 
                case of a facility using closed-loop biomass to 
                produce electricity, the term `qualified 
                facility' means any facility owned by the 
                taxpayer which is originally placed in service 
                after December 31, 1992, and before July 1, 
                2003.
                    ``(C) Poultry waste facility.--In the case 
                of a facility using poultry waste to produce 
                electricity, the term `qualified facility' 
                means any facility of the taxpayer which is 
                originally placed in service after December 31, 
                1999, and before July 1, 2003.''.
    (b) Expansion of Qualified Energy Resources.--
            (1) In general.--Section 45(c)(1) (defining 
        qualified energy resources) is amended by striking 
        ``and'' at the end of subparagraph (A), by striking the 
        period at the end of subparagraph (B) and inserting ``, 
        and'', and by adding at the end the following new 
        subparagraph:
                    ``(C) poultry waste.''.
            (2) Definition.--Section 45(c) is amended by adding 
        at the end the following new paragraph:
            ``(4) Poultry waste.--The term `poultry waste' 
        means poultry manure and litter, including wood 
        shavings, straw, rice hulls, and other bedding material 
        for the disposition of manure.''.
    (c) Special Rules.--Section 45(d) (relating to definitions 
and special rules) is amended by adding at the end the 
following new paragraphs:
            ``(6) Credit eligibility in the case of government-
        owned facilities using poultry waste.--In the case of a 
        facility using poultry waste to produce electricity and 
        owned by a governmental unit, the person eligible for 
        the credit under subsection (a) is the lessor or the 
        operator of such facility.
            ``(7) Credit not to apply to electricity sold to 
        utilities under certain contracts.--
                    ``(A) In general.--The credit determined 
                under subsection (a) shall not apply to 
                electricity--
                            ``(i) produced at a qualified 
                        facility described in paragraph (3)(A) 
                        which is placed in service by the 
                        taxpayer after June 30, 1999, and
                            ``(ii) sold to a utility pursuant 
                        to a contract originally entered into 
                        before January 1, 1987 (whether or not 
                        amended or restated after that date).
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply if--
                            ``(i) the prices for energy and 
                        capacity from such facility are 
                        established pursuant to an amendment to 
                        the contract referred to in 
                        subparagraph (A)(ii);
                            ``(ii) such amendment provides that 
                        the prices set forth in the contract 
                        which exceed avoided cost prices 
                        determined at the time of delivery 
                        shall apply only to annual quantities 
                        of electricity (prorated for partial 
                        years) which do not exceed the greater 
                        of--
                                    ``(I) the average annual 
                                quantity of electricity sold to 
                                the utility under the contract 
                                during calendar years 1994, 
                                1995, 1996, 1997, and 1998, or
                                    ``(II) the estimate of the 
                                annual electricity production 
                                set forth in the contract, or, 
                                if there is no such estimate, 
                                the greatest annual quantity of 
                                electricity sold to the utility 
                                under the contract in any of 
                                the calendar years 1996, 1997, 
                                or 1998; and
                            ``(iii) such amendment provides 
                        that energy and capacity in excess of 
                        the limitation in clause (ii) may be--
                                    ``(I) sold to the utility 
                                only at prices that do not 
                                exceed avoided cost prices 
                                determined at the time of 
                                delivery, or
                                    ``(II) sold to a third 
                                party subject to a mutually 
                                agreed upon advance notice to 
                                the utility.
                For purposes of this subparagraph, avoided cost 
                prices shall be determined as provided for in 
                18 CFR 292.304(d)(1) or any successor 
                regulation.''.
    (d) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

                       TITLE XV--REVENUE OFFSETS

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

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

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

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

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

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

``Category:                                                 Average Fee:
        Employee plan ruling and opinion................           $250 
        Exempt organization ruling......................           $350 
        Employee plan determination.....................           $300 
        Exempt organization determination...............           $275 
        Chief counsel ruling............................           $200.

    ``(c) Termination.--No fee shall be imposed under this 
section with respect to requests made after September 30, 
2009.''.
    (b) Conforming Amendments.--
            (1) The table of sections for chapter 77 is amended 
        by adding at the end the following new item:

        ``Sec. 7527. Internal Revenue Service user fees.''.

            (2) Section 10511 of the Revenue Act of 1987 is 
        repealed.
    (c) Effective Date.--The amendments made by this section 
shall apply to requests made after the date of the enactment of 
this Act.

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

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

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

    (a) In General.--Section 3405(b)(1) (relating to 
withholding) is amended by striking ``10 percent'' and 
inserting ``15 percent''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to distributions after December 31, 2000.

SEC. 1505. CONTROLLED ENTITIES INELIGIBLE FOR REIT STATUS.

    (a) In General.--Subsection (a) of section 856 (relating to 
definition of real estate investment trust) is amended by 
striking ``and'' at the end of paragraph (6), by redesignating 
paragraph (7) as paragraph (8), and by inserting after 
paragraph (6) the following new paragraph:
            ``(7) which is not a controlled entity (as defined 
        in subsection (l)); and''.
    (b) Controlled Entity.--Section 856 is amended by adding at 
the end the following new subsection:
    ``(l) Controlled Entity.--
            ``(1) In general.--For purposes of subsection 
        (a)(7), an entity is a controlled entity if, at any 
        time during the taxable year, one person (other than a 
        qualified entity)--
                    ``(A) in the case of a corporation, owns 
                stock--
                            ``(i) possessing at least 50 
                        percent of the total voting power of 
                        the stock of such corporation, or
                            ``(ii) having a value equal to at 
                        least 50 percent of the total value of 
                        the stock of such corporation, or
                    ``(B) in the case of a trust, owns 
                beneficial interests in the trust which would 
                meet the requirements of subparagraph (A) if 
                such interests were stock.
            ``(2) Qualified entity.--For purposes of paragraph 
        (1), the term `qualified entity' means--
                    ``(A) any real estate investment trust, and
                    ``(B) any partnership in which one real 
                estate investment trust owns at least 50 
                percent of the capital and profits interests in 
                the partnership.
            ``(3) Attribution rules.--For purposes of this 
        paragraphs (1) and (2)--
                    ``(A) In general.--Rules similar to the 
                rules of subsections (d)(5) and (h)(3) shall 
                apply; except that section 318(a)(3)(C) shall 
                not be applied under such rules to treat stock 
                owned by a qualified entity as being owned by a 
                person which is not a qualified entity.
                    ``(B) Stapled entities.--A group of 
                entities which are stapled entities (as defined 
                in section 269B(c)(2)) shall be treated as 1 
                person.
            ``(4) Exception for certain new reits.--
                    ``(A) In general.--The term `controlled 
                entity' shall not include an incubator REIT.
                    ``(B) Incubator reit.--A corporation shall 
                be treated as an incubator REIT for any taxable 
                year during the eligibility period if it meets 
                all the following requirements for such year:
                            ``(i) The corporation elects to be 
                        treated as an incubator REIT.
                            ``(ii) The corporation has only 
                        voting common stock outstanding.
                            ``(iii) Not more than 50 percent of 
                        the corporation's real estate assets 
                        consist of mortgages.
                            ``(iv) From not later than the 
                        beginning of the last half of the 
                        second taxable year, at least 10 
                        percent of the corporation's capital is 
                        provided by lenders or equity investors 
                        who are unrelated to the corporation's 
                        largest shareholder.
                            ``(v) The corporation annually 
                        increases the value of its real estate 
                        assets by at least 10 percent.
                            ``(vi) The directors of the 
                        corporation adopt a resolution setting 
                        forth an intent to engage in a going 
                        public transaction.
                No election may be made with respect to any 
                REIT if an election under this subsection was 
                in effect for any predecessor of such REIT.
                    ``(C) Eligibility period.--
                            ``(i) In general.--The eligibility 
                        period (for which an incubator REIT 
                        election can be made) begins with the 
                        REIT's second taxable year and ends at 
                        the close of the REIT's third taxable 
                        year, except that the REIT may, subject 
                        to clauses (ii), (iii), and (iv), elect 
                        to extend such period for an additional 
                        2 taxable years.
                            ``(ii) Going public transaction.--A 
                        REIT may not elect to extend the 
                        eligibility period under clause (i) 
                        unless it enters into an agreement with 
                        the Secretary that if it does not 
                        engage in a going public transaction by 
                        the end of the extended eligibility 
                        period, it shall pay Federal income 
                        taxes for the 2 years of the extended 
                        eligibility period as if it had not 
                        made an incubator REIT election and had 
                        ceased to qualify as a REIT for those 2 
                        taxable years.
                            ``(iii) Returns, interest, and 
                        notice.--
                                    ``(I) Returns.--In the 
                                event the corporation ceases to 
                                be treated as a REIT by 
                                operation of clause (ii), the 
                                corporation shall file any 
                                appropriate amended returns 
                                reflecting the change in status 
                                within 3 months of the close of 
                                the extended eligibility 
                                period.
                                    ``(II) Interest.--Interest 
                                shall be payable on any tax 
                                imposed by reason of clause 
                                (ii) for any taxable year but, 
                                unless there was a finding 
                                under subparagraph (D), no 
                                substantial underpayment 
                                penalties shall be imposed.
                                    ``(III) Notice.--The 
                                corporation shall, at the same 
                                time it files its returns under 
                                subclause (I), notify its 
                                shareholders and any other 
                                persons whose tax position is, 
                                or may reasonably be expected 
                                to be, affected by the change 
                                in status so they also may file 
                                any appropriate amended returns 
                                to conform their tax treatment 
                                consistent with the 
                                corporation's loss of REIT 
                                status.
                                    ``(IV) Regulations.--The 
                                Secretary shall provide 
                                appropriate regulations setting 
                                forth transferee liability and 
                                other provisions to ensure 
                                collection of tax and the 
                                proper administration of this 
                                provision.
                            ``(iv) Clauses (ii) and (iii) shall 
                        not apply if the corporation allows its 
                        incubator REIT status to lapse at the 
                        end of the initial 2-year eligibility 
                        period without engaging in a going 
                        public transaction if the corporation 
                        is not a controlled entity as of the 
                        beginning of its fourth taxable year. 
                        In such a case, the corporation's 
                        directors may still be liable for the 
                        penalties described in subparagraph (D) 
                        during the eligibility period.
                    ``(D) Special penalties.--If the Secretary 
                determines that an incubator REIT election was 
                filed for a principal purpose other than as 
                part of a reasonable plan to undertake a going 
                public transaction, an excise tax of $20,000 
                shall be imposed on each of the corporation's 
                directors for each taxable year for which an 
                election was in effect.
                    ``(E) Going public transaction.--For 
                purposes of this paragraph, a going public 
                transaction means--
                            ``(i) a public offering of shares 
                        of the stock of the incubator REIT;
                            ``(ii) a transaction, or series of 
                        transactions, that results in the stock 
                        of the incubator REIT being regularly 
                        traded on an established securities 
                        market and that results in at least 50 
                        percent of such stock being held by 
                        shareholders who are unrelated to 
                        persons who held such stock before it 
                        began to be so regularly traded; or
                            ``(iii) any transaction resulting 
                        in ownership of the REIT by 200 or more 
                        persons (excluding the largest single 
                        shareholder) who in the aggregate own 
                        at least 50 percent of the stock of the 
                        REIT.
                For the purposes of this subparagraph, the 
                rules of paragraph (3) shall apply in 
                determining the ownership of stock.
                    ``(F) Definitions.--The term `established 
                securities market' shall have the meaning set 
                forth in the regulations under section 897.''.
    (c) Conforming Amendment.--Paragraph (2) of section 856(h) 
is amended by striking ``and (6)'' each place it appears and 
inserting ``, (6), and (7)''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years ending after July 
        14, 1999.
            (2) Exception for existing controlled entities.--
        The amendments made by this section shall not apply to 
        any entity which is a controlled entity (as defined in 
        section 856(l) of the Internal Revenue Code of 1986, as 
        added by this section) as of July 14, 1999, which is a 
        real estate investment trust for the taxable year which 
        includes such date, and which has significant business 
        assets or activities as of such date. For purposes of 
        the preceding sentence, an entity shall be treated as 
        such a controlled entity on July 14, 1999, if it 
        becomes such an entity after such date in a 
        transaction--
                    (A) made pursuant to a written agreement 
                which was binding on such date and at all times 
                thereafter, or
                    (B) described on or before such date in a 
                filing with the Securities and Exchange 
                Commission required solely by reason of the 
                transaction.

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

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

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

    ``(a) In General.--If the taxpayer has gain from a 
constructive ownership transaction with respect to any 
financial asset and such gain would (without regard to this 
section) be treated as a long-term capital gain--
            ``(1) such gain shall be treated as ordinary income 
        to the extent that such gain exceeds the net underlying 
        long-term capital gain, and
            ``(2) to the extent such gain is treated as a long-
        term capital gain after the application of paragraph 
        (1), the determination of the capital gain rate (or 
        rates) applicable to such gain under section 1(h) shall 
        be determined on the basis of the respective rate (or 
        rates) that would have been applicable to the net 
        underlying long-term capital gain.
    ``(b) Interest Charge on Deferral of Gain Recognition.--
            ``(1) In general.--If any gain is treated as 
        ordinary income for any taxable year by reason of 
        subsection (a)(1), the tax imposed by this chapter for 
        such taxable year shall be increased by the amount of 
        interest determined under paragraph (2) with respect to 
        each prior taxable year during any portion of which the 
        constructive ownership transaction was open. Any amount 
        payable under this paragraph shall be taken into 
        account in computing the amount of any deduction 
        allowable to the taxpayer for interest paid or accrued 
        during such taxable year.
            ``(2) Amount of interest.--The amount of interest 
        determined under this paragraph with respect to a prior 
        taxable year is the amount of interest which would have 
        been imposed under section 6601 on the underpayment of 
        tax for such year which would have resulted if the gain 
        (which is treated as ordinary income by reason of 
        subsection (a)(1)) had been included in gross income in 
        the taxable years in which it accrued (determined by 
        treating the income as accruing at a constant rate 
        equal to the applicable Federal rate as in effect on 
        the day the transaction closed). The period during 
        which such interest shall accrue shall end on the due 
        date (without extensions) for the return of tax imposed 
        by this chapter for the taxable year in which such 
        transaction closed.
            ``(3) Applicable federal rate.--For purposes of 
        paragraph (2), the applicable Federal rate is the 
        applicable Federal rate determined under 1274(d) 
        (compounded semiannually) which would apply to a debt 
        instrument with a term equal to the period the 
        transaction was open.
            ``(4) No credits against increase in tax.--Any 
        increase in tax under paragraph (1) shall not be 
        treated as tax imposed by this chapter for purposes of 
        determining--
                    ``(A) the amount of any credit allowable 
                under this chapter, or
                    ``(B) the amount of the tax imposed by 
                section 55.
    ``(c) Financial Asset.--For purposes of this section--
            ``(1) In general.--The term `financial asset' 
        means--
                    ``(A) any equity interest in any pass-thru 
                entity, and
                    ``(B) to the extent provided in 
                regulations--
                            ``(i) any debt instrument, and
                            ``(ii) any stock in a corporation 
                        which is not a pass-thru entity.
            ``(2) Pass-thru entity.--For purposes of paragraph 
        (1), the term `pass-thru entity' means--
                    ``(A) a regulated investment company,
                    ``(B) a real estate investment trust,
                    ``(C) an S corporation,
                    ``(D) a partnership,
                    ``(E) a trust,
                    ``(F) a common trust fund,
                    ``(G) a passive foreign investment company 
                (as defined in section 1297 without regard to 
                subsection (e) thereof),
                    ``(H) a foreign personal holding company,
                    ``(I) a foreign investment company (as 
                defined in section 1246(b)), and
                    ``(J) a REMIC.
    ``(d) Constructive Ownership Transaction.--For purposes of 
this section--
            ``(1) In general.--The taxpayer shall be treated as 
        having entered into a constructive ownership 
        transaction with respect to any financial asset if the 
        taxpayer--
                    ``(A) holds a long position under a 
                notional principal contract with respect to the 
                financial asset,
                    ``(B) enters into a forward or futures 
                contract to acquire the financial asset,
                    ``(C) is the holder of a call option, and 
                is the grantor of a put option, with respect to 
                the financial asset and such options have 
                substantially equal strike prices and 
                substantially contemporaneous maturity dates, 
                or
                    ``(D) to the extent provided in regulations 
                prescribed by the Secretary, enters into 1 or 
                more other transactions (or acquires 1 or more 
                positions) that have substantially the same 
                effect as a transaction described in any of the 
                preceding subparagraphs.
            ``(2) Exception for positions which are marked to 
        market.--This section shall not apply to any 
        constructive ownership transaction if all of the 
        positions which are part of such transaction are marked 
        to market under any provision of this title or the 
        regulations thereunder.
            ``(3) Long position under notional principal 
        contract.--A person shall be treated as holding a long 
        position under a notional principal contract with 
        respect to any financial asset if such person--
                    ``(A) has the right to be paid (or receive 
                credit for) all or substantially all of the 
                investment yield (including appreciation) on 
                such financial asset for a specified period, 
                and
                    ``(B) is obligated to reimburse (or provide 
                credit for) all or substantially all of any 
                decline in the value of such financial asset.
            ``(4) Forward contract.--The term `forward 
        contract' means any contract to acquire in the future 
        (or provide or receive credit for the future value of) 
        any financial asset.
    ``(e) Net Underlying Long-Term Capital Gain.--For purposes 
of this section, in the case of any constructive ownership 
transaction with respect to any financial asset, the term `net 
underlying long-term capital gain' means the aggregate net 
capital gain that the taxpayer would have had if--
            ``(1) the financial asset had been acquired for 
        fair market value on the date such transaction was 
        opened and sold for fair market value on the date such 
        transaction was closed, and
            ``(2) only gains and losses that would have 
        resulted from the deemed ownership under paragraph (1) 
        were taken into account.
The amount of the net underlying long-term capital gain with 
respect to any financial asset shall be treated as zero unless 
the amount thereof is established by clear and convincing 
evidence.
    ``(f) Special Rule Where Taxpayer Takes Delivery.--Except 
as provided in regulations prescribed by the Secretary, if a 
constructive ownership transaction is closed by reason of 
taking delivery, this section shall be applied as if the 
taxpayer had sold all the contracts, options, or other 
positions which are part of such transaction for fair market 
value on the closing date. The amount of gain recognized under 
the preceding sentence shall not exceed the amount of gain 
treated as ordinary income under subsection (a). Proper 
adjustments shall be made in the amount of any gain or loss 
subsequently realized for gain recognized and treated as 
ordinary income under this subsection.
    ``(g) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section, including regulations--
            ``(1) to permit taxpayers to mark to market 
        constructive ownership transactions in lieu of applying 
        this section, and
            ``(2) to exclude certain forward contracts which do 
        not convey substantially all of the economic return 
        with respect to a financial asset.''.
    (b) Clerical Amendment.--The table of sections for part IV 
of subchapter P of chapter 1 is amended by adding at the end 
the following new item:

        ``Sec. 1260. Gains from constructive ownership transactions.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to transactions entered into after July 11, 1999.

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

    (a) Extension.--
            (1) In General.--Paragraph (5) of section 420(b) 
        (relating to expiration) is amended by striking ``in 
        any taxable year beginning after December 31, 2000'' 
        and inserting ``made after September 30, 2009''.
            (2) Conforming amendments.--
                    (A) Section 101(e)(3) of the Employee 
                Retirement Income Security Act of 1974 (29 
                U.S.C. 1021(e)(3)) is amended by striking 
                ``1995'' and inserting ``2001''.
                    (B) Section 403(c)(1) of such Act (29 
                U.S.C. 1103(c)(1)) is amended by striking 
                ``1995'' and inserting ``2001''.
                    (C) Paragraph (13) of section 408(b) of 
                such Act (29 U.S.C. 1108(b)(13)) is amended--
                            (i) by striking ``in a taxable year 
                        beginning before January 1, 2001'' and 
                        inserting ``made before October 1, 
                        2009'', and
                            (ii) by striking ``1995'' and 
                        inserting ``2001''.
    (b) Application of Minimum Cost Requirements.--
            (1) In general.--Paragraph (3) of section 420(c) is 
        amended to read as follows:
            ``(3) Minimum cost requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if each group health plan or 
                arrangement under which applicable health 
                benefits are provided provides that the 
                applicable employer cost for each taxable year 
                during the cost maintenance period shall not be 
                less than the higher of the applicable employer 
                costs for each of the 2 taxable years 
                immediately preceding the taxable year of the 
                qualified transfer.
                    ``(B) Applicable employer cost.--For 
                purposes of this paragraph, the term 
                `applicable employer cost' means, with respect 
                to any taxable year, the amount determined by 
                dividing--
                            ``(i) the qualified current retiree 
                        health liabilities of the employer for 
                        such taxable year determined--
                                    ``(I) without regard to any 
                                reduction under subsection 
                                (e)(1)(B), and
                                    ``(II) in the case of a 
                                taxable year in which there was 
                                no qualified transfer, in the 
                                same manner as if there had 
                                been such a transfer at the end 
                                of the taxable year, by
                            ``(ii) the number of individuals to 
                        whom coverage for applicable health 
                        benefits was provided during such 
                        taxable year.
                    ``(C) Election to compute cost 
                separately.--An employer may elect to have this 
                paragraph applied separately with respect to 
                individuals eligible for benefits under title 
                XVIII of the Social Security Act at any time 
                during the taxable year and with respect to 
                individuals not so eligible.
                    ``(D) Cost maintenance period.--For 
                purposes of this paragraph, the term `cost 
                maintenance period' means the period of 5 
                taxable years beginning with the taxable year 
                in which the qualified transfer occurs. If a 
                taxable year is in 2 or more overlapping cost 
                maintenance periods, this paragraph shall be 
                applied by taking into account the highest 
                applicable employer cost required to be 
                provided under subparagraph (A) for such 
                taxable year.''.
            (2) Conforming amendments.--
                    (A) Clause (iii) of section 420(b)(1)(C) is 
                amended by striking ``benefits'' and inserting 
                ``cost''.
                    (B) Subparagraph (D) of section 420(e)(1) 
                is amended by striking ``and shall not be 
                subject to the minimum benefit requirements of 
                subsection (c)(3)'' and inserting ``or in 
                calculating applicable employer cost under 
                subsection (c)(3)(B)''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to qualified transfers occurring 
        after the date of the enactment of this Act.
            (2) Transition rule.--If the cost maintenance 
        period for any qualified transfer after the date of the 
        enactment of this Act includes any portion of a benefit 
        maintenance period for any qualified transfer on or 
        before such date, the amendments made by subsection (b) 
        shall not apply to such portion of the cost maintenance 
        period (and such portion shall be treated as a benefit 
        maintenance period).

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

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

SEC. 1509. LIMITATION ON USE OF NONACCRUAL EXPERIENCE METHOD OF 
                    ACCOUNTING.

    (a) In General.--Section 448(d)(5) (relating to special 
rule for services) is amended--
            (1) by inserting ``in fields described in paragraph 
        (2)(A)'' after ``services by such person'', and
            (2) by inserting ``certain personal'' before 
        ``services'' in the heading.
    (b) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years ending after the 
        date of the enactment of this Act.
            (2) Change in method of accounting.--In the case of 
        any taxpayer required by the amendments made by this 
        section to change its method of accounting for its 
        first taxable year ending after the date of the 
        enactment of this Act--
                    (A) such change shall be treated as 
                initiated by the taxpayer,
                    (B) such change shall be treated as made 
                with the consent of the Secretary of the 
                Treasury, and
                    (C) the net amount of the adjustments 
                required to be taken into account by the 
                taxpayer under section 481 of the Internal 
                Revenue Code of 1986 shall be taken into 
                account over a period (not greater than 4 
                taxable years) beginning with such first 
                taxable year.

SEC. 1510. CHARITABLE SPLIT-DOLLAR LIFE INSURANCE, ANNUITY, AND 
                    ENDOWMENT CONTRACTS.

    (a) In General.--Subsection (f) of section 170 (relating to 
disallowance of deduction in certain cases and special rules) 
is amended by adding at the end the following new paragraph:
            ``(10) Split-dollar life insurance, annuity, and 
        endowment contracts.--
                    ``(A) In general.--Nothing in this section 
                or in section 545(b)(2), 556(b)(2), 642(c), 
                2055, 2106(a)(2), or 2522 shall be construed to 
                allow a deduction, and no deduction shall be 
                allowed, for any transfer to or for the use of 
                an organization described in subsection (c) if 
                in connection with such transfer--
                            ``(i) the organization directly or 
                        indirectly pays, or has previously 
                        paid, any premium on any personal 
                        benefit contract with respect to the 
                        transferor, or
                            ``(ii) there is an understanding or 
                        expectation that any person will 
                        directly or indirectly pay any premium 
                        on any personal benefit contract with 
                        respect to the transferor.
                    ``(B) Personal benefit contract.--For 
                purposes of subparagraph (A), the term 
                `personal benefit contract' means, with respect 
                to the transferor, any life insurance, annuity, 
                or endowment contract if any direct or indirect 
                beneficiary under such contract is the 
                transferor, any member of the transferor's 
                family, or any other person (other than an 
                organization described in subsection (c)) 
                designated by the transferor.
                    ``(C) Application to charitable remainder 
                trusts.--In the case of a transfer to a trust 
                referred to in subparagraph (E), references in 
                subparagraphs (A) and (F) to an organization 
                described in subsection (c) shall be treated as 
                a reference to such trust.
                    ``(D) Exception for certain annuity 
                contracts.--If, in connection with a transfer 
                to or for the use of an organization described 
                in subsection (c), such organization incurs an 
                obligation to pay a charitable gift annuity (as 
                defined in section 501(m)) and such 
                organization purchases any annuity contract to 
                fund such obligation, persons receiving 
                payments under the charitable gift annuity 
                shall not be treated for purposes of 
                subparagraph (B) as indirect beneficiaries 
                under such contract if--
                            ``(i) such organization possesses 
                        all of the incidents of ownership under 
                        such contract,
                            ``(ii) such organization is 
                        entitled to all the payments under such 
                        contract, and
                            ``(iii) the timing and amount of 
                        payments under such contract are 
                        substantially the same as the timing 
                        and amount of payments to each such 
                        person under such obligation (as such 
                        obligation is in effect at the time of 
                        such transfer).
                    ``(E) Exception for certain contracts held 
                by charitable remainder trusts.--A person shall 
                not be treated for purposes of subparagraph (B) 
                as an indirect beneficiary under any life 
                insurance, annuity, or endowment contract held 
                by a charitable remainder annuity trust or a 
                charitable remainder unitrust (as defined in 
                section 664(d)) solely by reason of being 
                entitled to any payment referred to in 
                paragraph (1)(A) or (2)(A) of section 664(d) 
                if--
                            ``(i) such trust possesses all of 
                        the incidents of ownership under such 
                        contract, and
                            ``(ii) such trust is entitled to 
                        all the payments under such contract.
                    ``(F) Excise tax on premiums paid.--
                            ``(i) In general.--There is hereby 
                        imposed on any organization described 
                        in subsection (c) an excise tax equal 
                        to the premiums paid by such 
                        organization on any life insurance, 
                        annuity, or endowment contract if the 
                        payment of premiums on such contract is 
                        in connection with a transfer for which 
                        a deduction is not allowable under 
                        subparagraph (A), determined without 
                        regard to when such transfer is made.
                            ``(ii) Payments by other persons.--
                        For purposes of clause (i), payments 
                        made by any other person pursuant to an 
                        understanding or expectation referred 
                        to in subparagraph (A) shall be treated 
                        as made by the organization.
                            ``(iii) Reporting.--Any 
                        organization on which tax is imposed by 
                        clause (i) with respect to any premium 
                        shall file an annual return which 
                        includes--
                                    ``(I) the amount of such 
                                premiums paid during the year 
                                and the name and TIN of each 
                                beneficiary under the contract 
                                to which the premium relates, 
                                and
                                    ``(II) such other 
                                information as the Secretary 
                                may require.
                        The penalties applicable to returns 
                        required under section 6033 shall apply 
                        to returns required under this clause. 
                        Returns required under this clause 
                        shall be furnished at such time and in 
                        such manner as the Secretary shall by 
                        forms or regulations require.
                            ``(iv) Certain rules to apply.--The 
                        tax imposed by this subparagraph shall 
                        be treated as imposed by chapter 42 for 
                        purposes of this title other than 
                        subchapter B of chapter 42.
                    ``(G) Special rule where state requires 
                specification of charitable gift annuitant in 
                contract.--In the case of an obligation to pay 
                a charitable gift annuity referred to in 
                subparagraph (D) which is entered into under 
                the laws of a State which requires, in order 
                for the charitable gift annuity to be exempt 
                from insurance regulation by such State, that 
                each beneficiary under the charitable gift 
                annuity be named as a beneficiary under an 
                annuity contract issued by an insurance company 
                authorized to transact business in such State, 
                the requirements of clauses (i) and (ii) of 
                subparagraph (D) shall be treated as met if--
                            ``(i) such State law requirement 
                        was in effect on February 8, 1999,
                            ``(ii) each such beneficiary under 
                        the charitable gift annuity is a bona 
                        fide resident of such State at the time 
                        the obligation to pay a charitable gift 
                        annuity is entered into, and
                            ``(iii) the only persons entitled 
                        to payments under such contract are 
                        persons entitled to payments as 
                        beneficiaries under such obligation on 
                        the date such obligation is entered 
                        into.
                    ``(H) Member of family.--For purposes of 
                this paragraph, an individual's family consists 
                of the individual's grandparents, the 
                grandparents of such individual's spouse, the 
                lineal descendants of such grandparents, and 
                any spouse of such a lineal descendant.
                    ``(I) Regulations.--The Secretary shall 
                prescribe such regulations as may be necessary 
                or appropriate to carry out the purposes of 
                this paragraph, including regulations to 
                prevent the avoidance of such purposes.''.
    (b) Effective Date.--
            (1) In general.--Except as otherwise provided in 
        this section, the amendment made by this section shall 
        apply to transfers made after February 8, 1999.
            (2) Excise tax.--Except as provided in paragraph 
        (3) of this subsection, section 170(f)(10)(F) of the 
        Internal Revenue Code of 1986 (as added by this 
        section) shall apply to premiums paid after the date of 
        the enactment of this Act.
            (3) Reporting.--Clause (iii) of such section 
        170(f)(10)(F) shall apply to premiums paid after 
        February 8, 1999 (determined as if the tax imposed by 
        such section applies to premiums paid after such date).

SEC. 1511. RESTRICTION ON USE OF REAL ESTATE INVESTMENT TRUSTS TO AVOID 
                    ESTIMATED TAX PAYMENT REQUIREMENTS.

    (a) In General.--Subsection (e) of section 6655 (relating 
to estimated tax by corporations) is amended by adding at the 
end the following new paragraph:
            ``(5) Treatment of certain reit dividends.--
                    ``(A) In general.--Any dividend received 
                from a closely held real estate investment 
                trust by any person which owns (after 
                application of subsections (d)(5) and (l)(3)(B) 
                of section 856) 10 percent or more (by vote or 
                value) of the stock or beneficial interests in 
                the trust shall be taken into account in 
                computing annualized income installments under 
                paragraph (2) in a manner similar to the manner 
                under which partnership income inclusions are 
                taken into account.
                    ``(B) Closely held reit.--For purposes of 
                subparagraph (A), the term `closely held real 
                estate investment trust' means a real estate 
                investment trust with respect to which 5 or 
                fewer persons own (after application of 
                subsections (d)(5) and (l)(3)(B) of section 
                856) 50 percent or more (by vote or value) of 
                the stock or beneficial interests in the 
                trust.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to estimated tax payments due on or after September 
15, 1999.

SEC. 1512. MODIFICATION OF ANTI-ABUSE RULES RELATED TO ASSUMPTION OF 
                    LIABILITY.

    (a) In General.--Section 357(b)(1) (relating to tax 
avoidance purpose) is amended--
            (1) by striking ``the principal purpose'' and 
        inserting ``a principal purpose'', and
            (2) by striking ``on the exchange'' in subparagraph 
        (A).
    (b) Effective Date.--The amendments made by this section 
shall apply to assumptions of liability after July 14, 1999.

SEC. 1513. ALLOCATION OF BASIS ON TRANSFERS OF INTANGIBLES IN CERTAIN 
                    NONRECOGNITION TRANSACTIONS.

    (a) Transfers to Corporations.--Section 351 (relating to 
transfer to corporation controlled by transferor) is amended by 
redesignating subsection (h) as subsection (i) and by inserting 
after subsection (g) the following new subsection:
    ``(h) Treatment of Transfers of Intangible Property.--
            ``(1) Transfers of less than all substantial 
        rights.
                    ``(A) In general.--A transfer of an 
                interest in intangible property (as defined in 
                section 936(h)(3)(B)) shall be treated under 
                this section as a transfer of property even if 
                the transfer is of less than all of the 
                substantial rights of the transferor in the 
                property.
                    ``(B) Allocation of basis.--In the case of 
                a transfer of less than all of the substantial 
                rights of the transferor in the intangible 
                property, the transferor's basis immediately 
                before the transfer shall be allocated among 
                the rights retained by the transferor and the 
                rights transferred on the basis of their 
                respective fair market values.
            ``(2) Nonrecognition not to apply to intangible 
        property developed for transferee.--This section shall 
        not apply to a transfer of intangible property 
        developed by the transferor or any related person if 
        such development was pursuant to an arrangement with 
        the transferee.''.
    (b) Transfers to Partnerships.--Subsection (d) of section 
721 is amended to read as follows:
    ``(d) Transfers of Intangible Property.--
            ``(1) In general.--Rules similar to the rules of 
        section 351(h) shall apply for purposes of this 
        section.
            ``(2) Transfers to foreign partnerships.--For 
        regulatory authority to treat intangibles transferred 
        to a partnership as sold, see section 367(d)(3).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to transfers on or after the date of the enactment 
of this Act.

SEC. 1514. DISTRIBUTIONS TO A CORPORATE PARTNER OF STOCK IN ANOTHER 
                    CORPORATION.

    (a) In General.--Section 732 (relating to basis of 
distributed property other than money) is amended by adding at 
the end the following new subsection:
    ``(f) Corresponding Adjustment to Basis of Assets of a 
Distributed Corporation Controlled by a Corporate Partner.--
            ``(1) In general.--If--
                    ``(A) a corporation (hereafter in this 
                subsection referred to as the `corporate 
                partner') receives a distribution from a 
                partnership of stock in another corporation 
                (hereafter in this subsection referred to as 
                the `distributed corporation'),
                    ``(B) the corporate partner has control of 
                the distributed corporation immediately after 
                the distribution or at any time thereafter, and
                    ``(C) the partnership's adjusted basis in 
                such stock immediately before the distribution 
                exceeded the corporate partner's adjusted basis 
                in such stock immediately after the 
                distribution,
        then an amount equal to such excess shall be applied to 
        reduce (in accordance with subsection (c)) the basis of 
        property held by the distributed corporation at such 
        time (or, if the corporate partner does not control the 
        distributed corporation at such time, at the time the 
        corporate partner first has such control).
            ``(2) Exception for certain distributions before 
        control acquired.--Paragraph (1) shall not apply to any 
        distribution of stock in the distributed corporation 
        if--
                    ``(A) the corporate partner does not have 
                control of such corporation immediately after 
                such distribution, and
                    ``(B) the corporate partner establishes to 
                the satisfaction of the Secretary that such 
                distribution was not part of a plan or 
                arrangement to acquire control of the 
                distributed corporation.
            ``(3) Limitations on basis reduction.--
                    ``(A) In general.--The amount of the 
                reduction under paragraph (1) shall not exceed 
                the amount by which the sum of the aggregate 
                adjusted bases of the property and the amount 
                of money of the distributed corporation exceeds 
                the corporate partner's adjusted basis in the 
                stock of the distributed corporation.
                    ``(B) Reduction not to exceed adjusted 
                basis of property.--No reduction under 
                paragraph (1) in the basis of any property 
                shall exceed the adjusted basis of such 
                property (determined without regard to such 
                reduction).
            ``(4) Gain recognition where reduction limited.--If 
        the amount of any reduction under paragraph (1) 
        (determined after the application of paragraph (3)(A)) 
        exceeds the aggregate adjusted bases of the property of 
        the distributed corporation--
                    ``(A) such excess shall be recognized by 
                the corporate partner as long-term capital 
                gain, and
                    ``(B) the corporate partner's adjusted 
                basis in the stock of the distributed 
                corporation shall be increased by such excess.
            ``(5) Control.--For purposes of this subsection, 
        the term `control' means ownership of stock meeting the 
        requirements of section 1504(a)(2).
            ``(6) Indirect distributions.--For purposes of 
        paragraph (1), if a corporation acquires (other than in 
        a distribution from a partnership) stock the basis of 
        which is determined (by reason of being distributed 
        from a partnership) in whole or in part by reference to 
        subsection (a)(2) or (b), the corporation shall be 
        treated as receiving a distribution of such stock from 
        a partnership.
            ``(7) Special rule for stock in controlled 
        corporation.--If the property held by a distributed 
        corporation is stock in a corporation which the 
        distributed corporation controls, this subsection shall 
        be applied to reduce the basis of the property of such 
        controlled corporation. This subsection shall be 
        reapplied to any property of any controlled corporation 
        which is stock in a corporation which it controls.
            ``(8) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary to carry out the 
        purposes of this subsection, including regulations to 
        avoid double counting and to prevent the abuse of such 
        purposes.''.
    (b) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendment made by this section shall apply to 
        distributions made after July 14, 1999.
            (2) Partnerships in existence on July 14, 1999.--In 
        the case of a corporation which is a partner in a 
        partnership as of July 14, 1999, the amendment made by 
        this section shall apply to distributions made to such 
        partner from such partnership after the date of the 
        enactment of this Act.

SEC. 1515. PROHIBITED ALLOCATIONS OF S CORPORATION STOCK HELD BY AN 
                    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 Allocation 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 
        individual.
            ``(2) Failure to meet requirements.--If a plan 
        fails to meet the requirements of paragraph (1)--
                    ``(A) the plan shall be treated as having 
                distributed to any disqualified individual the 
                amount allocated to the account of such 
                individual in violation of paragraph (1) at the 
                time of such allocation,
                    ``(B) the provisions of section 4979A shall 
                apply, and
                    ``(C) the statutory period for the 
                assessment of any tax imposed by section 4979A 
                shall not expire before the date which is 3 
                years from the later of--
                            ``(i) the allocation of employer 
                        securities resulting in the failure 
                        under paragraph (1) giving rise to such 
                        tax, or
                            ``(ii) the date on which the 
                        Secretary is notified of such failure.
            ``(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 individuals own 
                        at least 50 percent of the number of 
                        outstanding shares of stock in such 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), 
                        disqualified individuals shall be 
                        treated as owning deemed-owned shares.
            ``(4) Disqualified individual.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `disqualified 
                individual' means any individual who is a 
                participant or beneficiary under the employee 
                stock ownership plan if--
                            ``(i) the aggregate number of 
                        deemed-owned shares of such individual 
                        and the members of the individual's 
                        family is at least 20 percent of the 
                        number of outstanding shares of stock 
                        in the S corporation constituting 
                        employer securities of such plan, or
                            ``(ii) if such individual is not 
                        described in clause (i), the number of 
                        deemed-owned shares of such individual 
                        is at least 10 percent of the number of 
                        outstanding shares of stock in such 
                        corporation.
                    ``(B) Treatment of family members.--In the 
                case of a disqualified individual described in 
                subparagraph (A)(i), any member of the 
                individual's family with deemed-owned shares 
                shall be treated as a disqualified individual 
                if not otherwise a disqualified individual 
                under subparagraph (A).
                    ``(C) Deemed-owned shares.--For purposes of 
                this paragraph--
                            ``(i) In general.--The term 
                        `deemed-owned shares' means, with 
                        respect to any participant or 
                        beneficiary under the employee stock 
                        ownership plan--
                                    ``(I) the stock in the S 
                                corporation constituting 
                                employer securities of such 
                                plan which is allocated to such 
                                participant or beneficiary 
                                under the plan, and
                                    ``(II) such participant's 
                                or beneficiary's share of the 
                                stock in such corporation which 
                                is held by such trust but which 
                                is not allocated under the plan 
                                to employees.
                            ``(ii) Individual's share of 
                        unallocated stock.--For purposes of 
                        clause (i)(II), an individual's share 
                        of unallocated S corporation stock held 
                        by the trust is the amount of the 
                        unallocated stock which would be 
                        allocated to such individual if the 
                        unallocated stock were allocated to 
                        individuals 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 person 
                        described in clause (ii) or (iii).
            ``(5) 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).
            ``(6) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary to carry out the 
        purposes of this subsection, including regulations 
        providing for the treatment of any stock option, 
        restricted stock, stock appreciation right, phantom 
        stock unit, performance unit, or similar instrument 
        granted by an S corporation as stock or not stock.''.
    (b) Excise Tax.--
            (1) In general.--Section 4979A(b) (defining 
        prohibited allocation) 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) any allocation of employer securities which 
        violates the provisions of section 409(p).''.
            (2) Liability.--Section 4979A(c) (defining 
        liability for tax) is amended by adding at the end the 
        following new sentence: ``In the case of a prohibited 
        allocation described in subsection (b)(3), such tax 
        shall be paid by the S corporation the stock in which 
        was allocated in violation of section 409(p).''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to plan years beginning after 
        December 31, 2000.
            (2) Exception for certain plans.--In the case of 
        any--
                    (A) employee stock ownership plan 
                established after July 14, 1999, 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 14, 1999.

                 TITLE XVI--COMPLIANCE WITH BUDGET ACT

SEC. 1601. COMPLIANCE WITH BUDGET ACT.

    (a) In General.--Except as provided in subsection (b), all 
provisions of, and amendments made by, this Act which are in 
effect on September 30, 2009, shall cease to apply as of the 
close of September 30, 2009.
    (b) Sunset for Certain Provisions.--The amendments made by 
sections 101, 111, 121, 201, 202, 211, 214, and 1221 of this 
Act shall not apply to any taxable year beginning after 
December 31, 2008.
    And the Senate agrees to the same.
                For consideration of the House bill, and the 
                Senate amendment, and modifications committed 
                to conference:
                                   Bill Archer.
                                   Dick Armey.
                                   Philip M. Crane.
                                   Wm. Thomas.
                As additional conferees for consideration of 
                sections 313, 315-16, 318, 325, 335, 338, 341-
                42, 344-45, 351, 362-63, 365, 369, 371, 381, 
                1261, 1305, and 1406 of the Senate amendment, 
                and modifications committed to conference:
                                   Bill Goodling.
                                   John Boehner.
                                 Managers on the Part of the House.

                                   Wm. V. Roth, Jr.
                                   Trent Lott.
                                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. 2488) to provide 
for reconciliation pursuant to sections 105 and 211 of the 
concurrent resolution on the budget for fiscal year 2000, 
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 differences between 
the House bill, the Senate amendment, and the substitute agreed 
to in conference are noted below, except for clerical 
corrections, conforming changes made necessary by agreements 
reached by the conferees, and minor drafting and clerical 
changes.

                  I. BROAD-BASED AND FAMILY TAX RELIEF


  A. Reduction in Individual Income Tax Rates and Expansion of Lowest 
Individual Regular Income Tax Rate Bracket (sec. 101 of the House bill, 
  secs. 101 and 102 of the Senate amendment and secs. 1 and 55 of the 
                                 Code)


                              Present Law


Income tax rate structure

      To determine regular income tax liability, a taxpayer 
generally must apply the tax rate schedules (or the tax tables) 
to his or her taxable income. The rate schedules are divided 
into several ranges of income, known as income brackets, and 
the marginal tax rate increases as a taxpayer's income 
increases. The income bracket amounts are indexed for 
inflation. Separate rate schedules apply based on an 
individual's filing status. In order to limit multiple uses of 
a graduated rate schedule within a family, the net unearned 
income of a child under age 14 is taxed as if it were the 
parent's income.

Individual alternative minimum tax (``AMT'') rate structure

      Present law imposes the individual AMT on an individual 
to the extent the taxpayer's minimum tax liability exceeds his 
or her regular tax liability. The AMT is imposed on individuals 
at rates of (1) 26 percent on the first $175,000 of alternative 
minimum taxable income (``AMTI'') in excess of a phased-out 
exemption amount and (2) 28 percent on the amount in excess of 
$175,000. The lower capital gains rates applicable to the 
regular tax also apply for purposes of the AMT.

                               House Bill


Individual regular tax rates

      The House bill reduces the regular income tax rates by 10 
percent over a 10-year period (2000-2009). Specifically, each 
rate is reduced by 1.0 percent for taxable years beginning in 
2001-2003, 2.5 percent for taxable years beginning in 2004, 5 
percent for taxable years beginning in 2005-2007, 7.5 percent 
for taxable years beginning in 2008, and 10 percent for taxable 
years beginning in 2009 and thereafter. The tax rates will be 
rounded up in 2001, rounded down in 2002 and 2003 and rounded 
up in 2004 and thereafter, annually to the nearest one-tenth of 
a percent. This rate reduction does not apply to the capital 
gains tax rates. However, a separate provision of the House 
bill would reduce individual capital gains rates.

Individual AMT

      The House bill reduces the individual AMT tax rates by a 
total of 10 percent over a 10-year period (2000-2009). 
Specifically, the individual AMT tax rates are reduced by 1.0 
percent for taxable years beginning in 2001-2003, 2.5 percent 
for taxable years beginning in 2004, 5 percent for taxable 
years beginning in 2005-2007, 7.5 percent for taxable years 
beginning in 2008, and 10 percent for taxable years beginning 
in 2009 and thereafter. The rates will be rounded annually to 
the nearest one-tenth of a percent, like the regular income tax 
rates.

Effective date

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

                            Senate Amendment


Individual regular income tax rates

      The Senate amendment reduces the lowest individual 
regular income tax rate from 15 percent to 14 percent. This 
rate reduction does not apply to the capital gains tax rates.
      The Senate amendment also phases in an increase in the 
size of the 14-percent rate bracket. Specifically, the 
amendment increases the size of the otherwise applicable 14-
percent rate bracket by $2,000 ($4,000 for a married couple 
filing a joint return) in 2006, and by $2,500 ($5,000 for a 
married couple filing a joint return) in 2007 and thereafter. 
The $2,500/$5,000 amounts in 2007 and thereafter are the total 
increase and are not in addition to the $2,000/$4,000 amounts 
in 2006. These amounts are indexed for inflation beginning in 
2008.

Individual AMT

      The Senate amendment does not contain a provision 
relating to AMT tax rates. A separate provision would make 
permanent the present-law provision to allow the nonrefundable 
personal credits fully against the AMT and to allow personal 
exemptions against the AMT.

Effective date

      The Senate amendment provision reducing the tax rate from 
15 percent to 14 percent is effective for taxable years 
beginning after December 31, 2000. The provision increasing the 
size of the 14-percent rate bracket is effective for taxable 
years beginning after December 31, 2005.

                          Conference Agreement


Individual regular income tax rates

      The conference agreement reduces the individual regular 
income tax rates as follows: (1) from 15 percent to 14 percent; 
(2) from 28 percent to 27 percent; (3) from 31 percent to 30 
percent; (4) from 36 percent to 35 percent; and (5) from 39.6 
percent to 38.6 percent. These rate reductions do not apply to 
the capital gains tax rates. The reduction of the 15-percent 
rate to a 14-percent rate is phased-in over three years; (1) 
14.5 percent in 2001 and 2002; and (2) 14 percent in 2003 and 
thereafter. Therefore, the 14-percent rate applies to taxable 
years beginning after December 31, 2002. The reductions in the 
other rates (both regular and AMT) are effective for taxable 
years beginning after December 31, 2004.
      The conference agreement also widens the lowest 
(currently 15 percent) regular income tax rate brackets for 
both singles and head of households by $3,000 for taxable years 
beginning after December 31, 2005. For taxable years beginning 
after December 31, 2006, the $3,000 amounts are indexed for 
inflation.

Individual AMT

      The conference agreement reduces the AMT rates as 
follows; (1) from 26 percent to 25 percent, and (2) from 28-
percent rate to 27 percent. The lower capital gains rates 
applicable to the regular tax also apply for purposes of the 
AMT.

Effective date

      The reduction of the 15-percent rate to a 14-percent rate 
is effective for taxable years beginning after December 31, 
2000. The reductions in the other rates (both regular and AMT) 
are effective for taxable years beginning after December 31, 
2004. The widening of the lowest applicable rate bracket for 
single and head of household returns is effective for taxable 
years beginning after December 31, 2005.

 B. Marriage Penalty Relief Provisions Relating to the Rate Structure 
 and Standard Deduction Amounts (sec. 111 of the House bill, secs. 201 
  and 209 of the Senate amendment and secs. 63 and 6013A of the Code)


                              Present Law


Marriage penalty

      A married couple generally is treated as one tax unit 
that must pay tax on the unit's total taxable income. Although 
married couples may elect to file separate returns, the rate 
schedules and provisions are structured so that filing separate 
returns usually results in a higher tax than filing a joint 
return. Other rate schedules apply to single persons and to 
single heads of households.
      A ``marriage penalty'' exists when the sum of the tax 
liabilities of two unmarried individuals filing their own tax 
returns (either single or head of household returns) is less 
than their tax liability under a joint return (if the two 
individuals were to marry). A ``marriage bonus'' exists when 
the sum of the tax liabilities of the individuals is greater 
than their combined tax liability under a joint return.
      While the size of any marriage penalty or bonus under 
present law depends upon the individuals' incomes, number of 
dependents, and itemized deductions, as a general rule married 
couples whose incomes are split more evenly than 70-30 suffer a 
marriage penalty. Married couples whose incomes are largely 
attributable to one spouse generally receive a marriage bonus.
      Under present law, the size of the standard deduction and 
the tax bracket breakpoints follow certain customary ratios 
across filing statuses. The standard deduction and tax bracket 
breakpoints for single filers are roughly 60 percent of those 
for joint filers.\1\ With these ratios, unmarried individuals 
have standard deductions whose sum exceeds the standard 
deduction they would receive as a married couple filing a joint 
return. Thus, their taxable income as joint filers may exceed 
the sum of their taxable incomes as unmarried individuals.
---------------------------------------------------------------------------
        \1\ This is not true for the 39.6-percent rate. The beginning 
point of this rate bracket is the same for all taxpayers regardless of 
filing status.
---------------------------------------------------------------------------

Basic standard deduction

      Taxpayers who do not itemize deductions may choose the 
basic standard deduction (and additional standard deductions, 
if applicable), which is subtracted (along with the deduction 
for personal exemptions) from adjusted gross income (``AGI'') 
in arriving at taxable income. The size of the basic standard 
deduction varies according to filing status and is indexed for 
inflation. For 1999, the size of the basic standard deduction 
is: (1) $7,200 for married couples filing a joint return; (2) 
$6,250 for head of household returns; (3) $4,300 for single 
returns; and (4) $3,600 for married couples filing separate 
returns. Therefore in 1999, the basic standard deduction for 
joint returns is 1.674 times the basic standard deduction for 
single returns.

                               House Bill


Basic standard deduction

      The House bill increases the basic standard deduction for 
a married couple filing a joint return to twice the basic 
standard deduction for an unmarried individual in each taxable 
year. This increase is phased-in over three years beginning in 
2001 by increasing the standard deduction for a married couple 
filing a joint return to 1.778 times the standard deduction for 
an unmarried individual in 2001 and to 1.889 times such amount 
in 2002. Therefore, the House bill provision is fully 
effective, (i.e., the basic standard deduction for a married 
couple will be twice the basic standard deduction for a 
unmarried individual) for taxable years beginning after 
December 31, 2002. Also, the basic standard deduction for a 
married taxpayer filing separately will be increased so that it 
will continue to equal one-half of the basic standard deduction 
for a married couple filing jointly. The basic standard 
deduction for a head of household will be unchanged.
      Effective date.--The House bill provision is effective 
for taxable years beginning after December 31, 2000.

Separate calculations

      No provision.

                            Senate Amendment


Basic standard deduction

      The Senate amendment increases the basic standard 
deduction for a married couple filing a joint return to twice 
the basic standard deduction for an unmarried individual in 
each taxable year. This increase is phased-in over eight years 
beginning in 2001 by increasing the standard deduction for a 
married couple filing a joint return to: (1) 1.671 times the 
standard deduction for an unmarried individual in 2001; (2) 
1.700 times the standard deduction for an unmarried individual 
in 2002; (3) 1.727 times the standard deduction for an 
unmarried individual in 2003; (4) 1.837 times the standard 
deduction for an unmarried individual in 2004; (5) 1.951 times 
the standard deduction for an unmarried individual in 2005; (6) 
1.953 times the standard deduction for an unmarried individual 
in 2006; and (7) 1.973 times the standard deduction for an 
unmarried taxpayer in 2007. Therefore, the Senate amendment 
provision is fully effective, (i.e., the basic standard 
deduction for a married couple will be twice the basic standard 
deduction for aunmarried individual) for taxable years 
beginning after December 31, 2007. Also, the basic standard deduction 
for a married taxpayer filing separately will be increased so that it 
will continue to equal one-half of the basic standard deduction for a 
married couple filing jointly. The basic standard deduction for a head 
of household will be unchanged.
      Effective date.--The Senate amendment provision is 
effective for taxable years beginning after December 31, 2000.

Separate calculations

      Under the Senate amendment, married taxpayers have the 
option to calculate separate taxable income for each spouse and 
to be taxed as two single individuals on the same return. The 
tax due is calculated by applying the tax rates for single 
individuals to the separate taxable incomes. Under the Senate 
amendment, both spouses must elect to either use a standard 
deduction or to itemize their deductions. Thus, one spouse is 
not permitted to itemize deductions while the other spouse 
claims a standard deduction. If a married couple elects to 
compute taxable income separately and claim the standard 
deduction, the applicable standard deduction for each spouse is 
the standard deduction for single individuals. Under the Senate 
amendment, once tax liability is calculated on a separate 
basis, all tax credits and payments of tax are applied as if 
the couple is filing a joint return.
      Income from the performance of services (e.g., wages, 
salaries, and pensions) are treated as the income of the spouse 
who performed the services. Income from property is divided 
between the spouses in accordance with their respective 
ownership rights in such property. Jointly owned assets are 
divided evenly.
      Deductions generally are allocated to the spouse treated 
as having the income to which the deduction relates. Special 
rules apply for certain deductions. The deduction for 
contributions to an individual retirement arrangement are 
allocated to the spouse for whom the contribution is made. The 
deduction for alimony is allocated to the spouse who has the 
liability to pay the alimony. The deduction for contributions 
to medical savings accounts is allocated to the spouse with 
respect to whose employment or self employment the account 
relates.
      Each spouse is entitled to claim one personal exemption. 
Exemptions for dependents are allocated based on each spouse's 
relative income.
      All credits are determined as if the spouses had filed a 
joint return. The credit amounts are then applied against the 
combined tax liability of the couple as calculated under this 
provision.
      For purposes of determining the alternative minimum tax 
imposed by section 55, the tentative minimum tax shall be the 
tax which would be computed as if the spouses had filed a joint 
return, and the regular tax shall be the tax liability computed 
under section 6013A.
      The Secretary of the Treasury is directed to prescribe 
such regulations as may be necessary or appropriate to carry 
out the provision.
      Effective date.--The Senate amendment provision is 
effective for taxable years beginning after December 31, 2004.

                          Conference Agreement


Basic standard deduction

      The conference agreement increases the basic standard 
deduction for a married couple filing a joint return to twice 
the basic standard deduction for an unmarried individual. This 
increase is phased-in over five years beginning in 2001 by 
increasing the standard deduction for a married couple filing a 
joint return to: (1) 1.728 times the standard deduction for an 
unmarried individual in 2001; (2) 1.801 times the standard 
deduction for an unmarried individual in 2002; (3) 1.870 times 
the standard deduction for an unmarried individual in 2003; (4) 
1.935 times the standard deduction for an unmarried individual 
in 2004; and 2.000 times the standard deduction for an 
unmarried individual in 2005. Therefore, the provision is fully 
effective, (i.e., the basic standard deduction for a married 
couple will be twice the basic standard deduction for a 
unmarried individual) for taxable years beginning after 
December 31, 2004. Also, the basic standard deduction for a 
married taxpayer filing separately will be increased so that it 
will continue to equal one-half of the basic standard deduction 
for a married couple filing jointly. The basic standard 
deduction for a head of household will be unchanged.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

Width of 15-percent rate bracket for a married couple filing a joint 
        return

      The conference agreement increases the size of the lowest 
(currently, 15 percent) regular income tax rate bracket for a 
married couple filing a joint return to twice the size of the 
corresponding rate bracket for an unmarried individual. This 
increase is phased-in over four years beginning in 2005 by 
increasing the lowest regular income tax rate bracket for a 
married couple filing a joint return to: (1) 1.737 times the 
lowest regular income tax rate bracket for an unmarried 
individual in 2005; (2) 1.761 times the lowest regular income 
tax rate bracket for an unmarried individual in 2006; (3) 1.881 
times the lowest regular income tax rate bracket for an 
unmarried individual in 2007; and (4) 2.000 times the lowest 
regular income tax rate bracket for an unmarried individual in 
2008. Therefore, this provision is fully effective, (i.e., the 
size of the lowest regular income tax rate bracket for a 
married couple filing a joint return will be twice the size of 
the lowest regular income tax rate bracket for an unmarried 
individual) for taxable years beginning after December 31, 
2007.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2004.

Separate calculations

      The conference agreement does not include the Senate 
amendment provision.

 C. Marriage Penalty Relief Relating to the Earned Income Credit (sec. 
          202 of the Senate amendment and sec. 32 of the Code)


                              Present Law

      Certain eligible low-income workers are entitled to claim 
a refundable earned income credit (``EIC'') on their income tax 
return. A refundable credit is a credit that not only reduces 
an individual's tax liability but allows refunds to the 
individual in excess of income tax liability. The amount of the 
credit an eligible individual may claim depends upon whether 
the individual has one, more than one, or no qualifying 
children, and is determined by multiplying the credit rate by 
the individual's earned income up to an earned income amount. 
In the case of a married individual who files a joint return 
with his or her spouse, the income for purposes of these tests 
is the combined income of the couple. The maximum amount of the 
credit is the product of the credit rate and the earned income 
amount. The credit is phased out above certain income levels. 
For individuals with earned income (or modified AGI, if 
greater) in excess of the beginning of the phase-out range, the 
maximum credit amount is reduced by the phase-out rate 
multiplied by the earned income (or modified AGI, if greater) 
in excess of the beginning of the phase-out range. For 
individuals with earned income (or modified AGI, if greater) in 
excess of the end of the phase-out range, no credit is allowed.
      The parameters of the credit for 1999 are provided in the 
following table.

                 EARNED INCOME CREDIT PARAMETERS (1999)
------------------------------------------------------------------------
                                   Two or more      One           No
                                    qualifying   qualifying   qualifying
                                     children      child       children
------------------------------------------------------------------------
Credit rate (percent)............        40.00        34.00         7.65
Earned income amount.............       $9,540       $6,800       $4,530
Maximum credit...................       $3,816       $2,312         $347
Phase-out begins.................      $12,460      $12,460       $5,670
Phase-out rate (percent).........        21.06        15.98         7.65
Phase-out ends...................      $30,580      $26,928      $10,200
------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment increases the beginning point of the 
phase out of the EIC for married couples filing a joint return 
by $2,000. Because the rate of the phase out is not changed by 
the provision, the end-point of the phase-out ranges is also 
increased by $2,000. The effect of the increase in the 
beginning point of the phase-out is to increase the EIC for 
taxpayers in the phase-out range by an amount up to $2,000 
times the phase-out rate. For example, for couples with two or 
more qualifying children, the maximum increase in the EIC as a 
result of the proposal would be $2,000 times 21.06 percent, or 
$421.20. The provision also expands the universe of taxpayers 
eligible for the EIC. Specifically, the $2,000 increase in the 
end of the phase-out range makes taxpayers with earnings up to 
$2,000 beyond the present-law phase-out range newly eligible 
for the credit. Beginning in 2006, the $2,000 amount is indexed 
for inflation.
      Effective date.--The Senate amendment provision is 
effective for taxable years beginning after December 31, 2004.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
with a modification to the effective date. The provision is 
effective for taxable years beginning after December 31, 2005.

D. Individual Alternative Minimum Tax Provisions (sec. 121 of the House 
 bill, secs. 206 and 1134 of the Senate amendment, and secs. 26 and 55 
                              of the Code)


                              Present Law


In general

      Present law imposes a minimum tax (``AMT'') on an 
individual to the extent the taxpayer's minimum tax liability 
exceeds his or her regular tax liability. The AMT is imposed on 
individuals at rates of (1) 26 percent on the first $175,000 of 
alternative minimum taxable income (``AMTI'') in excess of a 
phased-out exemption amount and (2) 28 percent on the remaining 
AMTI. The exemptions amounts are $45,000 in the case of married 
individuals filing a joint return and surviving spouses; 
$33,750 in the case of other unmarried individuals; and $22,500 
in the case of married individuals filing a separate return. 
These exemption amounts are phased-out by an amount equal to 25 
percent of the amount that the individual's AMTI exceeds a 
threshold amount. These threshold amounts are $150,000 in the 
case of married individuals filing a joint return and surviving 
spouses; $112,500 in the case of other unmarried individuals; 
and $75,000 in the case of married individuals filing a 
separate return, estates, and trusts. The exemption amounts, 
the threshold phase-out amounts, and the $175,000 break-point 
amount are not indexed for inflation. The lower capital gains 
rates applicable to the regular tax apply for purposes of the 
AMT.
      AMTI is the taxpayer's taxable income increased by 
certain preference items and adjusted by determining the tax 
treatment of certain items in a manner that negates the 
deferral of income resulting from the regular tax treatment of 
those items.

Preference items in computing AMTI

      The minimum tax preference items are:
      (1) The excess of the deduction for percentage depletion 
over the adjusted basis of the property at the end of the 
taxable year. This preference does not apply to percentage 
depletion allowed with respect to oil and gas properties.
      (2) The amount by which excess intangible drilling costs 
arising in the taxable year exceed 65 percent of the net income 
from oil, gas, and geothermal properties. This preference does 
not apply to an independent producer to the extent the 
preference would not reduce the producer's AMTI by more than 40 
percent.
      (3) Tax-exempt interest income on private activity bonds 
(other than qualified 501(c)(3) bonds) issued after August 7, 
1986.
      (4) Accelerated depreciation or amortization on certain 
property placed in service before January 1, 1987.
      (5) Forty-two percent of the amount excluded from income 
under section 1202 (relating to gains on the sale of certain 
small business stock).
      In addition, losses from any tax shelter, farm, or 
passive activities are denied.\2\
---------------------------------------------------------------------------
        \2\ Given the passage of section 469 by the Tax Reform Act of 
1986 (relating to the deductibility of losses from passive activities), 
these provisions are largely ``deadwood.''
---------------------------------------------------------------------------

Adjustments in computing AMTI

      The adjustments that individuals must make in computing 
AMTI are:
      (1) Depreciation on property placed in service after 1986 
and before January 1, 1999, must be computed by using the 
generally longer class lives prescribed by the alternative 
depreciation system of section 168(g) and either (a) the 
straight-line method in the case of property subject to the 
straight-line method under the regular tax or (b) the 150-
percent declining balance method in the case of other property. 
Depreciation on property placed in service after December 31, 
1998, is computed by using the regular tax recovery periods and 
the AMT methods described in the previous sentence.
      (2) Mining exploration and development costs must be 
capitalized and amortized over a 10-year period.
      (3) Taxable income from a long-term contract (other than 
a home construction contract) must be computed using the 
percentage of completion method of accounting.
      (4) The amortization deduction allowed for pollution 
control facilities placed in service before January 1, 1999 
(generally determined using 60-month amortization for a portion 
of the cost of the facility under the regular tax), must be 
calculated under the alternative depreciation system 
(generally, using longer class lives and the straight-line 
method). The amortization deduction allowed for pollution 
control facilities placed in service after December 31, 1998, 
is calculated using the regular tax recovery periods and the 
straight-line method.
      (5) Miscellaneous itemized deductions are not allowed.
      (6) Itemized deductions for State, local, and foreign 
real property taxes, State and local personal property taxes, 
and State, local, and foreign income, war profits, and excess 
profits taxes are not allowed.
      (7) Medical expenses are allowed only to the extent they 
exceed 10 percent of the taxpayer's adjusted gross income 
(AGI).
      (8) Standard deductions and personal exemptions are not 
allowed.
      (9) The amount allowable as a deduction for circulation 
expenditures must be capitalized and amortized over a 3-year 
period.
      (10) The amount allowable as a deduction for research and 
experimental expenditures must be capitalized and amortized 
over a 10-year period. \3\
---------------------------------------------------------------------------
        \3\ No adjustment is required if the taxpayer materially 
participates in the activity that relates to the research and 
experimental expenditures.
---------------------------------------------------------------------------
      (11) The regular tax rules relating to incentive stock 
options do not apply.

Other rules

      The combination of the taxpayer's net operating loss 
carryover and foreign tax credits cannot reduce the taxpayer's 
AMT liability by more than 90 percent of the amount determined 
without these items.
      The various nonrefundable credits allowed under the 
regular tax generally are allowed only to the extent that the 
individual's regular tax exceeds the tentative minimum tax. The 
earned income credit and the child credit of those taxpayers 
with three or more qualified children are refundable credits 
and may offset the taxpayer's tentative minimum tax. However, a 
taxpayer must reduce these refundable credits by the amount the 
taxpayer's tentative minimum tax exceeds his or her regular tax 
liability. \4\
---------------------------------------------------------------------------
        \4\ For 1998 only, the nonrefundable personal credits were not 
limited by the tentative minimum tax, and the refundable child credit 
was not reduced by the minimum tax.
---------------------------------------------------------------------------
      If an individual is subject to AMT in any year, the 
amount of tax exceeding the taxpayer's regular tax liability is 
allowed as a credit (the ``AMT credit'') in any subsequent 
taxable year to the extent the taxpayer's regular tax liability 
exceeds his or her tentative minimum tax in such subsequent 
year. For individuals, the AMT credit is allowed only to the 
extent the taxpayer's AMT liability is a result of adjustments 
that are timing in nature. Most individual AMT adjustments 
relate to itemized deductions and personal exemptions and are 
not timing in nature.

                               House Bill

      The House bill allows an individual to offset the entire 
regular tax liability (without regard to the minimum tax) by 
the personal nonrefundable credits, and also repeals the 
provision reducing the refundable child credit by the AMT.
      The House bill phases out the individual AMT. For taxable 
years beginning in 2005, only 80 percent of the full AMT 
liability will be imposed. That percentage will be reduced to 
70 percent in 2006, 60 percent in 2007, 50 percent in 2008, and 
the AMT will be fully repealed for taxable years beginning 
after 2008.
      Under the House bill, an individual will be allowed to 
use the AMT credit to offset 90 percent of its regular tax 
liability (determined after the application of the other 
nonrefundable credits).
      Effective date.--The provisions relating to the personal 
credits are effective for taxable years beginning after 
December 31, 1998. The phase-out of the AMT will be effective 
for taxable years beginning after December 31, 2004. The repeal 
of the AMT and the provision relating to the use of AMT credits 
apply to taxable years beginning after December 31, 2008.

                            Senate Amendment

      The Senate amendment follows the House bill in the 
treatment of personal credits under the AMT.
      The Senate amendment allows the personal exemption in 
computing AMT (except for $300 per exemption).
      Effective date.--The provisions relating to the personal 
credits are effective for taxable years beginning after 
December 31, 1998. The provision relating to the personal 
exemption applies to taxable years beginning after December 31, 
2005.

                          Conference Agreement

      The conference agreement follows the House bill, except 
that the AMT is repealed for taxable years beginning after 
December 31, 2007.

 E. Expand the Exclusion from Income for Certain Foster Care Payments 
(sec. 1301 of the House bill sec. 203 of the Senate amendment and sec. 
                            131 of the Code)


                              Present Law

      Generally, a foster care provider may exclude qualified 
foster care payments, (including difficulty of care payments) 
from gross income if certain requirements are satisfied.\5\ 
First, such payments must be paid to the foster care providers 
by either (1) a State or political subdivision of a State; or 
(2) a tax-exempt placement agency. Second, the payments, 
including difficulty of care payments, must be paid to the 
foster care provider for the care of a ``qualified foster 
individual'' in the foster care provider's home. A qualified 
foster individual is an individual living in a foster care 
family home in which the individual was placed by: (1) an 
agency of the State or a political subdivision of a State; or 
(2) a tax-exempt placement agency if such individual was under 
the age of 19 at the time of placement. Third, the exclusion of 
foster care payments generally applies to qualified foster care 
payments for five or fewer foster care individuals over the age 
of 19 in a foster home. In the case of difficulty of care 
payments, the exclusion applies to payments for ten or fewer 
foster care individuals under the age of 19 in a foster home 
and to payments for five or fewer foster care individuals at 
least age 19 in a foster home.
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        \5\ A difficulty of care payment is a payment designated by the 
person making such payment as compensation for providing the additional 
care of a qualified foster care individual which is required by reason 
of a physical, mental, or emotional handicap of such individual and 
with respect to which the State has determined that there is a need for 
additional compensation.
---------------------------------------------------------------------------

                               House Bill

      The House bill makes two principal modifications to the 
exclusion for qualified foster care payments. First, the House 
bill expands the list of persons eligible to make qualified 
foster care payments. Therefore, the exclusion applies to 
qualified payments made pursuant to a foster care program of a 
State or local government which are paid by either: (1) a State 
or political subdivision of a State; or (2) a qualified foster 
care placement agency, whether taxable or tax-exempt. Second, 
the bill expands the list of persons eligible to place foster 
care individuals. Specifically, the bill allows placements by 
either: (1) a State or a political subdivision of a State; or 
(2) a qualified foster care placement agency. For these 
purposes, a qualified foster care placement agency is defined 
as any placement agency which is licensed or certified by: (1) 
a State or political subdivision of a State; or (2) an entity 
designated by a State or political subdivision thereof, for the 
foster care program of such State or political subdivision to 
make payments to providers of foster care.
      The House bill allows State and local governments to 
employ both tax-exempt and taxable entities to administer their 
foster care programs more efficiently; however, it does not 
extend the exclusion to payments outside such foster care 
programs (e.g., payments to a foster care provider from friends 
or relatives of foster care individual in its care).
      Effective date.--The House bill provision is effective 
for taxable years beginning after December 31, 1999.

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

   F. Increase and Expand the Dependent Care Credit (sec. 204 of the 
               Senate amendment and sec. 21 of the Code)


                              Present Law


In general

      A taxpayer who maintains a household which includes one 
or more qualifying individuals may claim a nonrefundable credit 
against income tax liability for up to 30 percent of a limited 
amount of employment-related dependent care expenses. Eligible 
employment-related expenses are limited to $2,400 if there is 
one qualifying individual or $4,800 if there are two or more 
qualifying individuals. Generally, a qualifying individual is a 
dependent under the age of 13 or a physically or mentally 
incapacitated dependent or spouse. No credit is allowed for any 
qualifying individual unless a valid taxpayer identification 
number (``TIN'') has been provided for that individual. A 
taxpayer is treated as maintaining a household for a period if 
the taxpayer (or the taxpayer's spouse, if married) provides 
more than one-half the cost of maintaining the household for 
that period. In the case of married taxpayers, the credit is 
not available unless they file a joint return.
      Employment-related dependent care expenses are expenses 
for the care of a qualifying individual incurred to enable the 
taxpayer to be gainfully employed, other than expenses incurred 
for an overnight camp. For example, amounts paid for the 
services of a housekeeper generally qualify if such services 
are performed at least partly for the benefit of a qualifying 
individual; amounts paid for a chauffeur or gardener do not 
qualify.
      Expenses that may be taken into account in computing the 
credit generally may not exceed an individual's earned income 
or, in the case of married taxpayers, the earned income of the 
spouse with the lesser earnings. Thus, if one spouse has no 
earned income, generally no credit is allowed.
      The 30-percent credit rate is reduced, but not below 20 
percent, by 1 percentage point for each $2,000 (or fraction 
thereof) of adjusted gross income (``AGI'') above $10,000.

Interaction with employer-provided dependent care assistance

      For purposes of the dependent care credit, the maximum 
amounts of employment-related expenses ($2,400/$4,800) are 
reduced to the extent that the taxpayer has received employer-
provided dependent care assistance that is excludable from 
gross income (sec. 129). The exclusion for dependent care 
assistance is limited to $5,000 per year and does not vary with 
the number of children.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment makes three changes to the dependent 
care tax credit. First, the maximum credit percentage is 
increased from 30 percent to 40 percent for taxpayers with AGI 
of $30,000 or less. The 40-percent credit rate is phased-down 
by one percentage point for each $1,000 of AGI, or fraction 
thereof, between $30,001 and $49,000. The credit percentage is 
20 percent for taxpayers with AGI of $49,001 or greater. 
Second, beginning in 2001, the maximum amount of eligible 
employment-related expenses ($2,400/$4,800) is indexed for 
inflation. Finally, the Senate amendment extends up to $960 of 
additional credit ($1,920 for two or more qualifying 
dependents) to taxpayers with qualifying dependents under the 
age of one. This additional credit, computed as the applicable 
credit rate times $200 of deemed expenses per month ($400 of 
deemed expenses per month for two or more qualifying 
dependents), is available regardless of whether the taxpayer 
actually incurred any out-of-pocket child care expenses.
      The present-law reduction of the dependent care credit 
for employer-provided dependent care assistance is not changed.
      Effective date.--The Senate amendment provision is 
effective for taxable years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
with two modifications to the effective date. First, the 
maximum credit percentage will be 35 percent for taxable years 
beginning in 2001 through 2005, and 40 percent for taxable 
years beginning after 2005. Second, the extension of the credit 
to taxpayers with qualifying dependents under the age of one 
will be effective for taxable years beginning after 2005.
      The present-law reduction of the dependent care credit 
for employer-provided dependent care assistance is not changed.

G. Tax Credit for Employer-Provided Child Care Facilities (sec. 205 of 
           the Senate amendment and new sec. 45D of the Code)


                              Present Law

      Generally, present law does not provide a tax credit to 
employers for supporting child care or child care resource and 
referral services.\6\ An employer, however, may be able to 
claim such expenses as deductions for ordinary and necessary 
business expenses. Alternatively, the employer may be required 
to capitalize the expenses and claim depreciation deductions 
over time.
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        \6\ An employer may claim the welfare-to-work tax credit on the 
eligible wages of certain long-term family assistance recipients. For 
purposes of the welfare-to-work credit, eligible wages includes amounts 
paid by the employer for dependent care assistance.
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment


Employer tax credit for supporting employee child care

      Under the Senate amendment, taxpayers receive a tax 
credit equal to 25 percent of qualified expenses for employee 
child care. These expenses include costs incurred: (1) to 
acquire, construct, rehabilitate or expand property that is to 
be used as part of the taxpayer's qualified child care 
facility; (2) for the operation of the taxpayer's qualified 
child care facility, including the costs of training and 
continuing education for employees of the child care facility; 
or (3) under a contract with a qualified child care facility to 
provide child care services to employees of the taxpayer. To be 
a qualified child care facility, the principal use of the 
facility must be for child care, and the facility must be duly 
licensed by the State agency with jurisdiction over its 
operations. Also, if the facility is owned or operated by the 
taxpayer, at least 30 percent of the children enrolled in the 
center (based on an annual average or the enrollment measured 
at the beginning of each month) must be children of the 
taxpayer's employees. If a taxpayer opens a new facility, it 
must meet the 30-percent employee enrollment requirement within 
two years of commencing operations. If a new facility failed to 
meet this requirement, the credit would be subject to 
recapture.
      To qualify for the credit, the taxpayer must offer child 
care services, either at its own facility or through third 
parties, on a basis that does not discriminate in favor of 
highly compensated employees.

Employer tax credit for child care resource and referral services

      Under the Senate amendment, a taxpayer is entitled to a 
tax credit equal to 10 percent of expenses incurred to provide 
employees with child care resource and referral services.

Other rules

      The maximum total credit that may be claimed by a 
taxpayer under the Senate amendment can not exceed $150,000 per 
year. Any amounts for which the taxpayer may otherwise claim a 
tax deduction are reduced by the amount of these credits. 
Similarly, if the credits are taken for expenses of acquiring, 
constructing, rehabilitating, or expanding a facility, the 
taxpayer's basis in the facility is reduced by the amount of 
the credits.

Effective date

      The credits are effective for taxable years beginning 
after December 31, 2000.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

H. Extension and Expansion of the Adoption Tax Credit (sec. 210 of the 
               Senate amendment and sec. 23 of the Code)


                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment makes three changes to the adoption 
credit. First, it provides that the maximum credit for domestic 
special needs adoptions is increased to $10,000 from $6,000. 
Second, taxpayers making a domestic special needs adoption are 
deemed to have paid or incurred $10,000 of qualified expenses 
in all cases. Third, the sunset for non-special needs adoptions 
is repealed.
      Effective date.--The Senate amendment provision is 
effective for taxable years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement makes two changes to the 
adoption credit. First, it provides that the maximum credit for 
special needs adoptions is increased to $10,000 from $6,000. 
Second, taxpayers making a special needs adoption are deemed to 
have paid or incurred $10,000 of qualified expenses in all 
cases. The conference agreement does not change the present-law 
sunset of the adoption credit for non-special needs adoptions.
      Effective date.--The conference agreement provision is 
effective for taxable years beginning after December 31, 2000.

            II. SAVINGS AND INVESTMENT TAX RELIEF PROVISIONS


A. Partial Exclusion for Interest and Dividends (sec. 201 of the House 
                   bill and new sec. 116 of the Code)


                              Present Law

      The Code states that, except as otherwise provided, 
``gross income means all income from whatever source derived'' 
(sec. 61). Because there is no exclusion for interest and 
dividends, interest and dividends received by individuals are 
includible in gross income and subject to tax.

                               House Bill

      The House bill gives individual taxpayers an exclusion 
from income of interest and dividends (other than capital gain 
dividends from RICs and REITs, dividends from farmers' 
cooperative associations, and dividends received from an 
employee stock ownership plan), received during a taxable 
year.\7\ This exclusion is phased-in over five years. The 
maximum exclusion from income is $50 of combined interest and 
dividends ($100 for married couples filing a joint return) for 
taxable years beginning in 2001 and 2002. The maximum exclusion 
from income is $100 of combined interest and dividends ($200 
for married couples filing a joint return) for taxable years 
beginning in 2003 and 2004. The maximum exclusion is $200 of 
combined interest and dividends ($400 for married couples 
filing a joint return) for taxable years beginning after 
December 31, 2004. The amount of the combined interest and 
dividends excluded under the House bill is in addition to the 
amount of any interest or dividend which is exempt from tax 
under any other provision (e.g., interest on certain State and 
local bonds which is exempt from tax under section 103 of the 
Code).
---------------------------------------------------------------------------
        \7\ From 1954 until 1986, the Code (sec. 116) contained an 
exclusion from income (in varying amounts) for dividends. For 1981 
only, that provision was also extended to interest; this proposal is 
generally parallel to that provision. The exclusion for dividends was 
repealed by the Tax Reform Act of 1986.
---------------------------------------------------------------------------
      In determining eligibility for the earned income credit 
(``EIC''), any interest or dividends excluded from gross income 
under the House bill are included in modified adjusted gross 
income for purposes of phase-out rules of the EIC and 
disqualified income for purposes of the EIC disqualified income 
test. Similarly, any interest or dividends excluded from gross 
income under the House bill are included in modified adjusted 
gross income for purposes of the taxation of certain Social 
Security benefits.
      The fact that dividends may be excluded from income 
pursuant to the House bill does not affect the computation of 
the foreign tax credit.
      The exclusion under the House bill is in addition to, and 
is applied after, the exclusion for educational savings bond 
interest (sec. 135). In applying those provisions of the Code 
(such as secs. 86, 219, 221, and 469) that determine modified 
adjusted gross income without regard to section 135, it is 
intended that the exclusion under this provision be computed 
without regard to the exclusion under section 135.
      In addition, the IRS is encouraged to simplify the 
process of completing tax forms to the greatest extent 
practicable, including, for example, considering raising the 
administratively-established dollar thresholds for completing 
Schedule B or for being able to use the Form 1040EZ.
      Effective date.--The House bill provision is effective 
for taxable years beginning after December 31, 2000.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the House bill 
provision.

 B. Individual Capital Gains (sec. 202 of the House bill, sec. 207 of 
       the Senate amendment, and secs. 1(h) and 1022 of the Code)


                              Present Law

      In general, gain or loss reflected in the value of an 
asset is not recognized for income tax purposes until a 
taxpayer disposes of the asset. On the sale or exchange of 
capital assets, any gain generally is included in income, and 
the net capital gain of an individual is taxed at maximum rates 
lower than the rates applicable to ordinary income. Net capital 
gain is the excess of the net long-term capital gain for the 
taxable year over the net short-term capital loss for the year. 
Gain or loss is treated as long-term if the asset is held for 
more than one year. In determining gain or loss, no adjustment 
is allowed for inflation.
      A capital asset generally means any property except (1) 
inventory, stock in trade, or property held primarily for sale 
to customers in the ordinary course of the taxpayer's trade or 
business, (2) depreciable or real property used in the 
taxpayer's trade or business, (3) specified literary or 
artistic property, (4) business accounts or notes receivable, 
or (5) certain U.S. publications. In addition, the net gain 
from the disposition of certain property used in the taxpayer's 
trade or business is treated as long-term capital gain. Gain 
from the disposition of depreciable personal property is not 
treated as capital gain to the extent of all previous 
depreciation allowances. Gain from the disposition of 
depreciable real property is generally not treated as capital 
gain to the extent of the depreciation allowances in excess of 
the allowances that would have been available under the 
straight-line method of depreciation.
      The maximum rate of tax on the adjusted net capital gain 
of an individual is 20 percent. In addition, any adjusted net 
capital gain which otherwise would be taxed at the lowest 
individual rate (currently 15 percent) is taxed at a 10-percent 
rate. These rates apply for purposes of both the regular tax 
and the alternative minimum tax.
      The ``adjusted net capital gain'' of an individual is the 
net capital gain reduced (but not below zero) by the sum of the 
28-percent rate gain and the unrecaptured section 1250 gain. 
The net capital gain is reduced by the amount of gain which the 
individual treats as investment income for purposes of 
determining the investment interest limitation under section 
163(d).
      The term ``28-percent rate gain'' means the amount of net 
gain attributable to long-term capital gains and losses from 
the sale or exchange of collectibles (as defined in section 
408(m) without regard to paragraph (3) thereof) (``collectibles 
gain and loss''), an amount of gain equal to the amount of gain 
excluded from gross income under section 1202, relating to 
certain small business stock (``section 1202 gain''),\8\ the 
net short-term capital loss for the taxable year, and any long-
term capital loss carryover to the taxable year.
---------------------------------------------------------------------------
        \8\ This results in a maximum effective regular tax rate on 
qualified gain from small business stock of 14 percent.
---------------------------------------------------------------------------
      ``Unrecaptured section 1250 gain'' means any long-term 
capital gain from the sale or exchange of section 1250 property 
(i.e., depreciable real estate) held more than one year to the 
extent of the gain that would have been treated as ordinary 
income if section 1250 applied to all depreciation, rather than 
only to a portion of the depreciation, reduced by the net loss 
(if any) attributable to the items taken into account in 
computing 28-percent rate gain. The amount of unrecaptured 
section 1250 gain (before the reduction for the net loss) 
attributable to the disposition of property to which section 
1231 applies shall not exceed the net section 1231 gain for the 
year.
      The unrecaptured section 1250 gain is taxed at a maximum 
rate of 25 percent, and the 28-percent rate gain is taxed at a 
maximum rate of 28 percent.
      For taxable years beginning after December 31, 2000, any 
gain from the sale or exchange of property held more than five 
years which would otherwise be taxed at the 10-percent rate 
will instead be taxed at an 8-percent rate. Any gain from the 
sale or exchange of property held more than five years and the 
holding period for which begins after December 31, 2000, which 
would otherwise be taxed at a 20-percent rate will be taxed at 
an 18-percent rate. A taxpayer holding a capital asset or 
property used in the trade or business on January 1, 2001, may 
elect to treat the asset as having been sold in a taxable 
transaction on that date for an amount equal to its fair market 
value, and having been reacquired for an amount equal to such 
value.

                               House Bill

      The House bill reduces the 10- and 20-percent rates on 
the adjusted net capital gain to 7.5 and 15 percent, 
respectively. The 25-percent rate on unrecaptured section 1250 
gain is reduced to 20 percent. These lower rates apply to both 
the regular tax and the alternative minimum tax.\9\
---------------------------------------------------------------------------
        \9\ The provision does not change the regular tax rate for gain 
from collectibles and small business stock. The provision reduces the 
maximum effective AMT rate on small business stock to slightly below 15 
percent (depending on the amount of individual rate cut for the taxable 
year).
---------------------------------------------------------------------------
      The bill repeals the 8- and 18-percent rates on certain 
gain from property held more than 5 years.
      Effective date.--The provision applies to taxable years 
ending on or after July 1, 1999.
      For taxable years which include July 1, 1999, the lower 
rates apply to amounts properly taken into account for the 
portion of the year on or after that date. This generally has 
the effect of applying the lower rates to capital assets sold 
or exchanged (and installment payments received) on or after 
July 1, 1999. In the case of gain taken into account by a pass-
through entity, the date taken into account by the entity is 
the appropriate date for applying this rule.

                            Senate Amendment

      The Senate amendment allows an individual a deduction for 
up to $1,000 of net capital gain. Collectible gain and loss is 
taxed as short-term capital gain or loss.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2005.

                          Conference Agreement


Rates

      The conference agreement follows the House bill, except 
that the rates on adjusted net capital gain are reduced to 8 
and 18 percent respectively, and the rate on unrecaptured 
section 1250 gain is reduced to 23 percent.
      Effective date.--The reduced rates apply to taxable years 
beginning after December 31, 1998.

Indexing

      The conference agreement also generally provides for an 
inflation adjustment to (i.e., indexing of) the adjusted basis 
of certain assets (called ``indexed assets'') held more than 
one year for purposes of determining gain (but not loss) upon a 
sale or other disposition of such assets by a taxpayer other 
than a C corporation. Assets held by trusts, estates, S 
corporations, regulated investment companies (``RICs''), real 
estate investment trusts (``REITs''), and partnerships are 
eligible for indexing, to the extent gain on such assets is 
taken into account by taxpayers other than C corporations.
      Assets eligible for the inflation adjustment generally 
include common (but not preferred) stock of C corporations and 
tangible property that are capital assets or property used in a 
trade or business. A personal residence does not qualify for 
indexing.
      The inflation adjustment under the provision would be 
computed by multiplying the taxpayer's adjusted basis in the 
indexed asset by an inflation adjustment percentage. The 
inflation adjustment percentage would be the percentage by 
which the GDP deflator for the last calendar quarter ending 
before the disposition exceeds the GDP deflator for the last 
calendar quarter ending before the asset was acquired by the 
taxpayer. The inflation adjustment percentage will be rounded 
to the nearest one-tenth of a percent. No adjustment will be 
made if the inflation adjustment is one or less.
      In the case of a RIC or a REIT, the indexing adjustments 
generally apply in computing the taxable income and the 
earnings and profits of the RIC or REIT. The indexing 
adjustments, however, are not applicable in determining whether 
a corporation qualifies as a RIC or REIT.
      In the case of shares held in a RIC or REIT, partial 
indexing generally is provided by the provision based on the 
ratio of the value of indexed assets held by the entity to the 
value of all its assets. The ratio of indexed assets to total 
assets will be determined quarterly (for RICs, the quarterly 
ratio would be based on a three-month average). If the ratio of 
indexed assets to total assets exceeds 80 percent in any 
quarter, full indexing of the shares will be allowed for that 
quarter. If less than 20 percent of the assets are indexed 
assets in any quarter, no indexing will be allowed for that 
quarter for the shares. Partnership interests held by a RIC or 
REIT will be subject to a look-through test for purposes of 
determining whether, and to what degree, the shares in the RIC 
or REIT are indexed.
      A return of capital distribution by a RIC or REIT 
generally will be treated by a shareholder as allocable to 
stock acquired by the shareholder in the order in which the 
stock was acquired.
      Stock in an S corporation or an interest in a partnership 
or common trust fund is not an indexed asset. Under the 
provision, the individual owner receives the benefit of the 
indexing adjustment when the S corporation, partnership, or 
common trust fund disposes of indexed assets. Under the 
provision, any inflation adjustments at the entity level flows 
through to the holders and result in a corresponding increase 
in the basis of the holder's interest in the entity. Where a 
partnership has a section 754 election in effect, a partner 
transferring his interest in the partnership is entitled to any 
indexing adjustment that has accrued at the partnership level 
with respect to the partner and the transferee partner is 
entitled to the benefits of indexing for inflation occurring 
after the transfer.
      The indexing adjustment is disregarded in determining any 
loss on the sale of an interest in a partnership, S corporation 
or common trust fund.
      Common stock of a foreign corporation generally is an 
indexed asset if the stock is regularly traded on an 
established securities market. Indexed assets, however, do not 
include stock in a foreign investment company, a passive 
foreign investment company (including a qualified electing 
fund), a foreign personal holding company, or, in the hands of 
a shareholder who meets the requirements of section 1248(a)(2) 
(generally pertaining to 10-percent shareholders of controlled 
foreign corporations), any other foreign corporation. An 
American Depository Receipt (ADR) for common stock in a foreign 
corporation is treated as common stock in the foreign 
corporation and, therefore, the basis in an ADR for common 
stock generallywill be indexed.
      No indexing is provided for improvements or contributions 
to capital if the aggregate amount of the improvements or 
contributions to capital during the taxable year with respect 
to the property or stock is less than $1,000. If the aggregate 
amount of such improvements or contributions to capital is 
$1,000 or more, each addition is treated as a separate asset 
acquired at the close of the taxable year.
      No indexing adjustment is allowed during any period 
during which there is a substantial diminution of the 
taxpayer's risk of loss from holding the indexed asset by 
reason of any transaction entered into by the taxpayer, or a 
related party.
      In the case of a short sale of an indexed asset with a 
short sale period in excess of one year, the proposal requires 
that the amount realized be indexed for inflation for the short 
sale period.
      The provision does not index the basis of property for 
sales or dispositions between related persons, except to the 
extent the adjusted basis of property in the hands of the 
transferee is a substituted basis (e.g., gifts).
      Under the provision, indexing reduces the amount of 
ordinary gain that would be recognized in cases where a 
corporation is treated as a collapsible corporation (under sec. 
341) with respect to a distribution or sale of stock.
      Effective date.--The indexing provision applies to assets 
the holding period for which begins after December 31, 1999. An 
individual holding an indexed asset on January 1, 2000, may 
elect to treat the indexed asset as having been sold on such 
date for its fair market value, and having been reacquired for 
that value. If an election is made, any gain is recognized (and 
any loss disallowed).

   C. Apply Capital Gain Rates to Capital Gains Earned by Designated 
Settlement Funds (sec. 203 of the House bill and sec. 468B of the Code)


                              Present Law

      Under present law, designated settlement funds are taxed 
at the highest rate of tax imposed on individuals, currently 
39.6 percent, on their entire taxable income (sec. 468B).

                               House Bill

      Under the House bill, the net capital gain of a 
designated settlement fund will be taxed in the same manner as 
in the case of an individual, i.e., the lower rates applicable 
to net capital gain set forth in section 1(h), as amended by 
the bill, will apply.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

 D. Exclusion of Gain on the Sale of a Principal Residence by a Member 
of the Uniformed Service or the Foreign Service of the United States or 
Certain Other Individuals Relocated Outside of the United States (sec. 
            204 of the House bill and sec. 121 of the Code)


                              Present Law

      Under present law, an individual taxpayer may exclude up 
to $250,000 ($500,000 if married filing a joint return) of gain 
realized on the sale or exchange of a principal residence. To 
be eligible for the exclusion, the taxpayer must have owned and 
used the residence as a principal residence for at least two of 
the five years prior to the sale or exchange. A taxpayer who 
fails to meet these requirements by reason of a change of place 
of employment, health, or, to the extent provided under 
regulations, unforeseen circumstances is able to exclude an 
amount equal to the fraction of the $250,000 ($500,000 if 
married filing a joint return) that is equal to the fraction of 
the two years that the ownership and use requirements are met. 
There are no special rules relating to: (1) members of the 
uniformed services or the Foreign Service of the United States 
or (2) individuals relocated outside of the United States.

                               House Bill

      Under the House bill, the five-year test period for 
ownership and use is suspended during certain absences due to 
service in the uniformed services or the Foreign Service of the 
United States. The uniformed services include: (1) the armed 
forces (the Army, Navy, Air Force, Marine Corp, and Coast 
Guard); (2) the commissioned corps of the National Oceanic and 
Atmospheric Administration; and (3) the commissioned corps of 
the Public Health Service. Specifically, the five-year period 
ending on the date of the sale or exchange of a principal 
residence will not include any periods during which the 
taxpayer or the taxpayer's spouse is on qualified official 
extended duty as a member of the uniformed services or the 
Foreign Service of the United States. Qualified official 
extended duty is any period of extended duty by a member of the 
uniformed services or the Foreign Service of the United States 
while serving at a place of duty at least 50 miles away from 
the taxpayer's principal residence or under orders compelling 
residence in Government furnished quarters. Extended duty is 
defined as any period of active duty pursuant to a call or 
order to such duty for a period in excess of 90 days or for an 
indefinite period.
      The House bill also suspends for up to five years, the 
five-year test period for an individual relocated for a period 
of more than 90 days outside of the United States by the 
individual's (or spouse's) employer. This provision does not 
apply to self-employed individuals.
      Effective date.--The House bill provision is effective 
for sales or exchanges of principal residences after the date 
of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

E. Clarify the Tax Treatment of Income and Losses on Derivatives (sec. 
205 of the House bill, sec. 1306 of the Senate amendment, and sec. 1221 
                              of the Code)


                              Present Law

      Capital gain treatment applies to gain on the sale or 
exchange of a capital asset. Capital assets include property 
other than (1) stock in trade or other types of assets 
includible in inventory, (2) property used in a trade or 
business that is real property or property subject to 
depreciation, (3) accounts or notes receivable acquired in the 
ordinary course of a trade or business, (4) certain copyrights 
(or similar property), and (5) U.S. government publications. 
Gain or loss on such assets generally is treated as ordinary, 
rather than capital, gain or loss. Certain other Code sections 
also treat gains or losses as ordinary. For example, the gains 
or losses of securities dealers or certain electing commodities 
dealers or electing traders in securities or commodities that 
are subject to ``mark-to-market'' accounting are treated as 
ordinary (sec. 475).
      Treasury regulations (which were finalized in 1994) 
require ordinary character treatment for most business hedges 
and provide timing rules requiring that gains or losses on 
hedging transactions be taken into account in a manner that 
matches the income or loss from the hedged item or items. The 
regulations apply to hedges that meet a standard of ``risk 
reduction'' with respect to ordinary property held (or to be 
held) or certain liabilities incurred (or to be incurred) by 
the taxpayer and that meet certain identification and other 
requirements (Treas. reg. sec. 1.1221-2).

                               House Bill

      The House bill adds three categories to the list of 
assets the gain or loss on which is treated as ordinary (sec. 
1221). The new categories are: (1) commodities derivative 
financial instruments entered into by derivatives dealers; (2) 
hedging transactions; and (3) supplies of a type regularly 
consumed by the taxpayer in the ordinary course of a taxpayer's 
trade or business. In defining a hedging transaction, the House 
bill generally codifies the approach taken by the Treasury 
regulations, but modifies the rules. The ``risk reduction'' 
standard of the regulations is broadened to ``risk management'' 
with respect to ordinary property held (or to be held) or 
certain liabilities incurred (or to be incurred).
      Effective date.--The house bill is effective for any 
instrument held, acquired or entered into, any transaction 
entered into, and supplies held or acquired on or after the 
date of enactment.

                            Senate Amendment

      The Senate amendment generally follows the House bill 
except that the Senate amendment makes one modification to the 
definition of a hedging transaction. In addition to managing 
certain risks with respect to ordinary property held (or to be 
held) or certain liabilities incurred (or to be incurred), the 
Senate amendment provides that the definition of a hedging 
transaction includes a transaction entered into primarily to 
manage such other risks as the Secretary may prescribe in 
regulations.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

F. Treatment of Loss on Worthless Stock of Subsidiary (sec. 206 of the 
               House bill and sec. 165(g)(3) of the Code)


                              Present Law

      Under present law, the loss on stock of a subsidiary 
corporation that becomes worthless is treated as an ordinary 
loss (rather than a capital loss), unless 10 percent or more of 
its gross receipts for all taxable years has been, with minor 
exceptions, from royalties, rents, dividends, interest, 
annuities, and gains from the sales or exchanges of stocks and 
securities (sec. 165(g)(3)).

                               House Bill

      Under the House bill, income from the conduct of an 
active trade or business of an insurance company or financial 
institution will not be included as gross receipts from the 
types of passive income listed above. Thus, a loss recognized 
with respect to the worthless stock of a subsidiary corporation 
which is an insurance company or financial institution could be 
treated as an ordinary loss, rather than as a capital loss.
      Effective date.--The provision applies to stock becoming 
worthless in taxable years beginning after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

G. Individual Retirement Arrangements (``IRAs'') (sec. 113 of the House 
 bill, secs. 301-303, 305, and 321 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.

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 
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

        Taxable years beginning in:                      Phase-out range
1998....................................................  $30,000-40,000
1999....................................................   31,000-41,000
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

Joint Returns

        Taxable years beginning in:                      Phase-out range
1998....................................................  $50,000-60,000
1999....................................................   51,000-61,000
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

      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 of 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 individuals 
with AGI between $95,000 and $110,000 and for joint filers with 
AGI between $150,000 and $160,000.
      Taxpayers with modified AGI of $100,000 or less generally 
may convert a traditional IRA into an 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 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) 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.
      Distributions from a Roth IRA that are not qualified 
distributions are includible in income to the extent 
attributable to earnings, and subject to the 10-percent early 
withdrawal tax (unless an exception applies).\10\ The same 
exceptions to the early withdrawal tax that apply to IRAs apply 
to Roth IRAs.
---------------------------------------------------------------------------
        \10\ 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.
---------------------------------------------------------------------------

IRA investments

      In general, IRAs may not invest in collectibles. Under 
one exception to this rule, IRAs may invest in certain gold, 
silver, and platinum coins and coins issued under the laws of 
any State.

                               House Bill

      The House bill increases the AGI limit on conversions of 
traditional IRAs to Roth IRAs to $160,000 for joint filers.
      Effective date.--The House bill is effective for years 
beginning after December 31, 1999.

                            Senate Amendment


Increase in annual contribution limits

      The Senate amendment provision increases the maximum 
annual dollar contribution limit for IRA contributions in 
$1,000 annual increments, beginning in 2001, until the limit 
reaches $5,000 in 2003. Thereafter, the limit is indexed for 
inflation in $100 increments.

Additional catch-up contributions

      The Senate amendment increases the IRA maximum 
contribution limit for individuals who have attained age 50 
before the end of the taxable year. The otherwise maximum 
dollar contribution limit (before application of the AGI phase-
out limits) for such an individual is increased by the 
applicable percentage. The applicable percentage is 10 percent 
in 2001, and increases by 10 percentage points until the 
applicable percent is 50 in 2005 and thereafter.

Increase in AGI limits for deductible IRA contributions

      Under the Senate amendment provision, the AGI phase-out 
limits for active participants in an employer-sponsored plan is 
increased by $2,000 ($4,000 in the case of married taxpayers 
filing a joint return) in 2008 and by $2,500 ($5,000 in the 
case of married taxpayers filing a joint return) in 2009. Thus, 
the phase-out limits are as follows for taxable years beginning 
in 2008-2009.

Single Returns

        Taxable years beginning in:                      Phase-out range
2008....................................................  $52,000-62,000
2009....................................................   54,500-64,500

Joint Returns

        Taxable years beginning in:                      Phase-out range
2008.................................................... $84,000-104,000
2009....................................................  89,000-109,000

      The present-law income phase-out range for an individual 
who is not an active participant, but whose spouse is, remains 
at $150,000 to $160,000.

AGI limits for Roth IRAs

      The provision repeals the Roth IRA contribution AGI 
phase-out limits. The provision also increases the AGI limit on 
conversions of traditional IRAs to Roth IRAs to $1 million 
($500,000 in the case of a married taxpayer filing a separate 
return).

IRA investments in coins

      The provision allows IRAs to invest in any coin certified 
by a recognized grading service and traded on a nationally 
recognized electronic network, or listed by a recognized 
wholesale reporting service and which (1) is or was at any time 
legal tender in the United States, or (2) issued under the laws 
of any State. Such coins must be in the physical possession of 
the IRA trustee or custodian.

Deemed IRAs under employer plans

      If a qualified retirement plan or a section 403(b) 
annuity permits employees to make voluntary employee 
contributions to a separate account or annuity that (1) is 
established under the qualified plan or section 403(b) annuity, 
and (2) meets the requirements applicable to either traditional 
IRAs (sec. 408) or Roth IRAs (sec. 408A), the separate account 
or annuity will be deemed a traditional IRA or a Roth IRA, as 
applicable. The deemed IRA, and contributions thereto, will not 
be subject to the Code rules pertaining to qualified plans or 
section 403(b) annuities, as applicable. In addition, the 
deemed IRA, and contributions thereto, will not be taken into 
account in applying these rules to any other contributions 
under the qualified plan or section 403(b) annuity. The deemed 
IRA, and contributions thereto, will be subject to the 
exclusive benefit and fiduciary rules of ERISA, but will not be 
subject to the ERISA reporting and disclosure, participation, 
vesting, funding, and enforcement requirements that apply to 
pension plans.

Effective date

      The Senate amendment provision generally is effective for 
taxable years beginning after December 31, 2000. The increase 
in the AGI limits for deductible IRA contributions is effective 
for taxable years beginning after December 31, 2007. The 
provision increasing the AGI limit for conversions to Roth IRAs 
is effective for taxable years beginning after December 31, 
2002. The provision relating to IRA investment in coins is 
effective for taxable years beginning after December 31, 1999. 
The provision relating to deemed IRAs is effective for plan 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with modifications.

Increase in annual contribution limits

      Under the conference agreement, the maximum IRA 
contribution limit is increased from $2,000 as follows: $3,000 
in 2001-2003; $4,000 in 2004-2005; $5,000 in 2006-2008, with 
indexing thereafter.

Additional catch-up contributions

      The conference agreement follows the Senate amendment.

Increase in AGI limits for deductible IRA contributions

      The conference agreement does not include the Senate 
amendment.

AGI limits for Roth IRAs

      The conference agreement increases the AGI phase-out 
limits for Roth IRAs to $200,000-$210,000 for joint filers and 
to $100,000-$110,000 for all other filers.
      The conference agreement increases the Roth IRA AGI 
conversion limit to $200,000 for joint filers ($100,000 for all 
other filers).

IRA investments in coins

      The conference agreement does not include the Senate 
amendment.

Deemed IRAs under employer plans

      The conference agreement follows the Senate amendment.

Effective date

      The conference agreement generally is effective for years 
beginning after December 31, 2000. The provisions increasing 
the AGI phase-out limits for Roth IRAs and the Roth IRA AGI 
conversion limit are effective for years beginning after 
December 31, 2002.

H. Creation of Individual Development Accounts (sec. 304 of the Senate 
               amendment, and new sec. 530A of the Code)


Present Law

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

House Bill

      No provision.

                            Senate Amendment


In general

      The Senate amendment creates individual development 
accounts (``IDAs'') to which eligible individuals can 
contribute. In addition, the Senate amendment provides a tax 
credit for certain matching contributions made to an IDA by the 
financial institution maintaining the IDA. Eligible individuals 
are individuals who are: (1) at least 18 years of age; (2) a 
citizen or legal resident of the United States; and (3) a 
member of a household eligible for the earned income credit, 
Temporary Assistance for Needy Families (``TANF''), or with 
family gross income of 60 percent or less of area median gross 
income and net worth of $10,000 or less.

Contributions to an IDA by eligible individuals

      Only eligible individuals are allowed to contribute to an 
IDA. Contributions to IDAs by individuals are not deductible, 
and earnings on such contributions are includible in income. 
The maximum contribution that can be made to an IDA for a 
taxable year is the lesser of (1) $350 or (2) the individual's 
taxable compensation for the year. A special rule would allow 
contributions of up to $350 for each spouse in a married couple 
if the total compensation of the spouses is at least equal to 
the amount contributed.

Matching contributions

      The Senate amendment provides a tax credit to financial 
institutions that make matching contributions to IDAs of 
individuals.\11\ The tax credit equals 85 percent of matching 
contributions, rounded up to the nearest $10, up to a maximum 
annual credit of $300 per eligible individual. The credit is 
available in each year that a matching contribution is made.
---------------------------------------------------------------------------
        \11\ Matching contributions (and earnings) are accounted for 
separately from individual IDA contributions (and earnings).
---------------------------------------------------------------------------
      Matching contributions (and earnings thereon) are not 
includible in the gross income of the eligible individual.
      If an individual withdraws his or her own IDA 
contributions (or earnings thereon) for a purpose other than a 
qualified purpose, the matching contribution attributable to 
such individual contribution is forfeited.\12\ Matching 
contributions may be withdrawn only in a qualified purpose 
distribution.
---------------------------------------------------------------------------
        \12\ The financial institution is to use forfeited amounts to 
make other matching contributions. No credit is provided with respect 
to such reallocated contributions.
---------------------------------------------------------------------------
    A qualified purpose distribution is a distribution (1) that 
is made after the individual has completed an economic literacy 
course, (2) that is made by the financial institution directly 
to the person to whom the funds are to (or to another IDA) and 
(3) is used for (a) certain educational expenses, (b) first-
time homebuyer expenses, and (c) business start-up expenses.

Effect on means-tested programs

      Any amounts in the IDA are not to be taken into account 
for certain Federal means-tested programs.

Effective date

      The provision is effective for contributions to IDAs and 
matching contributions made with respect to such IDAs after 
December 31, 2000, and before January 1, 2006.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

          III. BUSINESS INVESTMENT AND JOB CERTAIN PROVISIONS


 A. Alternative Tax for Corporate Capital Gains (sec. 301 of the House 
                    bill and sec. 1201 of the Code)


                              Present Law

      Under present law, the net capital gain of a corporation 
is taxed at the same rates as ordinary income, and subject to 
tax at graduated rates up to 35 percent.

                               House Bill

      Under the House bill, an alternative tax rate of 30 
percent applies to the net capital gain of a corporation if 
that tax is lower than the corporation's regular tax.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 2004.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not contain the provision 
in the House bill.

 B. Corporate Alternative Minimum Tax (sec. 302(a) of the House bill, 
   sec. 1103 of the Senate amendment and secs. 53 and 56 of the Code)


                              Present Law


In general

      Present law imposes a minimum tax on a corporation to the 
extent the corporation's minimum tax liability exceeds its 
regular tax liability. This alternative minimum tax (``AMT'') 
is imposed on corporations at the rate of 20 percent on the 
alternative minimum taxable income (``AMTI'') in excess of a 
$40,000 phased-out exemption amount. The exemption amount is 
phased-out by an amount equal to 25 percent of the amount that 
the corporation's AMTI exceeds $150,000.
      AMTI is the taxpayer's taxable income increased by 
certain preference items and adjusted by determining the tax 
treatment of certain items in a manner that negates the 
deferral of income resulting from the regular tax treatment of 
those items.
      A corporation with average gross receipts of less that 
$7.5 million for the prior three taxable years is exempt from 
the corporate minimum tax. The $7.5 million threshold is 
reduced to $5 million for the corporation's first 3-taxable 
year period.

Preference items in computing AMTI

      The corporate minimum tax preference items are:
      (1) The excess of the deduction for percentage depletion 
over the adjusted basis of the property at the end of the 
taxable year. This preference does not apply to percentage 
depletion allowed with respect to oil and gas properties.
      (2) The amount by which excess intangible drilling costs 
arising in the taxable year exceed 65 percent of the net income 
from oil, gas, and geothermal properties. This preference does 
not apply to an independent producer to the extent the 
preference would not reduce the producer's AMTI by more than 40 
percent.
      (3) Tax-exempt interest income on private activity bonds 
(other than qualified 501(c)(3) bonds) issued after August 7, 
1986.
      (4) Accelerated depreciation or amortization on certain 
property placed in service before January 1, 1987.

Adjustments in computing AMTI

      The adjustments that corporations must make in computing 
AMTI are:
      (1) Depreciation on property placed in service after 1986 
and before January 1, 1999, must be computed by using the 
generally longer class lives prescribed by the alternative 
depreciation system of section 168(g) and either (a) the 
straight-line method in the case of property subject to the 
straight-line method under the regular tax or (b) the 150-
percent declining balance method in the case of other property. 
Depreciation on property placed in service after December 31, 
1998, is computed by using the regular tax recovery periods and 
the AMT methods described in the previous sentence.
      (2) Mining exploration and development costs must be 
capitalized and amortized over a 10-year period.
      (3) Taxable income from a long-term contract (other than 
a home construction contract) must be computed using the 
percentage of completion method of accounting.
      (4) The amortization deduction allowed for pollution 
control facilities placed in service before January 1, 1999 
(generally determined using 60-month amortization for a portion 
of the cost of the facility under the regular tax), must be 
calculated under the alternative depreciation system 
(generally, using longer class lives and the straight-line 
method). The amortization deduction allowed for pollution 
control facilities placed in service after December 31, 1998, 
is calculated using the regular tax recovery periods and the 
straight-line method.
      (5) The special rules applicable to Merchant Marine 
construction funds are not applicable.
      (6) The special deduction allowable under section 833(b) 
for Blue Cross and Blue Shield organizations is not allowed.
      (7) The adjusted current earnings adjustment, described 
below.

Adjusted current earning (``ACE'') adjustment

      The adjusted current earnings adjustment is the amount 
equal to 75 percent of the amount by which the adjusted current 
earnings (``ACE'') of a corporation exceeds its AMTI 
(determined without the ACE adjustment and the alternative tax 
net operating loss deduction. In determining ACE the following 
rules apply:
      (1) For property placed in service before 1994, 
depreciation generally is determined using the straight-line 
method and the class life determined under the alternative 
depreciation system.
      (2) Any amount that is excluded from gross income under 
the regular tax but is included for purposes of determining 
earnings and profits is included in determining ACE.
      (3) The inside build-up of a life insurance contract is 
included in ACE (and the related premiums are deductible).
      (4) Intangible drilling costs of integrated oil companies 
must be capitalized and amortized over a 60-month period.
      (5) The regular tax rules of section 173 (allowing 
circulation expenses to be amortized) and section 248 (allowing 
organizational expenses to be amortized) do not apply.
      (6) Inventory must be calculated using the FIFO, rather 
than LIFO, method.
      (7) The installment sales method generally may not be 
used.
      (8) No loss may be recognized on the exchange of any pool 
of debt obligations for another pool of debt obligations having 
substantially the same effective interest rates and maturities.
      (9) Depletion (other than for oil and gas) must be 
calculated using the cost, rather than the percentage, method.
      (10) In certain cases, the assets of a corporation that 
has undergone an ownership change must be stepped-down to their 
fair market values.

Other rules

      The combination of the taxpayer's net operating loss 
carryover and foreign tax credits cannot reduce the taxpayer's 
AMT liability by more than 90 percent of the amount determined 
without these items.
      The various nonrefundable business credits allowed under 
the regular tax generally are not allowed against the AMT.
      If a corporation is subject to AMT in any year, the 
amount of tax exceeding the taxpayer's regular tax liability is 
allowed as a credit (the ``AMT credit'') in any subsequent 
taxable year to the extent the taxpayer's regular tax liability 
exceeds its tentative minimum tax in such subsequent year.

                               House Bill

      For taxable years beginning in 2005, the limitation on 
the amount of AMT credits allowable to a corporation will be 
increased by 20 percent of the corporation's tentative minimum 
tax. This percentage is raised to 30, 40 and 50 percent, 
respectively, for 2006, 2007 and 2008. The AMT credit may not 
exceed an amount equal to the sum of the regular tax and 
minimum tax less the other nonrefundable credits.
      For taxable years beginning after 2008, the provision 
repeals the corporate AMT. A corporation then will be allowed 
to use the AMT credit to offset 90 percent of its regular tax 
liability (determined after the application of other 
nonrefundable credits).
      Effective dates.--The provision allowing the AMT credit 
to be offset a portion of the minimum tax applies to taxable 
years beginning after December 31, 2004.
      The provision repealing the AMT applies to taxable years 
beginning after December 31, 2008.

                            Senate Amendment

      The Senate amendment allows a corporation with long-term 
AMT credits to use the AMT credit to offset a portion of its 
tentative minimum tax. The portion so allowed is the least of: 
(1) the amount of the corporation's long-term minimum tax 
credit; (2) 50 percent of the corporation's tentative minimum 
tax; or (3) the amount by which the corporation's tentative 
minimum tax exceeds its regular tax for the taxable year.
      Under the amendment, an AMT credit is a long-term minimum 
tax credit if the credit is attributable to the adjusted net 
minimum tax of the corporation for a taxable year that began 
after 1986 and ended before the fifth taxable year immediately 
preceding the taxable year for which the determination is being 
made.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 2003.

                          Conference Agreement

      The conference agreement allows a corporation to increase 
the use of minimum tax credits to the extent of the lesser of 
50 percent of the tentative minimum tax for the taxable year or 
the excess (if any) of the tentative minimum tax over the 
regular tax for the taxable year.
      The conference agreement also allows a corporation to use 
AMT net operating loss deductions to offset 100 percent (rather 
than 90 percent) of the AMTI.
      Effective dates.--The credit provision applies to taxable 
years beginning after December 31, 2004. The net operating 
deduction provision applies to taxable years beginning after 
December 31, 2001.

C. Repeal of Limitation of Foreign Tax Credit Under Alternative Minimum 
 Tax (sec. 302(b) of the House bill, sec. 907 of the Senate amendment, 
                        and sec. 59 of the Code)


                              Present Law

      Under present law, taxpayers are subject to an 
alternative minimum tax (``AMT''), which is payable, in 
addition to all other tax liabilities, to the extent that it 
exceeds the taxpayer's regular income tax liability. The tax is 
imposed at a flat rate of 20 percent, in the case of corporate 
taxpayers, on alternative minimum taxable income (``AMTI'') in 
excess of a phased-out exemption amount. The maximum rate for 
noncorporate taxpayers is 28 percent. AMTI is the taxpayer's 
taxable income increased for certain tax preferences and 
adjusted by determining the tax treatment of certain items in a 
manner which negates the exclusion or deferral of income 
resulting from the regular tax treatment of those items.
      Taxpayers are permitted to reduce their AMT liability by 
an AMT foreign tax credit. The AMT foreign tax credit for a 
taxable year is determined under principles similar to those 
used in computing the regular tax foreign tax credit, except 
that (1) the numerator of the AMT foreign tax credit limitation 
fraction is foreign source AMTI and (2) the denominator of that 
fraction is total AMTI.\13\ Taxpayers may elect to use as their 
AMT foreign tax credit limitation fraction the ratio of foreign 
source regular taxable income to total AMTI (sec. 59(a)(4)).
---------------------------------------------------------------------------
        \13\ Similar to the regular tax foreign tax credit, the AMT 
foreign tax credit is subject to the separate limitation categories set 
forth in section 904(d). Under the AMT foreign tax credit, however, the 
determination of whether any income is high taxed for purposes of the 
high-tax-kick-out rules (sec. 904(d)(2)) is made on the basis of the 
applicable AMT rate rather than the highest applicable rate of regular 
tax.
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    The AMT foreign tax credit for any taxable year generally 
may not offset a taxpayer's entire pre-credit AMT. Rather, the 
AMT foreign tax credit is limited to 90 percent of AMT computed 
without an AMT net operating loss deduction, an AMT energy 
preference deduction, or an AMT foreign tax credit. For 
example, assume that a corporation has $10 million of AMTI from 
foreign sources, has no AMT net operating loss or energy 
preference deductions, and is subject to the AMT. In the 
absence of the AMT foreign tax credit, the corporation's tax 
liability would be $2 million. Accordingly, the AMT foreign tax 
credit cannot be applied to reduce the taxpayer's tax liability 
below $200,000. Any unused AMT foreign tax credit may be 
carried back 2 years and carried forward 5 years for use 
against AMT in those years under the principles of the foreign 
tax credit carryback and carryforward rules set forth in 
section 904(c).

                               House Bill

      The House bill repeals the 90-percent limitation on the 
utilization of the AMT foreign tax credit.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2001.

                           Senate Amendment 

      The Senate amendment is the same as the House bill, with 
a modification to the effective date.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2004.

                          Conference Agreement

      The conference agreement follows the House bill.

                  IV. EDUCATION TAX RELIEF PROVISIONS


  A. Student Loan Interest Deduction (secs. 112 and 406 of the House 
   bill, sec. 401 of the Senate amendment, and sec. 221 of the Code)


                              Present Law

      Certain individuals who have paid interest on qualified 
education loans may claim an above-the-line deduction for such 
interest expenses, subject to a maximum annual deduction limit 
(sec. 221). The deduction is allowed only with respect to 
interest paid on a qualified education loan during the first 60 
months in which interest payments are required. Required 
payments of interest generally do not include nonmandatory 
payments, such as interest payments made during a period of 
loan forbearance. Months during which interest payments are not 
required because the qualified education loan is in deferral or 
forbearance do not count against the 60-month period. No 
deduction is allowed to an individual if that individual is 
claimed as a dependent on another taxpayer's return for the 
taxable year.
      A qualified education loan generally is defined as any 
indebtedness incurred solely to pay for certain costs of 
attendance (including room and board) of a student (who may be 
the taxpayer, the taxpayer's spouse, or any dependent of the 
taxpayer as of the time the indebtedness was incurred) who is 
enrolled in a degree program on at least a half-time basis at 
(1) an accredited post-secondary educational institution 
defined by reference to section 481 of the Higher Education Act 
of 1965, or (2) an institution conducting an internship or 
residency program leading to a degree or certificate from an 
institution of higher education, a hospital, or a health care 
facility conducting postgraduate training.
      The maximum allowable deduction per taxpayer return is 
$1,500 in 1999, $2,000 in 2000, and $2,500 in 2001 and 
thereafter.\14\ The deduction is phased out ratably for 
individual taxpayers with modified adjusted gross income 
(``AGI'') of $40,000-$55,000 and $60,000-$75,000 for joint 
returns. The income ranges will be indexed for inflation after 
2002.
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        \14\ The maximum allowable deduction for 1998 was $1,000.
---------------------------------------------------------------------------

                              House Bill 

      The House bill increases the beginning point of the 
income phaseout for the student loan interest deduction for 
taxpayers filing joint returns to twice the beginning point of 
the income phaseouts applicable to single taxpayers and doubles 
the phaseout range for joint filers. The House bill also 
repeals both the limit on the number of months during which 
interest paid on a qualified education loan is deductible and 
the restriction that nonmandatory payments of interest are not 
deductible.
      Effective date.--The House bill generally is effective 
for taxable years beginning after December 31, 1999. The House 
bill provision repealing the 60-month limit on deductible 
student loan interest is effective for interest paid on 
qualified education loans after December 31, 1999.

                           Senate Amendment 

      The Senate amendment is the same as the House bill, 
except that it increases the beginning point of the income 
phaseout for the student loan interest deduction for individual 
taxpayers from $40,000 to $50,000 and does not double the 
phaseout range for joint filers. Like the House bill, the 
Senate amendment increases the beginning point of the income 
phaseout for taxpayers filing joint returns to twice the 
beginning point of the income phaseouts applicable to single 
taxpayers.
      Effective date.--The Senate amendment generally is 
effective generally for taxable years ending after December 31, 
1999. The Senate amendment provision repealing the 60-month 
limit on deductible student loan interest is effective for 
interest paid on qualified education loans after December 31, 
1999, in taxable years ending after such date.

                         Conference Agreement 

      The conference agreement follows the Senate amendment, 
with the modification that the beginning point of the income 
phaseout for individual taxpayers is $45,000. Thus, beginning 
in 2000, the deduction will be phased out ratably for 
individual taxpayers with modified AGI of $45,000 to $60,000 
and for taxpayers filing joint returns with modified AGI of 
$90,000-$105,000.

 B. Expand Education Savings Accounts (sec. 401 of the House bill and 
                    secs. 530 and 4973 of the Code)


                              Present Law


In general

      Section 530 provides tax-exempt status to education 
individual retirement accounts (``education IRAs''), meaning 
certain trusts (or custodial accounts) which are created or 
organized in the United States exclusively for the purpose of 
paying the qualified higher education expenses of a named 
beneficiary.\15\ Contributions to education IRAs may be made 
only in cash. Annual contributions to education IRAs may not 
exceed $500 per designated beneficiary (except in cases 
involving certain tax-free rollovers, as described below), and 
may not be made after the designated beneficiary reaches age 
18.\16\ Moreover, an excise tax is imposed if a contribution is 
made by any person to an education IRA established on behalf of 
a beneficiary during any taxable year in which any 
contributions are made by anyone to a qualified State tuition 
program (defined under sec. 529) on behalf of the same 
beneficiary.
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        \15\ Education IRAs generally are not subject to Federal income 
tax, but are subject to the unrelated business income tax (``UBIT'') 
imposed by section 511.
        \16\ An excise tax may be imposed under present law to the 
extent that excess contributions above the $500 annual limit are made 
to an education IRA.
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Phase-out of contribution limit

      The $500 annual contribution limit for education IRAs is 
phased out ratably for contributors with modified adjusted 
gross income (``AGI'') between $95,000 and $110,000 (between 
$150,000 and $160,000 for joint returns). Individuals with 
modified AGI above the phase-out range are not allowed to make 
contributions to an education IRA established on behalf of any 
individual.

Treatment of distributions

      Amounts distributed from an education IRA are excludable 
from gross income to the extent that the amounts distributed do 
not exceed qualified higher education expenses of the 
designated beneficiary incurred during the year the 
distribution is made (provided that a HOPE credit or Lifetime 
Learning credit is not claimed with respect to the beneficiary 
for the same taxable year). Distributions from an education IRA 
are generally deemed to consist of distributions of principal 
(which, under all circumstances, are excludable from gross 
income) and earnings (which may be excludable from gross 
income) by applying the ratio that the aggregate amount of 
contributions to the account for the beneficiary bears to the 
total balance of the account. If the qualified higher education 
expenses of the student for the year are at least equal to the 
total amount of the distribution (i.e., principal and earnings 
combined) from an education IRA, then the earnings in their 
entirety are excludable from gross income. If, on the other 
hand, the qualified higher education expenses of the student 
for the year are less than the total amount of the distribution 
(i.e., principal and earnings combined) from an education IRA, 
then the qualified higher education expenses are deemed to be 
paid from a pro-rata share of both the principal and earnings 
components of the distribution. Thus, in such a case, only a 
portion of the earnings are excludable (i.e., a portion of the 
earnings based on the ratio that the qualified higher education 
expenses bear to the total amount of the distribution) and the 
remaining portion of the earnings is includible in the 
distributee's gross income.
      To the extent that a distribution exceeds qualified 
higher education expenses of the designated beneficiary, an 
additional 10-percent tax is imposed on the earnings portion of 
such excess distribution, unless such distribution is made on 
account of the death or disability of, or scholarship received 
by, the designated beneficiary. The additional 10-percent tax 
also does not apply to the distribution of any contribution to 
an education IRA made during the taxable year if such 
distribution is made on or before the date that a return is 
required to be filed (including extensions of time) by the 
beneficiary for the taxable year during which the contribution 
was made (or, if the beneficiary is not required to file such a 
return, April 15th of the year following the taxable year 
during which the contribution was made).
      Present law allows tax-free transfers or rollovers of 
account balances from one education IRA benefitting one 
beneficiary to another education IRA benefitting another 
beneficiary (as well as redesignations of the named 
beneficiary), provided that the new beneficiary is a member of 
the family of the old beneficiary. For this purpose, a ``member 
of the family'' means persons described in paragraphs (1) 
through (8) of section 152(a)--e.g., sons, daughters, brothers, 
sisters, nephews and nieces, certain in-laws--and any spouse of 
such persons or of the original beneficiary.
      Any balance remaining in an education IRA is deemed to be 
distributed within 30 days after the date that the named 
beneficiary reaches age 30 (or, if earlier, within 30 days of 
the date that the beneficiary dies).

Qualified higher education expenses

      The term ``qualified higher education expenses'' includes 
tuition, fees, books, supplies, and equipment required for the 
enrollment or attendance of the designated beneficiary at an 
eligible education institution, regardless of whether the 
beneficiary is enrolled at an eligible educational institution 
on a full-time, half-time, or less than half-time basis. 
Moreover, the term ``qualified higher education expenses'' 
includes certain room and board expenses for any period during 
which the beneficiary is at least a half-time student. 
Qualified higher education expenses include expenses with 
respect to undergraduate or graduate-level courses. In 
addition, qualified higher education expenses include amounts 
paid or incurred to purchase tuition credits (or to make 
contributions to an account) under a qualified State tuition program, 
as defined in section 529, for the benefit of the beneficiary of the 
education IRA.
      Qualified higher education expenses generally include 
only out-of-pocket expenses. Such qualified higher education 
expenses do not include expenses covered by educational 
assistance for the benefit of the beneficiary that is 
excludable from gross income. Thus, total qualified higher 
education expenses are reduced by scholarship or fellowship 
grants excludable from gross income under present-law section 
117, as well as any other tax-free educational benefits, such 
as employer-provided educational assistance that is excludable 
from the employee's gross income under section 127.\17\
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        \17\ No reduction of qualified higher education expenses is 
required, however, for a gift, bequest, devise, or inheritance.
---------------------------------------------------------------------------
      Present law also provides that, if any qualified higher 
education expenses are taken into account in determining the 
amount of the exclusion for a distribution from an education 
IRA, then no deduction (e.g., for trade or business expenses 
deductible under sec. 162), or exclusion (e.g., for expenses 
paid with interest on education savings bonds excludable under 
sec. 135), or credit is allowed with respect to such expenses.

Eligible educational institution

      Eligible educational institutions are defined by 
reference to section 481 of the Higher Education Act of 1965. 
Such institutions generally are accredited post-secondary 
educational institutions offering credit toward a bachelor's 
degree, an associate's degree, a graduate-level or professional 
degree, or another recognized post-secondary credential. 
Certain proprietary institutions and post-secondary vocational 
institutions also are eligible institutions. The institution 
must be eligible to participate in Department of Education 
student aid programs.

                               House Bill


Annual contribution limit

      The House bill increases the annual education IRA 
contribution limit to $2,000. Thus, in years beginning after 
2000, aggregate contributions that can be made by all 
contributors to one (or more) education IRAs established on 
behalf of any particular beneficiary are limited to $2,000 for 
each year.

Qualified expenses

      The House bill expands the definition of qualified 
education expenses that may be paid with tax-free distributions 
from an education IRA for distributions made in taxable years 
beginning after December 31, 2000. Specifically, the definition 
of qualified education expenses is expanded to include 
``qualified elementary and secondary education expenses,'' 
meaning (1) tuition, fees, academic tutoring, special needs 
services, books, supplies, and equipment (including computers 
and related software and services) incurred in connection with 
the enrollment or attendance of the designated beneficiary as 
an elementary or secondary student at a public, private, or 
religious school providing elementary or secondary education 
(kindergarten through grade 12), and (2) room and board, 
uniforms, transportation, and supplementary items and services 
(including extended-day programs) required or provided by such 
a school in connection with such enrollment or attendance of 
the designated beneficiary.\18\ ``Qualified elementary and 
secondary education expenses'' also include certain 
homeschooling education expenses if the requirements of any 
applicable State or local law are met with respect to such 
homeschooling.
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        \18\ Contributions made to education IRAs prior to December 31, 
2000, (and earnings thereon) may be used for distributions for 
qualified elementary and secondary education expenses made after 
January 1, 2001. Thus, it is not necessary for trustees of education 
IRAs to keep separate accounts with respect to contributions made prior 
to January 1, 2001, and earnings thereon.
---------------------------------------------------------------------------
      Under the House bill, the definition of ``qualified 
higher education expenses'' is modified to mean: (1) tuition 
and fees required for the enrollment or attendance of a 
designated beneficiary at an eligible education institution, 
and (2) expenses for books, supplies, and equipment incurred in 
connection with such enrollment or attendance (but not in 
excess of the allowance for books and supplies determined by 
the educational institution for purposes of Federal financial 
assistance programs).\19\ The House bill also provides that 
``qualified higher education expenses'' does not include 
expenses for education involving sports, games, or hobbies 
unless this education is part of the student's degree program 
or is taken to acquire or improve job skills of the individual. 
The House bill does not change the definition of ``qualified 
higher education expenses'' with respect to expenses for room 
and board.
---------------------------------------------------------------------------
        \19\ ``Qualified higher education expenses'' for purposes of 
education IRAs are defined by reference to the definition of such 
expenses for purposes of qualified State tuition programs (sec. 
530(b)(2)(A)). Because the House bill modifies the definition of 
``qualified higher education expenses'' for purposes of qualified State 
tuition programs (sec. 529(e)(3)), the definition of ``qualified higher 
education expenses'' for education IRAs is also modified.
---------------------------------------------------------------------------

                      Special needs beneficiaries

      The House bill also provides that, although contributions 
to an education IRA generally may not be made after the 
designated beneficiary reaches age 18, contributions may 
continue to be made to an education IRA in the case of a 
special needs beneficiary (as defined by Treasury Department 
regulations). In addition, under the House bill, in the case of 
a special needsbeneficiary, a deemed distribution of any 
balance in an education IRA will not occur when the beneficiary reaches 
age 30.

Contributions by persons other than individuals

      The House bill clarifies that corporations and other 
entities (including tax-exempt organizations) are permitted to 
make contributions to education IRAs, regardless of the income 
of the corporation or entity during the year of the 
contribution. As under present law, the eligibility of high-
income individuals to make contributions to education IRAs is 
phased out ratably for individuals with modified AGI between 
$95,000 and $110,000 ($150,000 and $160,000 for joint returns).

Contributions permitted until April 15

      Under the House bill, individual contributors to 
education IRAs are deemed to have made a contribution on the 
last day of the preceding taxable year if the contribution is 
made on account of such taxable year and is made not later than 
the time prescribed by law for filing the return for such 
taxable year (not including extensions), generally April 15. 
\20\ The House bill also provides that the additional 10-
percent tax does not apply to the distribution of any 
contribution to an education IRA made during the taxable year 
if such distribution is made on or before the first day of the 
sixth month of the taxable year (generally June 1) following 
the taxable year during which the contribution was or was 
deemed made.
---------------------------------------------------------------------------
        \20\ Trustees of education IRAs will require documentation from 
a contributor (whether an individual, corporation, or other entity) 
indicating the taxable year to which the contribution should be 
allocated.
---------------------------------------------------------------------------

Coordination with HOPE and Lifetime Learning credits

      For distributions made after December 31, 2000, the House 
bill allows a taxpayer to claim a HOPE credit or Lifetime 
Learning credit for a taxable year and to exclude from gross 
income amounts distributed (both the principal and the earnings 
portions) from an education IRA on behalf of the same student 
as long as the distribution is not used for the same 
educational expenses for which a credit was claimed.

Coordination with qualified tuition programs

      The House bill repeals the excise tax on contributions 
made by any person to an education IRA on behalf of a 
beneficiary during any taxable year in which any contributions 
are made by anyone to a qualified State tuition program on 
behalf of the same beneficiary (sec. 4973(e)(1)(B)).

Change name to ``Education Savings Accounts''

      The House bill changes the name of education IRAs to 
``Education Savings Accounts.''

Effective date

      The House bill provisions modifying education IRAs 
generally are effective for taxable years beginning after 
December 31, 2000. The House bill provision modifying the 
definition of ``qualified higher education expenses'' applies 
to amounts paid for education furnished after December 31, 
1999, the same date that this provision is effective for 
qualified state tuition plans described in section 529. The 
House bill provision changing the name of education IRAs to 
Education Savings Accounts is effective on the date of 
enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

   C. Allow Tax-free Distributions From State and Private Education 
Programs (sec. 402 of the House bill, sec. 402 of the Senate amendment, 
                       and sec. 529 of the Code)


                              Present Law

      Section 529 provides tax-exempt status to ``qualified 
State tuition programs,'' meaning certain programs established 
and maintained by a State (or agency or instrumentality 
thereof) under which persons may (1) purchase tuition credits 
or certificates on behalf of a designated beneficiary that 
entitle the beneficiary to a waiver or payment of qualified 
higher education expenses of the beneficiary, or (2) make 
contributions to an account that is established for the purpose 
of meeting qualified higher education expenses of the 
designated beneficiary of the account (a ``savings account 
plan''). The term ``qualified higher education expenses'' 
generally has the same meaning as does the term for purposes of 
education IRAs (as described above) and, thus, includes 
expenses for tuition, fees, books, supplies, and equipment 
required for the enrollment or attendance at an eligible 
educational institution,\21\ as well as certain room and board 
expenses for any period during which the student is at least a 
half-time student.
---------------------------------------------------------------------------
        \21\ ``Eligible educational institutions'' are defined the same 
for purposes of education IRAs and qualified State tuition programs.
---------------------------------------------------------------------------
      No amount is included in the gross income of a 
contributor to, or beneficiary of, a qualified State tuition 
program with respect to any distribution from, or earnings 
under, such program, except that (1) amounts distributed or 
educational benefits provided to a beneficiary (e.g., when the 
beneficiary attends college) are included in the beneficiary's 
gross income (unless excludable under another Code section) to 
the extent such amounts or the value of the educational 
benefits exceed contributions made on behalf of the 
beneficiary, and (2) amounts distributed to a contributor 
(e.g., when a parent receives a refund) are included in the 
contributor's gross income to the extent such amounts exceed 
contributions made on behalf of the beneficiary. \22\
---------------------------------------------------------------------------
        \22\ Distributions from qualified State tuition programs are 
treated as representing a pro-rata share of the principal (i.e., 
contributions) and accumulated earnings in the account.
---------------------------------------------------------------------------
      A qualified State tuition program is required to provide 
that purchases or contributions only be made in cash. \23\ 
Contributors and beneficiaries are not allowed to directly or 
indirectly direct the investment of contributions to the 
program (or earnings thereon). The program is required to 
maintain a separate accounting for each designated beneficiary. 
A specified individual must be designated as the beneficiary at 
the commencement of participation in a qualified State tuition 
program (i.e., when contributions are first made to purchase an 
interest in such a program), unless interests in such a program 
are purchased by a State or local government or a tax-exempt 
charity described in section 501(c)(3) as part of a scholarship 
program operated by such government or charity under which 
beneficiaries to be named in the future will receive such 
interests as scholarships. A transfer of credits (or other 
amounts) from one account benefitting one designated 
beneficiary to another account benefitting a different 
beneficiary is considered a distribution (as is a change in the 
designated beneficiary of an interest in a qualified State 
tuition program), unless the beneficiaries are members of the 
same family. For this purpose, the term ``member of the 
family'' means persons described in paragraphs (1) through (8) 
of section 152(a)--e.g., sons, daughters, brothers, sisters, 
nephews and nieces, certain in-laws--and any spouse of such 
persons or of the original beneficiary. Earnings on an account 
may be refunded to a contributor or beneficiary, but the State 
or instrumentality must impose a more than de minimis monetary 
penalty unless the refund is (1) used for qualified higher 
education expenses of the beneficiary, (2) made on account of 
the death or disability of the beneficiary, or (3) made on 
account of a scholarship received by the designated beneficiary 
to the extent the amount refunded does not exceed the amount of 
the scholarship used for higher education expenses.
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        \23\ Sections 529(c)(2), (c)(4), and (c)(5), and section 
530(d)(3) provide special estate and gift tax rules for contributions 
made to, and distributions made from, qualified State tuition programs 
and education IRAs.
---------------------------------------------------------------------------
      To the extent that a distribution from a qualified State 
tuition program is used to pay for qualified tuition and 
related expenses (as defined in sec. 25A(f)(1)), the 
distributee (or another taxpayer claiming the distributee as a 
dependent) may claim the HOPE credit or Lifetime Learning 
credit under section 25A with respect to such tuition and 
related expenses (assuming that the other requirements for 
claiming the HOPE credit or Lifetime Learning credit are 
satisfied and the modified AGI phaseout for those credits does 
not apply).

                               House Bill


Qualified tuition program

      The House bill expands the definition of ``qualified 
tuition program'' to include certain prepaid tuition programs 
established and maintained by one or more eligible educational 
institutions (which may be private institutions) that satisfy 
the requirements under section 529 (other than the present-law 
State sponsorship rule). In the case of a qualified tuition 
program maintained by one or more private educational 
institutions, persons will be able to purchase tuition credits 
or certificates on behalf of a designated beneficiary (as 
described in section 529(b)(1)(A)(i)), but will not be able to 
make contributions to a savings account plan (described in 
section 529(b)(1)(A)(ii)).

Exclusion from gross income

      Under the House bill, an exclusion from gross income is 
provided for distributions made in taxable years beginning 
after December 31, 2000, from qualified State tuition programs 
to theextent that the distribution is used to pay for qualified 
higher education expenses. This exclusion from gross income is extended 
to distributions from qualified tuition programs established and 
maintained by an entity other than a State or agency or instrumentality 
thereof, for distributions made in taxable years after December 31, 
2003.
      The House bill also allows a taxpayer to claim a HOPE 
credit or Lifetime Learning credit for a taxable year and to 
exclude from gross income amounts distributed (both the 
principal and the earnings portions) from a qualified tuition 
program on behalf of the same student as long as the 
distribution is not used for the same expenses for which a 
credit was claimed.

Definition of qualified higher education expenses

      Under the House bill, the definition of ``qualified 
higher education expenses'' is modified to mean: (1) tuition 
and fees required for the enrollment or attendance of a 
designated beneficiary at an eligible educational institution, 
and (2) expenses for books, supplies, and equipment incurred in 
connection with such enrollment or attendance (but not in 
excess of the allowance for books and supplies determined by 
the educational institution for purposes of Federal financial 
assistance programs). \24\ The House bill also provides that 
``qualified higher education expenses'' will not include 
expenses for education involving sports, games, or hobbies 
unless this education is part of the student's degree program 
or is taken to acquire or improve job skills of the individual. 
The bill does not change the definition of ``qualified higher 
education expenses'' with respect to expenses for room and 
board.
---------------------------------------------------------------------------
        \24\ The conferees intend that, with respect to a distribution 
made from a qualified tuition program that does not exceed the 
allowance for books and supplies determined for purposes of Federal 
financial assistance by the eligible educational institution where the 
beneficiary is enrolled, Treasury regulations will provide that 
beneficiaries need not substantiate actual purchases of books, 
supplies, and equipment.
---------------------------------------------------------------------------

Rollovers for benefit of same beneficiary

      The House bill provides that a transfer of credits (or 
other amounts) from one qualified tuition program for the 
benefit of a designated beneficiary to another qualified 
tuition program for the benefit of the same beneficiary will 
not be considered a distribution for a maximum of one such 
transfer in each 1-year period.

Member of family

      The House bill further provides that, for purposes of 
tax-free rollovers and changes of designated beneficiaries, a 
``member of the family'' includes first cousins of such 
beneficiary.

Effective date

      The House bill provision permitting the establishment of 
qualified tuition programs maintained by one or more private 
educational institutions is effective for taxable years 
beginning after December 31, 2000. The exclusion from gross 
income for certain distributions from qualified State tuition 
programs under section 529 is effective for distributions made 
in taxable years beginning after December 31, 2000. In the case 
of a qualified tuition program established and maintained by an 
entity other than a State or agency or instrumentality thereof, 
the House bill provision allowing an exclusion from gross 
income for certain distributions is effective for distributions 
made in taxable years beginning after December 31, 2003. The 
House bill provision coordinating distributions from qualified 
tuition programs with the HOPE and Lifetime Learning credits is 
effective for distributions made after December 31, 2000. The 
House bill provision modifying the definition of qualified 
higher education expenses is effective for amounts paid for 
education furnished after December 31, 1999. The House bill 
provisions allowing rollovers for the same beneficiary and 
including first cousins as a member of the family are effective 
for taxable years beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that it provides for coordination of the HOPE credit or 
Lifetime Learning credit with distributions from education 
individual retirement accounts (``education IRAs'') (in 
addition to distributions from qualified tuition plans) as long 
as the distributions are not used for the same expenses for 
which a credit was claimed. The Senate amendment also provides 
that the section may be cited as the ``Collegiate Learning and 
Student Savings (CLASS) Act.''
      Effective date.--The Senate amendment provision 
permitting the establishment of qualified tuition programs 
maintained by one or more private educational institutions is 
effective for taxable years beginning after December 31, 1999. 
The exclusion from gross income for certain distributions from 
qualified State tuition programs under section 529 is effective 
for distributions made in taxable years beginning after 
December 31, 1999. In the case of a qualified tuition program 
established and maintained by an entity other than a State or 
agency or instrumentality thereof, the Senate amendment 
provision allowing an exclusion from gross income for certain 
distributions is effective for distributions made in taxable 
years beginning after December 31, 2003. The Senate amendment 
provision coordinating distributions from qualified tuition 
programs and education IRAs with the HOPE and Lifetime Learning 
credits is effective for distributions made after December 31, 
1999. The Senate amendment provision modifying the definition 
of qualified higher education expenses is effective for amounts 
paid for courses beginning after December 31, 1999. The 
provisions allowing rollovers for the same beneficiary and 
including first cousins as a member of the family is effective 
for taxable years beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
except that the provision coordinating the HOPE and Lifetime 
Learning credits with distributions from education IRAs is not 
included because this provision is included in the conference 
agreement provision for education IRAs.

    D. Eliminate Tax on Awards under National Health Service Corps 
 Scholarship Program, F. Edward Hebert Armed Forces Health Professions 
 Scholarship and Financial Assistance Program, National Institutes of 
 Health Undergraduate Scholarship Program, and Certain State-Sponsored 
    Scholarship Programs (sec. 403 of the House bill and the Senate 
                  amendment and sec. 117 of the Code)


                              Present Law

      Section 117 excludes from gross income qualified 
scholarships received by an individual who is a candidate for a 
degree and used for tuition and fees required for the 
enrollment or attendance (or for fees, books, supplies, and 
equipment required for courses of instruction) at a primary, 
secondary, or post-secondary educational institution. The tax-
free treatment provided by section 117 does not extend to 
scholarship amounts covering regular living expenses, such as 
room and board. In addition to the exclusion for qualified 
scholarships, section 117 provides an exclusion from gross 
income for qualified tuition reductions for certain education 
provided to employees (and their spouses and dependents) of 
certain educational organizations.
      Section 117(c) specifically provides that the exclusion 
for qualified scholarships and qualified tuition reductions 
does not apply to any amount received by a student that 
represents payment for teaching, research, or other services by 
the student required as a condition for receiving the 
scholarship or tuition reduction.
      The National Health Service Corps Scholarship Program 
(the ``NHSC Scholarship Program''), the F. Edward Hebert Armed 
Forces Health Professions Scholarship and Financial Assistance 
Program (the ``Armed Forces Scholarship Program''), and the 
National Institutes of Health Undergraduate Scholarship Program 
(the ``NIH Scholarship Program'') provide education awards to 
participants on condition that the participants provide certain 
services. In the case of the NHSC Program, the recipient of the 
scholarship is obligated to provide medical services in a 
geographic area (or to an underserved population group or 
designated facility) identified by the Public Health Service as 
having a shortage of health-care professionals. In the case of 
the Armed Forces Scholarship Program, the recipient of the 
scholarship is obligated to serve a certain number of years in 
the military at an armed forces medical facility. The National 
Institutes of Health Undergraduate Scholarship Program (the 
``NIH Scholarship Program'') awards scholarships to students 
from disadvantaged backgrounds interested in pursuing a career 
in biomedical research. In exchange, the recipients must work 
for the National Institutes of Health after graduation. Several 
States also provide a limited number of scholarships to 
students in health professions who are obligated to work in 
underserved areas for a period of time after graduation. 
Because the recipients of scholarships in all of these programs 
are required to perform services in exchange for the education 
awards, the awards used to pay higher education expenses are 
taxable income to the recipient.

                               House Bill

      The House bill provides that amounts received by an 
individual under the NHSC Scholarship Program, the Armed Forces 
Scholarship Program, the NIH Scholarship Program, or any State-
sponsored health scholarship program determined by the 
Secretary of the Treasury to have substantially similar 
objectives to these programs are eligible for tax-free 
treatment as qualified scholarships under section 117, without 
regard to any service obligation by the recipient. As with 
other qualified scholarships under section 117, the tax-free 
treatment does not apply to amounts received by students for 
regular living expenses, including room and board.
      Effective date.--The House bill is effective for 
education awards received under the NHSC Scholarship Program, 
the Armed Forces Scholarship Program, and the NIH Scholarship 
Program after December 31, 1993. The House bill is effective 
for education awards received under any State-sponsored health 
scholarship program designated by the Secretary of the Treasury 
after December 31, 1999.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that it does not extend the exclusion from gross income 
to the NIH Scholarship Program or State-sponsored health 
scholarship programs.

                          Conference Agreement

      The conference agreement follows the House bill.

E. Exclusion for Employer-Provided Educational Assistance (sec. 404 of 
             the Senate amendment and sec. 127 of the Code)


                              Present Law

      Educational expenses paid by an employer for its 
employees are generally deductible to the employer.
      Employer-paid educational expenses are excludable from 
the gross income and wages of an employee if provided under a 
section 127 educational assistance plan or if the expenses 
qualify as a working condition fringe benefit under section 
132. Section 127 provides an exclusion of $5,250 annually for 
employer-provided educational assistance. The exclusion does 
not apply to graduate courses. The exclusion for employer-
provided educational assistance expires with respect to courses 
beginning on or after June 1, 2000.
      In order for the exclusion to apply, certain requirements 
must be satisfied. The educational assistance must be provided 
pursuant to a separate written plan of the employer. The 
educational assistance program must not discriminate in favor 
of highly compensated employees. In addition, not more than 5 
percent of the amounts paid or incurred by the employer during 
the year for educational assistance under a qualified 
educational assistance plan can be provided for the class of 
individuals consisting of more than 5-percent owners of the 
employer (and their spouses and dependents).
      Educational expenses that do not qualify for the section 
127 exclusion may be excludable from income as a working 
condition fringe benefit.\25\ In general, education qualifies 
as a working condition fringe benefit if the employee could 
have deducted the education expenses under section 162 if the 
employee paid for the education. In general, education expenses 
are deductible by an individual under section 162 if the 
education (1) maintains or improves a skill required in a trade 
or business currently engaged in by the taxpayer, or (2) meets 
the express requirements of the taxpayer's employer, applicable 
law or regulations imposed as a condition of continued 
employment. However, education expenses are generally not 
deductible if they relate to certain minimum educational 
requirements or to education or training that enables a 
taxpayer to begin working in a new trade or business.\26\
---------------------------------------------------------------------------
        \25\ These rules also apply in the event that section 127 
expires and is not reinstated.
        \26\ In the case of an employee, education expenses (if not 
reimbursed by the employer) may be claimed as an itemized deduction 
only if such expenses, along with other miscellaneous deductions, 
exceed 2 percent of the taxpayer's AGI. The 2-percent floor limitation 
is disregarded in determining whether an item is excludable as a 
working condition fringe benefit.
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      The provision extends the exclusion for employer-provided 
educational assistance through 2003, thus, the exclusion is not 
available with respect to courses beginning after December 31, 
2003. The provision also extends the exclusion to graduate 
education, effective for courses beginning on or after January 
1, 2000, and before January 1, 2004.
      Effective date.--The provision is generally effective on 
the date of enactment.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
with respect to the extension of the exclusion as applied to 
undergraduate education, but does not include the extension of 
the exclusion to graduate education.

F. Liberalize Tax-Exempt Financing Rules for Public School Construction 
     (secs. 404-405 of the House bill, secs. 405-407 of the Senate 
          amendment, and secs. 103, 148, and 149 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. 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.
      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.

Restriction on Federal guarantees of tax-exempt bonds

      Unlike interest on State or local government bonds, 
interest on Federal debt (e.g., Treasury bills) is taxable. 
Generally, interest on State and local government bonds that 
are Federally guaranteed does not qualify for tax-exemption. 
This restriction was enacted in 1984. The 1984 legislation 
included exceptions for housing bonds and for certain other 
Federal insurance programs that were in existence when the 
restriction was enacted.
            Qualified zone academy bonds
      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, a 
total of$400 million of qualified zone academy bonds may be 
issued in each of 1998 and 1999. The $400 million aggregate bond 
authority is allocated each year to 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.

1. Increase amount of governmental bonds that may be issued by 
        governments qualifying for the ``small governmental unit'' 
        arbitrage rebate exception

                               House Bill

      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.
      Effective date.--The provision is effective for bonds 
issued in calendar years beginning after December 31, 1999.

                            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.

2. Liberalize construction bond expenditure rule for governmental bonds 
        for public schools

                               House Bill

      The present-law 24-month expenditure exception to the 
arbitrage rebate requirement are liberalized for certain public 
school bonds. Under the bill, 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:




12 months.................................  At least 10 percent.
24 months.................................  At least 30 percent.
12 months.................................  At least 10 percent.
36 months.................................  At least 60 percent.
48 months.................................  100 percent (less present-
                                             law retainage amounts which
                                             must be spent within 60
                                             months of issuance).



      Effective date.--The provision applies to bonds issued in 
calendar years beginning after 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

3. Allow issuance of tax-exempt private activity bonds for public 
        school facilities

                               House Bill

      No provision.

                            Senate Amendment

      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.--The provision applies to bonds issued 
after December 31, 1999.

                          Conference Agreement

      The conference does not include the Senate amendment 
provision.

4. Permit limited Federal guarantees of school construction bonds by 
        the Federal Housing Finance Board

                               House Bill

      No provision.

                            Senate Amendment

      The Federal Housing Finance Board is permitted to 
authorize the regional Federal Home Loan Banks in its system to 
guarantee limited amounts of public school bonds. Eligible 
bonds are governmental bonds with respect to which 95 percent 
of more of the proceeds are used for public school 
construction. The aggregate amount of bonds which may be 
guaranteed by all such Banks pursuant to this provision is $500 
million per year.
      Effective date.--The provision will become effective upon 
enactment (after the date of enactment of the amendment) of 
legislation authorizing the Federal Housing Finance Board and 
Federal Home Loan Banks to provide the guarantees.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

G. Expansion of Deduction for Computer Donations to Schools (sec. 1124 
        of the Senate amendment 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 basis.
      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

      The Senate amendment makes the augmented deduction of 
section 170(e)(6) available for gifts made no later than three 
years after the date the taxpayer acquired or substantially 
completed the construction of the donated property. The Senate 
amendment also modifies the current-law original use 
requirement (i.e., the original use of the donated property 
must be the donor or the donee) by making the deduction 
available to donors who reacquire computers prior to donation. 
Thus, a corporation would be permitted to donate computers that 
were traded in or returned to them under a lease program.
      Effective date.--The Senate amendment is effective for 
contributions made in taxable years ending after the date of 
enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

 H. Credit for Computer Donations to Schools and Senior Centers (sec. 
       1125 of the Senate amendment and new sec. 45E 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 basis.
      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. 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. 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.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment permits businesses to claim a tax 
credit in lieu of the augmented deduction for qualified 
contributions of computer technology and equipment, as defined 
undersection 170(e)(6)(B).\27\ In addition, the Senate 
amendment allows businesses to claim a credit for contributions of 
computer technology or equipment to multipurpose senior centers (as 
defined by reference to the Older Americans Act of 1965) for use by 
individuals who are at least 60 years old to improve job skills in 
computers.
---------------------------------------------------------------------------
        \27\ In addition, the Senate amendment provides that the term 
``qualified computer contribution,'' for purposes of the computer 
donation credit, includes a computer only if the computer software that 
serves as the computer's operating system has been lawfully installed.
---------------------------------------------------------------------------
      The credit is equal to 30 percent of the amount 
calculated for purposes of determining the augmented deduction 
under section 170(e)(6)(A) (i.e., the lesser of 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 twice basis). If the donee is a qualified educational 
organization or senior center located in an empowerment zone, 
enterprise community, or Indian reservation (as defined in sec. 
168(j)(6)), the proposed credit would be equal to 50 percent of 
the amount calculated for purposes of determining the augmented 
deduction under section 170(e)(6)(A). No deduction is allowed 
for the portion of computer donations made during a taxable 
year that is equal to the amount of the credit claimed during 
the year.
      Effective date.--The Senate amendment provision providing 
a 30-percent credit for qualified computer donations is 
effective for contributions made in taxable years beginning one 
year after the date of enactment and before taxable years 
beginning on or after the date which is three years after the 
date of enactment. The Senate amendment provision providing a 
50-percent credit for qualified computer donations to eligible 
recipients in empowerment zones, enterprise communities, and 
Indian reservations is effective for contributions made during 
taxable years beginning after the date of enactment and before 
taxable years beginning on or after the date which is three 
years after the date of enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

I. Two-Percent Floor Not To Apply to Professional Development Expenses 
of Teachers (sec. 1123 of the Senate amendment and sec. 67 of the Code)


                              Present Law

      In general, taxpayers are not permitted to deduct 
education expenses. However, employees may deduct the cost of 
certain work-related education. For costs to be deductible, the 
education must either be required by the taxpayer's employer or 
by law to retain taxpayer's current job or be necessary to 
maintain or improve skills required in the taxpayer's current 
job. Expenses incurred for education that is necessary to meet 
minimum education requirements of an employee's present trade 
or business or that can qualify an employee for a new trade or 
business are not deductible.
      An employee is allowed to deduct work-related education 
and other business expenses only to the extent such expenses 
(together with other miscellaneous itemized deductions) exceed 
2 percent of the taxpayer's adjusted gross income.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment provides that qualified professional 
development expenses incurred by an elementary or secondary 
school teacher (including instructors, aides, counselors and 
principals) with respect to certain courses of instruction 
would not be subject to the 2-percent floor on miscellaneous 
itemized deductions. Qualified professional development 
expenses are expenses for tuition, fees, books, supplies, 
equipment, and transportation required for enrollment or 
attendance in a qualified course of instruction, provided that 
such expenses are otherwise deductible under present law. A 
qualified course of instruction means a professional conference 
or a course of instruction at an institution of higher 
education (as defined in sec. 481 of the Higher Education Act 
of 1965), and which is part of a program of professional 
development that is approved and certified by the appropriate 
local educational agency as furthering the individual's 
teaching skills.
      Additionally, the 2-percent floor would not apply to 
incidental expenses paid by an eligible teacher in an amount 
not greater than $125 for any taxable year for books, supplies 
and equipment related to instruction, teaching, or other 
educational job-related activities of the teacher. The 
exception to the 2-percent for incidental expenses would also 
apply to homeschooling if the requirements of applicable State 
or local law are met with respect to the homeschooling.
      Effective date.--Taxable years beginning after December 
31, 2000, and ending on or before December 31, 2004.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
with modifications. The conference agreement provides an 
exception to the 2-percent floor for the qualified professional 
development expenses of eligible teachers, not to exceed $1,000 
per year. The conference agreement does not provide an 
exception to the 2-percent floor for job-related incidental 
expenses.

 J. Exclusion for Education Benefits Provided by Employers to Children 
  of Employees (sec. 404 of the Senate amendment and sec. 117 of the 
                                 Code)


                              Present Law

      If certain requirements are satisfied, employer-paid 
educational expenses are excludable from the gross income and 
wages of an employee if provided under a section 127 
educational assistance plan or if the expenses qualify as a 
working condition fringe benefit under section 132. Section 127 
provides an exclusion of $5,250 annually for employer-provided 
educational assistance. The exclusion does not apply to 
graduate courses. The exclusion for employer-provided 
educational assistance expires with respect to courses 
beginning on or after June 1, 2000. These exclusions do not 
apply with respect to education provided to an individual other 
than the employee.
      Section 117 provides that, if certain conditions are 
satisfied, a qualified scholarship is excludable from the gross 
income of an individual who is a candidate for a degree.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment provides that educational benefits 
provided to children of employees are excludable from gross 
income as a scholarship, regardless of whether the child is a 
candidate for a degree program. Any such benefits must be in 
addition to any other compensation payable to the employee. The 
exclusion does not apply to any amount provided to a child of 
an individual who owns more than 5 percent of the employer.
      The maximum amount excludable for a taxable year with 
respect to a child of an employee may not exceed $2,000. In 
addition, the maximum amount excludable from an employee's 
income for a year under the provision may not exceed the excess 
of the amount excludable under section 127 ($5,250) over the 
amount excluded from the employee's income under section 127 
for that year.
      Effective date.--The provision is effective for taxable 
years beginning after the date of enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

   K. Credit for Interest on Higher Education Loans (sec. 208 of the 
             Senate amendment and new sec. 25B of the Code)


                              Present Law

      Certain individuals who have paid interest on qualified 
education loans may claim an above-the-line deduction for such 
interest expenses, subject to a maximum annual deduction limit 
(sec. 221). The deduction is allowed only with respect to 
interest paid on a qualified education loan during the first 60 
months in which interest payments are required. Required 
payments of interest generally do not include nonmandatory 
payments, such as interest payments made during a period of 
loan forbearance. Months during which interest payments are not 
required because the qualified education loan is in deferral or 
forbearance do not count against the 60-month period. No 
deduction is allowed to an individual if that individual is 
claimed as a dependent on another taxpayer's return for the 
taxable year.
      A qualified education loan generally is defined as any 
indebtedness incurred solely to pay for certain costs of 
attendance (including room and board) of a student (who may be 
the taxpayer, the taxpayer's spouse, or any dependent of the 
taxpayer as of the time the indebtedness was incurred) who is 
enrolled in a degree program on at least a half-time basis at 
(1) an accredited post-secondary educational institution 
defined by reference to section 481 of the Higher Education Act 
of 1965, or (2) an institution conducting an internship or 
residency program leading to a degree or certificate from an 
institution of higher education, a hospital, or a health care 
facility conducting postgraduate training.
      The maximum allowable deduction per taxpayer return is 
$1,500 in 1999, $2,000 in 2000, and $2,500 in 2001 and 
thereafter.\28\ The deduction is phased out ratably for 
individual taxpayers with modified adjusted gross income 
(``AGI'') of $40,000-$55,000 and $60,000-$75,000 for joint 
returns. The income ranges will be indexed for inflation after 
2002.
---------------------------------------------------------------------------
        \28\ The maximum allowable deduction for 1998 was $1,000.
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      Under the Senate amendment, certain individuals who have 
paid interest on qualified education loans may claim a tax 
credit for such interest expenses, up to a maximum credit of 
$1,500 per year. The credit is allowed only with respect to 
interest paid on a qualified education loan during the first 60 
months in which interest payments are required. A qualified 
education loan is defined in the same manner as for the 
deduction for student loan interest under section 221. No 
credit is allowed to an individual if that individual is 
claimed as a dependent on another taxpayer's return for the 
taxable year. In addition, no credit is allowed for any amount 
taken into account for any deduction under chapter 1 of the 
Code.
      The credit is phased out ratably for individual taxpayers 
with modified AGI of $50,000-$70,000 ($80,000-$100,000 for 
joint returns). The income phase-out ranges will be indexed for 
inflation after the year 2005, rounded to the closest multiple 
of $50.
      Effective date.--The Senate amendment is effective for 
interest due and paid after December 31, 2004, on any qualified 
education loan.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

                  V. HEALTH CARE TAX RELIEF PROVISIONS


A. Above-the-Line Deduction for Health Insurance Expenses (sec. 501 of 
 the House bill and the Senate amendment and new sec. 222 of the Code)


                              Present Law

      Under present law, the 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 1999 
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. 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.
      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 1999 is as follows: $210 in the case of an 
individual 40 years old or less; $400 in the case of an 
individual who is more than 40 but not more than 50; $800 in 
the case of an individual who is more than 50 but not more than 
60; $2,120 in the case of an individual who is more than 60 but 
not more than 70; and $2,660 in the case of an individual who 
is more than 70. These dollar limits are indexed for inflation.

                               House Bill

      The House bill 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.\29\ The deductible percentage is: 25 percent in 
2001; 40 percent in 2002; 50 percent in 2003 through 2006; 75 
percent in 2007; and 100 percent in 2008 and thereafter.
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        \29\ 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.
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      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.\30\ For purposes 
of this rule, any amounts 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.\31\ 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.
---------------------------------------------------------------------------
        \30\ This rule is applied separately with respect to qualified 
long-term care insurance.
        \31\ 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 to individuals enrolled in 
Medicare, Medicaid, the Federal Employees Health Benefit 
Program (``FEHBP''),\32\ 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.
---------------------------------------------------------------------------
        \32\ 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, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that the deductible percentage of health care insurance 
expenses is as follows: 25 percent in 2001, 2002, and 2003; 50 
percent in 2004 and 2005; and 100 percent in 2006 and 
thereafter.
      In addition, under the Senate amendment, 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 more than half the 
cost of the health insurance.
      Effective date.--Same as the House bill.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with modifications to the deductible percentage.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2001.

 B. Provisions Relating to Long-Term Care Insurance (secs. 501 and 502 
of the House bill, secs. 501 and 502 of the Senate amendment and secs. 
               105 and 125 and new sec. 222 of the Code)


                              Present Law


Tax treatment of health insurance and long-term care insurance

      Under present law, the 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 1999 
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. 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 1999 is as follows: $210 in the case of an 
individual 40 years old or less; $400 in the case of an 
individual who is more than 40 but not more than 50; $800 in 
the case of an individual who is more than 50 but not more than 
60; $2,120 in the case of an individual who is more than 60 but 
not more than 70; and $2,660 in the case of an individual who 
is more than 70. These dollar limits are indexed for inflation.

Cafeteria plans

      Under present law, compensation generally is includible 
in gross income when actually or constructively received. An 
amount is constructively received by an individual if it is 
made available to the individual or the individual has an 
election to receive such amount. Under one exception to the 
general principle of constructive receipt, amounts are not 
included in the gross income of a participant in a cafeteria 
plan described in section 125 of the Code solely because the 
participant may elect among cash and certain employer-provided 
qualified benefits under the plan. This constructive receipt 
exception is not available if the individual is permitted to 
revoke a benefit election during a period of coverage in the 
absence of a change in family status or certain other events.
      In general, qualified benefits are certain specified 
benefits that are excludable from an employee's gross income by 
reason of a specific provision of the Code. Thus, employer-
provided accident or health coverage, group-term life insurance 
coverage (whether or not subject to tax by reason of being in 
excess of the dollar limit on the exclusion for such 
insurance), and benefits under dependent care assistance 
programs may be provided through a cafeteria plan. The 
cafeteria plan exception from the principle of constructive 
receipt generally also applies for employment tax (FICA and 
FUTA) purposes.\33\
---------------------------------------------------------------------------
        \33\ Elective contributions under a qualified cash or deferred 
arrangement that is part of a cafeteria plan are subject to employment 
taxes.
---------------------------------------------------------------------------
      Long-term care insurance cannot be provided under a 
cafeteria plan.

Flexible spending arrangements

      A flexible spending arrangement (``FSA'') is a 
reimbursement account or other arrangement under which an 
employer pays or reimburses employees for medical expenses or 
certain other nontaxable employer-provided benefits, such as 
dependent care. An FSA may be part of a cafeteria plan and may 
be funded through salary reduction. FSAs may also be provided 
by an employer outside a cafeteria plan. FSAs are commonly 
used, for example, to reimburse employees for medical expenses 
not covered by insurance. Qualified long-term care services 
cannot be provided through an FSA.

                               House Bill


Deduction for qualified long-term care insurance expenses

      The provision provides an above-the-line deduction for a 
percentage of the amount paid during the year for long-term 
care insurance which constitutes medical care (as defined under 
sec. 213) for the taxpayer and his or her spouse and 
dependents.\34\ The deductible percentage is: 25 percent in 
2001, 2002, and 2003; 50 percent in 2004 and 2005; and 100 
percent in 2006 and thereafter.
---------------------------------------------------------------------------
        \34\ The deduction would only apply to insurance that 
constitutes medical care; it would not apply to long-term care 
insurance expenses. The deduction would apply 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 health plan if at least 50 percent of the cost of the 
coverage is paid or incurred by the employer.\35\ 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 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.
---------------------------------------------------------------------------
        \35\ This rule is applied separately with respect to health 
insurance.
---------------------------------------------------------------------------

Long-term care insurance provided through a cafeteria plan

      The provision authorizes the Secretary to prescribe rules 
necessary to carry out the provision, including appropriate 
reporting requirements for employers.
      The provision provides that qualified long-term care 
insurance is a qualified benefit under a cafeteria plan. The 
provision also provides that qualified long-term care services 
can be provided under an FSA.\36\
---------------------------------------------------------------------------
        \36\ Excludable employer contributions to a flexible spending 
arrangement or a cafeteria plan for qualified long-term care insurance 
or services are considered an amount paid by the employer for long-term 
care insurance.
---------------------------------------------------------------------------

Effective date

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

                            Senate Amendment


Deduction for qualified long-term care insurance expenses

      The provision is the same as the House bill, with the 
following modification. Under the Senate amendment, the 
percentage deduction for qualified long-term care insurance 
expenses is as follows: 25 percent in 2001, 2002, and 2003; 50 
percent in 2004 and 2005; and 100 percent in 2006 and 
thereafter.

Long-term care insurance provided through a cafeteria plan

      The Senate amendment is the same as the House bill, with 
the modification that qualified long-term care insurance is 
treated as a qualified benefit under the cafeteria plan rules 
only to theextent that such insurance is treated as a medical 
expense under the itemized deduction for medical expenses (i.e., only 
to the extent of the premium limitations under sec. 213).

Effective date

      The Senate amendment is the same as the House bill.

                          Conference Agreement


Deduction for qualified long-term care insurance expenses

      The conference agreement follows the Senate amendment, 
with modifications to the deductible percentage.
      As under the Senate amendment, the 50-percent rule is 
applied separately to health insurance and qualified long-term 
care insurance. For example, suppose an employee participates 
in a health insurance plan of the employer and that the 
employer pays for 100 percent of the cost of the coverage. The 
employee also participates in an employer-sponsored qualified 
long-term care insurance plan, and the employer pays for 10 
percent of the cost of the qualified long-term care insurance. 
The employee pays for the remaining 90 percent of the long-term 
care insurance premium on an after-tax basis. The employee is 
not entitled to the deduction for health insurance expenses, 
but may deduct the 90 percent of the long-term care insurance 
premium she pays on an after-tax basis (subject to the premium 
limitations contained in section 213).

Long-term care insurance provided through a cafeteria plan

      The conference agreement follows the Senate amendment. 
Under the conference agreement, as under the Senate amendment, 
the qualified long-term care insurance may only be offered 
under a cafeteria plan to the extent the cost of such insurance 
does not exceed the premium limitations contained in section 
213.

Effective date

      The provision is effective with respect to years 
beginning after December 31, 2001.

  C. Extend Availability of Medical Savings Accounts (sec. 503 of the 
                  House bill and sec. 220 of the Code)


                              Present Law


In general

      Within limits, contributions to a medical savings account 
(``MSA'') \37\ are deductible in determining 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.
---------------------------------------------------------------------------
        \37\ 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.
---------------------------------------------------------------------------

Eligible individuals

      MSAs are available to employees covered under an 
employer-sponsored high deductible plan of a small employer and 
self-employed individuals regardless of the size of the entity 
for which the individual performs services. \38\ 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.
---------------------------------------------------------------------------
        \38\ 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.
---------------------------------------------------------------------------
      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, described below). In the case of an 
employee, contributions can be made to an MSA either by the 
individual or by the individual's employer. However, an 
individual is not eligible to make contributions to an MSA for 
a year if any employer contributions are made to an MSA on 
behalf of the individual for the year. Similarly, if the 
individual's spouse is covered under the high deductible plan 
covering such individual and the spouse's employer makes a 
contribution to an MSA for the spouse, the individual may not 
make MSA contributions for the year.
      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).
      An individual with other coverage in addition to a high 
deductible plan is still eligible for an MSA if such other 
coverage is certain permitted insurance or is coverage (whether 
provided through insurance or otherwise) for accidents, 
disability, dental care, vision care, or long-term care. 
Permitted insurance is: (1) Medicare supplemental insurance; 
(2) insurance if substantially all of the coverage provided 
under such insurance relates to (a) liabilities incurred under 
worker's compensation law, (b) tort liabilities, (c) 
liabilities relating to ownership or use of property (e.g., 
auto insurance), or (d) such other similar liabilities as the 
Secretary may prescribe by regulations; (3) insurance for a 
specified disease or illness; and (4) insurance that provides a 
fixed payment for hospitalization.
      If a small employer with an MSA plan ceases to become a 
small employer (i.e., exceeds the 50-employee limit), then the 
employer (and its employees) can continue to establish and make 
contributions to MSAs (including contributions for new 
employees and employees that did not previously have an MSA) 
until the year following the first year in which the employer 
has more than 200 employees. After that, those employees who 
had an MSA (to which individual or employer contributions were 
made in any year) can continue to make contributions (or have 
contributions made on their behalf) even if the employer has 
more than 200 employees.

Tax treatment of and limits on contributions

      Individual contributions to an MSA are deductible (within 
limits) in determining adjusted gross income (i.e., ``above the 
line''). In addition, employer contributions are excludable 
from gross income and wages for employment tax purposes (within 
the same limits), except that this exclusion does not apply to 
contributions made through a cafeteria plan. No deduction is 
allowed to any individual for MSA contributions if such 
individual is a dependent on another taxpayer's tax return.
      In the case of a self-employed individual, the deduction 
cannot exceed the individual's earned income from the trade or 
business with respect to which the high deductible plan is 
established. In the case of an employee, the deduction cannot 
exceed the individual's compensation attributable to the 
employer sponsoring the high deductible plan in which the 
individual is enrolled.
      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.
      Contributions for a year can be made until the due date 
for the individual's tax return for the year (determined 
without regard to extensions).
      If an employer provides high deductible health plan 
coverage coupled with an MSA to employees and makes employer 
contributions to the MSAs during a calendar year, the employer 
must make available a comparable contribution on behalf of all 
employees with comparable coverage during the same coverage 
period in the calendar year. Contributions are considered 
comparable if they are either of the same dollar amount or the 
same percentage of the deductible under the high deductible 
plan. The comparability rule does not restrict contributions 
that can be made to an MSA by a self-employed individual.
      If employer contributions do not comply with the 
comparability rule during a calendar year, then the employer is 
subject to an excise tax equal to 35 percent of the aggregate 
amount contributed by the employer to MSAs of the employer for 
the year. In the case of a failure to comply with the 
comparability rule which is due to reasonable cause and not to 
willful neglect, the Secretary may waive part or all of the tax 
imposed to the extent that the payment of the tax is excessive 
relative to the failure involved.

Definition of high deductible plan

      A high deductible plan is a health plan with an annual 
deductible of at least $1,550 and no more than $2,300 in the 
case of individual coverage and at least $3,050 and no more 
than $4,600 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 $3,050 in the 
case of individual coverage and no more than $5,600 in the case 
of family coverage.\39\ 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.
---------------------------------------------------------------------------
        \39\ These dollar amounts are for 1999. These amounts are 
indexed for inflation in $50 increments.
---------------------------------------------------------------------------

Tax treatment of MSAs

      Earnings on amounts in an MSA are not currently 
includible in income.

Taxation of distributions

      Distributions from an MSA for the medical expenses of the 
individual and his or her spouse or dependents generally are 
excludable from income.\40\ However, in any year for which a 
contribution is made to an MSA, withdrawals from an MSA 
maintained by that individual generally are excludable from 
income only if the individual for whom the expenses were 
incurred was covered under a high deductible plan for the month 
in which the expenses were incurred.\41\ This rule is designed 
to ensure that MSAs are in fact used in conjunction with a high 
deductible plan, and that they are not primarily used by other 
individuals who have health plans that are not high deductible 
plans.
---------------------------------------------------------------------------
        \40\ This exclusion does not apply to expenses that are 
reimbursed by insurance or otherwise.
        \41\ The exclusion still applies to expenses for continuation 
coverage or coverage while the individual is receiving unemployment 
compensation, even if for an individual who is not an eligible 
individual.
---------------------------------------------------------------------------
      For this purpose, medical expenses are defined as under 
the itemized deduction for medical expenses, except that 
medical expenses do not include expenses for insurance other 
than long-term care insurance, premiums for health care 
continuation coverage, and premiums for health care coverage 
while an individual is receiving unemployment compensation 
under Federal or State law.
      Distributions that are not used for medical expenses are 
includible in income. Such distributions are also subject to an 
additional 15-percent tax unless made after age 65, death, or 
disability.

Cap on taxpayers utilizing MSAs

      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.\42\ However, if 
the threshold level is exceeded in a year, previously uninsured 
individuals is 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.
---------------------------------------------------------------------------
        \42\ Permitted coverage, as described above, does not 
constitute coverage under a health insurance plan for this purpose.
---------------------------------------------------------------------------
    The number of MSAs established has not exceeded the 
threshold level.

End of MSA pilot program

      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


Eligible individuals and cap on MSAs

      The House bill expands availability of MSAs to include 
all employees covered under a high deductible plan of an 
employer. Self-employed individuals continue to be eligible to 
contribute to an MSA.
      The House bill also eliminates the cap on the number of 
taxpayers that can benefit annually from MSA contributions.

Definition of high deductible plan and limits on contributions

      The provision modifies the definition of a high 
deductible plan by decreasing the lower threshold for the 
annual deductible. Thus, under the provision, a high deductible 
plan means a plan with an annual deductible of at least $1,000 
and not more than $2,300 (indexed) in the case of individual 
coverage and at least $2,000 and not more than $4,600 (indexed) 
in the case of family coverage. The limits on out-of-pocket 
expenses is the same as under present law.
      The provision increases the amount of deductible (or 
excludable) contributions to an MSA to 100 percent of the 
deductible under the high deductible plan. The provision also 
allows an individual to make deductible contributions to an MSA 
even if the individual's employer also made contributions. The 
provision provides that MSAs may be offered as part of a 
cafeteria plan. The total contributions to MSAs on behalf on an 
individual for a year may not exceed 100 percent of the 
deductible under the high deductible plan.

End of MSA pilot program

      The provision makes MSAs permanent.

Effective date

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

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the House bill 
provision.

D. Additional Personal Exemption for Caretakers (sec. 504 of the House 
    bill, sec. 503 of the Senate amendment and sec. 151 of the Code)


                              Present Law

      Present law does not provide an additional personal 
exemption based solely on the custodial care of parents or 
grandparents. However, taxpayers with dependent parents 
generally are able to claim a personal exemption for each of 
these dependents, if they satisfy five tests: (1) a member of 
household or relationship test; (2) a citizenship test; (3) a 
joint return test; (4) a gross income test; and (5) a support 
test. The taxpayer is also required to list each dependent's 
tax identification number (the ``TIN'') on the tax return.
      The total amount of personal exemptions is subtracted 
(along with certain other items) from adjusted gross income 
(``AGI'') in arriving at taxable income. The amount of each 
personal exemption is $2,750 for 1999, and is adjusted annually 
for inflation. For 1999, the total amount of the personal 
exemptions is phased out for taxpayers with AGI in excess of 
$126,600 for single taxpayers, $158,300 for heads of household, 
and $189,950 for married couples filing joint returns. For 
1999, the point at which a taxpayer's personal exemptions are 
completely phased out is $249,100 for single taxpayers, 
$280,800 for heads of households, and $312,450 for married 
couples filing joint returns.

                               House Bill

      The House bill provides taxpayers who maintain a 
household including one or more ``qualified persons'' with an 
additional personal exemption for each qualified person.
      A ``qualified person'' is an individual who: (1) 
satisfies a relationship test, (2) satisfies a residency test, 
(3) satisfies an identification test, and (4) has been 
certified as having long-term care needs. The individual 
satisfies the relationship test if the individual was the 
father or mother of: (a) the taxpayer, (b) the taxpayer's 
spouse, or (c) a former spouse of the taxpayer. A stepfather, 
stepmother, and ancestors of the father or mother are treated 
as a father or mother for these purposes.
      An individual satisfies the residency test if the 
individual had the same principal place of abode as the 
taxpayer for the taxpayer's entire taxable year.
      An individual satisfies the identification test if the 
individual's name and taxpayer identification number (``TIN'') 
is included on the taxpayer's return for the taxable year.
      In order to be a qualified individual, an individual must 
be certified before the due date of the return for the taxable 
year (without extensions) by a licensed physician as having 
long-term care needs for period which is at least 180 
consecutive days and a portion of which occurs withinthe 
taxable year. The certification must be made no more than 39\1/2\ 
months before the due date for the return (or within such other period 
as the Secretary has prescribed).
      Under the provision, an individual has long-term care 
needs if the individual is unable to perform at least 2 
activities of daily living (``ADLs'') without substantial 
assistance from another individual, due to a loss of functional 
capacity. As with the present-law rules relating to long- term 
care, ADLs are: (1) eating; (2) toileting; (3) transferring; 
(4) bathing; (5) dressing; and (6) continence. Substantial 
assistance includes hands-on assistance (that is, the physical 
assistance of another person without which the individual is 
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 2-ADL test described above, an 
individual is considered to have long-term care needs if he or 
she (1) requires substantial supervision for at least 6 months 
to be protected from threats to health and safety due to severe 
cognitive impairment and (2) is unable for at least 6 months to 
perform at least one or more ADLs or to engage in age 
appropriate activities as determined under regulations 
prescribed by the Secretary of the Treasury in consultation 
with the Secretary of Health and Human Services.
      The House bill provides that a taxpayer is treated as 
maintaining a household for any period only if over one-half of 
the cost of maintaining the household for such period is 
furnished by such taxpayer or, if such taxpayer is married, by 
such taxpayer and the taxpayer's spouse. The House bill also 
provides that taxpayers who are married at the end of the 
taxable year must file a joint return to receive the credit 
unless they lived apart from their respective spouse for the 
last six months of the taxable year and the individual claiming 
the credit (1) maintained as his or her home a household for 
the qualified person for the entire taxable year and (2) 
furnished over one-half of the cost of maintaining that 
household in that taxable year. Finally, the House bill 
provides that a taxpayer legally separated from his or her 
spouse under a decree of divorce or of separate maintenance 
will not be considered married for purposes of this provision.
      Effective date.--The House bill provision is effective 
for taxable years beginning after December 31, 1999.

                            Senate Amendment

      Same as House bill.

                          Conference Agreement

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

E. Expand Human Clinical Trials Expenses Qualifying for the Orphan Drug 
    Tax Credit (sec. 505 of the House bill and sec. 45C of the Code)


                              Present Law

      Taxpayers may claim a 50-percent credit for expenses 
related to human clinical testing of drugs for the treatment of 
certain rare diseases and conditions, generally those that 
afflict less than 200,000 persons in the United States. 
Qualifying expenses are those paid or incurred by the taxpayer 
after the date on which the drug is designated as a potential 
treatment for a rare disease or disorder by the Food and Drug 
Administration (``FDA'') in accordance with the section 526 of 
the Federal Food, Drug, and Cosmetic Act.

                               House Bill

      The House bill expands qualifying expenses to include 
those expenses related to human clinical testing incurred after 
the date on which the taxpayer files an application with the 
FDA for designation of the drug under section 526 of the 
Federal Food, Drug, and Cosmetic Act as a potential treatment 
for a rare disease or disorder. As under present law, the 
credit may only be claimed for such expenses related to drugs 
designated as a potential treatment for a rare disease or 
disorder by the FDA in accordance with section 526 of such Act.
      Effective date.--The provision would be effective for 
expenditures paid or incurred after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.
      Effective date.--The provision would be effective for 
expenditures paid or incurred after December 31, 1999.

F. Add Certain Vaccines Against Streptococcus Pneumoniae to the List of 
  Taxable Vaccines; Reduce Vaccine Excise Tax (sec. 506 of the House 
 bill, sec. 504 of the Senate amendment and secs. 4131 and 4132 of the 
                                 Code)


                              Present Law

      A manufacturer's excise tax is imposed at the rate of 75 
cents per dose (sec. 4131) on the following vaccines 
recommended for routine administration to children: diphtheria, 
pertussis, tetanus, measles, mumps, rubella, polio, HIB 
(haemophilus influenza type B), hepatitis B, varicella (chicken 
pox), and rotavirus gastroenteritis. The tax applied to any 
vaccine that is a combination of vaccine components equals 75 
cents times the number of components in the combined vaccine.
      Amounts equal to net revenues from this excise tax are 
deposited in the Vaccine Injury Compensation Trust Fund 
(``Vaccine Trust Fund'') to finance compensation awards under 
the Federal Vaccine Injury Compensation Program for individuals 
who suffer certain injuries following administration of the 
taxable vaccines. This program provides a substitute Federal, 
``no fault'' insurance system for the State-law tort and 
private liability insurance systems otherwise applicable to 
vaccine manufacturers and physicians. All persons immunized 
after September 30, 1988, with covered vaccines must pursue 
compensation under this Federal program before bringing civil 
tort actions under State law.

                               House Bill

      The House bill adds any conjugate vaccine against 
streptococcus pneumoniae to the list of taxable vaccines.
      In addition, the House bill directs the General 
Accounting Office (``GAO'') to report to the House Committee on 
Ways and Means and the Senate Committee on Finance on the 
operation and management of expenditures from the Vaccine Trust 
Fund and to advise the Committees on the adequacy of the 
Vaccine Trust Fund to meet future claims under the Federal 
Vaccine Injury Compensation Program.
      The GAO is directed to report its findings to the House 
Committee on Ways and Means and the Senate Committee on Finance 
not later than December 31, 1999.
      Effective date.--The provision is effective for vaccine 
purchases beginning on the day after the date on which the 
Centers for Disease Control make final recommendation for 
routine administration of conjugated streptococcus pneumonia 
vaccines to children.

                            Senate Amendment

      The Senate amendment is identical to the House bill in 
adding any conjugate vaccine against streptococcus pneumoniae 
to the list of taxable vaccines.
      The Senate amendment also reduces the rate of tax 
applicable to all taxable vaccines from 75 cents per dose to 25 
cents per dose for sales of vaccines after December 31, 2004.
      The Senate amendment also changes the effective date 
enacted in Public Law 105-277 and certain other conforming 
amendments to expenditure purposes to enable certain payments 
to be made from the Trust Fund.
      In addition, the Senate amendment is identical to the 
House bill in directing the General Accounting Office (``GAO'') 
to report to the House Committee on Ways and Means and the 
Senate Committee on Finance on the operation and management of 
expenditures from the Vaccine Trust Fund and to advise the 
Committees on the adequacy of the Vaccine Trust Fund to meet 
future claims under the Federal Vaccine Injury Compensation 
Program, except that the GAO is directed to report its findings 
to the House Committee on Ways and Means and the Senate 
Committee on Finance within one year of the date of enactment.
      Effective date.--The provision is effective for vaccine 
purchases beginning on the day after the date on which the 
Centers for Disease Control make final recommendation for 
routine administration of conjugated streptococcus pneumonia 
vaccines to children. The addition of conjugate streptococcus 
pneumoniae vaccines to the list of taxable vaccines is 
contingent upon the inclusion in this legislation of the 
modifications to Public Law 105-277.
      The provision to reduce the rate of tax to 25 cents per 
dose would be effective for sales after December 31, 2004. No 
floor stocks refunds would be permitted for vaccines held on 
December 31, 2004. For the purpose of determining the amount of 
refund of tax on a vaccine returned to the manufacturer or 
importer, for vaccines returned after August 31, 2004 and 
before January 1, 2005, the amount of tax assumed to have been 
paid on the initial purchase of the returned vaccine is not to 
exceed $0.25 per dose. The reduction in the rate of tax is 
contingent upon the inclusion in this legislation of the 
modifications to Public Law 105-277.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment in adding any conjugate vaccine against 
streptococcus pneumoniae to the list of taxable vaccines. In 
addition, the conference agreement follows the House bill and 
the Senate amendment by changing the effective date enacted in 
Public Law 105-277 and certain other conforming amendments to 
expenditure purposes to enable certain payments to be made from 
the Trust Fund.
      The conference agreement also reduces the rate of tax 
applicable to all taxable vaccines from 75 cents per dose to 50 
cents per dose for sales of vaccines after December 31, 2004.
      In addition, the conferees direct the General Accounting 
Office (``GAO'') to report to the House Committee on Ways and 
Means and the Senate Committee on Finance on the operation and 
management of expenditures from the Vaccine Trust Fund and to 
advise the Committees on the adequacy of the Vaccine Trust Fund 
to meet future claims under the Federal Vaccine Injury 
Compensation Program.
      Within its report, to the greatest extent possible, the 
conferees would like to see a thorough statistical report of 
the number of claims submitted annually, the number of claims 
settled annually, and the value of settlements. The conferees 
would like to learn about the statistical distribution of 
settlements, including the mean and median values of 
settlements, and the extent to which the value of settlements 
varies with an injury attributed to an identifiable vaccine. 
The conferees also would like to learn about the settlement 
process, including a statistical distribution of the amount of 
time required from the initial filing of a claim to a final 
resolution.
      The Code provides that certain administrative expenses 
may be charged to the Vaccine Trust Fund. The conferees intend 
that the GAO report include an analysis of the overhead and 
administrative expenses charged to the Vaccine Trust Fund.
      The conferees request that the GAO report its findings to 
the House Committee on Ways and Means and the Senate Committee 
on Finance not later than December 31, 1999.
      Effective date.--The provision is effective for vaccine 
purchases beginning on the day after the date on which the 
Centers for Disease Control make final recommendation for 
routine administration of conjugated streptococcus pneumonia 
vaccines to children. No floor stocks tax is to be collected 
for amounts held for sale on that date. For sales on or before 
the date on which the Centers for Disease Control make final 
recommendation for routine administration of conjugate 
streptococcus pneumonia vaccines to children for which delivery 
is made after such date, the delivery date is deemed to be the 
sale date. The addition of conjugate streptococcus pneumoniae 
vaccines to the list of taxable vaccines is contingent upon the 
inclusion in this legislation of the modifications to Public 
Law 105-277.
      The provision to reduce the rate of tax to 50 cents per 
dose would be effective for sales after December 31, 2004. No 
floor stocks refunds would be permitted for vaccines held on 
December 31, 2004. For the purpose of determining the amount of 
refund of tax on a vaccine returned to the manufacturer or 
importer, for vaccines returned after August 31, 2004 and 
before January 1, 2005, the amount of tax assumed to have been 
paid on the initial purchase of the returned vaccine is not to 
exceed $0.50 per dose.

G. Above-the-Line Deduction for Prescription Drug Insurance Coverage of 
 Medicare Beneficiaries if Certain Medicare and Low-Income Assistance 
 Provisions Are in Effect (sec. 507 of the House bill and sec. 213 of 
                               the Code)


                              Present Law

      Individuals who itemize deductions may deduct their 
health insurance expenses, including the cost of prescription 
drugs, to the extent that the total medical expenses of the 
individual exceed 7.5 percent of adjusted gross income (sec. 
213).

                               House Bill

      The provision provides an above-the-line deduction for 
Medicare beneficiaries for prescription drug insurance. The 
deduction will take effect when (a) the Federal Government 
provides assistance for prescription drug coverage for low-
income Medicare beneficiaries, (b) all policies supplemental to 
Medicare provide coverage for costs of prescription drugs, and 
(c) coverage for outpatient prescription drugs for Medicare 
beneficiaries is provided only through integrated comprehensive 
health plans which offer current Medicare covered services and 
maximum limitations on out-of-pocket spending and such 
comprehensive plans sponsored by the Health Care Financing 
Administration compete on the same basis as private plans.
      Effective date.--The provision is effective for taxable 
years beginning after the date of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill with 
modifications. The conference agreement modifies the 
contingency with respect to Medicare supplemental policies 
requiring all such policies to provide prescription drug 
coverage to require that at least one of the benefit packages 
authorized to be offered under a Medicare supplemental policy 
is a package which provides solely for the coverage of costs 
for prescription drugs. The conference agreement also includes 
an additional contingency in order for the above-the-line 
deduction contained in the House bill to take effect. Under the 
conference agreement, the above-the-line deduction is also 
contingent upon the enactment of a provision, included in the 
conference agreement effective for taxable years beginning 
after December 31, 2002, that provides that, in the case of 
individuals enrolled in Medicare, medical expenses for purposes 
of the itemized deduction for medical care includes formerly 
prescription drugs. Formerly prescription drugs are drugs that 
within the year of purchase or the two preceding taxable years 
were available by prescription only.

  H. Credit for Employee Health Insurance Expenses of Small Employers 
    (sec. 609 of the Senate amendment and new sec. 45E of the Code)


                              Present Law

      Under present law, employee health insurance expenses 
paid by the employer are generally deductible as an ordinary 
and necessary business expense.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment allows small employers a credit for 
the amount paid by the employer during the taxable year with 
respect to health insurance expenses of qualified employees. 
\43\ The credit is equal to 60 percent of such expenses in the 
case of self-only coverage of a qualified employee and 70 
percent in the case of family coverage. The maximum amount that 
can be taken into account in determining the credit with 
respect to any qualified employee for a taxable year may not 
exceed $1,000 in the case of self-only coverage and $1,715 in 
the case of family coverage. No deduction is allowed with 
respect to expenses taken into account under the credit.
---------------------------------------------------------------------------
        \43\ Salary reduction contributions are not treated as employer 
payments for purposes of the credit.
---------------------------------------------------------------------------
      An employer is a small employer for a year if the 
employer employed an average of 9 or fewer employees on 
business days during either of the 2 preceding calendar years. 
A special rule applies in the case of employers that were not 
in business in the preceding calendar year.
      A qualified employee is an employee of the employer 
receiving total wages at an annual rate of more than $5,000 and 
not more than $16,000. Beginning after 2001, the $16,000 limit 
is indexed for cost-of-living adjustments. An employee does not 
include self-employed individuals. Leased employees (with in 
the meaning of sec. 414(n) are treated as employees for 
purposes of the credit.
      The credit is part of the general business credit.
      Effective date.--The provision is effective for amounts 
paid or incurred in taxable years beginning after December 31, 
2000.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

     VI. ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX RELIEF 
                               PROVISIONS


   A. Phase in Repeal of Estate, Gift, and Generation-Skipping Taxes 
 (secs. 601-603, 611, and 621 of the House bill, secs. 701-702 of the 
           Senate amendment, and secs. 2001-2704 of the Code)


                              Present Law

      A gift tax is imposed on lifetime transfers and an estate 
tax is imposed on transfers at death. The gift tax and the 
estate tax are unified so that a single graduated rate schedule 
applies to cumulative taxable transfers made by a taxpayer 
during his or her lifetime and at death. The unified estate and 
gift tax rates begin at 18 percent on the first $10,000 in 
cumulative taxable transfers and reach 55 percent on cumulative 
taxable transfers over $3 million. In addition, a 5-percent 
surtax is imposed on taxable transfers at death between $10 
million and the amount necessary to phase out the benefits of 
the graduated rates.
      A unified credit is available with respect to taxable 
transfers by gift and at death. The unified credit amount 
effectively exempts from tax a total of $650,000 in 1999, 
$675,000 in 2000 and 2001, $700,000 in 2002 and 2003, $850,000 
in 2004, $950,000 in 2005, and $1 million in 2006 and 
thereafter.
      A generation-skipping transfer (``GST'') tax generally is 
imposed on transfers, either directly or through a trust or 
similar arrangement, to a ``skip person'' (i.e., a beneficiary 
in a generation more than one generation below that of the 
transferor). Transfers subject to the GST tax include direct 
skips, taxable terminations, and taxable distributions. The GST 
tax is imposed at the top estate and gift tax rate (which, 
under present law, is 55 percent) on cumulative generation-
skipping transfers in excess of $1 million (indexed beginning 
in 1999).
      The basis of property acquired or passing from a decedent 
generally is its fair market value on the date of the 
decedent's death (or, if the alternative valuation date is 
elected, the earlier of six months after death or the date the 
property is sold or distributed by the estate). This step up 
(or step down) in basis eliminates the recognition of any 
income on the appreciation of the property that occurred prior 
to the decedent's death, and it has the effect of eliminating 
any tax benefit from any unrealized loss. The basis of property 
acquired by gift generally is the same as it was in the hands 
of the donor. However, if the donor's basis was greater than 
the fair market value of the property at the time of gift, 
then, for purposes of determining loss on the disposition of 
the property, the basis is its fair market value at the time of 
gift.

                               House Bill

      The House bill repeals the 5-percent surtax (which phases 
out the benefit of the graduated rates), the unified credit is 
converted into a unified exemption, and the rates in excess of 
53 percent are repealed beginning in 2001. In 2002, the rates 
in excess of 50 percent are repealed.
      In 2003 through 2006, all estate and gift tax rates are 
reduced by 1 percentage point per year. In 2007, all estate and 
gift tax rates are reduced by 1.5 percentage points. In 2008, 
all estate and gift tax rates are reduced by 2 percentage 
points.
      Beginning in 2009, the estate, gift, and GST taxes are 
repealed, and carryover basis applies for transfers from 
estates in excess of $2 million (the carryover basis regime is 
phased in for transfers from estates valued in excess of $1.3 
million and not over $2 million). Transfers to surviving 
spouses will continue to receive a step up in basis.
      Effective date.--The unified credit is replaced with a 
unified exemption, and the 5-percent surtax and rates in excess 
of 53 percent are repealed for estates of decedents dying and 
gifts and generation-skipping transfers made after December 31, 
2000. The rates in excess of 50 percent are repealed for 
estates of decedents dying and gifts and generation-skipping 
transfers made after December 31, 2001.
      All estate and gift tax rates are reduced by 1 percentage 
point for estates of decedents dying and gifts and generation-
skipping transfers made after December 31, 2002, but before 
January 1, 2007. All estate and gift tax rates are reduced by 
1.5 percentage points for estates of decedents dying and gifts 
and generation-skipping transfers made after December 31, 2006, 
but before January 1, 2008. All estate and gift tax rates are 
reduced by 2 percentage points for estates of decedents dying 
and gifts and generation-skipping transfers made after December 
31, 2008.
      The estate, gift, and GST taxes are repealed and the 
carryover basis regime takes effect for estates of decedents 
dying and gifts and generation-skipping transfers made after 
December 31, 2008.

                            Senate Amendment

      The Senate amendment repeals the rates in excess of 53 
percent beginning in 2001. Beginning in 2004, the 5-percent 
bubble (which phases out the benefits of the graduated rates) 
is repealed and the unified credit is converted into a unified 
exemption. Beginning in 2007, the unified exemption is 
increased from $1 million to $1.5 million.
      Effective date.--The rates in excess of 53 percent are 
repealed and the unified credit is converted into a unified 
exemption, both for estates of decedents dying and gifts and 
generation-skipping transfers made after December 31, 2003. The 
unified exemption is increased from $1 million to $1.5 million 
for estates of decedents dying and gifts made after December 
31, 2006.

                          Conference Agreement

      The conference agreement follows the House bill, with 
modifications. After the estate, gift, and GST taxes are 
repealed and the carryover basis regime takes effect, the first 
$3 million of transfers from decedents to surviving spouses 
will receive a step up in basis. Transfers to surviving spouses 
that are eligible for a step up in basis are not counted toward 
the transfers for which the carryover basis regime is phased in 
for estates valued in excess of $1.3 million and not over $2 
million.
      Effective date.--Same as the House bill.

            B. Modify Generation-Skipping Transfer Tax Rules


1. Deemed allocation of the generation-skipping transfer (``GST'') tax 
        exemption to lifetime transfers to trusts that are not direct 
        skips (sec. 631 of the House bill and sec. 2632 of the Code)

                              Present Law

      A GST tax generally is imposed on transfers, either 
directly or through a trust or similar arrangement, to a ``skip 
person'' (i.e., a beneficiary in a generation more than one 
generation below that of the transferor). Transfers subject to 
the GST tax include direct skips, taxable terminations, and 
taxable distributions. An exemption of $1 million (indexed 
beginning in 1999) is provided for each person making 
generation-skipping transfers. The exemption may be allocated 
by a transferor (or his or her executor) to transferred 
property.
      A direct skip is any transfer subject to estate or gift 
tax of an interest in property to a skip person. A skip person 
may be a natural person or certain trusts. All persons assigned 
to the second or more remote generation below the transferor 
are skip persons (e.g., grandchildren and great-grandchildren). 
Trusts are skip persons if (1) all interests in the trust are 
held by skip persons, or (2) no person holds an interest in the 
trust and at no time after the transfer may a distribution 
(including distributions and terminations) be made to a non-
skip person.
      A taxable termination is a termination (by death, lapse 
of time, release of power, or otherwise) of an interest in 
property held in trust unless, immediately after such 
termination, a non-skip person has an interest in the property, 
or unless at no time after the termination may a distribution 
(including a distribution upon termination) be made from the 
trust to a skip person. A taxable distribution is a 
distribution from a trust to a skip person (other than a 
taxable termination or direct skip).
      The tax rate on generation-skipping transfers is a flat 
rate of tax equal to the maximum estate and gift tax rate in 
effect at the time of the transfer (55 percent under present 
law) multiplied by the ``inclusion ratio.'' The inclusion ratio 
with respect to any property transferred in a GST indicates the 
amount of GST tax exemption allocated to a trust. The 
allocation of GST tax exemption reduces the 55-percent tax rate 
on a GST.
      If an individual makes a direct skip during his or her 
lifetime, any unusued GST tax exemption is automatically 
allocated to the direct skip to the extent necessary to make 
the inclusion ratio for such property as low as possible. An 
individual may elect out of the automatic allocation for 
lifetime direct skips.
      For lifetime transfers made to a trust that are not 
direct skips, the transferor must allocate GST tax exemption--
the allocation is not automatic. If GST tax exemption is 
allocated on a timely-filed gift tax return, then the portion 
of the trust which is exempt from GST tax is basedon the value 
of the property at the time of the transfer. If, however, the 
allocation is not made on a timely-filed gift tax return, then the 
portion of the trust which is exempt from GST tax is based on the value 
of the property at the time the allocation of GST tax exemption was 
made.
      Treas. Reg. 26.2632-1(d) further provides that any unused 
GST tax exemption, which has not been allocated to transfers 
made during an individual's life, is automatically allocated on 
the due date for filing the decedent's estate tax return. 
Unused GST tax exemption is allocated pro rata on the basis of 
the value of the property as finally determined for estate tax 
purposes, first to direct skips treated as occurring at the 
transferor's death. The balance, if any, of unused GST tax 
exemption is allocated pro rata on the basis of the estate tax 
value of the nonexempt portion of the trust property (or in the 
case of trusts that are not included in the gross estate, on 
the basis of the date of death value of the trust) to trusts 
with respect to which a taxable termination may occur or from 
which a taxable distribution may be made.

                               House Bill

      Under the House bill, GST tax exemption is automatically 
allocated to transfers made during life that are ``indirect 
skips.'' An indirect skip is any transfer of property (that is 
not a direct skip) subject to the gift tax that is made to a 
GST trust.
      A GST trust is defined as a trust that could have a GST 
with respect to the transferor (e.g., a taxable termination or 
taxable distribution), unless:
            the trust instrument provides that more than 25 
        percent of the trust corpus must be distributed to or 
        may be withdrawn by 1 or more individuals who are non-
        skip persons (a) before the date that the individual 
        attains age 46, or (b) on or before 1 or more dates 
        specified in the trust instrument that will occur 
        before the date that such individual attains age 46, or 
        (c) upon the occurrence of an event that, in accordance 
        with regulations prescribed by the Treasury Secretary, 
        may reasonably be expected to occur before the date 
        that such individual attains age 46;
            the trust instrument provides that more than 25 
        percent of the trust corpus must be distributed to or 
        may be withdrawn by 1 or more individuals who are non-
        skip persons and who are living on the date of death of 
        another person identified in the instrument (by name or 
        by class) who is more than 10 years older than such 
        individuals;
            the trust instrument provides that, if 1 or more 
        individuals who are non-skip persons die on or before a 
        date or event described in clause (1) or (2), more than 
        25 percent of the trust corpus either must be 
        distributed to the estate or estates of 1 or more of 
        such individuals or is subject to a general power of 
        appointment exercisable by 1 or more of such 
        individuals;
            the trust is a trust any portion of which would be 
        included in the gross estate of a non-skip person 
        (other than the transferor) if such person died 
        immediately after the transfer;
            the trust is a charitable lead annuity trust or a 
        charitable remainder annuity trust or a charitable 
        unitrust; or
            the trust is a trust with respect to which a 
        deduction was allowed under section 2522 for the amount 
        of an interest in the form of the right to receive 
        annual payments of a fixed percentage of the net fair 
        market value of the trust property (determined yearly) 
        and which is required to pay principal to a non-skip 
        person if such person is alive when the yearly payments 
        for which the deduction was allowed terminate.
      If any individual makes an indirect skip during the 
individual's lifetime, then any unused portion of such 
individual's GST tax exemption is allocated to the property 
transferred to the extent necessary to produce the lowest 
possible inclusion ratio for such property.
      An individual may elect not to have the automatic 
allocation rules apply to an indirect skip, and such elections 
will be deemed timely if filed on a timely-filed gift tax 
return for the calendar year in which the transfer was made or 
deemed to have bee made or on such later date or dates as may 
be prescribed by the Treasury Secretary. An individual may 
elect not to have the automatic allocation rules apply to any 
or all transfers made by such individual to a particular trust 
and may elect to treat any trust as a GST trust with respect to 
any or all transfers made by the individual to such trust, and 
such election may be made on a timely-filed gift tax return for 
the calendar year for which the election is to become 
effective.
      Effective date.--The provision applies to transfers 
subject to estate or gift tax made after December 31, 1999, and 
to estate tax inclusion periods ending after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

2. Retroactive allocation of the GST tax exemption (sec. 631 of the 
        House bill, sec. 731 of the Senate amendment, and sec. 2632 of 
        the Code)

                              Present Law

      A taxable termination is a termination (by death, lapse 
of time, release of power, or otherwise) of an interest in 
property held in trust unless, immediately after such 
termination, a non-skip person has an interest in the property, 
or unless at no time after the termination may a distribution 
(including a distribution upon termination) be made from the 
trust to a skip person. A taxable distribution is a 
distribution from a trust to a skip person (other than a 
taxable termination or direct skip). If a transferor allocates 
GST tax exemption to a trust prior to the taxable termination 
or taxable distribution, GST tax may be avoided.
      A transferor likely will not allocate GST tax exemption 
to a trust that the transferor expects will benefit only non-
skip persons. However, if a taxable termination occurs because, 
for example, the transferor's child unexpectedly dies such that 
the trust terminates in favor of the transferor's grandchild, 
and GST tax exemption had not been allocated to the trust, then 
GST tax would be due even if the transferor had unused GST tax 
exemption.

                               House Bill

      Under the House bill, GST tax exemption may be allocated 
retroactively when there is an unnatural order of death. If a 
lineal descendant of the transferor predeceased the transferor, 
then the transferor may allocate any unused GST tax exemption 
to any previous transfer or transfers to the trust on a 
chronological basis. The provision allows a transferor to 
retroactively allocate GST tax exemption to a trust where a 
beneficiary (a) is a non-skip person, (b) is a lineal 
descendant of the transferor's grandparent or grandparent of 
the transferor's spouse, (c) is a generation younger than the 
generation of the transferor, and (d) dies before the 
transferor. Exemption is allocated under this rule 
retroactively, and the applicable fraction and inclusion ratio 
under this provision are determined based on the value of the 
property on the date that the property was transferred to the 
trust.
      Effective date.--The provision applies to deaths of non-
skip persons occurring after 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.

3. Severing of trusts holding property having an inclusion ratio of 
        greater than zero (sec. 632 of the House bill, sec. 732 of the 
        Senate amendment, and sec. 2642 of the Code)

                              Present Law

      An exemption of $1 million (indexed beginning in 1999) is 
provided for each person making generation-skipping transfers. 
The exemption may be allocated by a transferor (or his or her 
executor) to transferred property.
      If the value of transferred property exceeds the amount 
of the GST tax exemption allocated to that property, then the 
GST tax generally is determined by multiplying a flat tax rate 
equal to the highest estate tax rate (55 percent under present 
law) by the ``inclusion ratio'' and the value of the taxable 
property at the time of the taxable event. The ``inclusion 
ratio'' is the number one minus the ``applicable fraction.'' 
The applicable fraction is a fraction calculated by dividing 
the amount of the GST tax exemption allocated to the property 
by the value of the property.
      Under Treas. Reg. 26.2654-1(b), a trust may be severed 
into two or more trusts (e.g., one with an inclusion ratio of 
zero and one with an inclusion ratio of one) only if (1) the 
trust is severed according to a direction in the governing 
instrument or (2) the trust is severed pursuant to the 
trustee's discretionary powers, but only if certain other 
conditions are satisfied (e.g., the severance occurs or a 
reformation proceeding begins before the estate tax return is 
due). Under current Treasury regulations, however, a trustee 
cannot establish inclusion ratios of zero and one by severing a 
trust that is subject to the GST tax after the trust has been 
created.

                               House Bill

      Under the House bill, a trust may be severed in a 
``qualified severance.'' A qualified severance is defined as 
the division of a single trust and the creation of two or more 
trusts if (1) the single trust was divided on a fractional 
basis, and (2) the terms of the new trusts, in the aggregate, 
provide for the same succession of interests of beneficiaries 
as are provided in the original trust. If a trust has an 
inclusion ratio of greater than zero and less than one, a 
severance is a qualified severance only if the single trust is 
divided into two trusts, one of which receives a fractional 
share of the total value of all trust assets equal to the 
applicable fraction of the single trust immediately before the 
severance. In such case, the trust receiving such fractional 
share shall have an inclusion ratio of one. Under the 
provision, a trustee may elect to sever a trust in a qualified 
severance at any time.
      Effective date.--The provision is effective for 
severances of trusts occurring after 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.

4. Modification of certain valuation rules (sec. 633 of the House bill, 
        sec. 733 of the Senate amendment, and sec. 2642 of the Code)

                              Present Law

      Under present law, the inclusion ratio is determined 
using gift tax values for allocations of GST tax exemption made 
on timely filed gift tax returns. The inclusion ratio generally 
is determined using estate tax values for allocations of GST 
tax exemption made to transfers at death. Treas. Reg. 26.2642-
5(b) provides that, with respect to taxable terminations and 
taxable distributions, the inclusion ratio becomes final on the 
later of the period of assessment with respect to the first 
transfer using the inclusion ratio or the period for assessing 
the estate tax with respect to the transferor's estate.

                               House Bill

      Under the House bill, in connection with timely and 
automatic allocations of GST tax exemption, the value of the 
property for purposes of determining the inclusion ratio shall 
be its finally determined gift tax value or estate tax value 
depending on the circumstances of the transfer. In the case of 
a GST tax exemption allocation deemed to be made at the 
conclusion of an estate tax inclusion period, the value for 
purposes of determining the inclusion ratio shall be its value 
at that time.
      Effective date.--The provision is effective as though 
included in the amendments made by section 1431 of the Tax 
Reform Act of 1986.

                            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.

5. Relief from late elections (sec. 634 of the House bill, sec. 734 of 
        the Senate amendment, and sec. 2642 of the Code)

                              Present Law

      An election to allocate GST tax exemption to a specific 
transfer may be made at any time up to the time for filing the 
transferor's estate tax return. If an allocation is made on a 
gift tax return filed timely with respect to the transfer to a 
trust, then the value on the date of transfer to the trust is 
used for determining GST tax exemption allocation. However, if 
the allocationrelating to a specific transfer is not made on a 
timely-filed gift tax return, then the value on the date of allocation 
must be used. There is no statutory provision allowing relief for an 
inadvertent failure to make an election on a timely-filed gift tax 
return to allocate GST tax exemption.

                               House Bill

      Under the House bill, the Treasury Secretary is 
authorized and directed to grant extensions of time to make the 
election to allocate GST tax exemption and to grant exceptions 
to the time requirement. If such relief is granted, then the 
value on the date of transfer to a trust would be used for 
determining GST tax exemption allocation.
      In determining whether to grant relief for late 
elections, the Treasury Secretary is directed to consider all 
relevant circumstances, including evidence of intent contained 
in the trust instrument or instrument of transfer and such 
other factors as the Treasury Secretary deems relevant. For 
purposes of determining whether to grant relief, the time for 
making the allocation (or election) is treated as if not 
expressly prescribed by statute.
      Effective date.--The provision applies to requests 
pending on, or filed after, 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. The conferees expect that the Treasury 
Secretary will issue regulations that will facilitate the 
liberal granting of relief under this provision.

6. Substantial compliance (sec. 634 of the House bill, sec. 734 of the 
        Senate amendment, and sec. 2642 of the Code)

                              Present Law

      Under present law, there is no statutory rule which 
provides that substantial compliance with the statutory and 
regulatory requirements for allocating GST tax exemption will 
suffice to establish that GST tax exemption was allocated to a 
particular transfer or trust.

                               House Bill

      Under the House bill, substantial compliance with the 
statutory and regulatory requirements for allocating GST tax 
exemption will suffice to establish that GST tax exemption was 
allocated to a particular transfer or a particular trust. If a 
taxpayer demonstrates substantial compliance, then so much of 
the transferor's unused GST tax exemption will be allocated to 
the extent it produces the lowest possible inclusion ratio. In 
determining whether there has been substantial compliance, all 
relevant circumstances will be considered, including evidence 
of intent contained in the trust instrument or instrument of 
transfer and such other factors as the Treasury Secretary deems 
appropriate.
      Effective date.--The substantial compliance provisions 
are effective on the date of enactment and apply to allocations 
made prior to such date for purposes of determining the tax 
consequences of generation-skipping transfers with respect to 
which the period of time for filing claims for refund has not 
expired.\44\
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        \44\ No implication is intended with respect to the application 
of a rule of substantial compliance prior to enactment of this 
provision.
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                            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. Expand Estate Tax Rule for Conservation Easements (sec. 711 of the 
              Senate amendment and sec. 2031 of the Code)


                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment expands the availability of 
qualified conservation easements by modifying the distance 
requirements. Under the provision, the distance from which the 
land must be situated from a metropolitan area, national park, 
or wilderness area is increased from 25 to 50 miles, and the 
distance from which the land must be situated from an Urban 
NationalForest is increased from 10 to 25 miles. The Senate 
amendment also clarifies that the date for determining easement 
compliance is the date on which the donation was made.
      Effective date.--The provision that clarifies the date 
for determining easement compliance is effective for estates of 
decedents dying after December 31, 1997. The provisions that 
modify the distance rules are effective for estates of 
decedents dying after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

  D. Increase Annual Gift Exclusion (sec. 721 of the Senate amendment)


                              Present Law

      An annual exclusion of $10,000 of transfers of present 
interests in property is provided for each donee. If the non-
donor spouse consents to split the gift with the donor spouse, 
then the annual exclusion is $20,000 for each donee. Unlimited 
transfers between spouses are permitted without imposition of a 
gift tax. In the case of gifts made after 1998, the $10,000 
amount is increased by a cost-of-living adjustment.

                               House Bill

      No provision.

                            Senate Amendment

      Under the Senate amendment, the annual gift exclusion for 
each donee is increased to $20,000 beginning in 2005.
      Effective date.--The annual gift exclusion is increased 
to $20,000, for each donee, for gifts made after December 31, 
2004.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

  E. Increase Estate Tax Deduction for Family-Owned Business Interest 
      (sec. 608 of the Senate amendment and sec. 2057 of the Code)


                              Present Law

      An estate is permitted to deduct the adjusted value of 
the qualified ``family-owned business interests'' of the 
decedent, up to a total of $675,000. The deduction plus the 
unified credit exclusion amount may not exceed $1.3 million. If 
the deduction is taken, then the unified credit exclusion 
amount is $625,000; however, if the deduction is less than 
$675,000, then the unified credit is increased (but not above 
the unified credit that would apply without regard to the 
deduction) by the excess of $675,000 over the deduction 
allowed. (Code sec. 2057.)
      A qualified family-owned business interest is defined as 
any interest in a trade or business (regardless of the form in 
which it is held) with a principal place of business in the 
United States if one family owns at least 50 percent of the 
trade or business, two families own 70 percent, or three 
families own 90 percent, as long as the decedent's family owns 
at least 30 percent of the trade or business. An interest in a 
trade or business does not qualify if any interest in the 
business (or a related entity) was publicly-traded at any time 
within three years of the decedent's death. An interest in a 
trade or business also does not qualify if more than 35 percent 
of the adjusted ordinary gross income of the business for the 
year of the decedent's death was personal holding company 
income (as defined in sec. 543). In the case of a trade or 
business that owns an interest in another trade or business 
(i.e., ``tiered entities''), special look-through rules apply. 
The value of a trade or business qualifying as a family-owned 
business interest is reduced to the extent the business holds 
passive assets or excess cash or marketable securities.
      To qualify for the deduction, the decedent (or a member 
of the decedent's family) must have owned and materially 
participated in the trade or business for at least 5 of the 8 
years preceding the decedent's date of death. In addition, each 
qualified heir (or a member of the qualified heir's family) is 
required to actively participate in the trade or business for 
at least 10 years following the decedent's death.
      The benefit of the deduction for qualified family-owned 
business interests is subject to recapture if, within 10 years 
of the decedent's death and before the qualified heir's death, 
one of the following ``recapture events'' occurs: (1) the 
qualified heir ceases to meet the material participation 
requirements; (2) the qualified heir disposes of any portion of 
his or her interest in the family-owned business, other than by 
a disposition to a member of the qualified heir's family or 
through a qualified conservation contribution; (3) the 
principal place of business of the trade or business ceases to 
be located in the United States; or (4) the qualified heir 
loses U.S. citizenship.
      The portion of the reduction in estate taxes that is 
recaptured depends upon the number of years that the qualified 
heir (or members of the qualified heir's family) materially 
participated in the trade or business between the date of the 
decedent's death and the date of the recapture event. If the 
qualified heir (or his or her family members) materially 
participated in the trade or business after the decedent's 
death for less than six years, 100 percent of the reduction in 
estate taxes attributable to that heir's interest is 
recaptured; if the participation was for at least six years but 
less than seven years, 80 percent of the reduction in estate 
taxes is recaptured; if the participation was for at least 
seven years but less than eight years, 60 percent is 
recaptured; if the participation was for at least eight years 
but less than nine years, 40 percent is recaptured; and if the 
participation was for at least nine years but less than ten 
years, 20 percent of the reduction in estates taxes is 
recaptured. In general, there is no requirement that the 
qualified heir (or members of his or her family) continue to 
hold or participate in the trade or business more than 10 years 
after the decedent's death. As under section 2032A(c)(7)(A), 
however, the 10-year recapture period may be extended for a 
period of up to two years if the qualified heir does not begin 
to use the property for a period of up to two years after the 
decedent's death.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment increases the qualified ``family-
owned business interests'' deduction from $675,000 to $1.975 
million. The deduction plus the unified credit exclusion amount 
may not exceed $2.6 million.
      Effective date.--The provision is effective for decedents 
dying after December 31, 2000.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

         VII. DISTRESSED COMMUNITIES AND INDUSTRIES PROVISIONS


 A. Renewal Community Provisions (secs. 701-706 of the House bill and 
 secs. 51, 198, 4973, 4975, 6047, 6104, 6693, and new secs. 1400E-L of 
                               the Code)


                              Present Law

      Pursuant to the Omnibus Budget Reconciliation Act of 1993 
(``OBRA 1993''), the Secretaries of Housing and Urban 
Development (``HUD'') and the Department of Agriculture 
designated a total of nine empowerment zones and 95 enterprise 
communities on December 21, 1994. Of the nine empowerment 
zones, six are in urban areas and three are in rural areas.\45\
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        \45\ The six urban empowerment zones are located in New York 
City, Chicago, Atlanta, Detroit, Baltimore, and Philadelphia-Camden 
(New Jersey). The three rural empowerment zones are located in the 
Kentucky Highlands (Clinton, Jackson and Wayne counties, Kentucky), 
Mid-Delta Mississippi (Bolivar, Holmes, Humphreys, Leflore counties, 
Mississippi), and Rio Grande Valley Texas (Cameron, Hidalgo, Starr, and 
Willacy counties, Texas).
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      In general, businesses located in these empowerment zones 
qualify for the following tax incentives: (1) a 20-percent wage 
credit for the first $15,000 of wages paid to a zone resident 
who works in the empowerment zone; (2) an additional $20,000 of 
section 179 expensing for certain property placed in service by 
an enterprise zone business; and (3) special tax-exempt 
financing for certain zone facilities. Businesses located in 
enterprise communities are eligible for the special tax-exempt 
financing benefits but not the other tax incentives available 
in the empowerment zones. The tax incentives for empowerment 
zones and enterprise communities generally remain in effect for 
ten years.
      The Taxpayer Relief Act of 1997 (``1997 Act'') authorized 
the designation of two new urban empowerment zones \46\ and 20 
additional empowerment zones. The new urban empowerment zones, 
whose designations take effect on January 1, 2000, are eligible 
for substantially the same tax incentives as the nine 
empowerment zones authorized by OBRA 1993 except that the wage 
credit is phased down beginning in 2005 and expires after 2007. 
Businesses in the 20 additional empowerment zones are not 
eligible for the wage credit (but are eligible to receive up to 
$20,000 of additional section 179 expensing and to utilize the 
special tax-exempt financing benefits).
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        \46\ The new urban empowerment zones are located in Los Angeles 
and Cleveland.
---------------------------------------------------------------------------

                               House Bill

      The House bill authorizes the designation of 20 ``renewal 
communities'' within which special tax incentives would 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 20 renewal communities.--The House bill 
authorizes the Secretary of HUD to designate up to 20 ``renewal 
communities'' from areas nominated by States and local 
governments. At least four of the designated communities must 
be in rural areas (defined as areas which are (1) within local 
government jurisdictions with a population less than 50,000, 
(2) outside of a metropolitan statistical area, or (3) 
determined by HUD to be a rural area). The Secretary of HUD 
would be required to publish (within four months after 
enactment) regulations describing the selection process; all 
designations of renewal communities would have to be made 
within 24 months after such regulations are published. The 
designation of an area as a renewal community terminates after 
December 31, 2007.\47\
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        \47\ The designation would terminate earlier than December 31, 
2007, if (1) an earlier termination date is designated by the State or 
local government in their designation, or (2) the Secretary of HUD 
revokes the designation as of an earlier date.
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    Old empowerment zones and enterprise communities could seek 
additional designation as renewal communities.--The bill allows 
the previously designated empowerment zones and enterprise 
communities to apply for designation as renewal communities. 
Priority is given in the designation of the first ten renewal 
communities to nominated areas that are designated as 
empowerment zones or enterprise communities under present law 
and that otherwise meet the requirements for designation as a 
renewal community. If a previously designated empowerment zone 
or enterprise community is selected as one of the 20 renewal 
communities, then the area's designation as an empowerment zone 
or enterprise community remains in effect and the same area 
would also be designated as a renewal community. For such an 
area obtaining dual-designation status, the special tax 
incentives available for empowerment zones (or enterprise 
communities, as the case may be) and for renewal communities 
would be available.
      Eligibility criteria.--To be designated as a renewal 
community, a nominated area must meet all of the following 
criteria: (1) each census tract has a poverty rate of at least 
20 percent; (2) in the case of an urban area, at least 70 
percent of the households have incomes below 80 percent of the 
median income of households within the local government 
jurisdiction; (3) the unemployment rate is at least 1.5 times 
the national unemployment rate; and (4) the area is one of 
pervasive poverty, unemployment, and general distress.
      Except with respect to the designation of the first ten 
renewal communities when priority would be given to existing 
empowerment zones and enterprise communities (as described 
above), those areas with the highest average ranking of 
eligibility factors (1), (2), and (3) abovewould be designated 
as renewal communities. 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 Government Accounting 
Office regarding the identification of economically distressed areas.
      There are no geographic size or maximum population 
limitations placed on the designated renewal communities. The 
provision merely requires that the boundary of a designated 
community be ``continuous'' and that the designated community 
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, or the community must be entirely within an Indian 
reservation).
      Required State and local government course of action.--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 that promises within the nominated area at 
least five of the following: (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; (6) State or local 
income tax benefits for fees paid for services performed by a 
nongovernmental entity that were formerly performed by a 
government entity; and (7) 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 bill requires that the nominating State 
and local governments promise to promote economic growth in the 
nominated area by repealing or not enforcing (1) licensing 
requirements for occupations that do not ordinarily require a 
professional degree, (2) zoning restrictions on home-based 
businesses which 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.

                 Tax incentives for renewal communities

      The following tax incentives generally would be available 
during the seven-year period beginning January 1, 2001, and 
ending December 31, 2007.
      100-percent capital gain exclusion.--The bill provides 
for a 100 percent capital gains exclusion for capital gain from 
the sale of any qualified community asset acquired after 
December 31, 2000, and before January 1, 2008, 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 
real and personal property used in a renewal community business 
if acquired (or substantially improved) by the taxpayer after 
December 31, 2000). A ``renewal community business'' is similar 
to the present-law definition of an enterprise zone business 
\48\ except that 80 percent of the gross income must be derived 
from the conduct of a qualified business within a renewal 
community. Property continues 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 is tangible property used in) a renewal 
community business. The termination of an area's status as a 
renewal community does not affect whether property is a 
qualified community asset. Gain attributable to the period 
before January 1, 2001, and after December 31, 2007, is not 
eligible for the 100-percent exclusion.
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        \48\ An ``enterprise zone business'' is defined as a 
corporation or partnership (or proprietorship) if for the taxable year: 
(1) the sole trade or business of the corporation or partnership is the 
active conduct of a qualified business within an empowerment zone or 
enterprise community;  (2) at least 50 percent of the total gross 
income is derived from the active conduct of a ``qualified business'' 
within a zone or community; (3) a substantial portion of the business' 
tangible property is used within a zone or community; (4) a substantial 
portion of the business' intangible property is used in the active 
conduct of such business; (5) a substantial portion of the services 
performed by employees are performed within a zone or community; (6) at 
least 35 percent of the employees are residents of the zone or 
community; and (7) less than five percent of the average of the 
aggregate unadjusted bases of the property owned by the business is 
attributable to (a) certain financial property, or (b) collectibles not 
held primarily for sale to customers in the ordinary course of an 
active trade or business (sec. 1397B).
      A ``qualified business'' is defined as any trade or business 
other than a trade or business that consists predominantly of the 
development or holding of intangibles for sale or license. In addition, 
the leasing of real property that is located within the empowerment 
zone or community to others is treated as a qualified business only if 
(1) the leased property is not residential property, and (2) at least 
50 percent of the gross rental income from the real property is from 
enterprise zone businesses. The rental of tangible personal property to 
others is not a qualified business unless at least 50 percent of the 
rental of such property is by enterprise zone businesses or by 
residents of an empowerment zone or enterprise community (sec. 
1397B(d)).
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    Family development accounts.--The bill allow individuals to 
claim an above-the-line deduction for certain amounts paid in 
cash to a family development account (``FDA'') established for 
the benefit of a ``qualified individual,'' meaning an 
individual who both resides in a renewal community throughout 
the taxable year and was allowed to claim the earned income 
credit (EIC) during the preceding taxable year. A qualified 
individual may claim a deduction of up to $2,000 per year for 
amounts he or she contributes to his or her own FDA. Any other 
person may contribute amounts to one or more FDAs established 
for the benefit of a qualified individual and deduct up to 
$1,000 per qualified individual. Contributions to an FDA made 
on or before April 15th of the current taxable year could be 
treated as made during the preceding taxable year. Thebill 
permits (but does not require) individuals to direct that the IRS 
directly deposit their EIC refunds into an FDA on behalf of such 
individual.
      The bill provides that up to five of the renewal 
communities may be designated by the Secretary of HUD as ``FDA 
matching demonstration areas,'' with respect to which HUD will, 
at the request of a qualified individual, match amounts 
contributed to FDAs, up to $1,000 per individual per taxable 
year (with a $2,000 lifetime cap). At least two of the FDA 
matching demonstration areas must be rural areas. The Secretary 
of HUD may designate renewal communities as FDA matching 
demonstration areas only during the 24-month period after such 
Secretary prescribes regulations regarding such areas. The 
matching grant amounts made under this demonstration program 
are excluded from the gross income of the account holder, and 
no deduction is allowed for matching grant amounts. The 
Treasury Secretary must provide notice to residents of FDA 
matching demonstration areas of the availability of matching 
contributions.
      An FDA is exempt from taxation (other than UBIT imposed 
by present-law section 511). A distribution from an FDA is not 
included in the gross income of the distributee if it is a 
``qualified family development distribution.'' A qualified 
family development distribution is defined as a distribution 
from an FDA that is used exclusively to pay for (1) qualified 
higher educational expenses, (2) qualified first-time homebuyer 
expenses, (3) qualified business capitalization costs \49\, or 
(4) qualified medical expenses. Such qualified expenses must be 
incurred on behalf of the FDA account holder, or the spouse or 
dependent of the account holder.
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        \49\ As is the case for enterprise zone businesses, a qualified 
business capitalization cost would not include expenditures incurred 
for the capitalization of any trade or business described in section 
144(c)(6)(B) (e.g., a country club, hot tub facility, or liquor store).
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    Distributions from an FDA that are not qualified family 
development distributions are included in gross income and 
subject to either a 100-percent additional tax (in the case of 
a distribution attributable to a demonstration matching 
contribution) or a 10-percent additional tax (in the case of 
any other distribution). The 100-percent and 10-percent 
additional taxes do not apply to distributions that are made on 
or after the account holder attains age 59\1/2\, dies, or 
becomes disabled. Any distribution from an FDA that is not a 
qualified family development distribution is deemed to have 
been made from demonstration matching contributions (thus 
subject to a 100-percent additional tax) until all such 
demonstration matching contributions have been withdrawn. This 
is to encourage account holders to use the amounts contributed 
to the FDA for qualified family development distributions or to 
save such amounts for retirement.
      The bill permits tax-free rollovers of amounts in an FDA 
into another such account established for the benefit of an 
individual who (1) both resides in a renewal community 
throughout the taxable year and was allowed to claim the earned 
income credit during the preceding taxable year, and (2) either 
is the account holder or is a spouse or dependent of the 
account holder.
      Commercial revitalization deduction.--The bill allows 
each State to allocate an amount of ``commercial revitalization 
deductions'' with respect to qualified revitalization 
expenditures incurred in connection with a qualified 
revitalization building. The commercial revitalization 
deduction is equal to (a) 50 percent of qualified 
revitalization expenditures for the taxable year in which a 
qualified revitalization building is placed in service or, at 
the election of the taxpayer, (b) a 10-percent deduction for 
qualified revitalization expenditures per year for a 10-year 
period beginning with the year in which the building is placed 
in service. A ``qualified revitalization expenditure'' means 
the cost (up to $10 million) of constructing or substantially 
rehabilitating a building used for commercial purposes in a 
designated renewal community, including certain land 
acquisition costs. A commercial revitalization deduction would 
be in lieu of any depreciation deduction otherwise allowable on 
account of such expenditure.
      Each State would be allowed to allocate no more than $6 
million worth of commercial revitalization deductions to each 
renewal community located within the State for each calendar 
year after 2000 and before 2008. The appropriate State agency 
would make the allocations pursuant to a qualified allocation 
plan. The qualified allocation plan would (1) set forth the 
selection criteria to be used to determine priorities as 
appropriate to local conditions; (2) consider how the building 
project would contribute to the renewal community and its 
residents, and (3) provide a procedure that the agency would 
follow to monitor compliance.
      A qualified revitalization building must be located in a 
renewal community and placed in service after December 31, 
2000, and before January 1, 2008.
      Additional section 179 expensing.--A renewal community 
business is allowed an additional $35,000 of section 179 
expensing for qualified renewal property placed in service 
after December 31, 2000, and before January 1, 2008. If a 
renewal community business is located in an area that is 
designated as both an empowerment zone and a renewal community, 
such business could be allowed an additional $55,000 of section 
179 expensing (i.e., $20,000 of additional expensing because 
the area is designated an empowerment zone plus $35,000 of 
additional expensing because the area is designated a renewal 
community). 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 ``qualified zone property'' under 
section 1397C.
      Expensing of environmental remediation costs 
(``brownfields'').--A renewal community is treated as a 
``targeted area'' under section 198 which permits expensing of 
certain 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. The expenditure must be incurred in 
connection with the abatement or control of environmental 
contaminants, as required by Federal and State law, at a trade 
or business site located within a designated renewal community. 
This provision applies to expenditures incurred after December 
31, 2000, and before January 1, 2008.
      Extension of work opportunity tax credit (``WOTC'').--The 
provision makes two changes to the WOTC. Beginning in 2001, the 
provision expands the high-risk youth and qualified summer 
youth categories in the present-law WOTC to include qualified 
individuals who live in a renewal community. Second, in the 
event that the WOTC program were to expire and not be extended, 
the bill permits employers engaged in a trade or business in a 
renewal community to claim a tax credit with respect to 
individuals hired from one or more targeted groups that live 
and perform substantially all of their work in a renewal 
community. The tax credit equals 15 percent of the qualified 
first-year wages and 30 percent of the qualified second-year 
wages through December 31, 2007. No more than $10,000 of wages 
may be taken into account in each year. Qualified wages 
generally consist of wages paid or incurred during the period 
for which the WOTC is being calculated.
      Targeted groups eligible for the tax credit include: (1) 
certain individuals certified by the designated local agency as 
being a member of a family receiving assistance under a IV-A 
program for any nine months during the 18-month period ending 
on the hiring date; (2) certain ex-felons having a hiring date 
within one year of release from prison or date of conviction; 
(3) individuals who are at least 18 but not 25 years of age and 
have a principal place of abode within an empowerment zone, 
enterprise community, or renewal community; (4) individuals who 
are at least 18 but not 25 years of age who are certified as 
being a member of a family receiving assistance under a food 
stamp program under the Food Stamp Act of 1977 for a period of 
at least six months ending on the hiring date; (5) individuals 
who have a physical or mental disability that constitutes a 
substantial handicap to employment and who have been referred 
to the employer while receiving, or after completing, 
vocational rehabilitation services; (6) individuals who are 16 
or 17 years of age, perform services during any 90-day period 
between May 1 and September 15, and have a principal place of 
abode within an empowerment zone, enterprise community, or 
renewal community; (7) certain veterans who receive food 
stamps; and (8) recipients of certain Supplemental Security 
Income benefits.
      HUD reports.--Not later than the close of the fourth 
calendar year after the year the Secretary of HUD first 
designates an area as a renewal community and every four years 
thereafter, the Secretary of HUD must report to Congress on the 
effects of such designation in stimulating the creation of new 
jobs, particularly for disadvantaged workers and long-term 
unemployed individuals, and promoting the revitalization of 
economically distressed areas.

Effective date

      Although renewal communities would be designated within 
24 months after publication of regulations by HUD, the tax 
benefits available in renewal communities are effective for the 
7-year period beginning January 1, 2001, and ending December 
31, 2007.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement generally follows the House bill 
with the following modifications. The conference agreement does 
not provide for the designation of the ``FDA matching 
demonstration areas.'' In addition, the conference agreement 
does not include the provision requiring a report by the 
Secretary of HUD to Congress.

 B. Provide That Federal Production Payments to Farmers Are Taxable in 
             the Year Received (sec. 711 of the House bill)


                              Present Law

      A taxpayer generally is required to include an item in 
income no later than the time of its actual or constructive 
receipt, unless such amount properly is accounted for in a 
different period under the taxpayer's method of accounting. If 
a taxpayer has an unrestricted right to demand the payment of 
an amount, the taxpayer is in constructive receipt of that 
amount whether or not the taxpayer makes the demand and 
actually receives the payment.
      The Federal Agriculture Improvement and Reform Act of 
1996 (the ``FAIR Act'') provides for production flexibility 
contracts between certain eligible owners and producers and the 
Secretary of Agriculture. These contracts generally cover crop 
years from 1996 through 2002. Annual payments are made under 
such contracts at specific times during the Federal 
government's fiscal year. Section 112(d)(2) of the FAIR Act 
provides that one-half of each annual payment is to be made on 
either December 15 or January 15 of the fiscal year, at the 
option of the recipient.\50\ The remaining one-half of the 
annual payment must be made no later than September 30 of the 
fiscal year. The Emergency Farm Financial Relief Act of 1998 
added section 112(d)(3) to the FAIR Act which provides that all 
payments for fiscal year 1999 are to be paid at such time or 
times during fiscal year 1999 as the recipient may specify. 
Thus, the one-half of the annual amount that would otherwise be 
required to be paid no later than September 30, 1999 can be 
specified for payment in calendar year 1998.
---------------------------------------------------------------------------
        \50\ This rule applies to fiscal years after 1996. For fiscal 
year 1996, this payment was to be made not later than 30 days after the 
production flexibility contract was entered into.
---------------------------------------------------------------------------
    These options potentially would have resulted in the 
constructive receipt (and thus inclusion in income) of the 
payments to which they relate at the time they could have been 
exercised, whether or not they were in fact exercised. However, 
section 2012 of the Tax and Trade Relief Extension Act of 1998 
provided that the time a production flexibility contract 
payment under the FAIR Act properly is includible in income is 
to be determined without regard to either option, effective for 
production flexibility contract payments made under the FAIR 
Act in taxable years ending after December 31, 1995.

                               House Bill

      Any option to accelerate the receipt of any payment under 
a production flexibility contract which is payable under the 
FAIR Act, as in effect on the date of enactment of the 
provision, is to be disregarded in determining the taxable year 
in which such payment is properly included in gross income. 
Options to accelerate payments that are enacted in the future 
are covered by this rule, providing the payment to which they 
relate is mandated by the FAIR Act as in effect on the date of 
enactment of this Act.
      The provision does not delay the inclusion of any amount 
in gross income beyond the taxable period in which the amount 
is received.
      Effective date.--The provision is effective on the date 
of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

C. Allow Net Operating Losses from Oil and Gas Properties To Be Carried 
Back for Up to Five Years (sec. 721 of the House bill, sec. 1104 of the 
              Senate amendment, and sec. 172 of the Code)


                              Present Law

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

                               House Bill

      The House bill provides a special five-year carryback for 
certain eligible oil and gas losses. The carryforward period 
remains 20 years. An ``eligible oil and gas loss'' is defined 
as the lesser of (1) the amount which would be the taxpayer's 
NOL for the taxable year if only income and deductions 
attributable to operating mineral interests in oil and gas 
wells were taken into account, or (2) the amount of such net 
operating loss for such taxable year. In calculating the amount 
of a taxpayer's NOL carrybacks, the portion of the NOL that is 
attributable to an eligible oil and gas loss is treated as a 
separate NOL and taken into account after the remaining portion 
of the NOL for the taxable year.
      Effective date.--The provision applies to net operating 
losses arising in taxable years beginning after December 31, 
1998.

                            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. Deduction for Delay Rental Payments (sec. 722 of the House bill, 
     sec. 1106 of the Senate amendment, and sec. 263A of the Code)


                              Present Law

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

                               House Bill

      The House bill allows delay rental payments to be 
deducted currently.
      Effective date.--The provision applies to rental payments 
incurred in taxable years beginning after December 31, 1999.
      No inference is intended from the prospective effective 
date of this provision as to the proper treatment of pre-
effective date delay rental payments.

                            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. Election to Expense Geological and Geophysical Expenditures (sec. 
723 of the House bill, sec. 1105 of the Senate amendment, and sec. 263 
                              of the Code)


                              Present Law

      Under present law, current deductions are not allowed for 
any amount paid for new buildings or for permanent improvements 
or betterments made to increase the value of any property or 
estate (sec. 263(a)). Treasury Department regulations define 
capital amounts to include amounts paid or incurred (1) to add 
to the value, or substantially prolong the useful life, of 
property owned by the taxpayer or (2) to adapt property to a 
new or different use. \51\
---------------------------------------------------------------------------
        \51\ Treas. Reg. sec. 1.263(a)-(1)(b).
---------------------------------------------------------------------------
    The proper income tax treatment of geological and 
geophysical costs (``G&G costs'') associated with oil and gas 
production has been the subject of a number of court decisions 
and administrative rulings. G&G costs are incurred by the 
taxpayer for the purpose of obtaining and accumulating data 
that will serve as a basis for the acquisition and retention of 
oil or gas properties by taxpayers exploring for the minerals. 
Courts have ruled that such costs are capital in nature and are 
not deductible as ordinary and necessary business expenses.

                               House Bill

      The House bill allows geological and geophysical costs 
incurred in connection with oil and gas exploration in the 
United States to be deducted currently.
      Effective date.--The provision is effective for G&G costs 
incurred in taxable years beginning after December 31, 1999.

                            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. Temporary Suspension of Limitation Based on 65 Percent of Taxable 
      Income (sec. 724 of the House bill and sec. 613 of the Code)


                              Present Law

      Depletion, like depreciation, is a form of capital cost 
recovery. In both cases, the taxpayer is allowed a deduction in 
recognition of the fact that an asset--in the case of depletion 
for oil or gas interests, the mineral reserve itself--is being 
expended in order to produce income. Certain costs incurred 
prior to drilling an oil or gas property are recovered through 
the depletion deduction. These include costs of acquiring the 
lease or other interest in the property and geological and 
geophysical costs (in advance of actual drilling). Depletion is 
available to any person having an economic interest in a 
producing property.
      Two methods of depletion currently are allowable under 
the Code: (1) the cost depletion method, and (2) the percentage 
depletion method (secs. 611-613). Under the cost depletion 
method, the taxpayer deducts that portion of the adjusted basis 
of the depletable property which is equal to the ratio of units 
sold from that property during the taxable year to the number 
of units remaining as of the end of taxable year plus the 
number of units sold during the taxable year. Thus, the amount 
recovered under cost depletion may never exceed the taxpayer's 
basis in the property.
      Under the percentage depletion method, generally, 15 
percent of the taxpayer's gross income from an oil- or gas-
producing property is allowed as a deduction in each taxable 
year (sec. 613A(c)). The amount deducted generally may not 
exceed 100 percent of the net income from that property in any 
year (the ``net-income limitation'') (sec. 613(a)). \52\ 
Additionally, the percentage depletion deduction for all oil 
and gas properties may not exceed 65 percent of the taxpayer's 
overall taxable income (determined before such deduction and 
adjusted for certain loss carrybacks and trust distributions) 
(sec. 613A(d)(1)).
---------------------------------------------------------------------------
        \52\ The Taxpayer Relief Act of 1997 suspended the 100-percent 
net-income limitation for production from marginal wells for taxable 
years beginning after December, 31, 1997, and before January 1, 2000. 
This suspension is extended for an additional period, through December 
31, 2004, in another section of the House bill and the Senate 
amendment.
---------------------------------------------------------------------------

                               House Bill

      The limit on percentage depletion deductions to no more 
than 65 percent of the taxpayer's overall taxable income is 
suspended for taxable years beginning after December 31, 1998, 
and before January 1, 2005.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

G. Modify Small Refiner Limit for Eligibility for Percentage Depletion 
   Deductions (sec. 725 of the House bill and sec. 613A of the Code)


                              Present Law

      Present law classifies oil and gas producers as 
independent producers or integrated companies. The Code 
provides numerous different, and typically more generous, tax 
rules for operations by independent producers. One such rule 
allows independent producers to claim percentage depletion 
deductions rather than deducting the costs of their asset, a 
producing well, based on actual production from the well (i.e., 
cost depletion).
      A producer is an independent producer only if its 
refining and retail operations are relatively small. For 
example, an independent producer may not have refining 
operations the runs from which exceed 50,000 barrels on any day 
in the taxable year during which independent producer status is 
claimed.

                               House Bill

      The House bill changes the refinery limitation on 
claiming independent producer status from a limit based on 
actual daily production to a limit based on average daily 
production for the taxable year: the average daily refinery run 
for the taxable year may not exceed 50,000 barrels. For this 
purpose, the taxpayer shall calculate average daily production 
by dividing total production for the taxable year by the total 
number of days in the taxable year.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

  H. Increase the Maximum Dollar Amount of Reforestation Expenditures 
Eligible for Amortization and Credit (sec. 731 of the House bill, sec. 
        1108 of the Senate amendment, and sec. 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 (7 years) and is subject 
to a mandatory half-year convention. \53\ In the case of an 
individual, the amortization deduction is allowed in 
determining adjusted gross income (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. \54\
---------------------------------------------------------------------------
        \53\ 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.
        \54\ 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. \55\ 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.
---------------------------------------------------------------------------
        \55\ 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. \56\
---------------------------------------------------------------------------
        \56\ 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 5 years.

                               House Bill

      The provision increases the amount of reforestation 
expenditures eligible for 7-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 2000 through 2003, the 
provision removes the limitation on the amount eligible for 7-
year amortization.
      Effective date.--The provision is effective for 
expenditures paid or incurred in taxable years beginning after 
December 31, 1998. Expenditures paid or incurred prior to the 
effective date would continue to be recovered under the rules 
of present law. For taxable years beginning in 1999 and after 
2003, the amount of reforestation expenditures eligible for 7-
year amortization and for the credit is limited to $25,000. For 
taxable years beginning in 2000 through 2003, the amount of 
reforestation expenditures eligible for the credit is limited 
to $25,000 and no limit would apply to the amount eligible for 
7-year amortization.

                            Senate Amendment

      The Senate amendment is generally the same as the House 
bill, except that the Senate amendment is effective for taxable 
years beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment, effective as provided in the Senate 
amendment. Accordingly, there is no change in the amount of 
reforestation expenditures eligible for amortization and the 
credit for taxable years beginning in 1999. For taxable years 
beginning in 2000 through 2003, the amount of reforestation 
expenditures eligible for the credit is limited to $25,000 and 
no limit applies to the amount eligible for 7-year 
amortization. For taxable years beginning after 2003, the 
amount of reforestation expenditures eligible for 7-year 
amortization and for the credit is limited to $25,000.

 I. Capital Gains Treatment Under Section 631(b) to Apply to Outright 
   Sales by Landowners (sec. 732 of the House bill, sec. 1136 of the 
             Senate amendment, 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

      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. The provision does not modify the rule that deems the date 
of cutting to be the date of disposition. Thus, unless the 
taxpayer receives payment prior to the date of cutting and 
elects to treat that date as the date of disposition, the date 
of sale will be the date of cutting whether or not an economic 
interest is retained.
      Effective date.--The provision is effective for sales of 
timber after the date of enactment. A sale will not be 
considered to occur after the date of enactment if the taxpayer 
conveys its interest in the timber on or before the date of 
enactment, even if the deemed date of disposition is after the 
date of enactment.

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

  J. Minimum Tax Relief for the Steel Industry (sec. 741 of the House 
                     bill and sec. 53 of the Code)


                              Present Law

      A corporate taxpayer receives a minimum tax credit for 
any year in which it pays alternative minimum tax. The 
alternative minimum tax is the excess of tentative minimum tax 
over regular tax \57\ and generally represents the additional 
tax a corporate taxpayer is required to pay in any year as a 
result of the alternative minimum tax system. The minimum tax 
credit may be used in future years to the extent regular tax 
exceeds tentative minimum tax. The minimum tax credit may not 
be used to reduce liability below tentative minimum tax. The 
credit may be carried forward indefinitely.
---------------------------------------------------------------------------
        \57\ For this purpose, tentative minimum tax is determined net 
of alternative minimum tax foreign tax credits and regular tax is 
determined net of regular tax foreign tax credits.
---------------------------------------------------------------------------
    For example, a corporate taxpayer has $1,000 of minimum tax 
credits available in a year in which its regular tax is $200 
and its tentative minimum tax is $100. The taxpayer may use 
$100 of its minimum tax credits (the excess of regular tax over 
tentative minimum tax) to reduce its current liability to $100. 
The taxpayer would then have $900 of minimum tax credits 
available in the following year.
      If instead the corporate taxpayer had regular tax of $100 
and tentative minimum tax of $200, it would not be allowed to 
use any of its minimum tax credits because there is no excess 
of regular tax over tentative minimum tax. The taxpayer would 
have a current liability of $200 ($100 of regular tax and $100 
of alternative minimum tax) and would generate an additional 
$100 of minimum tax credits, giving it minimum tax credits of 
$1100 available for the following year.

                               House Bill

      The provision allows minimum tax credits to offset 90 
percent of tentative minimum tax \58\ in the case of a steel 
company, in addition to any excess of regular tax over 
tentative minimum tax. The benefit of the provision is limited 
to amounts that are attributable to the trade or business of 
manufacturing steel within the United States for sale to 
customers. The rules regarding the determination of minimum tax 
credits are not changed. The Secretary is authorized to issue 
regulations to insure that the benefit of the provision is 
limited to steel companies.
---------------------------------------------------------------------------
        \58\ Determined net of the alternative minimum tax foreign tax 
credit.
---------------------------------------------------------------------------
      For example, under the provision, a company that has 
exclusively engaged in the trade or business of manufacturing 
steel within the United States for sale to customers has $1,000 
of minimum tax credits available in a year in which its regular 
tax is $200 and its tentative minimum tax is $100. The taxpayer 
may use minimum tax credits of $100 (the excess of its regular 
tax over its tentative minimum tax) plus $90 (90 percent of its 
tentative minimum tax), for a total of $190, to reduce its 
current liability to $10. The taxpayer would then have $810 of 
minimum tax credits available in the following year.
      If instead the steel company had regular tax of $100 and 
tentative minimum tax of $200, it would be allowed to use $180 
(90 percent of its tentative minimum tax) of its minimum tax 
credits to reduce its current liability to $20. The net effect 
on its minimum tax credits would be a reduction of $80,\59\ 
giving it minimum tax credits of $920 available for the 
following year.
---------------------------------------------------------------------------
        \59\ The determination of minimum tax credits available in the 
following year is a multiple step process, involving an increase in the 
stock of minimum tax credits by the amount that tentative minimum tax 
exceeds regular tax ($100), combined with a reduction by the amount 
used ($180), for a net reduction of $80.
---------------------------------------------------------------------------
    Effective date.--The provision is effective for taxable 
years beginning after December 31, 1998.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the House bill 
provision.

               VIII. SMALL BUSINESS TAX RELIEF PROVISIONS


  A. Accelerate 100-Percent Self-Employed Health Insurance Deduction 
(sec. 801 of the House bill, sec. 601 of the Senate amendment, and sec. 
                          162(l) of the Code)


                              Present Law

      Under present law, the 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 1999 
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.
      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

      Beginning in 2000, the House bill increases the deduction 
for health insurance expenses (and qualified long-term care 
insurance expenses) of self-employed individuals to 100 
percent.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1999.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that the Senate amendment also provides that the self-
employed health deduction is not available for any month in 
which the taxpayer participates in any subsidized health plan 
maintained by any employer of the taxpayer or the taxpayer's 
spouse.
      Effective date.--Same as the House bill.

                          Conference Agreement

      The conference agreement follows the Senate amendment. 
Under the conference agreement, as under the Senate amendment, 
the self-employed health deduction is not available for any 
month in which the taxpayer participates in any subsidized 
health plan maintained by any employer of the taxpayer or the 
taxpayer's spouse. Thus, for example, suppose that A is a sole 
proprietor and that A and his spouse, S, are eligible to 
participate in the health plan sponsored by S's employer, but 
decline to participate. A and S are entitled to the self-
employed health deduction.
      Effective date.--Taxable years beginning after December 
31, 1999.

B. Increase Section 179 Expensing (sec. 802 of the House bill, sec. 602 
           of the Senate amendment, 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 $19,000 (for taxable years beginning 
in 1999) 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 $19,000 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 $19,000 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 2000, the amount 
is $20,000; 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

      The House bill provides that the maximum dollar amount 
that may be deducted under section 179 is increased to $30,000 
for taxable years beginning in 2000 and thereafter, without the 
present-law phase-in rule.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1999.

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

  C. Repeal of Temporary Federal Unemployment Surtax (sec. 803 of the 
House bill, sec. 603 of the Senate amendment and sec. 3301 of the Code)


                              Present Law

      The Federal Unemployment Tax Act (``FUTA'') imposes a 
6.2-percent gross tax rate on the first $7,000 paid annually by 
covered employers to each employee. Employers in States with 
programs approved by the Federal Government and with no 
delinquent Federal loans may credit 5.4-percentage points 
against the 6.2-percent tax rate, making the minimum, net 
Federal unemployment tax rate 0.8 percent. Since all States 
currently have approved programs, 0.8 percent is the Federal 
tax rate that generally applies. This Federal revenue finances 
administration of the unemployment system, half of the Federal-
State extended benefits program, and a Federal account for 
State loans. The States use the revenue turned back to them by 
the 5.4-percent credit to finance their regular State programs 
and half of the Federal-State extended benefits program.
      In 1976, Congress passed a temporary surtax of 0.2 
percent of taxable wages to be added to the permanent FUTA tax 
rate. Thus, the current 0.8-percent FUTA tax rate has two 
components: a permanent tax rate of 0.6 percent, and a 
temporary surtax rate of 0.2 percent. The temporary surtax 
subsequently has been extended through 2007.

                               House Bill

      The House bill repeals the temporary FUTA surtax after 
December 31, 2004.
      Effective date.--The House bill provision is effective 
for labor performed on or after January 1, 2005.

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

   D. Farmer and Fisherman Income Averaging (sec. 604 of the Senate 
            amendment and secs. 55(c) and 1301 of the Code)


                              Present Law

      An individual taxpayer 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.

                            Senate Amendment

      The election to average income is extended to cover 
income from the trade or business of fishing as well as 
farming. 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 provision coordinates farmers' and fishermen's income 
averaging with the alternative minimum tax. A farmer or 
fisherman electing to average his or her farm income will owe 
alternative minimum tax only to the extent he or she would have 
owed alternative minimum tax had averaging not been elected. 
This is achieved by excluding the impact of the election to 
average farm income from the calculation of both regular tax 
and tentative minimum tax, solely for the purpose of 
determining alternative minimum tax.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

   E. Farm, Fish and Ranch Risk Management Accounts (sec. 605 of the 
         Senate amendment and secs. 468C and 4973 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

      The bill allows taxpayers engaged in an eligible business 
to establish Farm, Fish and Ranch Risk Management (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 \60\. An 
eligible business is also 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.
---------------------------------------------------------------------------
        \60\ An evergreen tree that is more than 6 years old when 
severed from the roots (and thus eligible for captial gains treatment 
on cutting) is not considered an ornamental tree for this purpose.
---------------------------------------------------------------------------
    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 to be 
taken into account in determining adjusted gross income and 
will reduce 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 will be deemed to have been made 
on the last day of the taxable year if made on or before the 
due date (without regard to extensions) of the taxpayer's 
return for that year.
      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.
      Contributions to a FFARRM account do not reduce earnings 
from self-employment. Accordingly, distributions are not 
included in self-employment income.
      Amounts may 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. Distributions for the year are considered to 
first be made from the earnings that are required to be 
distributed. Additional amounts distributed for the year are 
considered to be made from the oldest deposits.
      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 enforcing this restriction.
      A FFARRM account may not be maintained by a taxpayer who 
has ceased to engage in an eligible business. If the taxpayer 
does not engage in an eligible business during two consecutive 
taxable years, the balance in the FFARRM account is deemed to 
be distributed to the taxpayer on the last day of such two year 
period.
      If the taxpayer who established the FFARRM account dies, 
and the taxpayer's surviving spouse acquires the taxpayer's 
interest in the FFARRM account by reason of being designated as 
the beneficiary of the account at the death of the taxpayer, 
the surviving spouse will ``step into the shoes'' of the 
deceased taxpayer with respect to the FFARRM account. In other 
cases, the account will cease to be a FFARRM account on the 
date of the taxpayer's death and the balance in the account 
will be deemed distributed to the taxpayer on the date of 
death.
      A FFARRM account is a trust that is created or organized 
in the United States for the exclusive benefit of the taxpayer 
who establishes it. The trustee must be a bank or other person 
who demonstrates to the satisfaction of the Secretary that it 
will administer the trust in a manner consistent with the 
requirements of the section. At all times, the assets of the 
trust must consist entirely of cash and obligations which have 
adequate stated interest (as defined in section 1274(c)(2)) and 
which pay such adequate interest not less often than annually. 
The trust must distribute all income currently, and its assets 
may not be commingled except in a common trust fund or common 
investment fund. Additional protections, including rules 
preventing the trust from engaging in prohibited transactions 
or from being pledged as security for a loan, are provided.
      Penalties apply in the case of excess contributions and 
failures to make required distributions.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

                    F. S Corporation Bank Provisions


1. Definition of passive investment income for banks (sec. 606 of the 
        Senate amendment and sec. 1362 of the Code)

                              Present Law

      An S corporation is subject to corporate-level tax, at 
the highest marginal corporate tax rate, on its net passive 
income if the corporation has (1) accumulated earnings and 
profits \61\ at the close of the taxable year and (2) gross 
receipts more than 25 percent of which are passive investment 
income. In addition, an S corporation election is terminated 
whenever the corporation has accumulated C earnings and profits 
at the close of three consecutive taxable years and has gross 
receipts for each of such years more than 25 percent of which 
are passive investment income.
---------------------------------------------------------------------------
        \61\ An S corporation generally will have accumulated 
corporation earnings and profits if it had been a C corporation prior 
to electing to be an S corporation.
---------------------------------------------------------------------------
    For these purposes, ``passive investment income'' generally 
means gross receipts derived from royalties, rents, dividends, 
interest, annuities, and sales or exchanges of stock or 
securities (to the extent of gains).
      Treasury regulations provide that passive income does not 
include gross receipts directly derived in the ordinary course 
of a trade or business of lending or financing.\62\ The 
Internal Revenue Service has ruled that income earned by an S 
corporation on specified banking assets will be treated as 
gross receipts directly derived from the active and regular 
conduct of a banking business.\63\
---------------------------------------------------------------------------
        \62\ Treas. Regulation sec. 1-1362-2(c)(5)(iii)(B).
        \63\ Notice 97-5, 1997-1 C. B. 352 (January 13, 1997).
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment provides that, for purposes of 
applying the passive income test to a bank or a bank holding 
company, interest income and dividends received on assets 
required to conduct a banking business are not to be treated as 
passive income.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

2. Bank director stock (sec. 607 of the Senate amendment and sec. 1361 
        of the Code)

                              Present Law

      The taxable income or loss of an S corporation is taken 
into account by the corporation's shareholders, rather than by 
the entity, whether or not such income is distributed. A small 
business corporation may elect to be treated as an S 
corporation. A ``small business corporation'' generally is 
defined as a domestic corporation which does not have (1) more 
than 75 shareholders; (2) a shareholder (other than certain 
trusts, estates, and tax-exempt organizations) who is not an 
individual; (3) a nonresident alien as a shareholder; and (4) 
more than one class of stock.

                               House Bill

      No provision.

                            Senate Amendment

      Under the Senate amendment, qualifying director shares is 
not treated as a second class of stock. Instead, payments on 
the stock are deductible by the corporation and includible in 
income of the holder of the stock. No allocations of income or 
loss are made with respect to the stock. Qualifying director 
shares are shares of stock in a bank or bank holding company 
that are held by an individual solely by reason of being a 
director and which are subject to an agreement to dispose of 
the shares upon termination of director status at the price 
paid to acquire the shares.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

                IX. INTERNATIONAL TAX RELIEF PROVISIONS


A. Allocate Interest Expense on Worldwide Basis (sec. 901 of the House 
   bill, sec. 901 of the Senate amendment, and sec. 864 of the Code)


                              Present Law


In general

      In order to compute the foreign tax credit limitation, a 
taxpayer must determine the amount of taxable income from 
foreign sources. Thus, the taxpayer must allocate and apportion 
deductions between items of U.S.-source gross income, on the 
one hand, and items of foreign-source gross income, on the 
other. Generally, it is left to the Treasury to provide 
detailed rules for the allocation and apportionment of 
expenses.
      In the case of interest expense, regulations generally 
are based on the approach that money is fungible and that 
interest expense is properly attributable to all business 
activities and property of a taxpayer, regardless of any 
specific purpose for incurring an obligation on which interest 
is paid. (Exceptions to the fungibility concept are recognized 
or required, however, in particular cases, some of which are 
described below.) The Code provides that for interest 
allocation purposes all members of an affiliated group of 
corporations generally are to be treated as a single 
corporation (the so-called ``one-taxpayer rule''), and that 
allocation must be made on the basis of assets rather than 
gross income.

Affiliated group

            In general
      The term ``affiliated group'' in this context generally 
is defined by reference to the rules for determining whether 
corporations are eligible to file consolidated returns. 
However, some groups of corporations are eligible to file 
consolidated returns yet are not treated as affiliated for 
interest allocation purposes, and other groups of corporations 
are treated as affiliated for interest allocation purposes even 
though they are not eligible to file consolidated returns. 
Thus, under the one-taxpayer rule, the factors affecting the 
allocation of interest expense of one corporation may affect 
the sourcing of taxable income of another, related corporation 
even if the two corporations do not elect to file, or are 
ineligible to file, consolidated returns. (See, e.g., Treas. 
Reg. sec. 1.861-11T(g).)
            Definition of affiliated group--consolidated return rules
      For consolidation purposes, the term ``affiliated group'' 
means one or more chains of includible corporations connected 
through stock ownership with a common parent corporation which 
is an includible corporation, but only if the common parent 
owns directly at least 80 percent of the total voting power of 
all classes of stock and at least 80 percent of the total value 
of all outstanding stock of at least one other includible 
corporation. In addition, for each such other includible 
corporation (except the common parent), stock possessing at 
least 80 percent of the total voting power of all classes of 
its stock and at least 80 percent of the total value of all of 
its outstanding stock must be directly owned by one or more 
other includible corporations.
      Generally the term ``includible corporation'' means any 
domestic corporation except certain corporations exempt from 
tax under section 501 (for example, corporations organized and 
operated exclusively for charitable or educational purposes), 
certain life insurance companies, corporations electing 
application of the possession tax credit, regulated investment 
companies, real estate investment trusts, and domestic 
international sales corporations. A foreign corporation 
generally is not an includible corporation.
            Definition of affiliated group--special interest allocation 
                    rules
      Subject to exceptions, the consolidated return and 
interest allocation definitions of affiliation generally are 
consistent with each other.\64\ For example, both definitions 
exclude all foreign corporations from the affiliated group. 
Thus, while debt generally is considered fungible among the 
assets of a group of domestic affiliated corporations, the same 
rule does not apply as between the domestic and foreign members 
of a group with the same degree of common control as the 
domestic affiliated group.
---------------------------------------------------------------------------
        \64\ One such exception is that the affiliated group for 
interest allocation purposes includes section 936 corporations that are 
excluded from the consolidated group.
---------------------------------------------------------------------------
            Banks, savings institutions and other financial affiliates
      The affiliated group for interest allocation purposes 
generally excludes what are referred to in the regulations as 
``financial corporations'' (Treas. Reg. sec. 1.861-11T(d)(4)). 
These include any corporation, otherwise a member of the 
affiliated group for consolidation purposes, that is a 
financial institution (described in section 581 or section 
591), the business of which is predominantly with persons other 
than related persons or their customers, and which is required 
by State or Federal law to be operated separately from any 
other entity which is not a financial institution (sec. 
864(e)(5)(C)). The category of financial corporations also 
includes, to the extent provided in regulations, bank holding 
companies, subsidiaries of banks and bank holding companies, 
and savings institutions predominantly engaged in the active 
conduct of a banking, financing, or similar business (sec. 
864(e)(5)(D)).
      A financial corporation is not treated as a member of the 
regular affiliated group for purposes of applying the one-
taxpayer rule to other nonfinancial members of that group. 
Instead, all such financial corporations that would be so 
affiliated are treated as a separate single corporation for 
interest allocation purposes.

                               House Bill


Worldwide affiliated group election

      The House bill modifies the present-law interest expense 
allocation rules (which generally apply for purposes of 
computing the foreign tax credit limitations) by providing a 
one-time election under which the taxable income of the 
domestic members of an affiliated group from sources outside 
the United States generally would be determined by allocating 
and apportioning interest expense of the domestic members of a 
worldwide affiliated group on a worldwide-group basis. The 
election provides taxpayers with the option either to apply 
fungibility principles on a worldwide basis or to continue to 
apply present law.
      Under the House bill, the common parent of an affiliated 
group can make a one-time election to apply the present-law 
interest expense allocation and apportionment rules under 
section 864(e) by allocating and apportioning interest expense 
of the domestic members of the worldwide affiliated group on a 
worldwide-group basis. If an affiliated group makes this 
election, subject to certain modifications and exceptions 
discussed below, the taxable income of the domestic members of 
the worldwide affiliated group from sources outside the United 
States is determined by allocating and apportioning the 
interest expense of those domestic members to foreign-source 
income in an amount equal to the worldwide affiliated group's 
worldwide interest expense multiplied by a ratio of the foreign 
assets of the worldwide affiliated group over the total assets 
of the worldwide affiliated group.
      For purposes of the new elective rules based on worldwide 
fungibility, the worldwide affiliated group means all 
corporations in an affiliated group (as that term is defined 
under present law for interest expense allocation purposes) 
\65\ as well as any foreign corporations with respect to which 
domestic members of the affiliated group own stock meeting the 
ownership requirements for treatment as a controlled foreign 
corporation under section 957(a) (without regard to the 
constructive ownership rules of section 958(b)). Hence, if more 
than 50 percent of the total combined voting power or the total 
value of the stock of a foreign corporation is owned (directly 
or indirectly) by domestic members of the affiliated group that 
are U.S. shareholders (i.e., that own 10 percent or more of the 
total combined voting power of the stock of such foreign 
corporation), then such foreign corporation is included in an 
electing worldwide affiliated group.
---------------------------------------------------------------------------
        \65\ The bill expands the present-law definition of an 
affiliated group for interest expense allocation purposes to include 
certain insurance companies that are generally excluded from an 
affiliated group under section 1504(b)(2) (without regard to whether 
such companies are covered by an election under section 1504(c)(2)). As 
is the case under present law, the affiliated group includes section 
936 corporations.
---------------------------------------------------------------------------
    With respect to foreign corporations included in a 
worldwide affiliated group, the House bill provides that only a 
pro rata portion of such foreign corporation's interest expense 
and assets is treated as attributable to the worldwide 
affiliated group and taken into account for purposes of 
determining the allocation and apportionment of interest 
expense. The pro rata portion is determined by the ratio of the 
value of the stock of the foreign corporation owned by domestic 
members of the worldwide affiliated group (regardless of 
whether the foreign corporation qualifies as more than 50-
percent owned because of either vote or value) to the total 
value of the stock of such foreign corporation.
      In short, the taxable income from sources outside the 
United States of electing domestic group members generally is 
determined by allocating and apportioning interest expense of 
the domestic members of the worldwide affiliated group as if 
all of the interest expense and assets of 80-percent or greater 
owned domestic corporations (i.e., corporations that are part 
of the affiliated group under present-law section 864(e)(5)(A) 
as modified to include insurance companies) and a pro rata 
portion of the interest expense and assets of greater than 50-
percent owned foreign subsidiaries were attributable to a 
single corporation.
      Although a pro rata portion of the interest expense of a 
foreign subsidiary is taken into account for purposes of 
allocating the interest expense of the domestic members of the 
electing worldwide affiliated group for foreign tax credit 
limitation purposes, the interest expense incurred by a foreign 
subsidiary is not deductible on a U.S. return. After 
calculating the interest expense allocation based on the 
worldwide affiliated group, the interest expense of the 
domestic members preliminarily allocable to foreign-source 
income is reduced (but not below zero) by the applicable pro 
rata portion of the interest expense incurred by a foreign 
member of the group to the extent that such interest would be 
allocated to foreign sources if the provision's principles were 
applied separately to the foreign members of the group.
      The worldwide affiliated group election is to be made by 
the common parent of the affiliated group. It must be made for 
the first taxable year beginning after December 31, 2001 (the 
effective date under the House bill), in which a worldwide 
affiliated group exists that includes at least one foreign 
corporation that meets the requirements for inclusion in a 
worldwide affiliated group. Once made, the election applies to 
the common parent and all other members of the worldwide 
affiliated group for the taxable year for which the election 
was made and all subsequent taxable years.

Annual elections

      Regardless of whether a taxpayer elects to continue to be 
governed by the present-law allocation rules or to apply the 
new worldwide fungibility principle, the House bill provides 
two annual elections that are exceptions to the ``one-
taxpayer'' rule described above: (1) the ``subsidiary group'' 
election, and (2) a ``financial institution group'' election.
            Subsidiary group election
      Under the subsidiary group election, at the annual 
election of the common parent of the affiliated group, certain 
interest expense attributable to qualified indebtedness 
incurred by a domestic member of the affiliated group (other 
than the common parent) is allocated and apportioned by 
treating the borrower and its direct and indirect subsidiaries 
as a separate group (in which the borrower would be treated as 
the common parent). The regime that is elected by the entire 
affiliated group (i.e., present law or the worldwide 
fungibility principles of the House bill) applies to all the 
qualified indebtedness of the members of that separate electing 
subsidiary group. For this purpose, qualified indebtedness 
generally means any borrowing from unrelated parties that is 
not guaranteed or in any other way supported by any corporation 
within the same affiliated group (other than a member of the 
subsidiary group) of the borrower.
      If the common parent of the affiliated group makes the 
election with respect to a domestic member of an affiliated 
group, the subsidiary group election applies to all direct and 
indirect subsidiaries of that member. No member of an electing 
subsidiary group can be treated as a member of another electing 
subsidiary group. Therefore, a separate subsidiary group 
election could not be made with respect to lower-tier 
subsidiaries in an electing subsidiary group. If the subsidiary 
group election is made, the House bill also provides that an 
``equalization'' rule applies under which interest expense (if 
any) incurred by domestic members of the affiliated group with 
respect to indebtedness that is not qualified indebtedness of 
an electing subsidiary group is allocated first to foreign-
source income to the extent necessary to achieve (if possible) 
the allocation and apportionment of interest expense to 
foreign-source income that would have resulted had the 
subsidiary group election not been made. In addition, the House 
bill provides anti-abuse rules under which certain transfers 
from one member of a subsidiary group to a member of the 
affiliated group outside of the subsidiary group are treated as 
reducing the amount of qualified indebtedness.
            Financial institution group election
      The House bill provides a financial institution group 
election that expands and replaces the bank group rules of 
present law (sec. 864(e)(5)(B)-(D)). At the annual election of 
the common parent of the affiliated group, the interest expense 
allocation and apportionment rules that apply to the affiliated 
group as a whole (i.e., present law or the worldwide approach), 
can be applied separately to a subgroup of the affiliated group 
consisting of corporations that are predominantly engaged in a 
banking, insurance, financing, or similar business (as well as 
certain bank holding companies). For this purpose, a 
corporation is predominantly engaged in such a business if at 
least 80 percent of its gross income is ``financial services 
income'' as described in section 904(d)(2)(C)(ii) and the 
regulations thereunder.\66\ The financial institution group 
rules, if elected, apply to all members of the affiliated group 
that are considered to be predominantly engaged in the active 
conduct of a banking, insurance, financing, or similar 
business, or otherwise considered to be a bank holding company. 
In addition, if a financial institution group election has been 
made, a member of the affiliated group that is part of the 
financial institution group could not also be a member of a 
separate subsidiary group at the same time. Anti-abuse rules 
similar to those that apply in connection with the subsidiary 
group election also apply to the financial institution group.
---------------------------------------------------------------------------
        \66\ See Treas. Reg. sec. 1.904-4(e)(2).
---------------------------------------------------------------------------

Regulatory authority

      The House bill grants the Treasury Secretary authority to 
prescribe rules to carry out the purposes of the provision, 
including rules (1) to address changes in members of an 
affiliated group (including acquisitions or other business 
combinations of affiliated groups in which one group has made 
an election to apply the worldwide approach and the other group 
applies present law); (2) to prevent assets and interest 
expense from being taken into account more than once; and (3) 
to provide for direct allocation of interest expense in 
circumstances where such allocation would be appropriate to 
carry out the purposes of the provision.

Effective date

      The provision in the House bill is effective for taxable 
years beginning after December 31, 2001.

                            Senate Amendment

      The Senate amendment generally follows the House bill, 
but makes the following modifications.

Worldwide affiliated group election

      The Senate amendment follows the House bill in that the 
common parent of an affiliated group can make a one-time 
election to apply the present-law interest expense allocation 
and apportionment rules under section 864(e) by allocating and 
apportioning interest expense of the domestic members of the 
worldwide affiliated group on a worldwide-group basis. If an 
affiliated group makes this election, subject to certain 
modifications and exceptions, the taxable income of the 
domestic members of the worldwide affiliated group from sources 
outside the United States is determined by allocating and 
apportioning the interest expense of those domestic members to 
foreign-source income in an amount equal to the excess (if any) 
of (1) the worldwide affiliated group's worldwide interest 
expense multiplied by the ratio which the foreign assets of the 
worldwide affiliated group bears to the total assets of the 
worldwide affiliated group, over (2) the interest expense 
incurred by a foreign member of the group to the extent that 
such interest would be allocated to foreign sources if the 
provision's principles were applied separately to the 
foreignmembers of the group.\67\ While this approach is generally the 
same as that under the House bill, the Senate amendment modifies the 
House bill to provide the actual allocation and apportionment formula 
in the statute.
---------------------------------------------------------------------------
        \67\ Although the interest expense of a foreign subsidiary is 
taken into account for purposes of allocating the interest expense of 
the domestic members of the electing worldwide affiliated group for 
foreign tax credit limitation purposes, the interest expense incurred 
by a foreign subsidiary is not deductible on a U.S. return.
---------------------------------------------------------------------------
    The Senate amendment modifies the House bill definition of 
a worldwide affiliated group for purposes of the new elective 
rules based on worldwide fungibility. Under the Senate 
amendment, the worldwide affiliated group means all 
corporations in an affiliated group (as that term is defined 
under present law for interest expense allocation purposes) 
\68\ as well as any foreign corporations that would be members 
of such an affiliated group if section 1504(b)(3) did not apply 
(i.e., in which at least 80 percent of the vote and value of 
the stock of such corporations is owned by one or more other 
corporations included in the affiliated group). In addition, 
unlike the House bill, the Senate amendment takes into account 
all of the interest expense and assets of foreign corporations 
that are part of an electing worldwide affiliated group rather 
than a pro rata portion. In short, under the Senate amendment, 
the taxable income from sources outside the United States of 
electing domestic group members generally is determined by 
allocating and apportioning interest expense of the domestic 
members of the worldwide affiliated group as if all of the 
interest expense and assets of 80-percent or greater owned 
domestic corporations (i.e., corporations that are part of the 
affiliated group under present-law section 864(e)(5)(A) as 
modified to include insurance companies) and 80-percent or 
greater owned foreign corporations were attributable to a 
single corporation.
---------------------------------------------------------------------------
        \68\ The Senate amendment follows the House bill by expanding 
the definition of an affiliated group for interest expense allocation 
purposes to include certain insurance companies that are generally 
excluded from an affiliated group under section 1504(b)(2) (without 
regard to whether such companies are covered by an election under 
section 1504(c)(2)). The Senate amendment modifies this expansion, 
however, to apply only when the worldwide affiliated group election has 
been made.
---------------------------------------------------------------------------
    The worldwide affiliated group election is to be made by 
the common parent of the affiliated group. It must be made for 
the first taxable year beginning after December 31, 2004 (the 
effective date under the Senate amendment), in which a 
worldwide affiliated group exists that includes at least one 
foreign corporation that meets the requirements for inclusion 
in a worldwide affiliated group. Once made, the election 
applies to the common parent and all other members of the 
worldwide affiliated group for the taxable year for which the 
election is made and all subsequent taxable years.

Subsidiary group election

      The Senate amendment modifies the House bill to exclude 
the annual ``subsidiary group'' election.

Financial institution group election

      The Senate amendment provides a ``financial institution 
group'' election that expands the bank group rules of present 
law (sec. 864(e)(5)(B)-(D)), but modifies the House bill by 
providing that this election is a one-time election as opposed 
to an annual election, and by providing that the election is 
only available to the extent that a worldwide affiliated group 
election has been made. Thus, unlike the House bill, under the 
Senate amendment the election would not be available to an 
affiliated group that continues to apply the present-law 
interest expense allocation rules.
      Under the Senate amendment, at the election of the common 
parent of the affiliated group that has made the election to 
apply the worldwide affiliated group rules, those rules can be 
applied separately to a subgroup of the worldwide affiliated 
group that consists of (1) all corporations that are part of 
the present-law bank group and (2) all ``financial 
corporations.'' For this purpose, the Senate amendment follows 
the House bill by providing that a corporation is a financial 
corporation if at least 80 percent of its gross income is 
``financial services income'' (as described in section 
904(d)(2)(C)(ii) and the regulations thereunder).\69\ The 
Senate amendment modifies the House bill, however, by requiring 
that such income be derived from transactions with unrelated 
persons.
---------------------------------------------------------------------------
        \69\ See Treas. Reg. sec. 1.904-4(e)(2).
---------------------------------------------------------------------------
      Under the Senate amendment, the financial institution 
group rules, if elected, apply to all members of the worldwide 
affiliated group that are financial corporations within the 
meaning of the provision. The election must be made for the 
first taxable year beginning after December 31, 2004, in which 
a worldwide affiliated group includes a financial corporation 
that would qualify as part of the expanded financial 
institution group (other than a corporation that would qualify 
as part of the present-law bank group). Once made, the election 
applies to the financial institution group for the taxable year 
and all subsequent taxable years. In addition, the Senate 
amendment provides anti-abuse rules under which certain 
transfers from one member of a financial institution group to a 
member of the worldwide affiliated group outside of the 
financial institution group are treated as reducing the amount 
of indebtedness of the separate financial institution group.

Effective date

      The provision in the Senate amendment is effective for 
taxable years beginning after December 31, 2004.

                          Conference Agreement

      The conference agreement generally follows the House bill 
with the following modifications.

Worldwide affiliated group election

      The conference agreement modifies the present-law 
interest expense allocation rules by providing a one-time 
election under which the taxable income of the domestic members 
of an affiliated group from sources outside the United States 
generally would be determined by allocating and apportioning 
interest expense of the domestic members of a worldwide 
affiliated group on a worldwide-group basis. The election 
provides taxpayers with the option either to apply fungibility 
principles on a worldwide basis or to continue to apply present 
law. The conference agreement makes no changes to the present-
law interest expense allocation rules; all aspects of the 
provision apply only to the extent that a worldwide affiliated 
group election is made.
      Under the conference agreement, if an affiliated group 
makes the worldwide affiliated group election, subject to 
certain modifications and exceptions, the taxable income of the 
domestic members of the worldwide affiliated group from sources 
outside the United States is determined by allocating and 
apportioning the interest expense of those domestic members to 
foreign-source income in an amount equal to the excess (if any) 
of (1) the worldwide affiliated group's worldwide interest 
expense multiplied by the ratio which the foreign assets of the 
worldwide affiliated group bears to the total assets of the 
worldwide affiliated group, over (2) the interest expense 
incurred by a foreign member of the group (and taken into 
account for allocation purposes) to the extent that such 
interest would be allocated to foreign sources if the 
provision's principles were applied separately to the foreign 
members of the group. While this approach is generally the same 
as that under the House bill, the conference agreement follows 
the Senate amendment by providing the actual allocation and 
apportionment formula in the statute.
      For purposes of the new elective rules based on worldwide 
fungibility, the worldwide affiliated group means all 
corporations in an affiliated group (as that term is defined 
under present law for interest expense allocation purposes) 
\70\ as well as any foreign corporations with respect to which 
domestic members of the affiliated group own stock meeting the 
ownership requirements for treatment as a controlled foreign 
corporation under section 957(a). For this purpose, the 
conference agreement modifies the House bill to permit limited 
constructive ownership rules (as described in section 958(b)) 
to apply. The conferees, however, believe that certain 
constructive ownership rules such as option attribution and 
``to-corporation'' attribution (sec. 318(a)(3) and (4)) does 
not provide sufficient economic ownership to justify inclusion 
in the worldwide affiliated group. The conference agreement 
therefore disregards these types of constructive ownership. 
Hence, if more than 50 percent of the total combined voting 
power or the total value of the stock of a foreign corporation 
is owned (directly, indirectly, or, in certain circumstances, 
constructively) by domestic members of the affiliated group 
that are U.S. shareholders (i.e., that own 10 percent or more 
of the total combined voting power of the stock of such foreign 
corporation), then such foreign corporation is included in an 
electing worldwide affiliated group.
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        \70\ The conference agreement expands the present-law 
definition of an affiliated group for interest expense allocation 
purposes with respect to an electing worldwide affiliated group to 
include certain insurance companies that are generally excluded from an 
affiliated group under section 1504(b)(2) (without regard to whether 
such companies are covered by an election under section 1504(c)(2)). As 
is the case under present law, the affiliated group includes section 
936 corporations.
---------------------------------------------------------------------------
    With respect to foreign corporations included in a 
worldwide affiliated group, the conference agreement follows 
the House bill in providing that only a pro rata portion of 
such foreign corporation's interest expense and assets is 
treated as attributable to the worldwide affiliated group and 
taken into account for purposes of determining the allocation 
and apportionment of interest expense. The pro rata portion is 
determined by the ratio of the value of the stock of the 
foreign corporation owned (within the meaning of section 
958(a)) by domestic members of the worldwide affiliated group 
(regardless of whether the foreign corporation qualifies as 
more than 50-percent owned because of either vote or value) to 
the total value of the stock of such foreign corporation.
      Under the conference agreement, the worldwide affiliated 
group election is to be made by the common parent of the 
affiliated group. It must be made for the first taxable year 
beginning after December 31, 2001 (the effective date under the 
conference agreement), in which a worldwide affiliated group 
exists that includes at least one foreign corporation that 
meets the requirements for inclusion in a worldwide affiliated 
group. Once made, the election applies to the common parent and 
all other members of the worldwide affiliated group for the 
taxable year for which the election was made and all subsequent 
taxable years.

Additional elections

      The conference agreement modifies the annual elections 
provided in the House bill as follows. To the extent that a 
worldwide affiliated group elects to apply the new worldwide 
fungibility principle, the conference agreement provides two 
additional elections that are exceptions to the ``one-
taxpayer'' rule described above: (1) the ``subsidiary group'' 
election, and (2) the ``financial institution group'' election.
            Subsidiary group election
      Under the subsidiary group election, at the election of 
the common parent of the affiliated group, certain interest 
expense attributable to qualified indebtedness incurred by a 
domestic member of the affiliated group (other than the common 
parent) is allocated and apportioned bytreating the borrower 
and its direct and indirect subsidiaries as a separate group (in which 
the borrower would be treated as the common parent). The conference 
agreement modifies the House bill by providing that election is only 
available to the extent that the affiliated group has elected the 
worldwide fungibility rules, and those rules apply to the qualified 
indebtedness of the members of that separate electing subsidiary group. 
For this purpose, qualified indebtedness generally means any borrowing 
from unrelated parties that is not guaranteed or in any other way 
supported by any corporation within the same worldwide affiliated group 
(other than a member of the subsidiary group) of the borrower.
      If the common parent of the worldwide affiliated group 
makes the election with respect to a domestic member of an 
affiliated group, the subsidiary group election applies to all 
direct and indirect subsidiaries of that member. The conference 
agreement modifies the House bill to provide that the election, 
once made, applies to the taxable year and the four succeeding 
taxable years (unless revoked with the consent of the Treasury 
Secretary). The conferees are concerned with certain potentials 
for abuse and believe that a five-year period is a reasonable 
duration for which the subsidiary group election should apply. 
In addition, as under the House bill, no member of an electing 
subsidiary group can be treated as a member of another electing 
subsidiary group. Therefore, a separate subsidiary group 
election cannot be made with respect to lower-tier subsidiaries 
in an electing subsidiary group.
      The conference agreement follows the House bill by 
providing that, if the subsidiary group election is made, an 
``equalization'' rule applies under which interest expense (if 
any) incurred by domestic members of the worldwide affiliated 
group with respect to indebtedness that is not qualified 
indebtedness of an electing subsidiary group is allocated first 
to foreign-source income to the extent necessary to achieve (if 
possible) the allocation and apportionment of interest expense 
to foreign-source income that would have resulted had the 
subsidiary group election not been made. In addition, the 
conference agreement provides anti-abuse rules under which 
certain transfers from one member of a subsidiary group to a 
member of the affiliated group outside of the subsidiary group 
would be recharacterized as reducing the amount of qualified 
indebtedness, except as otherwise provided by the Treasury 
Secretary.
            Financial institution group election
      The conference agreement generally follows the Senate 
amendment with respect to the financial institution group 
election, with certain technical modifications. The conference 
agreement provides a one-time financial institution group 
election that replaces and expands the bank group rules of 
present law (sec. 864(e)(5)(B)-(D)). At the election of the 
common parent of the affiliated group that has made the 
election to apply the worldwide affiliated group rules, those 
rules can be applied separately to a subgroup of the worldwide 
affiliated group that consists of all ``financial 
corporations'' that are part of the worldwide affiliated group.
      For purposes of the financial institution group election, 
the conference agreement provides that a corporation is a 
financial corporation if at least 80 percent of its gross 
income is (1) ``financial services income'' (as described in 
section 904(d)(2)(C)(ii) and the regulations thereunder),\71\ 
that is derived from transactions with unrelated persons or (2) 
dividends or financial services income derived directly or 
indirectly from related corporations that satisfy the 80-
percent test by deriving financial services income from 
transactions with unrelated persons.\72\ For this purpose, the 
conferees intend that certain ordering rules and netting rules 
with respect to amounts paid or accrued to and amounts received 
or accrued from related persons, similar to those provided in 
Treas. Reg. sec. 1.904-5(k), will apply. The conferees also 
intend that, for this purpose, gross income will not include 
gain from the disposition of the stock of a corporation that is 
related to the transferor prior to such disposition.\73\ In 
addition, the conference agreement provides an anti-abuse rule 
under which items of income or gain from a transaction a 
principal purpose of which is to qualify a corporation as a 
financial corporation under these rules are disregarded.
---------------------------------------------------------------------------
        \71\ See Treas. Reg. sec. 1.904-4(e)(2).
        \72\ As is the case under the House bill, the conference 
agreement provides that certain bank holding companies that would 
qualify as part of the present-law bank group are also considered to be 
financial corporations.
        \73\ See Treas. Reg. sec. 1.904-4(e)(3)(i).
---------------------------------------------------------------------------
      Under the conference agreement, the financial institution 
group rules, if elected, apply to all members of the worldwide 
affiliated group that are financial corporations within the 
meaning of the provision. If a financial institution group 
election has been made, a member of the worldwide affiliated 
group that is part of the financial institution group cannot 
also be a member of a separate subsidiary group. The election 
must be made for the first taxable year beginning after 
December 31, 2001, in which a worldwide affiliated group 
includes a corporation that qualifies as a financial 
corporation. Once made, the election applies to the financial 
institution group for the taxable year and all subsequent 
taxable years. Therefore, if a financial institution group 
election is in place, a corporation that qualifies as a 
financial corporation for a taxable year will be included in 
the financial institution group for that year notwithstanding 
that it may not have qualified in prior years for which the 
election was in place. Similarly, a corporation that was a 
financial corporation in the first year in which an election 
was made will be included in the financial institution group 
for all subsequent years, but only to the extent that such 
corporation qualifies as a financial corporation for a given 
year. In addition, the conference agreement provides anti-abuse 
rules similar to those that apply in connection with the 
subsidiary group election.

Regulatory authority

      The conference agreement follows the House bill and the 
Senate amendment in granting the Treasury Secretary authority 
to prescribe rules to carry out the purposes of the provision. 
Such authority includes, among other things, the authority to 
provide for direct allocation of interest expense in 
appropriate circumstances. The conferees intend that this 
authority to provide for direct allocation of interest expense 
includes, for example, circumstances in which interest expense 
is incurred by foreign corporations in order to circumvent the 
purposes of the provision.

Effective date

      The provision in the conference agreement is effective 
for taxable years beginning after December 31, 2001.

B. Look-Through Rules to Apply to Dividends from Noncontrolled Section 
 902 Corporations (sec. 902 of the House bill, sec. 902 of the Senate 
                  amendment, and sec. 904 of the Code)


                              Present Law

      U.S. persons may credit foreign taxes against U.S. tax on 
foreign-source income. The amount of foreign tax credits that 
may be claimed in a year is subject to a limitation that 
prevents taxpayers from using foreign tax credits to offset 
U.S. tax on U.S.-source income. Separate limitations are 
applied to specific categories of income.
      Special foreign tax credit limitations apply in the case 
of dividends received from a foreign corporation in which the 
taxpayer owns at least 10 percent of the stock by vote and 
which is not a controlled foreign corporation (a so-called 
``10/50 company'').\74\ Dividends paid by a 10/50 company in 
taxable years beginning before January 1, 2003, are subject to 
a separate foreign tax credit limitation for each 10/50 
company. Dividends paid by a 10/50 company that is not a 
passive foreign investment company in taxable years beginning 
after December 31, 2002, out of earnings and profits 
accumulated in taxable years beginning before January 1, 2003, 
are subject to a single foreign tax credit limitation for all 
10/50 companies (other than passive foreign investment 
companies). Dividends paid by a 10/50 company that is a passive 
foreign investment company out of earnings and profits 
accumulated in taxable years beginning before January 1, 2003, 
continue to be subject to a separate foreign tax credit 
limitation for each such 10/50 company. Dividends paid by a 10/
50 company in taxable years beginning after December 31, 2002, 
out of earnings and profits accumulated in taxable years after 
December 31, 2002, are treated as income in a foreign tax 
credit limitation category in proportion to the ratio of the 
earnings and profits attributable to income in such foreign tax 
credit limitation category to the total earnings and profits (a 
so-called ``look-through'' approach). For these purposes, 
distributions are treated as made from the most recently 
accumulated earnings and profits. Regulatory authority is 
granted to provide rules regarding the treatment of 
distributions out of earnings and profits for periods prior to 
the taxpayer's acquisition of such stock.
---------------------------------------------------------------------------
        \74\ A controlled foreign corporation in which the taxpayer 
owns at least 10 percent of the stock by vote is treated as a 10/50 
company with respect to any distribution out of earnings and profits 
for periods when it was not a controlled foreign corporation.
---------------------------------------------------------------------------

                               House Bill

      The House bill simplifies the application of the foreign 
tax credit limitation by applying the look-through approach to 
all dividends paid by a 10/50 company, regardless of the year 
in which the earnings and profits out of which the dividend is 
paid were accumulated. The House bill eliminates the single-
basket limitation approach for dividends from such companies 
for foreign tax credit limitation purposes.
      The House bill provides a transition rule under which 
pre-effective date foreign tax credits associated with a 10/50 
company separate limitation category can be carried forward 
into post-effective date years. Under the House bill, look-
through principles similar to those applicable to post-
effective date dividends from a 10/50 company apply to 
determine the appropriate foreign tax credit limitation 
category or categories with respect to the foreign tax credit 
carryforward.
      The House bill also provides a default rule in cases in 
which taxpayers are unable to obtain the necessary information 
to apply the look-through rules with respect to dividends from 
a 10/50 company (or in which the income is not treated as 
falling within one of certain enumerated limitation 
categories). In such cases, the House bill treats the dividend 
(or a portion thereof) from such 10/50 company as a dividend 
that is not subject to the look-through rules.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2001.

                            Senate Amendment

      The Senate amendment is the same as the House bill, with 
a modification to the effective date.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2004.

                          Conference Agreement

      The conference agreement follows the House bill.

  C. Subpart F Treatment of Pipeline Transportation Income and Income 
  from Transmission of High Voltage Electricity (secs. 903-904 of the 
House bill, secs. 903-904 of the Senate amendment, and sec. 954 of the 
                                 Code)


                              Present Law

      Under the subpart F rules, U.S. 10-percent shareholders 
of a controlled foreign corporation (``CFC'') are subject to 
U.S. tax currently on their shares of certain income earned by 
the foreign corporation, whether or not such income is 
distributed to the shareholders (referred to as ``subpart F 
income''). Subpart F income includes foreign base company 
income, which in turn includes five categories of income: 
foreign personal holding company income, foreign base company 
sales income, foreign base company services income, foreign 
base company shipping income, and foreign base company oil 
related income (sec. 954(a)).
      Foreign base company services income includes income from 
services performed (1) for or on behalf of a related party and 
(2) outside the country of the CFC's incorporation (sec. 
954(e)). Treasury regulations provide that the services of the 
foreign corporation will be treated as performed for or on 
behalf of the related party if, for example, a party related to 
the foreign corporation furnishes substantial assistance to the 
foreign corporation in connection with the provision of 
services (Treas. Reg. sec. 1.954-4(b)(1)(iv)).
      Foreign base company oil related income is income derived 
outside the United States from the processing of minerals 
extracted from oil or gas wells into their primary products; 
the transportation, distribution, or sale of such minerals or 
primary products; the disposition of assets used by the 
taxpayer in a trade or business involving the foregoing; or the 
performance of any related services. However, foreign base 
company oil related income does not include income derived from 
a source within a foreign country in connection with: (1) oil 
or gas which was extracted from a well located in such foreign 
country or, (2), oil, gas, or a primary product of oil or gas 
which is sold by the CFC or a related person for use or 
consumption within such foreign country or is loaded in such 
country as fuel on a vessel or aircraft. An exclusion also is 
provided for income of a CFC that is a small producer (i.e., a 
corporation whose average daily oil and natural gas production, 
including production by related corporations, is less than 
1,000 barrels).

                               House Bill

      The House bill exempts income derived in connection with 
the performance of services which are directly related to the 
transmission of high voltage electricity from the definition of 
foreign base company services income. Thus, the income of a CFC 
that owns a high voltage transmission line for the purpose of 
providing electricity generated by a related party to a third 
party outside the CFC's country of incorporation does not 
constitute foreign base company services income. No inference 
is intended as to the treatment of such income under present 
law.
      The House bill also provides an additional exception to 
the definition of foreign base company oil related income. 
Under the House bill, foreign base company oil related income 
does not include income derived from a source within a foreign 
country in connection with the pipeline transportation of oil 
or gas within such foreign country. Thus, the exception applies 
whether or not the CFC that owns the pipeline also owns any 
interest in the oil or gas transported. In addition, the 
exception applies to income earned from the transportation of 
oil or gas by pipeline in a country in which the oil or gas was 
neither extracted nor consumed.
      Effective date.--The provision is effective for taxable 
years of CFCs beginning after December 31, 2001, and taxable 
years of U.S. shareholders with or within which such taxable 
years of CFCs end.

                            Senate Amendment

      The Senate amendment is the same as the House bill, with 
a modification to the effective date.
      Effective date.--The provision is effective for taxable 
years of CFCs beginning after December 31, 2002, and taxable 
years of U.S. shareholders with or within which such taxable 
years of CFCs end.

                          Conference Agreement

      The conference agreement follows the House bill.

 D. Recharacterization of Overall Domestic Loss (sec. 905 of the House 
                     bill and sec. 904 of the Code)


                              Present Law

      A premise of the foreign tax credit is that it should not 
reduce a taxpayer's U.S. tax on its U.S.-source income; rather, 
it should only reduce U.S. tax on foreign-source income. An 
overall foreign tax credit limitation prevents taxpayers from 
using foreign tax credits to offset U.S. tax on U.S.-source 
income. The overall limitation is calculated by prorating a 
taxpayer's pre-credit U.S. tax on its worldwide income between 
its U.S.-source and foreign-source taxable income. The ratio 
(not exceeding 100 percent) of the taxpayer's foreign-source 
taxable income to worldwide taxable income is multiplied by its 
pre-credit U.S. tax to establish the amount of U.S. tax 
allocable to the taxpayer's foreign-source income and, thus, 
the upper limit on the foreign tax credit for the year. If the 
taxpayer's foreign-source taxable income exceeds worldwide 
taxable income (because of a domestic source loss), then the 
full amount of pre-credit U.S. tax may be offset by the foreign 
tax credit.
      If a taxpayer's losses from foreign sources exceed its 
foreign-source income, the excess (``overall foreign loss'' or 
``OFL'') may offset U.S.-source income. Such an offset reduces 
the effective rate of U.S. tax on U.S.-source income. To 
eliminate a double benefit (that is, the reduction of U.S. tax 
previously noted and, later, full allowance of a foreign tax 
credit with respect to foreign-source income), an OFL recapture 
rule applies. Under this rule, a portion of foreign-source 
taxable income earned after an OFL year is recharacterized as 
U.S.-source taxable income for foreign tax credit purposes (and 
for purposes of the possessions tax credit) (sec. 904(f)(1)). 
Foreign-source taxable income up to the amount of the 
unrecaptured OFL may be so treated. In general, no more than 50 
percent of the foreign-source taxable income earned in any 
particular taxable year is recharacterized as U.S.-source 
taxable income, unless a taxpayer elects a higher 
percentage.\75\ The effect of the recapture is to reduce the 
foreign tax credit limitation in one or more years following an 
OFL year and, therefore, the amount of U.S. tax that can be 
offset by foreign tax credits in the later year or years.
---------------------------------------------------------------------------
        \75\ If a taxpayer with an OFL disposes of property that was 
used predominantly outside the United States in a trade or business, 
the taxpayer generally is deemed to have received and recognized 
foreign-source taxable income as the result of a disposition in an 
amount at least equal to the lesser of the gain actually realized on 
the disposition or the remaining amount of the unrecaptured OFL. 
Furthermore, the annual 50-percent limit on the resourcing of foreign-
source income does not apply to that amount of foreign-source income 
realized by reason of the disposition.
---------------------------------------------------------------------------
    An overall U.S.-source loss reduces pre-credit U.S. tax on 
worldwide income to an amount less than the hypothetical tax 
that would apply to the taxpayer's foreign-source income if 
viewed in isolation. The existence of foreign-source taxable 
income in the year of the U.S. loss reduces or eliminates any 
net operating loss carryover that the U.S. loss would otherwise 
have generated absent the foreign income. In addition, as the 
pre-credit U.S. tax on worldwide income is reduced, so is the 
foreign tax credit limitation. As a result, some foreign tax 
credits in the year of the U.S. loss must be credited, if at 
all, in a carryover year. Tax on domestic-source taxable income 
in a subsequent year may be offset by a net operating loss 
carryforward (if any), but not by a foreign tax credit 
carryforward. There is presently no mechanism for resourcing 
such subsequent U.S.-source income as foreign-source income.

                               House Bill

      The House bill applies a resourcing rule to U.S.-source 
income where the taxpayer has suffered a reduction in the 
amount of its foreign tax credit limitation due to a prior 
overall domestic loss. Under the House bill, in the case of a 
taxpayer that has incurred an overall domestic loss, the 
portion of the taxpayer's U.S.-source taxable income for each 
succeeding taxable year that is equal to the lesser of (1) the 
amount of the unrecharacterized overall domestic loss, or (2) 
50 percent of the taxpayer's U.S.-source taxable income for 
such succeeding taxable year is recharacterized as foreign-
source taxable income.
      The House bill defines an overall domestic loss for this 
purpose as any domestic loss to the extent it offsets foreign-
source taxable income for the current taxable year or for any 
preceding taxable year by reason of a loss carryback. For this 
purpose, a domestic loss means the amount by which the U.S.-
source gross income for the taxable year is exceeded by the sum 
of the deductions properly apportioned or allocated thereto, 
determined without regard to any loss carried back from a 
subsequent taxable year. Under the House bill, an overall 
domestic loss does not include any loss for any taxable year 
unless the taxpayer elected the use of the foreign tax credit 
for such taxable year.
      Any U.S.-source income resourced under the House bill is 
allocated among the various foreign tax credit separate 
limitation categories in the same proportion that those 
categories were reduced by the prior overall domestic loss. In 
addition, the House bill grants

the Treasury Secretary authority to prescribe regulations as 
may be necessary to coordinate the operation of the OFL 
recapture rules with the operation of the overall domestic loss 
recharacterization rules that would be added by the House bill.
      Effective date.--The provision applies to losses incurred 
in taxable years beginning after December 31, 2004.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill, with a 
modification to the effective date.
      Effective date.--The provision applies to losses incurred 
in taxable years beginning after December 31, 2005.

 E. Treatment of Military Property of Foreign Sales Corporations (sec. 
 906 of the House bill, sec. 908 of the Senate amendment, and sec. 923 
                              of the Code)


                              Present Law

      A portion of the foreign trade income of an eligible 
foreign sales corporation (``FSC'') is exempt from federal 
income tax. Foreign trade income is defined as the gross income 
of a FSC that is attributable to foreign trading gross 
receipts. In general, the term ``foreign trading gross 
receipts'' means the gross receipts of a FSC from the sale or 
lease of export property, services related and subsidiary to 
the sale or lease of export property, engineering or 
architectural services for construction projects located 
outside the United States, and certain managerial services for 
an unrelated FSC or DISC.
      Section 923(a)(5) contains a special limitation relating 
to the export of military property. Under regulations 
prescribed by the Treasury Secretary, the portion of a FSC's 
foreign trading gross receipts from the disposition of, or 
services relating to, military property that may be treated as 
exempt foreign trade income is limited to 50 percent of the 
amount that would otherwise be so treated. For this purpose, 
the term ``military property'' means any property that is an 
arm, ammunition, or implement of war designated in the 
munitions list published pursuant to federal law. Under this 
provision, the export of military property through a FSC is 
accorded one-half the tax benefit that is accorded to exports 
of non-military property.

                               House Bill

      The House bill repeals the special FSC limitation 
relating to the export of military property, thus providing 
exports of military property through a FSC with the same 
treatment currently provided exports of non-military property.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2001.

                            Senate Amendment

      The Senate amendment is the same as the House bill, with 
a modification to the effective date.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2004.

                          Conference Agreement

      The conference agreement follows the House bill.

F. Modify Treatment of RIC Dividends Paid to Foreign Persons (sec. 907 
of the House bill and secs. 871, 881, 897, 1441, 1442, and 2105 of the 
                                 Code)


                              Present Law


Regulated investment companies

      A regulated investment company (``RIC'') is a domestic 
corporation that, at all times during the taxable year, is 
registered under the Investment Company Act of 1940 as a 
management company or as a unit investment trust, or has 
elected to be treated as a business development company under 
that Act (sec. 851(a)). In addition, to qualify as a RIC, a 
corporation must elect such status and must satisfy certain 
tests (sec. 851(b)). Generally, a RIC pays no income tax 
because it is permitted to deduct dividends paid to its 
shareholders in computing its taxable income.
      A RIC generally may pass through to its shareholders the 
character of its long-term capital gains. It does this by 
designating a dividend it pays as a capital gain dividend to 
the extent that the RIC has net capital gain (i.e., net long-
term capital gain over net short-term capital loss). These 
capital gain dividends are treated as long-term capital gains 
by the shareholders. A RIC generally also can pass through to 
its shareholders the character of tax-exempt interest from 
State and municipal bonds, but only if, at the close of each 
quarter of its taxable year, at least 50 percent of the value 
of the total assets of the RIC consists of these obligations. 
In this case, the RIC generally may designate a dividend it 
pays as an exempt-interest dividend to the extent that the RIC 
has tax-exempt interest income. These exempt-interest dividends 
are treated as interest excludable from gross income by the 
shareholders.

U.S. source investment income of foreign persons

      The United States generally imposes a flat 30-percent 
tax, collected by withholding, on the gross amount of U.S.-
source investment income payments, such as interest, dividends, 
rents, royalties, or similar types of income, to nonresident 
alien individuals and foreign corporations (``foreign 
persons'') (secs. 871(a), 881, 1441, and 1442). Under treaties, 
the United States may reduce or eliminate such taxes. Even 
taking into account U.S. treaties, however, the tax on a 
dividend generally is not entirely eliminated. Instead, U.S.-
source portfolio investment dividends received by foreign 
persons generally are subject to U.S. withholding tax at a rate 
of at least 15 percent.
      Although payments of U.S.-source interest that is not 
effectively connected with a U.S. trade or business generally 
are subject to the 30-percent withholding tax, there are 
significant exceptions to that rule under which the U.S.-source 
interest payments to foreign persons are exempt from U.S. tax.
      In addition, foreign persons generally are not subject to 
U.S. tax on gain realized on the disposition of stock or 
securities issued by a U.S. person, unless the gain is 
effectively connected with the conduct of a trade or business 
in the United States. Under the Foreign Investment in Real 
Property Tax Act of 1980 (``FIRPTA''), as amended, gain or loss 
of a foreign person from the disposition of a U.S. real 
property interest is subject to net basis tax as if the 
taxpayer were engaged in a trade or business within the United 
States and the gain or loss were effectively connected with 
such trade or business (sec. 897). Under the FIRPTA provisions, 
a distribution by a real estate investment trust (``REIT'') to 
a foreign person generally is, to the extent attributable to 
gain from sales or exchanges by the REIT of U.S. real property 
interests, treated as gain recognized by the foreign person 
from the sale or exchange of a U.S. real property interest 
(sec. 897(h)). In view of the nature of a REIT, an interest in 
a REIT may in some cases be considered to be a U.S. real 
property interest.

Estate taxation

      Decedents who were citizens or residents of the United 
States are generally subject to Federal estate tax on all 
property, wherever situated. Nonresidents who are not U.S. 
citizens, however, are subject to estate tax only on their 
property which is within the United States. Property within the 
United States generally includes debt obligations of U.S. 
persons, including the Federal government and State and local 
governments (sec. 2104(c)), but does not include either bank 
deposits or portfolio obligations, the interest on which would 
be exempt from U.S. income tax under section 871 (sec. 
2105(b)).

                               House Bill

      Under the House bill, a RIC that earns certain net 
interest income that would not be subject to U.S. tax if earned 
by a foreign person directly may, to the extent of such income, 
designate a dividend it pays as derived from such net interest 
income. A foreign person who is a shareholder in the RIC 
generally would treat such a dividend as exempt from gross-
basis U.S. tax, just as if the foreign person had earned the 
interest directly. Similarly, a RIC that earns an excess of net 
short-term capital gains over net long-term capital losses, 
which excess would not be subject to U.S. tax if earned by a 
foreign person directly, generally may, to the extent of such 
excess, designate a dividend it pays as derived from such 
excess. A foreign person who is a shareholder in the RIC 
generally would treat such a dividend as exempt from gross-
basis U.S. tax, just as if the foreign person had realized the 
amount directly.
      As is true under present law for distributions from 
REITs, the House bill provides that any distribution by a RIC 
to a foreign person shall, to the extent attributable to gain 
from the sale or exchange by the RIC of an asset that is 
considered a U.S. real property interest, be treated as gain 
recognized by the foreign person from the sale or exchange of a 
U.S. real property interest. The House bill also extends the 
special rules for domestically-controlled REITS to 
domestically-controlled RICs.
      The House bill provides that the estate of a foreign 
decedent is exempt from U.S. estate tax on a transfer of stock 
in the RIC in the proportion that the assets held by the RIC 
are debt obligations, deposits, or other property that would 
generally be treated as situated outside the United States if 
held directly by the estate.
      Effective date.--The House bill generally applies to 
dividends with respect to taxable years of RICs beginning after 
December 31, 2004. With respect to the treatment of a RIC for 
estate tax purposes, the House bill applies to estates of 
decedents dying after December 31, 2004. With respect to the 
treatment of RICs under section 897 (dealing with U.S. real 
property interests), the House bill is effective on January 1, 
2005.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

 G. Repeal of Special Rules for Applying Foreign Tax Credit in Case of 
Foreign Oil and Gas Income (sec. 908 of the House bill and sec. 907 of 
                               the Code)


                              Present Law

      U.S. persons are subject to U.S. income tax on their 
worldwide income. A credit against U.S. tax on foreign-source 
income is allowed for foreign taxes paid or accrued (or deemed 
paid) (secs. 901, 902).
      The amount of foreign tax credits that a taxpayer may 
claim in a year is subject to a limitation that prevents 
taxpayers from using foreign tax credits to offset U.S. tax on 
U.S.-source income (sec. 904). The foreign tax credit 
limitation is calculated on an overall basis and separately for 
specific categories of income. The amount of creditable taxes 
paid or accrued (or deemed paid) in any taxable year that 
exceeds the respective foreign tax credit limitations is 
permitted to be carried back two years and carried forward five 
years (sec. 904(c)).
      Special rules apply with respect to the foreign tax 
credit in the case of foreign oil and gas income (sec. 907). 
Under a special limitation, taxes on foreign oil and gas 
extraction income are creditable only to the extent that they 
do not exceed a specified amount (e.g., 35 percent of such 
income in the case of a corporation) (sec. 907(a)). For this 
purpose, foreign oil and gas extraction income is income 
derived from foreign sources from the extraction of minerals 
from oil or gas wells or the sale or exchange of assets used by 
the taxpayer in such extraction. A taxpayer must have excess 
limitation under the special rules applicable to foreign 
extraction taxes and excess limitation under the general 
foreign tax credit provisions in order to utilize excess 
foreign oil and gas extraction taxes in a carryback or 
carryforward year. In addition, in the case of taxes paid or 
accrued to any foreign country with respect to certain foreign 
oil related income, discriminatory foreign taxes are not 
treated as creditable foreign taxes (sec. 907(b)).

                               House Bill

      The House bill repeals the special rules of section 907 
for applying the foreign tax credit in the case of foreign oil 
and gas income.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2004.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill, with a 
modification to the effective date.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2007.

  H. Study of Proper Treatment of European Union under Subpart F Same 
            Country Exceptions (sec. 909 of the House bill)


                              Present Law

      In general, U.S. 10-percent shareholders of a controlled 
foreign corporation (``CFC'') are required to include in income 
for U.S. tax purposes currently certain income of the CFC 
(referred to as ``subpart F income''), without regard to 
whether the income is distributed to the shareholders (sec. 
951(a)(1)(A)). In effect, the Code treats the U.S. 10-percent 
shareholders of a CFC as having received a current distribution 
of their pro rata shares of the CFC's subpart F income. For 
this purpose, a U.S. 10-percent shareholder is a U.S. person 
that owns 10 percent or more of the corporation's stock 
(measured by vote) (sec. 951(b)). In general, a foreign 
corporation is a CFC if U.S. 10-percent shareholders own more 
than 50 percent of such corporation's stock (measured by vote 
or by value) (sec. 957).
      Subpart F income typically is passive income or income 
that is relatively movable from one taxing jurisdiction to 
another. Subpart F income consists of foreign base company 
income (defined in sec. 954), insurance income (defined in sec. 
953), and certain income relating to international boycotts and 
other violations of public policy (defined in sec. 952(a)(3)-
(5)). Subpart F income does not include income of the CFC that 
is effectively connected with the conduct of a trade or 
business within the United States (on which income the CFC is 
subject to current U.S. tax) (sec. 952(b)).
      Income of a CFC may be excepted from the subpart F 
provisions under various same country exceptions. For example, 
a major category of foreign base company income is foreign 
personal holding company income, which generally includes, 
among other things, certain dividends, interest, rents and 
royalties (sec. 954(c)). Same country exceptions from treatment 
as subpart F foreign personal holding company income generally 
are provided for dividends and interest received by the CFC 
from a related person that (1) is a corporation organized under 
the laws of the same foreign country in which the CFC is 
created or organized and (2) has a substantial part of its 
assets used in a trade or business located in such same foreign 
country. Similarly, same country exceptions from subpart F 
foreign personal holding income generally are provided for 
rents and royalties received by the CFC from a related 
corporation for the use of property within the country in which 
the CFC is created or organized (sec. 954(c)(3)).

                               House Bill

      The House bill directs the Treasury Secretary to conduct 
a study of the feasibility of treating all countries included 
in the European Union as one country for purposes of applying 
same country exceptions under subpart F. The House bill 
requires the results of the study to be reported to the House 
Committee on Ways and Means and the Senate Committee on 
Finance, along with any legislative recommendations, no later 
than 6 months after the date of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the provision 
in the House bill. The conferees, however, encourage the 
Treasury Department to study the feasibility of treating all 
countries included in the European Union as one country for 
purposes of applying same country exceptions under subpart F.

 I. Provide Waiver from Denial of Foreign Tax Credits (sec. 910 of the 
                House bill and sec. 901(j) of the Code)


                              Present Law

      In general, U.S. persons may credit foreign taxes against 
U.S. tax on foreign-source income. The amount of foreign tax 
credits that can be claimed in a year is subject to a 
limitation that prevents taxpayers from using foreign tax 
credits to offset U.S. tax on U.S.-source income. Separate 
limitations are applied to specific categories of income.
      Pursuant to special rules applicable to taxes paid to 
certain foreign countries, no foreign tax credit is allowed for 
income, war profits, or excess profit taxes paid, accrued, or 
deemed paid to a country which satisfies specified criteria, to 
the extent that the taxes are with respect to income 
attributable to a period during which such criteria were 
satisfied (sec. 901(j)). Section 901(j) applies with respect to 
any foreign country: (1) the government of which the United 
States does not recognize, unless such government is otherwise 
eligible to purchase defense articles or services under the 
Arms Export Control Act, (2) with respect to which the United 
States has severed diplomatic relations, (3) with respect to 
which the United States has not severed diplomatic relations 
but does not conduct such relations, or (4) which the Secretary 
of State has, pursuant to section 6(j) of the Export 
Administration Act of 1979, as amended, designated as a foreign 
country which repeatedly provides support for acts of 
international terrorisms (a ``section 901(j) foreign 
country''). The denial of credits applies to any foreign 
country during the period beginning on the later of January 1, 
1987, or six months after such country becomes a section 901(j) 
country, and ending on the date the Secretary of State 
certifies to the Secretary of the Treasury that such country is 
no longer a section 901(j) country.
      Taxes treated as noncreditable under section 901(j) 
generally are permitted to be deducted notwithstanding the fact 
that the taxpayer elects use of the foreign tax credit for the 
taxable year with respect to other taxes. In addition, income 
for which foreign tax credits are denied generally cannot be 
sheltered from U.S. tax by other creditable foreign taxes.
      Under the rules of subpart F, U.S. 10-percent 
shareholders of a controlled foreign corporation (``CFC'') are 
required to include in income currently certain types of income 
of the CFC, whether or not such income is actually distributed 
currently to the shareholders (referred to as ``subpart F 
income''). Subpart F income includes income derived from any 
foreign country during a period in which the taxes imposed by 
that country are denied eligibility for the foreign tax credit 
under section 901(j) (sec. 952(a)(5)).

                               House Bill

      The House bill provides that section 901(j) no longer 
applies with respect to a foreign country if the President 
determines that the application of section 901(j) to such 
foreign country is not in the national interests of the United 
States.
      Effective date.--The provision is effective as of the 
date of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the provision 
in the House bill.

 J. Prohibit Disclosure of APAs and APA Background Files (sec. 911 of 
  the House bill, sec. 905 of the Senate amendment and secs. 6103 and 
                           6110 of the Code)


                              Present Law


Section 6103

      Under section 6103, returns and return information are 
confidential and cannot be disclosed unless authorized by the 
Internal Revenue Code.
      The Code defines return information broadly. Return 
information includes:
            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; or
            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.\76\
---------------------------------------------------------------------------
        \76\ Sec. 6103(b)(2)(A).
---------------------------------------------------------------------------

Section 6110 and the Freedom of Information Act

      With certain exceptions, section 6110 makes the text of 
any written determination the IRS issues available for public 
inspection. A written determination is any ruling, 
determination letter, technical advice memorandum, or Chief 
Counsel advice. 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. The Code defines ``background 
file documents'' as any written material submitted 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.
      Before making them available for public inspection, 
section 6110 requires the IRS to delete specific categories of 
sensitive information from the written determination and 
background file documents.\77\ It also provides judicial and 
administrative procedures to resolve disputes over the scope of 
the information the IRS will disclose. In addition, Congress 
has also wholly exempted certain matters from section 6110's 
public disclosure requirements.\78\ Any part of a written 
determination or background file that is not disclosed under 
section 6110 constitutes ``return information.'' \79\
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        \77\ Sec. 6110(c) provides for the deletion of identifying 
information, trade secrets, confidential commercial and financial 
information and other material.
        \78\ Sec. 6110(l).
        \79\ Sec. 6103(b)(2)(B) (``The term `return information' means 
. . . any part of any written determination or any background file 
document relating to such written determination (as such terms are 
defined in section 6110(b)) which is not open to public inspection 
under section 6110'').
---------------------------------------------------------------------------
      The Freedom of Information Act (FOIA) lists categories of 
information that a federal agency must make available for 
public inspection.\80\ It establishes a presumption that agency 
records are accessible to the public. The FOIA, however, also 
provides nine exemptions from public disclosure. One of those 
exemptions is for matters specifically exempted from disclosure 
by a statute other than the FOIA if the exempting statute meets 
certain requirements.\81\ Section 6103 qualifies as an 
exempting statute under this FOIA provision. Thus, returns and 
return information that section 6103 deems confidential are 
exempt from disclosure under the FOIA.
---------------------------------------------------------------------------
        \80\ Unless published promptly and offered for sale, an agency 
must provide for public inspection and copying: (1) final opinions as 
well as orders made in the adjudication of cases; (2) statements of 
policy and interpretations not published in the Federal Register; (3) 
administrative staff manuals and instructions to staff that affect a 
member of the public; and (4) agency records which have been or the 
agency expects to be, the subject of repetitive FOIA requests. 5 U.S.C. 
sec. 552(a)(2). An agency must also publish in the Federal Register: 
the organizational structure of the agency and procedures for obtaining 
information under the FOIA; statements describing the functions of the 
agency and all formal and informal procedures; rules of procedure, 
descriptions of forms and statements describing all papers, reports and 
examinations; rules of general applicability and statements of general 
policy; and amendments, revisions and repeals of the foregoing. 5 
U.S.C. sec. 552(a)(1). All other agency records can be sought by FOIA 
request; however, some records may be exempt from disclosure.
        \81\ Exemption 3 of the FOIA provides that an agency is not 
required to disclose matters that are: ``(3) specifically exempted from 
disclosure by statute (other than section 552b of this title) provided 
that such statute (A) requires that the matters be withheld from the 
public in such a manner as to leave no discretion on the issue, or (B) 
establishes particular criteria for withholding or refers to particular 
types of matters to be withheld; . . .'' 5 U.S.C. Sec. 552(b)(3).
---------------------------------------------------------------------------
      Section 6110 is the exclusive means for the public to 
view IRS written determinations.\82\ If section 6110 covers the 
written determination, then the public cannot use the FOIA to 
obtain that determination.
---------------------------------------------------------------------------
        \82\ Sec. 6110(m).
---------------------------------------------------------------------------

Advance Pricing Agreements

      The Advanced Pricing Agreement (``APA'') program is an 
alternative dispute resolution program conducted by the IRS, 
which resolves international transfer pricing issues prior to 
the filing of the corporate tax return. Specifically, an APA is 
an advance agreement establishing an approved transfer pricing 
methodology entered into among the taxpayer, the IRS, and a 
foreign tax authority. The IRS and the foreign tax authority 
generally agree to accept the results of such approved 
methodology. Alternatively, an APA also may be negotiated 
between just the taxpayer and the IRS; such an APA establishes 
an approved transfer pricing methodology for U.S. tax purposes. 
The APA program focuses on identifying the appropriate transfer 
pricing methodology; it does not determine a taxpayer's tax 
liability. Taxpayers voluntarily participate in the program.
      To resolve the transfer pricing issues, the taxpayer 
submits detailed and confidential financial information, 
business plans and projections to the IRS for consideration. 
Resolution involves an extensive analysis of the taxpayer's 
functions and risks. Since its inception in 1991, the APA 
program has resolved more than 180 APAs, and approximately 195 
APA requests are pending.
      Currently pending in the U.S. District Court for the 
District of Columbia are three consolidated lawsuits asserting 
that APAs are subject to public disclosure under either section 
6110 or the FOIA.\83\ Prior to this litigation and since the 
inception of the APA program, the IRS held the position that 
APAs were confidential return information protected from 
disclosure by section 6103.\84\ On January 11, 1999, the IRS 
conceded that APAs are ``rulings'' and therefore are ``written 
determinations'' for purposes of section 6110.\85\ Although the 
court has not yet issued a ruling in the case, the IRS 
announced its plan to publicly release both existing and future 
APAs. The IRS then transmitted existing APAs to the respective 
taxpayers with proposed deletions. It has received comments 
from some of the affected taxpayers. Where appropriate, foreign 
tax authorities have also received copies of the relevant APAs 
for comment on the proposed deletions. No APAs have yet been 
released to the public.
---------------------------------------------------------------------------
        \83\ BNA v. IRS, Nos. 96-376, 96-2820, and 96-1473 (D.D.C.). 
The Bureau of National Affairs, Inc. (BNA) publishes matters of 
interest for use by its subscribers. BNA contends that APAs are not 
return information as they are prospective in application. Thus at the 
time they are entered into they do not relate to ``the determination of 
the existence, or possible existence, of liability or amount thereof . 
. .''
        \84\ The IRS contended that information received or generated 
as part of the APA process pertains to a taxpayer's liability and 
therefore was return information as defined in sec. 6103(b)(2)(A). 
Thus, the information was subject to section 6103's restrictions on the 
dissemination of returns and return information. Rev. Proc. 91-22, sec. 
11, 1991-1 C.B. 526, 534 and Rev. Proc. 96-53, sec. 12, 1996-2 C.B. 
375, 386.
        \85\ IR 1999-05.
---------------------------------------------------------------------------
      Some taxpayers assert that the IRS erred in adopting the 
position that APAs are subject to section 6110 public 
disclosure. Several have sought to participate as amici in the 
lawsuit to block the release of APAs. They are concerned that 
release under section 6110 could expose them to expensive 
litigation to defend the deletion of the confidential 
information from their APAs. They are also concerned that the 
section 6110 procedures are insufficient to protect the 
confidentiality of their trade secrets and other financial and 
commercial information.

                               House Bill

      The House bill amends section 6103 to provide that APAs 
and related background information are confidential return 
information under section 6103. Related background information 
is meant to include: the request for an APA, any material 
submitted in support of the request, and any communication 
(written or otherwise) prepared or received by the Secretary in 
connection with an APA, regardless of when such communication 
is prepared or received. Protection is not limited to 
agreements actually executed; it includes material received and 
generated in the APA process that does not result in an 
executed agreement.
      Further, APAs and related background information are not 
``written determinations'' as that term is defined in section 
6110. Therefore, the public inspection requirements of section 
6110 do not apply to APAs and related background information. A 
document's incorporation in a background file, however, is not 
intended to be grounds for not disclosing an otherwise 
disclosable document from a source other than a background 
file.
      The House bill statutorily requires that the Treasury 
Department prepare and publish an annual report on the status 
of APAs. The annual report is to contain the following 
information:
            Information about the structure, composition, and 
        operation of the APA program office;
            A copy of each current model APA;
            Statistics regarding the amount of time to complete 
        new and renewal APAs;
            The number of APA applications filed during such 
        year;
            The number of APAs executed to date and for the 
        year;
            The number of APA renewals issued to date and for 
        the year;
            The number of pending APA requests;
            The number of pending APA renewals;
            The number of APAs executed and pending (including 
        renewals and renewal requests) that are unilateral, 
        bilateral and multilateral, respectively;
            The number of APAs revoked or canceled, and the 
        number of withdrawals from the APA program, to date and 
        for the year;
            The number of finalized new APAs and renewals by 
        industry; \86\ and
---------------------------------------------------------------------------
        \86\ This information was previously released in IRS 
Publication 3218, ``IRS Report on Application and Administration of 
I.R.C. Section 482.''
---------------------------------------------------------------------------
      General descriptions of:
            the nature of the relationships between the related 
        organizations, trades, or businesses covered by APAs;
            the related organizations, trades, or businesses 
        whose prices or results are tested to determine 
        compliance with the transfer pricing methodology 
        prescribed in the APA;
            the covered transactions and the functions 
        performed and risks assumed by the related 
        organizations, trades or businesses involved;
            methodologies used to evaluate tested parties and 
        transactions and the circumstances leading to the use 
        of those methodologies;
            critical assumptions;
            sources of comparables;
            comparable selection criteria and the rationale 
        used in determining such criteria;
            the nature of adjustments to comparables and/or 
        tested parties;
            the nature of any range agreed to, including 
        information such as whether no range was used and why, 
        whether an inter-quartile range was used, or whether 
        there was a statistical narrowing of the comparables;
            adjustment mechanisms provided to rectify results 
        that fall outside of the agreed upon APA range;
            the various term lengths for APAs, including 
        rollback years, and the number of APAs with each such 
        term length;
            the nature of documentation required; and
            approaches for sharing of currency or other risks.
      The first report is to cover the period January 1, 1991, 
through the calendar year including the date of enactment. The 
Treasury Department cannot include any information in the 
report which would have been deleted under section 6110(c) if 
the report were a written determination as defined in section 
6110. Additionally, the report cannot include any information 
which can be associated with or otherwise identify, directly or 
indirectly, a particular taxpayer. The Secretary is expected to 
obtain input from taxpayers to ensure proper protection of 
taxpayer information and, if necessary, utilize its regulatory 
authority to implement appropriate processes for obtaining this 
input. For purposes of section 6103, the report requirement is 
treated as part of Title 26.
      The IRS user fee otherwise required to be paid for an APA 
is increased by $500. The Secretary has the authority to make 
appropriate reductions in such fee for small businesses.
      While the House bill statutorily requires an annual 
report, it is not intended to discourage the Treasury 
Department from issuing other forms of guidance, such as 
regulations or revenue rulings, consistent with the 
confidentiality provisions of the Code.
      Effective date.--The provision is effective on the date 
of enactment; accordingly, no APAs, regardless of whether 
executed before or after enactment, or related background file 
documents can be released to the public after the date of 
enactment. It requires the Treasury Department to publish the 
first annual report no later than March 30, 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. In addition, the conference agreement 
requires the IRS to describe, in each annual report, its 
efforts to ensure compliance with existing APA agreements.

K. Increase Dollar Limitation on Section 911 Exclusion (sec. 912 of the 
                  House bill and sec. 911 of the Code)


                              Present Law

      U.S. citizens generally are subject to U.S. income tax on 
their worldwide income. A U.S. citizen who earns income in a 
foreign country also may be taxed on such income by that 
foreign country. A credit against the U.S. income tax imposed 
on foreign-source income is allowed for foreign taxes paid on 
such income.
      U.S. citizens living abroad may be eligible to exclude 
from their income for U.S. tax purposes certain foreign earned 
income and foreign housing costs. In order to qualify for these 
exclusions, a U.S. citizen must be either (1) a bona fide 
resident of a foreign country or countries for an uninterrupted 
period that includes an entire taxable year, or (2) present in 
a foreign country or countries for 330 days out of any 12 
consecutive month period. In addition, the taxpayer must have 
his or her tax home in a foreign country.
      The exclusion for foreign earned income generally applies 
to income earned from sources outside the United States as 
compensation for personal services actually rendered by the 
taxpayer. The maximum exclusion for foreign earned income for 
taxable years before 1998 is $70,000. Beginning in 1998, the 
maximum exclusion is increased in increments of $2,000 per year 
until the exclusion amount is $80,000 (i.e., in the year 2002). 
The maximum exclusion is $74,000 for 1999. The exclusion is 
indexed for inflation beginning in 2008 (for inflation after 
2006).
      The exclusion for housing costs applies to reasonable 
expenses, other than deductible interest and taxes, paid or 
incurred by or on behalf of the taxpayer for housing for the 
taxpayer and his or her spouse and dependents in a foreign 
country. The exclusion amount for housing costs for a taxable 
year is equal to the excess of such housing costs for the 
taxable year over an amount computed pursuant to a specified 
formula.
      The combined earned income exclusion and housing cost 
exclusion may not exceed the taxpayer's total foreign earned 
income. The taxpayer's foreign tax credit is reduced by the 
amount of the credit that is attributable to excluded income.

                               House Bill

      The House bill increases the maximum exclusion for 
foreign earned income in annual increments of $3,000 per year 
beginning in 2003, until the exclusion amount is $95,000 (i.e., 
in the year 2007). Thus, for the years 2003 through 2007, the 
maximum exclusion gradually increases from $83,000 to $95,000. 
Beginning in 2008, the maximum exclusion amount of $95,000 is 
indexed for inflation.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

L. Exempt Certain Sales of Frequent-Flyer and Similar Reduced-Fare Air 
   Transportation Rights from Aviation Excise Taxes (sec. 906 of the 
              Senate amendment and sec. 4261 of the Code)


                              Present Law

      A 7.5-percent excise tax is imposed on the sale by an air 
transportation provider of the right to frequent-flyer or 
similar reduced-fare air transportation. Like the aviation 
excise taxes imposed on the sale of actual air transportation, 
this tax is imposed on all amounts paid for the right to air 
transportation if the right can be used for transportation to, 
from, or within the United States. In both cases, tax is 
imposed without regard to whether the sale occurs within the 
United States or elsewhere. Further, subject to an exception 
for rights actually used for purposes other than air 
transportation (as determined under Treasury Department 
regulations), the tax is imposed without regard to whether the 
rights ultimately are used for travel (to, from, or within 
United States or between two or more points in foreign 
countries) or expire without use.
      The current authority granted to the Treasury Department 
to exempt certain awards does not permit an exemption unless 
the rights actually are used for a purpose other than air 
transportation (e.g., hotels or car rentals). Thus, under 
present law, rights are taxable even if transportation for 
which they ultimately are used has no nexus to the United 
States.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment exempts from the 7.5-percent tax, 
air transportation rights sold which are credited to accounts 
of persons having a mailing address outside the United States. 
Mailing addresses are those listed on the records of the 
operator of the frequent-flyer or similar program.
      Effective date.--The provision applies to air 
transportation rights sold after December 31, 2004.

                          Conference Agreement

      The conference agreement follows the Senate amendment. As 
with the present-law regulatory exception for certain rights 
shown to be used for purposes other than air transportation, 
this statutory exemption is limited to amounts which are 
documented by the person providing the right to transportation 
(i.e., the operator of the frequent-flyer or similar program) 
as credited to accounts of persons having mailing addresses 
outside the United States.

                 X. TAX-EXEMPT ORGANIZATION PROVISIONS


   A. Provide Tax Exemption for Organizations Created by a State to 
Provide Property and Casualty Insurance Coverage for Property for Which 
 Such Coverage Is Otherwise Unavailable (sec. 1001 of the House bill, 
   sec. 801 of the Senate amendment, and sec. 501(c)(28) of the Code)


                              Present Law

      A life insurance company is subject to tax on its life 
insurance company taxable income, which is its life insurance 
income reduced by life insurance deductions (sec. 801). 
Similarly, a property and casualty insurance company is subject 
to tax on its taxable income, which is determined as the sum of 
its underwriting income and investment income (as well as gains 
and other income items) (sec. 831). Present law provides that 
the term ``corporation'' includes an insurance company (sec. 
7701(a)(3)).
      In general, the Internal Revenue Service (``IRS'') takes 
the position that organizations that provide insurance for 
their members or other individuals are not considered to be 
engaged in a tax-exempt activity. The IRS maintains that such 
insurance activity is either (1) a regular business of a kind 
ordinarily carried on for profit, or (2) an economy or 
convenience in the conduct of members' businesses because it 
relieves the members from obtaining insurance on an individual 
basis.
      Certain insurance risk pools have qualified for tax 
exemption under Code section 501(c)(6). In general, these 
organizations (1) assign any insurance policies and 
administrative functions to their member organizations 
(although they may reimburse their members for amounts paid and 
expenses); (2) serve an important common business interest of 
their members; and (3) must be membership organizations 
financed, at least in part, by membership dues.
      State insurance risk pools may also qualify for tax 
exempt status under section 501(c)(4) as a social welfare 
organization or under section 115 as serving an essential 
governmental function of a State. In seeking qualification 
under section 501(c)(4), insurance organizations generally are 
constrained by the restrictions on the provision of 
``commercial-type insurance'' contained in section 501(m). 
Section 115 generally provides that gross income does not 
include income derived from the exercise of any essential 
governmental function or accruing to a State or any political 
subdivision thereof.
      Certain specific provisions provide tax-exempt status to 
organizations meeting statutory requirements.

Health coverage for high-risk individuals

      Section 501(c)(26) provides tax-exempt status to any 
membership organization that is established by a State 
exclusively to provide coverage for medical care on a nonprofit 
basis to certain high-risk individuals, provided certain 
criteria are satisfied. The organization may provide coverage 
for medical care either by issuing insurance itself or by 
entering into an arrangement with a health maintenance 
organization (``HMO'').
      High-risk individuals eligible to receive medical care 
coverage from the organization must be residents of the State 
who, due to a pre-existing medical condition, are unable to 
obtain health coverage for such condition through insurance or 
an HMO, or are able to acquire such coverage only at a rate 
that is substantially higher than the rate charged for such 
coverage by the organization. The State must determine the 
composition of membership in the organization. For example, a 
State could mandate that all organizations that are subject to 
insurance regulation by the State must be members of the 
organization.
      The provision further requires the State or members of 
the organization to fund the liabilities of the organization to 
the extent that premiums charged to eligible individuals are 
insufficient to cover such liabilities. Finally, no part of the 
net earnings of the organization can inure to the benefit of 
any private shareholder or individual.

Workers' compensation reinsurance organizations

      Section 501(c)(27)(A) provides tax-exempt status to any 
membership organization that is established by a State before 
June 1, 1996, exclusively to reimburse its members for workers' 
compensation insurance losses, and that satisfies certain other 
conditions. A State must require that the membership of the 
organization consist of all persons who issue insurance 
covering workers' compensation losses in such State, and all 
persons and governmental entities who self-insure against such 
losses. In addition, the organization must operate as a 
nonprofit organization by returning surplus income to members 
or to workers' compensation policyholders on a periodic basis 
and by reducing initial premiums in anticipation of investment 
income.

State workmen's compensation act companies

      Section 501(c)(27)(B) provides tax-exempt status for any 
organization that is created by State law, and organized and 
operated exclusively to provide workmen's compensation 
insurance and related coverage that is incidental to workmen's 
compensation insurance, and that meets certain additional 
requirements. The workmen's compensation insurance must be 
required by State law, or be insurance with respect to which 
State law provides significant disincentives if it is not 
purchased by an employer (such as loss of exclusive remedy or 
forfeiture of affirmative defenses such as contributory 
negligence). The organization must provide workmen's 
compensation to any employer in the State (for employees in the 
State or temporarily assigned out-of-State) seeking such 
insurance and meeting other reasonable requirements. The State 
must either extend its full faith and credit to the initial 
debt of the organization or provide the initial operating 
capital of such organization. For this purpose, the initial 
operating capital can be provided by providing the proceeds of 
bonds issued by a State authority; the bonds may be repaid 
through exercise of the State's taxing authority, for example. 
For periods after the date of enactment, either the assets of 
the organization must revert to the State upon dissolution, or 
State law must not permit the dissolution of the organization 
absent an act of the State legislature. Should dissolution of 
the organization become permissible under applicable State law, 
then the requirement that the assets of the organization revert 
to the State upon dissolution applies. Finally, the majority of 
the board of directors (or comparable oversight body) of the 
organization must be appointed by an official of the executive 
branch of the State or by the State legislature, or by both.

                               House Bill

      The provision provides tax-exempt status for any 
association created before January 1, 1999, by State law and 
organized and operated exclusively to provide property and 
casualty insurance coverage for property located within the 
State for which the State has determined that coverage in the 
authorized insurance market is limited or unavailable at 
reasonable rates, provided certain requirements are met.
      Under the provision, no part of the net earnings of the 
association may inure to the benefit of any private shareholder 
or individual. Except as provided in the case of dissolution, 
no part of the assets of the association may be used for, or 
diverted to, any purpose other than: (1) to satisfy, in whole 
or in part, the liability of the association for, or with 
respect to, claims made on policies written by the association; 
(2) to invest in investments authorized by applicable law; (3) 
to pay reasonable and necessary administration expenses in 
connection with the establishment and operation of the 
association and the processing of claims against the 
association (4) to make remittances pursuant to State law to be 
used by the State to provide for the payment of claims on 
policies written by the association, purchase reinsurance 
covering losses under such policies, or to support governmental 
programs to prepare for or mitigate the effects of natural 
catastrophic events. The provision requires that the State law 
governing the association permit the association to levy 
assessments on insurance companies authorized to sell property 
and casualty insurance in the State, or on property and 
casualty insurance policyholders with insurable interests in 
property located in the State to fund deficits of the 
association, including the creation of reserves. The provision 
requires that the plan of operation of the association be 
subject to approval by the chief executive officer or other 
official of the State, by the State legislature, or both. In 
addition, the provision requires that the assets of the 
association revert upon dissolution to the State, the State's 
designee, or an entity designated by the State law governing 
the association, or that State law not permit the dissolution 
of the association.
      The provision provides a special rule in the case of any 
entity or fund created before January 1, 1999, pursuant to 
State law and organized and operated exclusively to receive, 
hold, and invest remittances from an association exempt from 
tax under the provision, to make disbursements to pay claims on 
insurance contracts issued by the association, and to make 
disbursements to support governmental programs to prepare for 
or mitigate the effects of naturalcatastrophic events. The 
special rule provides that the entity or fund may elect to be 
disregarded as a separate entity and be treated as part of the 
association exempt from tax under the provision, from which it receives 
such remittances. The election is required to be made no later than 30 
days following the date on which the association is determined to be 
exempt from tax under the provision, and would be effective as of the 
effective date of that determination.
      An organization described in the provision is treated as 
having unrelated business taxable income (``UBIT'') in the 
amount of its taxable income (computed as if the organization 
were not exempt from tax under the proposal), if at the end of 
the immediately preceding taxable year, the organization's net 
equity exceeded 15 percent of the total coverage in force under 
insurance contracts issued by the organization and outstanding 
at the end of that preceding year.
      Under the provision, no income or gain is recognized 
solely as a result of the change in status to that of an 
association exempt from tax under the provision.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1999. No inference is 
intended as to the tax status under present law of associations 
described in the provision.

                            Senate Amendment

      Same as House bill.

                          Conference Agreement

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

   B. Conform Provisions Relating to Arbitrage Treatment to Reflect 
 Proposed State Constitutional Amendments (sec. 1002 of the House bill)


                              Present Law

      In general, present-law tax-exempt bond arbitrage 
restrictions provide that interest on a State or local 
government bond is not eligible for tax-exemption if the 
proceeds are invested, directly or indirectly, in materially 
higher yielding investments or if the debt service on the bond 
is secured by or paid from (directly or indirectly) such 
investments. An exception, enacted in 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 for two State 
university systems 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 General Assembly of the State has approved proposed 
constitutional amendments regarding the manner in which amounts 
in the Fund are paid for the benefit of the two university 
systems. These proposed amendments are to be voted on by the 
State's citizens in November 1999. If approved, the amendments 
will in substance eliminate the benefits of the 1984 exception 
from the tax-exempt bond arbitrage restrictions for future 
debt.

                               House Bill

      The 1984 exception is conformed to the proposed 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 applies to bonds issued 
after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

 C. Authorize Secretary of Treasury to Grant Waivers from Section 4941 
  Prohibitions (sec. 1004 of the House bill and sec. 4941 of the Code)


                              Present Law

      In order to prohibit transactions between tax-exempt 
private foundations and certain related persons, present law 
provides for the imposition of excise taxes when ``disqualified 
persons'' engage in acts of ``self-dealing'' with a private 
foundation (sec. 4941). Disqualified persons include foundation 
managers (directors, trustees, and officers of the foundation), 
substantial contributors to the foundation, certain family 
members of these persons, and certain entities related to these 
persons. Disqualified persons also include government officials 
at certain levels.
      Acts of self-dealing include any direct or indirect: (1) 
sale, exchange, or leasing of property between a private 
foundation and a disqualified person, (2) lending of money or 
extensions of credit between a private foundation and a 
disqualified person, (3) furnishing of goods, services, or 
facilities between a private foundation and a disqualified 
person, (4) payment of compensation (or payment or 
reimbursement of expenses) by a private foundation to a 
disqualified person, (5) transfer to, or use by or for the 
benefit of, a disqualified person of the income or assets of a 
private foundation, and (6) agreement by a private foundation 
to make any payment of money or other property to a government 
official.\87\ There is no exception from the prohibition on 
acts of self-dealing for inadvertent violations, and even 
transactions which arguably may benefit the private foundation 
may be subject to tax as an act of self-dealing.
---------------------------------------------------------------------------
        \87\ There are certain limited transactions between 
disqualified persons and private foundations that are defined by 
statute not to constitute acts of self-dealing.
---------------------------------------------------------------------------
      Self-dealing excise taxes are imposed on a disqualified 
person who has engaged in a self-dealing transaction, and on 
any foundation manager who knowingly participates in the 
transaction. At the first level of tax, a disqualified person 
is subject to an initial tax at a rate of 5 percent and a 
foundation manager at a rate of 2.5 percent (up to a maximum of 
$10,000) of the ``amount involved'' in the act of self-dealing. 
Where the self-dealing transaction involves the use of money 
(e.g., a loan) or other property, the ``amount involved'' 
generally is the greater of the amount of money and the fair 
market value of the other property given or the amount of money 
and the fair market value of the property received. Section 
4941 also imposes a second level of taxes at higher rates where 
an act of self-dealing has occurred and the transaction is not 
corrected within a specified period of time.

                               House Bill

      The House bill requires the Secretary of the Treasury to 
establish an exemption procedure pursuant to which the 
Secretary can grant a conditional or unconditional exemption 
from the self-dealing prohibition of section 4941. The 
Secretary is permitted to grant an exemption for any 
disqualified person or transaction, or class of disqualified 
persons or transactions, if such exemption is: (1) 
administratively feasible, (2) in the interests of the private 
foundation, and (3) protective of the rights of the private 
foundation. The House bill requires that, prior to granting 
such an exemption, the Secretary must: (1) require that 
adequate notice be given to interested persons, (2) publish 
notice in the Federal Register of the pendency of a request for 
an exemption, and (3) afford interested persons an opportunity 
to present their views.
      Effective date.--The House bill is effective for 
transactions occurring after the date of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

 D. Extend Declaratory Judgment Procedures to Non-501(c)(3) Tax-exempt 
 Organizations (sec. 1005 of the House bill and sec. 7428 of the Code)


                              Present Law

      In order for an organization to be granted tax exemption 
as a charitable entity described in section 501(c)(3), it 
generally must file an application for recognition of exemption 
with the IRS and receive a favorable determination of its 
status. Similarly, for most organizations, a charitable 
organization's eligibility to receive tax-deductible 
contributions is dependent upon its receipt of a favorable 
determination from the IRS. In general, a section 501(c)(3) 
organization can rely on a determination letter or ruling from 
the IRS regarding its tax-exempt status, unless there is a 
material change in its character, purposes, or methods of 
operation. In cases where an organization violates one or more 
of the requirements for tax exemption under section 501(c)(3), 
the IRS is authorized to revoke an organization's tax 
exemption, notwithstanding an earlier favorable determination.
      In situations where the IRS denies an organization's 
application for recognition of exemption under section 
501(c)(3) or fails to act on such application, or where the IRS 
informs a section 501(c)(3) organization that it is considering 
revoking or adversely modifying its tax-exempt status, present 
law authorizes the organization to seek a declaratory judgment 
regarding its tax status (sec. 7428). Section 7428 provides a 
remedy in the case of a dispute involving a determination by 
the IRS with respect to: (1) the initial qualification or 
continuing qualification of an organization as a charitable 
organization for tax exemption purposes or for charitable 
contribution deduction purposes; (2) the initial classification 
or continuing classification of an organization as a private 
foundation; (3) the initial classification or continuing 
classification of an organization as a private operating 
foundation; or (4) the failure of the IRS to make a 
determination with respect to (1), (2), or (3). A 
``determination'' in this context generally means a final 
decision by the IRS affecting the tax qualification of a 
charitable organization, although it also can include a 
proposed revocation of an organization's tax-exempt status or 
public charity classification. Section 7428 vests jurisdiction 
over controversies involving such a determination in the U.S. 
District Court for the District of Columbia, the U.S. Court of 
Federal Claims, and the U.S. Tax Court.
      Prior to utilizing the declaratory judgment procedure, an 
organization must have exhausted all administrative remedies 
available to it within the IRS. For the first 270 days after a 
request for a determination is made, an organization is deemed 
to not have exhausted its administrative remedies. Provided 
that no determination is made during the 270-day period, the 
organization may initiate an action for declaratory judgment 
after the period has elapsed. If, however, the IRS makes an 
adverse determination during the 270-day period, an 
organization may initiate a declaratory judgment immediately. 
The 270-day period does not begin with respect to applications 
for recognition of tax-exempt status until the date a 
substantially completed application is submitted.
      In contrast to the rules governing charities, it is a 
disputed issue as to whether non-charities (i.e., organizations 
not described in section 501(c)(3), including trade 
associations, social welfare organizations, social clubs, labor 
and agricultural organizations, and fraternal organizations) 
are required to file an application with the IRS to obtain a 
determination of their tax-exempt status. If an organization 
voluntarily files an application for recognition of exemption 
and receives a favorable determination from the IRS, the 
determination of tax-exempt status is usually effective as of 
the date of formation of the organization if its purposes and 
activities during the period prior to the date of the 
determination letter were consistent with the requirements for 
exemption. However, if the organization files an application 
for recognition of exemption and later receives an adverse 
determination from the IRS, the IRS may assert that the 
organization is subject to tax on some or all of its income for 
open taxable years. In addition, as with charitable 
organizations, the IRS may revoke or modify an earlier 
favorable determination regarding an organization's tax-exempt 
status.
      Under present law, a non-charity (i.e., an organization 
not described in section 501(c)(3)) may not seek a declaratory 
judgment with respect to an IRS determination regarding its 
tax-exempt status. The only remedies available to such an 
organization are to petition the U.S. Tax Court for relief 
following the issuance of a notice of deficiency or to pay any 
tax owed and sue for refund in federal district court or the 
U.S. Court of Federal Claims.

                               House Bill

      The House bill extends declaratory judgment procedures 
similar to those currently available only to charities under 
section 7428 to other section 501(c) determinations. 
Jurisdiction over controversies involving such determinations 
is limited to the United States Tax Court.
      Effective date.--The House bill is effective for 
pleadings with respect to determinations made after the date of 
enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

 E. Modify Section 512(b)(13) (sec. 1006 of the bill and, Sec. 802 of 
        the Senate amendment and section 512(b)(13) of the Code)


                              Present Law

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

                               House Bill

      The House bill provides that the general rule of section 
512(b)(13), which includes interest, rent, annuity, or royalty 
payments made by a controlled entity to a tax-exempt 
organization in the latter organization's UBI, applies only to 
the portion of payments received in a taxable year that exceed 
the amount of the specified payment which would have been paid 
if such payment had been determined under the principles of 
section 482. Thus, if a payment of rent by a controlled 
subsidiary to its tax-exempt parent organization exceeds fair 
market value, the excess amount of such payment over fair 
market value (as determined in accordance with section 482) is 
included in the parent organizations's UBI. The House bill also 
imposes an addition to tax of 20 percent of the excess amount 
of any such payment.
      The House bill provides relief for payments under 
contracts that are still subject to the binding contract 
transition rule of the 1997 Act on the date of enactment of the 
proposal (but for which the transition rule would expire prior 
to the effective date of the proposal) by extending the 
transition rule until December 31, 1999.
      Effective date.--The provision providing an exception 
from the general rule of section 512(b)(13) for interest, rent, 
annuity, or royalty payments from controlled subsidiaries that 
do not exceed fair market value generally applies to payments 
received or accrued after December 31, 1999.

                            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. Simplify Lobbying Expenditure Limitations (sec. 803 of the Senate 
            amendment and secs. 501(h) and 4911 of the Code)


                              Present Law

      An organization does not qualify for tax-exempt status as 
a charitable organization under section 501(c)(3) unless no 
substantial part of its activities constitutes carrying on 
propaganda or otherwise attempting to influence legislation 
(commonly referred to as ``lobbying''). For purposes of 
determining whether legislative activities are a substantial 
part of a public charity's overall functions, a public charity 
may elect either the ``substantial part'' test or the 
``expenditure'' test.
      The substantial part test uses a facts and circumstances 
approach to measure the permissible level of legislative 
activities. Because there is no statutory or regulatory 
guidance, it is not clear whether the determination is based on 
the organization's activities, its expenditures, or both.
      As an alternative to the substantial part test, the 
expenditure test permits public charities to elect to be 
governed by specific expenditure limitations on their lobbying 
activities under section 501(h). The expenditure test 
establishes two expenditure limits: one restricts the total 
amount of lobbying expenditures the public charity can make, 
the other restricts grass roots lobbying expenditures as a 
subset of total lobbying expenditures. A public charity's total 
lobbying expenditures for a year are the sum of its 
expenditures for direct lobbying and its expenditures for grass 
roots lobbying.
      Direct lobbying is defined as an attempt to influence 
legislation through communication with a member or staff of a 
legislative body or with any other government official or 
employee who may participate in the formulation of legislation. 
The communication will constitute direct lobbying only if such 
communication ``refers to specific legislation'' and reflects a 
view on such legislation (Treas. Reg. sec. 56.4911-
2(b)(1)(ii)). Grass roots lobbying is defined as an attempt to 
influence legislation through a communication with members of 
the public that seeks to affect their opinions about the 
legislation (Treas. Reg. sec. 56.4911-2(b)(2)(i)). The 
communication must refer to specific legislation, reflect a 
view on the legislation, and encourage the recipient of the 
communication to take action with respect to the legislation.
      Under the expenditure test, a public charity will be 
denied exemption under section 501(c)(3) because of lobbying 
activities only if it normally either (1) makes total lobbying 
expenditures in excess of the ``lobbying ceiling amount'' or 
(2) makes grass roots expenditures in excess of the ``grass 
roots ceiling amount'' (sec. 501(h)(1)). The lobbying ceiling 
amount is 150 percent of the organization's ``lobbying 
nontaxable amount'' and the grass roots ceiling amount is 150 
percent of the ``grass roots nontaxable amount.'' The lobbying 
nontaxable amount is the lesser of $1 million or an amount 
determined as a percentage of an organization's exempt purpose 
expenditures. The grass roots nontaxable amount is 25 percent 
of the organization's lobbying nontaxable amount for that 
taxable year. A public charity that has elected the expenditure 
test and that exceeds either or both of these limitations is 
subject to a 25 percent tax on the greater of the two excess 
lobbying expenditures.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment removes the separate percentage 
limitation on grass roots lobbying expenditures. Consequently, 
public charities that have elected the expenditure test under 
section 501(h) are subject to an expenditure limitation only on 
their total lobbying expenditures.
      Effective date.--The Senate amendment is effective for 
taxable years beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

G. Tax-Free Withdrawals From IRAs for Charitable Purposes (sec. 804 of 
           the Senate amendment and sec. 408(d) of the Code)


                              Present Law

      Under present law, individuals may make deductible 
contributions to a traditional individual retirement 
arrangement (``IRA''). Amounts in an IRA are includible in 
income when withdrawn (except to the extent the withdrawal 
represents a return of after-tax contributions). Includible 
amounts withdrawn before attainment of age 59\1/2\ are subject 
to an additional 10-percent early withdrawal tax, unless an 
exception applies.
      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 adjusted gross income (``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 adjusted gross 
income in excess of a threshold amount, which is indexed 
annually for inflation. The threshold amount for 1999 is 
$126,600 ($63,300 for married individuals filing separate 
returns). For those deductions that are subject to the limit, 
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 limit. The effect 
of this reduction may be to limit a taxpayer's ability to 
deduct some of his or her charitable contributions.

                               House Bill

      No provision.

                            Senate Amendment

      The provision provides an exclusion from gross income for 
qualified charitable distributions from an IRA: (1) to a 
charitable 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 was 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 as corpus any remaining portion of 
the distribution. 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 used to 
purchase the annuity as an investment in the annuity contract.
      A qualified charitable distribution is any distribution 
from an IRA which is made after age 70\1/2\, which qualifies as 
a charitable contribution (within the meaning of sec. 170(c)), 
and which is made directly to the charitable organization or to 
a charitable remainder annuity trust, charitable remainder 
unitrust, pooled income fund, or charitable gift annuity (as 
described above).\88\ A taxpayer is not permitted to claim a 
charitable contribution deduction for amounts transferred from 
his or her IRA to charity or to a trust, fund, or annuity that, 
because of the provision, are excluded from the taxpayer's 
income.
---------------------------------------------------------------------------
        \88\ The Committee intends 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.
---------------------------------------------------------------------------
      Effective date.--The provision is effective with respect 
to distributions after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
except that an exclusion from gross income for a qualified 
charitable distribution from an IRA is available only for a 
distribution made to a charitable organization to which 
deductible contributions can be made, and not for distributions 
to charitable remainder trusts, pooled income funds, or for the 
issuance of charitable gift annuities.
      Effective date.--The provision is effective for 
distributions in taxable years beginning after December 31, 
2002.

     H. Provide Exclusion for Mileage Reimbursements by Charitable 
  Organizations (sec. 1302 of the House bill, sec. 805 of the Senate 
               amendment, and new sec. 138A of the Code)


                              Present Law

      In computing taxable income, individuals who do not elect 
the standard deduction may claim itemized deductions, including 
a deduction (subject to certain limitations) for charitable 
contributions or gifts made during the taxable year to a 
qualified charitable organization or governmental entity (sec. 
170). Individuals who elect the standard deduction may not 
claim a deduction for charitable contributions made during the 
taxable year.
      No charitable contribution deduction is allowed for a 
contribution of services. However, unreimbursed expenditures 
made incident to providing donated services to a qualified 
charitable organization--such as out-of-pocket transportation 
expenses necessarily incurred in performing donated services--
may constitute a deductible contribution (Treas. Reg. sec. 
1.170A-1(g)).\89\ However, no charitable contribution deduction 
is allowed for traveling expenses (including expenses for meals 
and lodging) while away from home, whether paid directly or by 
reimbursement, unless there is no significant element of 
personal pleasure, recreation, or vacation in such travel (sec. 
170(j)). Moreover, a taxpayer may not deduct as a charitable 
contribution out-of-pocket expenditures incurred on behalf of a 
charity if such expenditures are made for the purposes of 
influencing legislation (sec. 170(f)(6)).
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        \89\ Treasury Regulation section 1.170A-1(g) allows taxpayers 
to deduct only their own unreimbursed expenses incurred in performing 
services for a qualified charitable organization, and not expenses 
incident to a third party's performance of services. See Davis v. 
United States, 495 U.S. 472 (1990).
---------------------------------------------------------------------------
      For purposes of computing the charitable contribution 
deduction for the use of a passenger automobile (including 
vans, pickups, and panel trucks) in connection with providing 
donated services to a qualified charitable organization, the 
standard mileage rate is 14 cents per mile (sec. 170(i)). 
Volunteer drivers who are reimbursed for mileage expenses have 
taxable income to the extent the reimbursement exceeds 14 cents 
per mile.

                               House Bill

      Under the House bill, reimbursement by an entity or 
organization described in section 170(c) (including public 
charities and private foundations) for the costs of using an 
automobile in connection with providing donated services is 
excludable from the gross income of the volunteer, provided 
that (1) reimbursement does not exceed the rate prescribed for 
business use, and (2) applicable recordkeeping requirements are 
satisfied. The expenditures for which a volunteer is reimbursed 
must be expenditures for which a deduction would otherwise be 
allowable under section 170. The bill does not permit a 
volunteer to exclude a reimbursement from income if the 
volunteer claims a deduction or credit with respect to his or 
her automobile transportation expenses incurred in connection 
with providing donated services.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1999.

                            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. Charitable Contribution Deduction for Certain Expenses in Support of 
 Native Alaskan Subsistence Whaling (sec. 806 of the Senate amendment 
                       and sec. 170 of the Code)


                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment allows individuals to claim a 
deduction under section 170 not exceeding $7,500 per taxable 
year for certain expenses incurred in carrying out sanctioned 
whaling activities. The deduction is available only to an 
individual who is recognized by the Alaska Eskimo Whaling 
Commission as a whaling captain charged with the responsibility 
of maintaining and carrying out sanctioned whaling activities. 
The deduction is available for reasonable and necessary 
expenses paid by the taxpayer during the taxable year for (1) 
the acquisition and maintenance of whaling boats, weapons, and 
gear used in sanctioned whaling activities, (2) the supplying 
of food for the crew and other provisions for carrying out such 
activities, and (3) storage and distribution of the catch from 
such activities.
      For purposes of the provision, the term ``sanctioned 
whaling activities'' means subsistence bowhead whale hunting 
activities conducted pursuant to the management plan of the 
Alaska Eskimo Whaling Commission. No inference is intended 
regarding the deductibility of any whaling expenses incurred in 
a taxable year ending before January 1, 2000.
      Effective date.--The Senate amendment is effective for 
taxable years ending after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

J. Charitable Giving Provisions (secs. 807-809 of the Senate amendment 
                   and secs. 170 and 63 of the Code)


                              Present Law

      Generally, a taxpayer who itemizes deductions may deduct 
cash contributions to charity made within a taxable year 
(generally, January 1-December 31 for calendar-year taxpayers), 
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. Taxpayers who do not itemize 
their deductions may not claim a deduction for charitable 
contributions made during the taxable year.
      For donations of cash by individuals, total deductible 
contributions to public charities, private operating 
foundations, and certain types of private non-operating 
foundations may not exceed 50 percent of a taxpayer's 
``contribution base,'' which is typically the taxpayer's 
adjusted gross income (``AGI''), for a taxable year (sec. 
170(b)(1)). To the extent a taxpayer has not exceeded the 50-
percent limitation, contributions of cash to private 
foundations and certain other charitable organizations and 
contributions of capital gain property to public charities 
generally may be deducted up to 30 percent of the taxpayer's 
contribution base. 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.
      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. 
(sec. 170(b)(2)).

                               House Bill

      No provision.

                            Senate Amendment


Deadline for contributions to low-income schools extended until return 
        filing date

      The Senate amendment allows taxpayers to claim a 
charitable contribution deduction for donations to public, 
private, and parochial low-income elementary and secondary 
schools made after the end of the taxable year and on or before 
the date for filing the taxpayer's Federal income tax return 
(not including extensions). For example, a calendar-year 
taxpayer may make a contribution to a qualifying school on 
March 23, 2001, and claim a charitable contribution deduction 
for that gift on his or her Federal income tax return for the 
year 2000 filed on April 15, 2001. \90\ For purposes of the 
provision, a low-income school is defined as one where more 
than 50 percent of the students qualify for free or reduced 
price lunches.
---------------------------------------------------------------------------
        \90\ The taxpayer will not be permitted to claim a deduction 
for the same gift on his or her 2001 Federal income tax return filed in 
2002.
---------------------------------------------------------------------------
      Effective date.--The Senate amendment is effective for 
taxable years beginning after December 31, 1999.

Charitable contribution deduction for non-itemizers

      For 2005 and 2006, the Senate amendment allows taxpayers 
who do not itemize their deductions to claim a deduction for 
charitable contributions in addition to the standard deduction. 
The deduction is limited to $50 for individual taxpayers and 
$100 for taxpayers filing joint returns. The deduction is 
available for any donation that is allowable as a deductible 
charitable contribution under section 170(a). Thus, 
contributions of cash, as well as tangible personal property 
(e.g., clothing and furniture), are eligible for the deduction.
      Effective date.--The Senate amendment is effective for 
taxable years 2005 and 2006.

Increase AGI percentage limits for individuals

      The Senate amendment phases up the percentage limitations 
applicable to charitable contributions of cash and capital gain 
property to public charities and certain other charitable 
entities (organizations and entities described in section 
170(b)(1)(A)) by individuals. Beginning in 2002, the Senate 
amendment increases the 50-percent and 30-percent limitations 
by 2 percent per year until the limitations are equal to 60 
percent and 30 percent, respectively, in 2006. In 2007, the 
limitations are increased to 70 percent and 50 percent, 
respectively.
      Effective date.--The Senate amendment is effective for 
taxable years beginning after December 31, 2001.

Increase AGI percentage limits for corporations

      The Senate amendment phases up the percentage limitation 
applicable to charitable contributions by corporations. 
Beginning in 2002, the Senate amendment increases the 10-
percent limitation by 2 percent per year until the limitation 
is equal to 20 percent in 2006.
      Effective date.--The Senate amendment is effective for 
taxable years beginning after December 31, 2001.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment charitable giving provisions.

  K. Modify Excess Business Holdings Rules for Publicly Traded Stock 
      (sec. 810 of the Senate amendment and sec. 4943 of the Code)


                              Present Law

      Private foundations, which are charitable organizations 
that do not qualify as public charities, are subject to certain 
restrictions on their operations. Violations of these 
restrictions may subject the foundation and, in some cases, 
their foundation managers to excise taxes. One such restriction 
prohibits a private foundation from owning more than specified 
equity interests in business enterprises, including 
corporations, partnerships, estates, or trusts (sec. 4943). A 
private foundation, together with all disqualified persons, 
generally may not hold more than 20 percent of a corporation's 
voting stock, a partnership's profits interest, or similar 
interest in a business enterprise. \91\ The limit increases to 
35 percent if effective control of the business is in the hands 
of one or more persons who are not disqualified persons. These 
rules do not apply if the foundation owns less than 2 percent 
of a business, or if the business engages in activities that 
are substantially related to the foundation's charitable 
purpose.
---------------------------------------------------------------------------
        \91\ A disqualified person is a person (including an 
individual, corporation, partnership, trust, or estate) that has a 
particularly influential relationship with respect to a private 
foundation. Disqualified persons include: (1) substantial contributors 
to a foundation (e.g., the founder of a foundation); (2) foundation 
managers (officers, directors, or trustees of a foundation, or an 
individual having powers or responsibilities similar to these 
positions); (3) persons who own more than a 20 percent interest in an 
entity (corporation, partnership, trust, or other unincorporated 
enterprise) that is a disqualified person with respect to a foundation; 
(4) family members of persons described in (1), (2), and (3); (5) 
corporations, partnerships, trusts, or estates that are more than 35 
percent owned by persons described in (1), (2), (3), and (4); and (6) 
only for purposes of the self-dealing rules of section 4943, government 
officials at certain levels.
---------------------------------------------------------------------------
      If a foundation acquires business holdings other than by 
purchase (i.e., by gift or bequest), and the holdings would 
result in the foundation having excess business holdings, the 
foundation effectively has five years to reduce those holdings 
to permissible levels. In the case of an unusually large gift 
or bequest, the initial five-year disposition period may be 
extended by the Internal Revenue Service for an additional five 
years if the foundation is able to demonstrate that it has made 
diligent efforts to dispose of the excess holdings within the 
initial five-year period and that disposition within that 
period was not possible (except at a price substantially below 
fair market value) because of the size and complexity or 
diversity of the holdings.
      The initial tax imposed on a foundation with excess 
business holdings is 5 percent of the value of such holdings 
during the taxable year. The amount of tax is computed with 
respect to the greatest amount of excess business holdings 
during the taxable year. If the foundation fails to divest 
itself of the excess holdings within a certain period of time, 
an additional tax equal to 200 percent of their value is 
imposed on the excess business holdings remaining at the end of 
the period.
      Present law also prohibits transactions between private 
foundations and disqualified persons by imposing excise taxes 
when disqualified persons engage in acts of ``self-dealing'' 
with a private foundation (sec. 4941). Acts of self-dealing 
include any direct or indirect: (1) sale, exchange, or leasing 
of property between a private foundation and a disqualified 
person, (2) lending of money or extensions of credit between a 
private foundation and a disqualified person, (3) furnishing of 
goods, services, or facilities between a private foundation and 
a disqualified person, (4) payment of compensation (or payment 
or reimbursement of expenses) by a private foundation to a 
disqualified person, (5) transfer to, or use by or for the 
benefit of, a disqualified person of the income or assets of a 
private foundation, and (6) agreement by a private foundation 
to make any payment of money or other property to a government 
official. \92\ There is no exception from the prohibition on 
acts of self-dealing for inadvertent violations, and even 
transactions which arguably may benefit the private foundation 
may be subject to tax as an act of self-dealing.
---------------------------------------------------------------------------
        \92\ There are certain limited transactions between 
disqualified persons and private foundations that are defined by 
statute not to constitute acts of self-dealing.
---------------------------------------------------------------------------
      Self-dealing excise taxes are imposed on a disqualified 
person who has engaged in a self- dealing transaction, and on 
any foundation manager who knowingly participates in the 
transaction.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment provides an exception to the excess 
business holdings rules of section 4943 in certain 
circumstances. Under the Senate amendment, for the taxable year 
2007, a private foundation and all disqualified persons are 
permitted to own up to 40 percent of the voting stock and 40 
percent in value of all outstanding shares of all classes of 
stock in an incorporated business enterprise if the stock held 
by the foundation and disqualified persons is publicly traded 
stock for which market quotations are readily available. For 
the taxable year 2008 and thereafter, the percentage of stock 
that may be owned by a private foundation and all disqualified 
persons for purposes of this provision increases to 49 percent.
      The Senate amendment limits the extent to which 
disqualified persons with respect to the foundation can engage 
in transactions with up to 49-percent owned corporations. 
Disqualified persons are not permitted to receive compensation 
from the corporation or to engage in any actwith the 
corporation that would constitute self-dealing under section 4941 if 
the corporation were a private foundation and the disqualified persons 
were disqualified persons with respect to such corporation. 
Disqualified persons may not own, in the aggregate, more than 2 percent 
of the voting stock and not more than 2 percent in value of all 
outstanding shares of all classes of stock in such corporation. 
Finally, an audit committee of the board of directors (consisting of a 
majority of persons who are not disqualified persons) of each 
corporation that is up to 49-percent owned by a private foundation must 
certify in writing to the foundation that the committee is not aware, 
after due inquiry, that any disqualified person has received 
compensation from the corporation or has engaged in an act of self-
dealing with the corporation. This certification must be filed by the 
private foundation with its annual information return.
      Effective date.--The provision is effective for 
foundations established by bequest of decedents dying after 
December 31, 2006.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

L. Certain Costs of Private Foundation in Removing Hazardous Substances 
 Treated as Qualifying Distribution (sec. 811 of the Senate amendment 
                       and sec. 4942 of the Code)


                              Present Law

      Tax-exempt private foundations generally are required to 
make annual ``qualifying distributions'' of a specified minimum 
amount called the ``distributable amount'' (sec. 4942). The 
``distributable amount'' is an amount equal to 5 percent of the 
fair market value of the foundation's investment assets for the 
year, reduced by (1) any excise tax on the foundation's 
investment income (under sec. 4940), (2) any tax on unrelated 
business taxable income (under sec. 511), and (3) by carryovers 
of excess distributions from prior years. ``Qualifying 
distributions'' include direct expenditures to accomplish 
charitable purposes and grants to public charities or private 
operating foundations. In addition, if certain requirements are 
met, a qualifying distribution also may include amounts ``set 
aside'' to be paid within five years for a specific charitable 
project.

                               House Bill

      No provision.

                            Senate Amendment

      Under the Senate amendment, the distributable amount of a 
private foundation for purposes of section 4942 is reduced by 
any amounts paid or incurred for (1) investigatory costs, (2) 
direct costs of removal, and (3) costs of remedial action with 
respect to a hazardous substance released at a facility which 
was owned or operated by the private foundation. The provision 
is limited to a facility that was transferred to the foundation 
before December 11, 1980, for which active operation by the 
foundation was terminated before December 12, 1980. In 
addition, the provision does not apply to costs that were 
incurred pursuant to a pending order issued to the foundation 
unilaterally by the President or the President's assignee under 
section 106 of the Comprehensive Response, Compensation and 
Liability Act, or pursuant to a nonconsensual judgement

against the foundation in a governmental costs recovery action 
under section 107 of such Act. For purpose of this provision, 
``hazardous substance'' has the meaning given to such term by 
section 9601(14) of the Comprehensive Environmental 
Compensation and Liability Act.
      Effective date.--Taxable years beginning after December 
31, 1999.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

                 XI. REAL ESTATE TAX RELIEF PROVISIONS


  A. Provisions Relating to REITs (secs. 1101-1106, 1111, 1121, 1131, 
 1141, and 1151 of the House bill, secs. 1021-1026, 1031, 1041, 1051, 
 1061 and 1071 of the Senate amendment, and secs. 852, 856, and 857 of 
                               the Code)


                              Present Law

      Real estate investment trust (``REITs'') are treated, in 
substance, as pass-through entities under present law. Pass-
through status is achieved by allowing the REIT a deduction for 
dividends paid to its shareholders. REITs are restricted to 
investing in passive investments primarily in real estate and 
securities. Specifically, a REIT is required to receive at 
least 95 percent of its income from real property rents and 
from securities. Amounts received as impermissible ``tenant 
services income'' are not treated as rents from real property. 
In general, such amounts are for services rendered to tenants 
that are not ``customarily furnished'' in connection with the 
rental of real property. Rents for certain personal property 
leased in connection with real property are treated as rents 
from real property if the adjusted basis of the personal 
property does not exceed 15 percent of the aggregate adjusted 
bases of the real and the personal property. Special rules also 
permit amounts to be received from certain ``foreclosure 
property,'' treated as such for 3 years after the property is 
acquired by the REIT in foreclosure after a default (or 
imminent default) on a lease of such property or on 
indebtedness which such property secured.
      A REIT is not treated as providing services that produce 
impermissible tenant services income if such services are 
provided by an independent contractor from whom the REIT does 
not derive or receive any income. An independent contractor is 
defined as a person who does not own, directly or indirectly, 
more than 35 percent of the shares of the REIT. Also, no more 
than 35 percent of the total shares of stock of an independent 
contractor (or of the interests in assets or net profits, if 
not a corporation) can be owned directly or indirectly by 
persons owning 35 percent or more of the interests in the REIT.
      A REIT is limited in the amount that it can own in other 
corporations. Specifically, a REIT cannot own securities (other 
than Government securities and certain real estate assets) in 
an amount greater than 25 percent of the value of REIT assets. 
In addition, it cannot own securities of any one issuer 
representing more than 5 percent of the total value of REIT 
assets or more than 10 percent of the voting securities of any 
corporate issuer. Under an exception to this rule, a REIT can 
own 100 percent of the stock of a corporation, but in that case 
the income and assets of such corporation are treated as income 
and assets of the REIT. Securities for purposes of these rules 
are defined by reference to the Investment Company Act of 1940. 
\93\
---------------------------------------------------------------------------
        \93\ 15 U.S.C. 80a-1 and following.
---------------------------------------------------------------------------
      A REIT is generally required to distribute 95 percent of 
its income before the end of its taxable year, as deductible 
dividends paid to shareholders. This rule is similar to a rule 
for regulated investment companies (``RICs'') that requires 
distribution of 90 percent of income. Both REITS and RICs can 
make certain ``deficiency dividends'' after the close of the 
taxable year, and have these treated as made before the end of 
the year. The regulations applicable to REITS state that a 
distribution will be treated as a ``deficiency dividend'' and 
thus as made before the end of the prior taxable year, only to 
the extent the earnings and profits for that year exceed the 
amount of distributions actually made during the taxable year.
      A REIT that has been or has combined with a C corporation 
will be disqualified if, as of the end of its taxable year, it 
has accumulated earnings and profits from a non-REIT year. A 
similar rule applies to regulated investment companies 
(``RICs''). In the case of a REIT, any distribution made in 
order to comply with this requirement is treated a being first 
from pre-REIT accumulated earnings and profits. RICs do not 
have a similar ordering rule.
      In the case of a RIC, under a provision entitled 
``procedures similar to deficiency dividend procedures'', any 
distribution made within a specified period after determination 
that the investment company did not qualify as a RIC for the 
taxable year will, ``for purposes of applying [the earnings and 
profits rule that forbids a RIC to have non-RIC earnings and 
profits] to subsequent taxable years'', be treated as applying 
to the RIC for the non-RIC year. The REIT rules do not specify 
any particular separate treatment of distributions made after 
the end of the taxable year for purposes of the earnings and 
profits rule. Treasury regulations under the REIT provisions 
state that ``distribution procedures similar to those . . . for 
regulated investment companies apply to non-REIT earnings and 
profits of a real estate investment trust.''

                               House Bill


Taxable REIT subsidiaries

      Under the provision, a REIT generally cannot own more 
than 10 percent of the total value of securities of a single 
issuer, in addition to the present law rule that a REIT cannot 
own more than 10 percent of the outstanding voting securities 
of a single issuer.
      For purposes of the new 10-percent value test, securities 
are generally defined to exclude safe harbor debt owned by a 
REIT (as defined for purposes of sec. 1361(c)(5)(B)(i) and 
(ii)) if the REIT (and any taxable REIT subsidiary of such 
REIT) owns no other securities of the issuer. However, in the 
case of a REIT that owns securities of a partnership, safe 
harbor debt is excluded from the definition of securities only 
if the REIT owns at least 20-percent or more of the profits 
interest in the partnership. The purpose of the partnership 
rule requiring a 20-percent profits interest is to assure that 
if the partnership produces income that would be disqualified 
income to the REIT, the REIT will be treated as receiving a 
significant portion of that income directly, even though it may 
also derive qualified interest income through its safe harbor 
debt interest.
      An exception to the limitations on ownership of 
securities of a single issuer applies in the case of a 
``taxable REIT subsidiary'' that meets certain requirements. To 
qualify as a taxable REIT subsidiary, both the REIT and the 
subsidiary corporation must join in an election. In addition, 
any corporation (other than a REIT or a qualified REIT 
subsidiary under section 856(i) that does not properly elect 
with the REIT to be a taxable REIT subsidiary) of which a 
taxable REIT subsidiary owns, directly or indirectly, more than 
35 percent of the vote or value is automatically treated as a 
taxable REIT subsidiary. Securities (as defined in the 
Investment Company Act of 1940) of taxable REIT subsidiaries 
could not exceed 25 percent of the total value of a REIT's 
assets.
      A taxable REIT subsidiary can engage in certain business 
activities that under present law could disqualify the REIT 
because, but for the proposal, the taxable REIT subsidiary's 
activities and relationship with the REIT could prevent certain 
income from qualifying as rents from real property. 
Specifically, the subsidiary can provide services to tenants of 
REIT property (even if such services were not considered 
services customarily furnished in connection with the rental of 
real property), and can manage or operate properties, generally 
for third parties, without causing amounts received or accrued 
directly or indirectly by REIT for such activities to fail to 
be treated as rents from real property.
      However, the subsidiary cannot directly or indirectly 
operate or manage a lodging or healthcare facility. 
Nevertheless, it can lease a qualified lodging facility (e.g, a 
hotel) from the REIT (provided no gambling revenues were 
derived by the hotel or on its premises); and the rents paid 
are treated as rents from real property so long as the lodging 
facility was operated by an independent contractor for a fee. 
The subsidiary can bear all expenses of operating the facility 
and receive all the net revenues, minus the independent 
contractor's fee.
      For purposes of the rule that an independent contractor 
may operate a qualified lodging facility, an independent 
contractor will qualify so long as, at the time it enters into 
the management agreement with the taxable REIT subsidiary, it 
is actively engaged in the trade or business of operating 
qualified lodging facilities for any person who is not related 
to the REIT or the taxable REIT subsidiary. The REIT may 
receive income from such an independent contractor with respect 
to certain pre-existing leases.
      Also, the subsidiary generally cannot provide to any 
person rights to any brand name under which hotels or 
healthcare facilities are operated. An exception applies to 
rights provided to an independent contractor to operate or 
manage a lodging facility, if the rights are held by the 
subsidiary as licensee or franchisee, and the lodging facility 
is owned by the subsidiary or leased to it by the REIT.
      Interest paid by a taxable REIT subsidiary to the related 
REIT is subject to the earnings stripping rules of section 
163(j). Thus the taxable REIT subsidiary cannot deduct interest 
in any year that would exceed 50 percent of the subsidiary's 
adjusted gross income.
      If any amount of interest, rent, or other deductions of 
the taxable REIT subsidiary for amounts paid to the REIT is 
determined to be other than at arm's length (``redetermined'' 
items), an excise tax of 100 percent is imposed on the portion 
that was excessive. ``Safe harbors'' are provided for certain 
rental payments where the amounts are de minimis, there is 
specified evidence that charges to unrelated parties are 
substantially comparable, certain charges for services from the 
taxable REIT subsidiary are separately stated, or the 
subsidiary's gross income from the service is not less than 150 
percent of the subsidiary's direct cost in furnishing the 
service.
      In determining whether rents are arm's length rents, the 
fact that such rents do not meet the requirements of the 
specified safe harbors shall not be taken into account. In 
addition, rent received by a REIT shall not fail to qualify as 
rents from real property by reason of the fact that all or any 
portion of such rent is redetermined for purposes of the excise 
tax.
      The Commissioner of Internal Revenue is to conduct a 
study to determine how many taxable REIT subsidiaries are in 
existence and the aggregate amount of taxes paid by such 
subsidiaries. A report shall be submitted to the Congress 
describing the results of such study.

Health care REITS

      The provision permits a REIT to own and operate a health 
care facility for at least two years, and treat it as permitted 
``foreclosure'' property, if the facility is acquired by the 
termination or expiration of a lease of the property. 
Extensions of the 2 year period can be granted.

Conformity with regulated investment company rules

      Under the provision, the REIT distribution requirements 
are modified to conform to the rules for regulated investment 
companies. Specifically, a REIT is required to distribute only 
90 percent, rather than 95 percent, of its income.

Definition of independent contractor

      If any class of stock of the REIT or the person being 
tested as an independent contractor is regularly traded on an 
established securities market, only persons who directly or 
indirectly own 5 percent or more of such class of stock shall 
be counted in determining whether the 35 percent ownership 
limitations have been exceeded.

Modification of earnings and profits rules for RICs and REITS

      The rule allowing a RIC to make a distribution after a 
determination that it had failed RIC status, and thus meet the 
requirement of no non-RIC earnings and profits in subsequent 
years, is modified to clarify that, when the reason for the 
determination is that the RIC had non-RIC earnings and profits 
in the initial year, the procedure would apply to permit RIC 
qualification in the initial year to which such determination 
applied, in addition to subsequent years.
      The RIC earnings and profits rules are also modified to 
provide an ordering rule similar to the REIT rule, treating a 
distribution to meet the requirements of no non-RIC earnings 
and profits as coming first from the earliest earnings and 
profits accumulated in any year for which the RIC did not 
qualify as a RIC. In addition, the REIT deficiency dividend 
rules are modified to apply the same earnings and profits 
ordering rule to such dividends as other REIT dividends.

Effective date

      The House bill is generally effective for taxable years 
beginning after December 31, 2000. The provision with respect 
to modification of earnings and profits rules is effective for 
distributions after December 31, 2000.
      In the case of the provisions relating to permitted 
ownership of securities of an issuer, special transition rules 
apply. The new rules forbidding a REIT to own more than 10 
percent of the value of securities of a single issuer do not 
apply to a REIT with respect to securities held directly or 
indirectly by such REIT on July 12, 1999, or acquired pursuant 
to the terms of written binding contract in effect on that date 
and at all times thereafter until the acquisition. Also, 
securities received in a tax-free exchange or reorganization, 
with respect to or in exchange for such grandfathered 
securities would be grandfathered. This transition ceases to 
apply to securities of a corporation as of the first day after 
July 12, 1999 on which such corporation engages in a 
substantial new line of business, or acquires any substantial 
asset, other than pursuant to a binding contract in effect on 
such date and at all times thereafter, or in a reorganization 
or transaction in which gain or loss is not recognized by 
reason of section 1031 or 1033 of the Code. If a corporation 
makes an election to become a taxable REIT subsidiary, 
effective before January 1, 2004 and at a time when the REIT's 
ownership is grandfathered under these rules, the election is 
treated as a reorganization under section 368(a)(1)(A) of the 
Code.

                            Senate Amendment

      The Senate amendment is the same as the House bill with 
certain clarifications and one additional provision.

General clarifications

      The Senate amendment clarifies that straight-debt 
securities of an individual issuer are not treated as 
securities for purposes of the new prohibition on a REIT owning 
10 percent of the value of a single issuer.
      The Senate amendment clarifies the definition of 
``redetermined deductions'' for purposes of the 100 percent 
excise tax, to indicate that these are deductions of the 
taxable REIT subsidiary that would be reduced (not increased) 
under the arm's length rules of section 482.
      The Senate amendment clarifies the application of the 
transition rule permitting a REIT to own more than 10 percent 
of the value of securities of an issuer if such securities are 
held by the REIT on July 12, 1999. Under the Senate amendment, 
the grandfathering of such securities ceases to apply if the 
REIT acquires additional securities of that issuer after that 
date, other than pursuant to a binding contract in effect on 
that date and at all times thereafter, or in a reorganization 
with another corporation the securities of which are 
grandfathered.

Rental income clarification

      The Senate amendment clarifies that rents paid to a REIT 
are not generally qualified rents if the REIT owns more than 10 
percent of the value, (as well as of the vote) of a corporation 
paying the rents. The amendment clarifies that the only 
exception is for rents that are paid by taxable REIT 
subsidiaries and that also meet the limited rental exception 
(where 90 percent of space is leased to third parties) or the 
exception for certain lodging facilities (operated by an 
independent contractor) specified in the House bill.
      Effective date.--The new 10 percent of value limitation 
for purposes of defining qualified rents is effective for 
taxable years beginning after December 31, 1999. There is an 
exception for rents paid under a lease or pursuant to a binding 
contract in effect on July 12, 1999 and at all times 
thereafter.

Provision regarding rental income from certain personal property

      The Senate amendment modifies the present law rule that 
permits certain rents from personal property to be treated as 
real estate rental income if such personal property does not 
exceed 15 percent of the aggregate of real and personal 
property. The Senate amendment replaces the present law 
comparison of the adjusted bases of properties with a 
comparison based on fair market values.
      Effective date.--The provision regarding rental income 
from certain personal property is effective for taxable years 
beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.
      Effective date.--The effective dates of the conference 
agreement are the same as under the Senate amendment, except 
that the effective dates of (i) the clarification that a 10 
percent of value ownership limitation applies to certain rents, 
and (2) the provision using a fair market value test for rental 
income from certain personal property, are for taxable years 
beginning after December 31, 2000 (rather than after December 
31, 1999).

B. Modify At-Risk Rules for Publicly Traded Nonrecourse Debt (sec. 1161 
           of the House bill and sec. 465(b)(6) of the Code)


                              Present Law

      Present law provides an at-risk limitation on losses from 
business and income-producing activities, applicable to 
individuals and certain closely held corporations (sec. 465). 
Under the at-risk rules, a taxpayer generally is not considered 
at risk with respect to borrowed amounts if the taxpayer is not 
personally liable for repayment of the debt (e.g., nonrecourse 
loans), and in certain other circumstances.
      In the case of the activity of holding real property, 
however, an exception is provided for qualified nonrecourse 
financing that is secured by real property used in the activity 
(sec. 465(b)(6)). The qualified nonrecourse financing rules 
require, among other things, that the financing be borrowed by 
the taxpayer from a qualified person or from certain 
governmental entities. For this purpose, a qualified person is 
one that is actively and regularly engaged in the business of 
lending money (and that is not a related person with respect to 
the taxpayer, is not a person from whom the taxpayer acquired 
the property or a related person, and is not a person that 
receives a fee with respect to the taxpayer's investment or a 
related person (sec. 49(a)(1)(D)(iv)). A related person is one 
with certain types of relationships to the taxpayer defined by 
statute (sec. 465(b)(3)(C)). The qualified nonrecourse 
financing rules also require that the financing be secured by 
real property used in the activity (sec. 465(b)(6)(A)).

                               House Bill

      The House bill modifies the rules relating to qualified 
nonrecourse financing to provide that, in the case of an 
activity of holding real property, a taxpayer is considered at 
risk with respect to the taxpayer's share of certain financing 
that is not borrowed from a person that is regularly engaged in 
the business of lending money, and that is not secured by real 
property used in the activity, if the financing is qualified 
publicly traded debt.
      The financing may not be borrowed from a person that is a 
related person with respect to the taxpayer, that is a person 
from whom the taxpayer acquired the property or a related 
person, or that is a person that receives a fee with respect to 
the taxpayer's investment or a related person.
      Qualified publicly traded debt generally means any debt 
instrument that is readily tradable on an established 
securities market. However, qualified publicly traded debt does 
not include any debt instrument, the yield to maturity on which 
equals or exceeds the applicable Federal rate of interest for 
the calendar month in which it is issued, plus 5 percentage 
points. The applicable Federal rate is the rate determined 
under section 1274(d) with respect to the term of the debt 
instrument. Under the provision, it is intended that ``readily 
tradable on an established securities market'' have the same 
meaning as under section 453(f)(5).
      Effective date.--The provision is effective for debt 
instruments issued after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

 C. Qualified Lessee Construction Allowances Not Limited to Short-term 
Leases for Certain Retailers (sec. 1171 of the House bill and sec. 110 
                              of the Code)


                              Present Law

      Section 110 provides that the gross income of a lessee 
does not include amounts received in cash (or treated as a rent 
reduction) from a lessor under a short-term lease of retail 
space for the purpose of the lessee's construction or 
improvement of qualified long-term real property for use in the 
lessee's trade or business at the retail space subject to the 
short-term lease. The exclusion only applies to the extent the 
allowance does not exceed the amount expended by the lessee on 
the construction or improvement of qualified long-term real 
property. For this purpose, ``qualified long-term real 
property'' means nonresidential real property that is part of, 
or otherwise present at, retail space used by the lessee and 
that reverts to the lessor at the termination of the lease. A 
``short-term lease'' means a lease or other agreement for the 
occupancy or use of retail space for a term of 15 years or less 
(as determined pursuant to sec. 168(i)(3)). ``Retail space'' 
means real property leased, occupied, or otherwise used by the 
lessee in its trade or business of selling tangible personal 
property or services to the general public.
      The lessor must treat the amounts expended on the 
construction allowance as nonresidential real property owned by 
the lessor. The Secretary is granted the authority to require 
reporting to ensure that both the lessor and lessee treat such 
amounts as nonresidential real property owned by the 
lessor.\94\
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        \94\ Section 110 provides for regulations to be issued 
establishing the time and manner information must be provided the 
Secretary concerning amounts received (or treated as a rent reduction), 
amounts expended on qualified long-term real property, and such other 
information as the Secretary deems necessary to carry out the 
provision. These regulations have not yet been issued.
---------------------------------------------------------------------------

                               House Bill

      The provision eliminates the section 110 requirement that 
the lease be for a term of 15 years or less in the case of 
payment (or rent reduction) to a ``qualified retail business.'' 
Payments by a lessor to such businesses for the purpose of 
constructing or improving long-term real property would not be 
included in the income of the lessee regardless of the term of 
the lease, provided the payments are used for such purpose.
      For this purpose, a qualified retail business would be 
defined as a trade or business of selling tangible personal 
property to the general public. A trade or business will not 
fail to be considered a qualified retail business by reason of 
sales of services to the general public if such sales are 
incidental to the sale of tangible personal property (such as 
tailoring services provided incidental to the sale of a suit or 
dress) or are de minimis in amount. For this purpose, services 
would be considered de minimis in amount if they represent 10% 
or less of the gross receipts of the business at the retail 
space subject to the lease.
      The provision does not eliminate the short-term lease 
requirement in all situations that are otherwise eligible for 
section 110 under present law. Section 110 presently applies 
(assuming the other standards are met) if the retail space of 
the lessee will be used in the trade or business of selling 
tangible personal property or services to the public. If the 
lessee will earn more than 10% of the gross receipts of the 
space from the sale of services (other than from services that 
are incidental to the sale of tangible personal property), 
section 110 will continue to be available only if the lease is 
for a term of 15 years or less.
      Effective date.--The provision applies to leases entered 
into after December 31, 1999. No inference is intended as to 
the treatment of amounts that are not affected by the 
provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the House bill 
provision.

D. Exclusion From Gross Income for Certain Contributions to the Capital 
 of Certain Retailers (sec. 1172 of the House bill and sec. 118 of the 
                                 Code)


                              Present Law

      Section 118(a) provides that gross income does not 
include any contribution to the capital of a corporation. The 
test for determining whether a particular payment is a 
contribution to capital is the intent or motive of the 
transferor. The contribution (1) must become a part of the 
recipient's capital structure; (2) may not be compensation for 
a ``specific, quantifiable service''; (3) must be bargained 
for; (4) must result in a benefit to the recipient; and (5) 
ordinarily will contribute to the production of additional 
income. United States v. Chicago, Burlington & Quincy R.R., 412 
U.S. 401, 411, 93 S. Ct. 2169, 2175, 37 L. Ed. 2d 30 (1973).
      Two appellate courts have applied section 118(a) to 
inducements paid by developers to retailers in exchange for the 
agreement of the retailers to ``anchor'' future shopping 
centers. Federated Department Stores v. Commissioner 51 TC 500 
(1968), aff'd 426 F. 2d 417 (6th Cir., 1970), May Department 
Stores Co. v. Commissioner, 33 TCM 1128 (1974), aff'd 519 F. 2d 
1154 (8th Cir., 1975). In both cases, the courts held that the 
benefits anticipated by the developer were speculative and 
intangible, and thus could not be considered in payment for any 
particular service.
      The recipient taxpayer is allowed no basis in any 
property it receives as a contribution to capital, or a 
property it acquires within 12 months with the proceeds of a 
contribution to capital (sec. 362).
      A portion of a single payment may qualify as a nontaxable 
contribution to capital, while the remainder is considered to 
be part of a taxable transaction. Where there are multiple 
purposes to the payment, the payment may be examined to 
determine what portion is eligible for section 118(a) 
treatment. G.M. Trading Corporation v. Commissioner, 121 F. 3d 
977 (5th Cir., 1997).

                               House Bill

      The provision establishes a safe harbor allowing certain 
inducements received by retailers to be treated as nontaxable 
contributions to capital. In order to qualify for the safe 
harbor, the inducement must be in exchange for the retailer's 
agreement to operate a qualified retail business at particular 
location for a period of at least 15 years. The retailer must, 
immediately after the receipt of the contribution, own the land 
and structures to be used by the taxpayer in carrying on the 
qualified retail business at the agreed location and must 
satisfy an expenditure rule.
      The safe harbor does not apply if the contributor owns a 
beneficial interest in property located on the premises of the 
qualified retail business, other than de minimis amounts of 
property associated with the operation of adjacent property. 
For example, a developer may be the owner of the pipes and 
related equipment making up the water system of a shopping 
mall. Ownership of such property on premises owned by the 
retailer is expected to be considered de minimis and would not 
prevent the application of the safeharbor. On the other hand, 
ownership of more than a de minimis amount of assets or the 
ownership of assets disqualifies the inducement from safeharbor 
treatment. For example, if a developer owns and leases to a 
retailer the retailer's point of sale equipment, any inducement 
paid by the developer to the retailer will not qualify under 
the safeharbor as a nontaxable contribution to capital.\95\ The 
rule applies to property owned by the developer on the premises 
of the retailer. The premises of the retailer is the area in 
which the retailer holds out personal property for sale to the 
general public. The premises of the retailer do not include 
adjacent space, such as a parking facility under the store 
which is owned and operated by the developer whose use is not 
limited to customers of the taxpayer. The rule also does not 
prevent the developer paying the inducement from owning a 
beneficial interest in the retailers, or joining in a joint 
venture with the retailer unless the joint venture involves 
ownership of property on the premises of the retailer that 
would prevent the use of the safeharbor if owned directly by 
the developer.
---------------------------------------------------------------------------
        \95\ Ownership of property on the premises of the retailer by 
the developer does not automatically prevent an inducement from 
qualifying as a nontaxable contribution to capital under section 
118(a), provided the taxpayer can establish the facts required for that 
provision to apply.
---------------------------------------------------------------------------
      The expenditure rule requires that, prior to the end of 
the second taxable year after the year in the contribution was 
received, the retailer spend an amount equal to the amount of 
the contribution for the acquisition of land or structure, or 
for the acquisition or construction of other property to be 
used in the qualified retail business at the agreed location. 
Accurate records would be required to be kept that establish 
the satisfaction of the expenditure rule. It is not intended 
that the retailer be required to trace specific expenditures to 
the inducement.
      A qualified retail business is defined as a trade or 
business of selling tangible personal property to the general 
public. A trade or business will not fail to be considered a 
qualified retail business by reason of sales of services to the 
general public if such sales are incidental to the sale of 
tangible personal property (such as tailoring services provided 
incidental to the sale of a suit or dress) or are de minimis in 
amount. For this purpose, services are considered de minimis in 
amount if they represent 10 percent or less of the gross 
receipts of the business at the retail space subject to the 
lease.
      Anti-abuse rules are provided to prevent the use of the 
safeharbor for amounts that are not intended by the parties as 
contributions to capital. The Secretary is authorized to 
allocate income and deductions, or to reduce the amount of any 
contribution to capital under the safeharbor, in cases in which 
it is established that above market rates have been paid from 
the retailer to the developer in another transaction. A rate is 
not expected to be considered to be above market if it is the 
same on a square footage basis as the rate charged other 
retailers at the same location. For example, a developer 
charges all retailers in the mall a common area maintenance 
charge. If thischarge is equal to a standard rate times the 
square footage of each store in the mall, it will not be considered to 
be an above market rate with respect to any single retailer.
      The Secretary is also authorized to allocate income and 
deductions, or reduce the amount of any contribution to 
capital, to the extent necessary to prevent the abuse of the 
purposes of this section where the transaction takes place 
between related parties. It is expected that this authority 
will be used to prevent the conversion of nondepreciable or 
longer lived property into costs that may be recovered over a 
shorter period of time. For example, if a retailer who owns a 
piece of land contributes that land to a joint venture and then 
accept the land from the joint venture as an inducement to 
operate a retail facility for 20 years an anchor for a new 
mall, it is expected that the Secretary will use its authority 
to reduce the amount of any contribution to capital in a 
transaction between related parties to prevent the application 
of the safeharbor. However, it is not intended that the 
authority to will be used simply because the retailer and a 
related party engage in transactions that are concluded on an 
arm's-length basis and do not result in the conversion of 
nondepreciable or longer lived assets into costs that may be 
recovered over a shorter period of time.
      The provision does not limit the application of section 
118(a) of present law. No inference is intended as to whether 
any payment constitutes a nontaxable contribution to capital 
under section 118(a) whether or not such payment qualifies for 
the safeharbor provided by this provision.
      Effective date.--The provision is effective for 
contributions received after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

   E. Increase the Low-Income Housing Tax Credit Cap and Make Other 
  Modifications (secs. 1331-1337 of the House Bill, sec. 1001 of the 
               Senate amendment 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. \96\ 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.
---------------------------------------------------------------------------
        \96\ 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. \97\ 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; \98\ (2) the amount of the State housing credit 
ceiling (if any) returned in the calendar year; \99\ and (3) 
the amount of the national pool (if any) allocated to such 
State by the Treasury Department.
---------------------------------------------------------------------------
        \97\ 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.
        \98\ 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.
        \99\ 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.
---------------------------------------------------------------------------
      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

      The $1.25 per capita cap is increased to $1.75 per 
capita. This increase is phased-in by increasing the credit cap 
by 10 cents per capita each year for five years. The credit cap 
would be: $1.35 in calendar year 2000; $1.45 in calendar 2001; 
$1.55 in calendar year 2002; $1.65 in calendar year 2003; and 
$1.75 in calendar year 2004. The $1.75 per capita credit cap is 
indexed for inflation beginning in 2004.

Expenditure test

      The bill allows 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 bill makes three changes to the basis rules of the 
credit. First, buildings receiving HOME assistance are made 
eligible for the enhanced credit. Second, the definition of 
qualifiedcensus tracts for purposes of the enhanced credit is 
expanded to include any census tracts with a poverty rate of 25 percent 
or more. Third, the bill extends the credit to a portion of the 
building used as a community service facility not in excess of 20 
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.

State allocation plans

      The bill 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, the bill 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 bill requires 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. It also requires site inspections by the 
housing credit agency to monitor compliance with habitability 
standards applicable to the project.

Stacking rule

      The bill modifies 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, the House bill 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, 1999.

                            Senate Amendment


Credit cap

      The Senate amendment makes two changes to the credit cap. 
First, the $1.25 per capita cap for each State modified so that 
small population State are given a minimum of $2 million of 
annual credit cap. Second, the $1.25 per capita element of the 
credit cap is increased to $1.75 per capita. This increase is 
phased-in by increasing the credit cap by 10 cents per capita 
each year for five years. Therefore the credit cap will be: 
$1.35 per capita or $2 million, whichever is greater, in 
calendar year 2001; $1.45 per capita or $2 million, whichever 
is greater, in calendar 2002; $1.55 per capita or $2 million, 
whichever is greater, in calendar year 2003; $1.65 per capita 
or $2 million, whichever is greater, in calendar year 2004; and 
$1.75 per capita or $2 million, whichever is greater, in 
calendar year 2005 and thereafter.

Expenditure test

      No provision.

Basis of building eligible for the credit

      The Senate amendment 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

      No provision.

Credit administration

      No provision.

Stacking rule

      Same as the House bill.

Effective date

      The Senate amendment provision is effective for calendar 
years beginning after December 31, 2000.

                          Conference Agreement


Credit cap

      The conference agreement follows the House bill with a 
modification. The modification provides a minimum of $2 million 
of annual credit cap to small population states beginning in 
calendar year 2000. The $2 million annual credit cap is indexed 
for inflation, beginning in the same year that indexing begins 
for the per capita cap.

Expenditure test

      The conference agreement follows the House bill.

Basis of building eligible for the credit

      The conference agreement includes two of the three House 
bill changes to the credit basis rules and the Senate amendment 
provision relating to assistance received under the Native 
American Housing Assistance and Self-Determination Act of 1996. 
The first House bill provision included in the conference 
agreement provides that 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. The second House bill provision included in the 
conference agreement is modified so that it 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. The House 
bill provision relating to buildings receiving HOME assistance 
being made eligible for the enhanced credit is not included in 
the conference agreement.

State allocation plans

      The conference agreement includes the House bill 
provision.

Credit administration

      The conference agreement includes the House bill 
provision.

Stacking rule

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

Effective date

      The provision is generally effective for calendar years 
beginning after December 31, 1999, 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 in the credit cap is contingent upon 
enactment as part of the bill of the separate provisions 
relating to State allocation plans and credit administration.

F. Tax Credit for Renovating Historic Homes (section 1011 of the Senate 
               amendment and new section 25B of the Code)


                              Present Law

      Present law provides an income tax credit for certain 
expenditures incurred in rehabilitating certified historic 
structures and certain nonresidential buildings placed in 
service before 1936 (Code sec. 47). The amount of the credit is 
determined by multiplying the applicable rehabilitation 
percentage by the basis of the property that is attributable to 
qualified rehabilitation expenditures. The applicable 
rehabilitation percentage is 20 percent for certified historic 
structures and 10 percent for qualified rehabilitated buildings 
(other than certified historic structures) that were originally 
placed in service before 1936.
      A qualified rehabilitated building is a nonresidential 
building eligible for the 10-percent credit only if the 
building is substantially rehabilitated and a specific portion 
of the existing structure of the building is retained in place 
upon completion of the rehabilitation. A residential or 
nonresidential building is eligible for the 20-percent credit 
that applies to certified historic structures only if the 
building is substantially rehabilitated (as determined under 
the eligibility rules for the 10-percent credit). In addition, 
the building must be listed in the National Register or the 
building must be located in a registered historic district and 
must be certified by the Secretary of the Interior as being of 
historical significance to the district.

                               House bill

      No provision.

                            Senate Amendment

      The Senate amendment permits a taxpayer to claim a 20-
percent credit for qualified rehabilitation expenditures made 
with respect to a qualified historic home which the taxpayer 
subsequently occupies as his or her principal residence for at 
least five years. The total credit which could be claimed by 
the taxpayer is limited to $20,000 ($10,000 in the case of 
married taxpayer filing a separate return) with respect to any 
qualified historic home.
      The bill applies to (1) structures listed in the National 
Register; (2) structures located in a registered national, 
State, or local historic district, and certified by the 
Secretary of the Interior as being of historic significance to 
the district, but only if the median income of the historic 
district is less than twice the State median income; (3) any 
structure designated as being of historic significance under a 
State or local statute, if such statute is certified by the 
Secretary of the Interior as achieving the purpose of 
preserving and rehabilitating buildings of historic 
significance.
      For this purpose, a building generally is considered 
substantially rehabilitated if the qualified rehabilitation 
expenditures incurred during a 24-month measuring period exceed 
the greater of (1) the adjusted basis of the building as of the 
later of the first day of the 24-month period or the beginning 
of the taxpayer's holding period for the building, or (2) 
$5,000. In the case of structures in empowerment zones, in 
enterprise communities, in a census tract in which 70 percent 
of families have income which is 80 percent or less of the 
State median family income, and areas of chronic distress as 
designated by the State and approved by the Secretary of 
Housing and Urban Development only the $5,000 expenditure 
requirement applies. In addition, for all structures, at least 
5 percent of the rehabilitation expenditures have to be 
allocable to the exterior of the structure.
      To qualify for the credit, the rehabilitation must be 
certified by a State or local government subject to conditions 
specified by the Secretary of the Interior.
      The credit may be claimed in one of three ways. First, if 
the taxpayer directly incurs the qualifying expenditures in 
rehabilitation of his or her principal residence, the taxpayer 
may claim the tax credit on his or her return.
      Second, the taxpayer may claim the credit on his or her 
return if the taxpayer is the first purchaser of a structure on 
which qualified rehabilitation expenditures have been made.
      Third, the taxpayer may elect to receive an historic 
rehabilitation mortgage credit certificate. An historic 
rehabilitation mortgage credit certificate is a certificate 
stating the value of the credit that would be allowable to the 
taxpayer for qualified historic rehabilitation expenditures. 
The taxpayer may transfer the historic rehabilitation mortgage 
credit certificate to a lending institution in connection with 
a loan that is to be secured by the structure on which the 
qualified rehabilitation expenditures were incurred. In 
exchange for the rehabilitation mortgage credit certificate, 
the lending institution provides the taxpayer with a loan, the 
rate of interest on which is less than that for which the 
taxpayer otherwise would have qualified.
      In the case of structures located in empowerment zones, 
in enterprise communities, in a census tract in which 70 
percent of families have income which is 80 percent or less of 
the State median family income, and areas of chronic distress 
as designated by the State and approved by the Secretary of 
Housing and Urban Development, the taxpayer may elect that the 
loan be satisfied by principal payments less than those that 
would otherwise be required such that the present value of the 
reduced principal payments over the term of the loan be 
substantially equivalent to the value stated on the historic 
rehabilitation mortgage credit certificate.
      The lending institution that enters into the exchange 
with the taxpayer may claim the credit amount against its 
regular income tax liability. Reductions in interest payments 
and reductions in principal payments resulting from a qualified 
exchange of a rehabilitation mortgage credit certificate would 
not be taxable income to the taxpayer.
      If a taxpayer ceases to maintain the structure as his or 
her personal residence within five years from the date of the 
rehabilitation, the credit is recaptured on a pro rata basis. 
In the case of a taxpayer who elected to receive and exchange a 
rehabilitation mortgage credit certificate with a lending 
institution, any recapture liability would be paid by the 
taxpayer.
      Effective date.--The provision is effective for 
expenditures paid or incurred beginning after December 31, 
1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
but modifies the provision to provide a tax deduction for 
qualified expenses incurred by a homeowner who makes 
renovations to his or her principal residence. Thus, the 
conference agreement provides that a taxpayer may claim a 
deduction for 50 percent of qualified rehabilitation 
expenditures made with respect to a qualified historic home 
which the taxpayer subsequently occupies as his or her 
principal residence for at least five years. The total amount 
of deduction which could be claimed by the taxpayer is limited 
to $50,000 ($25,000 in the case of married taxpayer filing a 
separate return) with respect to any qualified historic home. 
The deduction is to be treated as a miscellaneous itemized 
deduction, subject to the present-law two-percent floor on 
miscellaneous deductions. For taxpayers subject to the 
alternative minimum tax, the deduction for qualified 
expenditures may be claimed against the taxpayer's alternative 
minimum taxable income.
      The conference agreement follows the Senate amendment 
with respect to the definitions of qualifying structures and 
qualifying expenditures, and regarding certification 
requirements.
      If a taxpayer ceases to maintain the structure as his or 
her personal residence within five years from the date of the 
rehabilitation, the deduction is recaptured, on a pro rata 
basis, as taxable income to the taxpayer.
      Effective date.--The provision is effective for 
expenditures paid or incurred beginning after December 31, 
1999.

  G. Accelerate the Scheduled Increase in State Volume Limits on Tax-
 Exempt Private Activity Bonds (sec. 1351 of the House bill, sec. 1081 
           of the Senate amendment 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

      The House bill increases the present-law annual State 
private activity bond volume limits to $75 per resident of each 
State or $225 million (if greater).
      Effective date.--The House bill volume limit increases 
are effective for calender years after December 31, 1999.

                            Senate Amendment

      The Senate amendment 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 2005. 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................................  $70 per resident ($210 million if
                                       greater).
------------------------------------------------------------------------

      Effective date.--The Senate amendment volume limit 
increases are effective beginning in calendar year 2001 and 
will be fully effective in calendar year 2005 and thereafter.

                          Conference Agreement

      The conference agreement 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 2004. The increase is phased-in as follows, 
beginning in calendar year 2000:

------------------------------------------------------------------------
            Calendar year                        Volume limit
------------------------------------------------------------------------
2000................................  $55 per resident ($165 million if
                                       greater).
2001................................  $60 per resident ($180 million if
                                       greater).
2002................................  $65 per resident ($195 million if
                                       greater).
2003................................  $70 per resident ($210 million if
                                       greater).
------------------------------------------------------------------------

      Effective date.--The provision is effective beginning in 
calendar year 2000 and will be fully effective in calendar year 
2004 and thereafter.

    H. Treatment of Leasehold Improvements (sec. 1091 of the Senate 
                  amendment and sec. 168 of the Code)


                              Present Law


Depreciation of leasehold improvements

      Depreciation allowances for property used in a trade or 
business generally are determined under the modified 
Accelerated Cost Recovery System (``MACRS'') of section 168. 
Depreciation allowances for improvements made on leased 
property are determined under MACRS, even if the MACRS recovery 
period assigned to the property is longer than the term of the 
lease (sec. 168(i)(8)).\100\ This rule applies regardless 
whether the lessor or lessee places the leasehold improvements 
in service.\101\ If a leasehold improvement constitutes an 
addition or improvement to nonresidential real property already 
placed in service, the improvement is depreciated using the 
straight-line method over a 39-year recovery period, beginning 
in the month the addition or improvement was placed in service 
(secs. 168(b)(3), (c)(1), (d)(2), and (i)(6)).\102\
---------------------------------------------------------------------------
        \100\ The Tax Reform Act of 1986 modified the Accelerated Cost 
Recovery System (``ACRS'') to institute MACRS. Prior to the adoption of 
ACRS by the Economic Recovery Act of 1981, taxpayers were allowed to 
depreciate the various components of a building as separate assets with 
separate useful lives. The use of component depreciation was repealed 
upon the adoption of ACRS. The Tax Reform Act of 1986 also denied the 
use of component depreciation under MACRS.
        \101\ Former Code sections 168(f)(6) and 178 provided that in 
certain circumstances, a lessee could recover the cost of leasehold 
improvements made over the remaining term of the lease. These 
provisions were repealed by the Tax Reform Act of 1986.
        \102\ If the improvement is characterized as tangible personal 
property, ACRS or MACRS depreciation is calculated using the shorter 
recovery periods and accelerated methods applicable to such property. 
The determination of whether certain improvements are characterized as 
tangible personal property or as nonresidential real property often 
depends on whether or not the improvements constitute a ``structural 
component'' of a building (as defined by Treas. Reg. sec. 1.48-
1(e)(1)). See, for example, Metro National Corp., 52 TCM 1440 (1987); 
King Radio Corp., 486 F.2d 1091 (10th Cir., 1973); Mallinckrodt, Inc., 
778 F.2d 402 (8th Cir., 1985) (with respect various leasehold 
improvements).
---------------------------------------------------------------------------

Treatment of dispositions of leasehold improvements

      A lessor of leased property that disposes of a leasehold 
improvement which was made by the lessor for the lessee of the 
property may take the adjusted basis of the improvement 
intoaccount for purposes of determining gain or loss if the improvement 
is irrevocably disposed of or abandoned by the lessor at the 
termination of the lease.\103\ This rule conforms the treatment of 
lessors and lessees with respect to leasehold improvements disposed of 
at the end of a term of lease. For purposes of applying this rule, it 
is expected that a lessor must be able to separately account for the 
adjusted basis of the leasehold improvement that is irrevocably 
disposed of or abandoned. This rule does not apply to the extent 
section 280B applies to the demolition of a structure, a portion of 
which may include leasehold improvements.\104\
---------------------------------------------------------------------------
        \103\ The conference report describing this provision 
mistakenly states that the provision applies to improvements that are 
irrevocably disposed of or abandoned by the lessee (rather than the 
lessor) at the termination of the lease.
        \104\ Under present law, section 280B denies a deduction for 
any loss sustained on the demolition of any structure.
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      The provision provides that 15-year property for purposes 
of the depreciation rules of section 168 includes qualified 
leasehold improvement property. The straight line method is 
required to be used with respect to qualified leasehold 
improvement property.
      Qualified leasehold improvement property is any 
improvement to an interior portion of a building that is 
nonresidential real property, provided certain requirements are 
met. The improvement must be made under or pursuant to a lease 
either by the lessee (or sublessee) of that portion of the 
building, or by the lessor of that portion of the building. 
That portion of the building is to be occupied exclusively by 
the lessee (or any sublessee). The original use of the 
qualified leasehold improvement property must begin with the 
lessee, and must begin after December 31, 2002.\105\ The 
improvement must be placed in service more than three years 
after the date the building was first placed in service.
---------------------------------------------------------------------------
        \105\ The Finance Committee report describing the provision 
erroneously states that this date is December 31, 2000.
---------------------------------------------------------------------------
      Qualified leasehold improvement property does not include 
any improvement for which the expenditure is attributable to 
the enlargement of the building, any elevator or escalator, any 
structural component benefitting a common area, or the internal 
structural framework of the building.
      No special rule is specified for the class life of 
qualified leasehold improvement property. Therefore, the 
general rule that the class life for nonresidential real and 
residential rental property is 40 years applies.
      For purposes of the provision, a commitment to enter into 
a lease is treated as a lease, and the parties to the 
commitment are treated as lessor and lessee, provided the lease 
is in effect at the time the qualified leasehold improvement 
property is placed in service. A lease between related persons 
is not considered a lease for this purpose.
      Effective date.--The provision is effective for qualified 
leasehold improvement property placed in service after December 
31, 2002.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision. However, the conferees expect that the 
depreciation study (pursuant to section 2022 of the Tax and 
Trade Relief Extension Act of 1998) will include an examination 
of the depreciation issues raised in the House bill and the 
Senate amendment, including leasehold improvements and section 
1250 property used in connection with a franchise.

                     XII. PENSION REFORM PROVISIONS


                         A. Expanding Coverage


1. Increase in benefit and contribution limits (sec. 1201 of the House 
        bill, sec. 312 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 1999). 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 cost-of-living adjustments 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) $130,000 (for 1999). 
The dollar limit is adjusted for cost-of-living increases 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.\106\
---------------------------------------------------------------------------
        \106\ An overall limit applies if a participant participates in 
a defined contribution plan and a defined benefit plan maintained by 
the same employer (sec. 415(e)). This limit is repealed for years 
beginning after December 31, 1999.
---------------------------------------------------------------------------

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 $160,000 (for 1999). The compensation limit is 
indexed for cost-of-living adjustments 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 $10,000 (for 1999). 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 1999) or (2) 33\1/3\ percent of compensation. The 
$8,000 dollar limit is increased 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 in $1,000 increments.\107\
---------------------------------------------------------------------------
        \107\ 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 $130,000 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 in $5,000 increments.

Elective deferral limitations

      Beginning in 2001, the House bill increases the dollar 
limit on annual elective deferrals under section 401(k) plans, 
section 403(b) annuities and salary reduction SEPs in $1,000 
annual increments until the limits reach $15,000 in 2005. 
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 
$15,000 and $10,000 dollar limits are indexed in $500 
increments, as under present law.

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 until the limit reaches 
$15,000 in 2005. The limit is indexed thereafter in $500 
increments. The limit is twice the otherwise applicable dollar 
limit in the three years prior to retirement.\108\
---------------------------------------------------------------------------
        \108\ Another provision of the 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, with a delayed effective date for plans 
maintained pursuant to a collective bargaining agreement.

                            Senate Amendment

      Beginning in 2001, the Senate amendment increases the 
dollar limit on annual elective deferrals under section 401(k) 
plans, section 403(b) annuities and salary reduction SEPs in 
$1,000 annual increments until the limits reach $15,000 in 
2005. Beginning in 2001, the Senate amendment 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 $15,000 and $10,000 dollar limits are 
indexed in $500 increments, as under present law.
      The Senate amendment increases the dollar limit on 
deferrals under a section 457 plan to $9,000 in 2001, $10,000 
in 2002, $11,000 in 2003, and $12,000 in 2004. The limit is 
indexed thereafter in $500 increments. The limit is twice the 
otherwise applicable dollar limit in the three years prior to 
retirement.\109\
---------------------------------------------------------------------------
        \109\ Another provision of the Senate amendment increases the 
33-1/3 percentage of compensation limit to 100 percent.
---------------------------------------------------------------------------
      Effective date.--The Senate amendment is effective for 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the House bill.
      Effective date.--The conference agreement is effective 
for years beginning after December 31, 2000.

2. Plan loans for subchapter S shareholders, partners, and sole 
        proprietors (sec. 1202 of the House bill, sec. 313 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.\110\ 
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 Department 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.
---------------------------------------------------------------------------
        \110\ 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.
---------------------------------------------------------------------------
      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 a Subchapter 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 
theamount 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. 
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. \111\
---------------------------------------------------------------------------
        \111\ The Senate amendment also amends the corresponding 
provisions of ERISA.
---------------------------------------------------------------------------

                          Conference Agreement

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

3. Modification of top-heavy rules (sec. 1203 of the House bill, sec. 
        319 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 employers 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 
that ends on the determination date 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 ($65,000 
for 1999), (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 1999) 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). \112\
---------------------------------------------------------------------------
        \112\ Tres. Reg. sec. 1.416-1 Q&A M-19.
---------------------------------------------------------------------------

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 House bill 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. \113\
---------------------------------------------------------------------------
        \113\ 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 House 
bill provides that distributions during the year ending on the 
date the top-heavy determination is being made are taken into 
account. The present-law 5-year rule applies with respect to 
in-service distributions. Similarly, the House bill 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 House bill (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 House bill 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 current plan year.

Minimum benefit for non-key employees

      Under the House bill, matching contributions are taken 
into account in determining whether the minimum benefit 
requirement has been satisfied. \114\
---------------------------------------------------------------------------
        \114\ 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 House bill 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 House bill is effective for years beginning after 
December 31, 2000.

                            Senate Amendment


Definition of top-heavy plan

      The Senate amendment 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. \115\
---------------------------------------------------------------------------
        \115\ 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.
---------------------------------------------------------------------------

Definition of key employee

      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.

Minimum benefit for non-key employees

      Under the provision, matching contributions are taken 
into account in determiningwhether the minimum benefit 
requirement has been satisfied.\116\
---------------------------------------------------------------------------
        \116\ Thus, this provision overrides the provision in Treasury 
regulations that, if matching contributions are used to satisfy the 
minium benefit requirement, then they are not treated as matching 
contributions for purposes of the section 401(m) nondiscrimination 
rules.
---------------------------------------------------------------------------

                             Effective date

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

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment. As under the Senate amendment, 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.

4. Elective deferrals not taken into account for purposes of deduction 
        limits (sec. 1204 of the House bill, sec. 314 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.

5. Repeal of coordination requirements for deferred compensation plans 
        of State and local governments and tax-exempt organizations 
        (sec. 1205 of the House bill 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 1999) or (2) 33\1/3\ percent of compensation. 
The $8,000 limit is increased 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.\117\
---------------------------------------------------------------------------
        \117\ 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

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

6. Eliminate IRS user fees for certain requests regarding employer 
        plans (sec. 1206 of the House bill, sec. 317 of the Senate 
        amendment, and sec. 7527 of the Code)

                              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 from the IRS a 
determination letter on the qualified status of the plan, the 
employer must pay a user fee. The user fee may range from $125 
to $1,250, depending upon the scope of the request and the type 
and format of the plan.\118\
---------------------------------------------------------------------------
        \118\ User fees are statutorily authorized; however, the IRS 
sets the dollar amount of the fee applicable to any particular type of 
request.
---------------------------------------------------------------------------

                               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. 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

      The Senate amendment provides that no user fee may be 
required with respect to a request for a ruling, opinion 
letter, determination letter, or similar request regarding the 
qualified status of a new pension plan. A new pension plan 
would be a plan of an employer which has not maintained a 
qualified plan in the three most recent years ending before the 
year in which the request is made.

                          Conference Agreement

      The conference agreement follows the House bill, with the 
modification that the user fee is eliminated only for 
determination letter requests made during the first 5 plan 
years of the plan.

7. Definition of compensation for purposes of deduction limits (sec. 
        1207 of the House bill 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 aqualified cash or deferred 
arrangement (``section 401(k) plan'') are treated as employer 
contributions and, thus, are subject to the generally applicable 
deduction limits.\119\
---------------------------------------------------------------------------
        \119\ 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.\120\
---------------------------------------------------------------------------
        \120\ A technical correction in the House bill expands the 
salary reduction amounts treated as compensation under section 415 to 
include amounts used to purchase qualified transportation benefits 
(under sec. 132(f)).
---------------------------------------------------------------------------
      Effective date.--The House bill provision is effective 
for years beginning after December 31, 2000.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

8. Option to treat elective deferrals as after-tax contributions (sec. 
        1208 of the House bill, sec. 311 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)) and distribution restrictions. 
In addition, elective deferrals under a section 401(k) plan are 
subject to special nondiscrimination rules. Elective deferrals 
(and earnings attributable thereto) are not includible in a 
participant's gross income until distributed from the plan.
      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).\121\
---------------------------------------------------------------------------
        \121\ 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 thedeath of the 
participant, or (3) attributable to the participant's being 
disabled.\122\ 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.
---------------------------------------------------------------------------
        \122\ 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.

                          Conference Agreement

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

9. Increase minimum benefit under defined benefit plans (sec. 1209 of 
        the House bill and sec. 415 of the Code)

                              Present Law

      Under a defined benefit plan, the maximum annual benefit 
payable at retirement is generally the lesser of (1) 100 
percent of the participant's compensation, or (2) $130,000 (for 
1999).\123\ Payment of a minimum annual benefit is permitted 
even if the benefit exceeds the normally applicable benefit 
limitations. Thus, the limits on benefits are deemed to be 
satisfied if the aggregate annual retirement benefit of a 
participant under all defined benefit pension plans of the 
employer does not exceed $10,000 and the participant has not 
participated in a defined contribution plan of the employer. 
The $10,000 limit is reduced for participants with less than 10 
years of service with the employer.
---------------------------------------------------------------------------
        \123\ Another provision of the House bill increases the dollar 
limit on the annual benefit payable under a defined benefit plan.
---------------------------------------------------------------------------

                               House Bill

      Under the House bill, beginning in 2001, the minimum 
annual benefit permitted under a defined benefit plan is 
increased in $10,000 annual increments until the minimum 
benefit amount reaches $40,000 in 2003. The $40,000 amount is 
not indexed. In addition, a participant is entitled to the 
minimum benefit even if the participant had participated in a 
defined contribution plan of the employer.
      Effective date.--The House bill is effective for years 
beginning after December 31, 2000.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the House bill 
provision.

10. Reduced PBGC premiums for small and new plans (secs. 315-316 of the 
        Senate amendment and 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 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. 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.

                               House Bill

      No provision.

                            Senate Amendment


Reduced flat-rate premiums for new plans of small employers

      Under the Senate amendment, 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.

Reduced variable PBGC premium for new plans

      The Senate amendment provides that the variable 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 premium is a percentage of the variable premium 
otherwise due, as follows: 0 percent of the otherwise 
applicable variable 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 under the flat-
rate premium provision relating to new small employer plans.

Effective date

      The Senate amendment provisions are effective for plans 
established after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with a modification. In the case of any plan (not just a new 
plan) of an employer with 25 or fewer employees, the variable-
rate premium is no more than $5 multiplied by the number of 
plan participants in the plan at the close of the preceding 
year.
      Effective date.--The provision is generally effective for 
plans established after December 31, 2000. The provision 
regarding plans of employers with 25 or fewer employees is 
effective for plan years beginning after December 31, 2000.

11. SAFE annuities and trusts (sec. 318 of the Senate amendment and new 
        sec. 408B of the Code)

                              Present Law

      A small business may establish a simplified defined 
contribution retirement plan called a savings incentive match 
plan for employees (``SIMPLE'') retirement plan. An employer is 
eligible to adopt a SIMPLE plan if the employer employs 100 or 
fewer employees who received at least $5,000 in compensation 
during the preceding year and does not maintain another 
retirement plan.
      A SIMPLE plan may be either an individual retirement 
arrangement for each employee (``SIMPLE IRA'') or part of a 
qualified cash or deferred arrangement (a ``SIMPLE 401(k)''). A 
SIMPLE IRA is not subject to the nondiscrimination rules or 
top-heavy rules generally applicable to qualified plans. 
Similarly, a SIMPLE 401(k) is deemed to satisfy the special 
nondiscrimination tests applicable to 401(k) plans and is not 
subject to the top-heavy rules. The other qualified plan rules 
apply to a SIMPLE 401(k), however.
      SIMPLE plans are subject to special contribution rules. 
Employees may elect during the 60-day period preceding a plan 
year to make elective contributions under a SIMPLE plan of up 
to $6,000 during the plan year. The $6,000 dollar limit is 
adjusted for cost-of-living increases in $500 increments.
      An employer that maintains a SIMPLE plan generally is 
required to match each employee's elective contributions on a 
dollar-for-dollar basis up to 3 percent of the employee's 
compensation. As an alternative to a matching contribution for 
any year, an employer may make a nonelective contribution on 
behalf of each eligible employee equal to 2 percent of the 
employee's compensation.
      Under a SIMPLE IRA, the compensation limit does not apply 
for purposes of the required employer matching contribution. If 
the employer satisfies the contribution requirement by making a 
nonelective contribution, however, the amount of compensation 
taken into account for each participant to determine the amount 
of the required employer contribution may not exceed the 
compensation limit.
      Under a SIMPLE 401(k), the compensation limit applies for 
purposes of the matching contribution as well as the 
nonelective contribution.
      No contributions other than employee elective 
contributions and required employer contributions may be made 
to a SIMPLE plan. All contributions under a SIMPLE plan must be 
fully vested.
      Present law does not provide for a simplified defined 
benefit plan similar to the SIMPLE plan.

                               House Bill

      No provision.

                            Senate Amendment

      Under the Senate amendment, a small business may 
establish a simplified retirement plan called the secure assets 
for employees (``SAFE'') plan. The SAFE plan combines the 
features of a defined benefit plan and a defined contribution 
plan.

Employer and employee eligibility and vesting

      An employer is eligible to adopt a SAFE plan if the 
employer employs 100 or fewer employees who received at least 
$5,000 in compensation during the preceding year and does not 
maintain another retirement plan other than a plan that 
provides only for elective deferrals or matching contributions, 
an eligible deferred compensation plan of a tax-exempt 
organization or a State or local government (``section 457 
plan''), or a collectively bargained plan.
      Each employee whose compensation was at least $5,000 in 
any 2 preceding consecutive years and in the current year 
generally is eligible to participate. All benefits under a SAFE 
plan are fully vested at all times.

Benefits and funding

      A SAFE plan provides a fully funded minimum defined 
benefit. For each year of participation, a participant 
generally accrues a minimum annual benefit at retirement equal 
to 3 percent of the participant's compensation for the year. 
The employer may elect to provide a benefit of 2 percent, 1 
percent, or 0 percent of compensation for any year for all 
participants if the employer notifies the participants of such 
lower percentage within a reasonable period before the 
beginning of the year. Benefits under a SAFE plan are subject 
to the annual limitation on compensation that may be taken into 
account under a qualified plan ($160,000 in 1999).
      An employer may count up to 10 years of service performed 
by a participant before the adoption of a SAFE plan (``prior 
service year'') if the same number of prior service years is 
available to all employees eligible to participate in the SAFE 
plan for the first plan year. Prior service years is taken into 
account by doubling the amount of the contribution the employer 
would otherwise make for each participant with prior service 
years, beginning with the first year the SAFE plan is in 
effect. A participant's prior service years do not include any 
years in which a participant was an active participant in any 
defined benefit plan maintained by the employer or received 
less than $5,000 in compensation from the employer.
      Each year the employer is required to contribute to the 
SAFE plan on behalf of each participant an amount sufficient to 
provide the annual benefit accrued for the year payable at age 
65, using specified actuarial assumptions (including an 
interest rate not less than 3 percent and not greater than 5 
percent per year). A SAFE plan may be funded either through an 
individual retirement annuity for each employee (``SAFE 
Annuity'') or through a trust (a ``SAFE Trust'').
      Under a SAFE Trust, each participant has an account to 
which actual investment returns are credited. If a 
participant's account balance is less than the total of past 
employer contributions credited with a specified interest rate 
(not less than 3 percent and not greater than 5 percent per 
year), the employer is required to make up the shortfall. If 
the investment returns in a participant's account exceed the 
specified interest rate, the participant is entitled to the 
larger account balance. Permissible investments of a SAFE Trust 
are securities that are readily tradable on an established 
securities market and insurance company products that are 
regulated by State law.
      Under a SAFE Annuity, each year the employer is required 
to contribute the amount necessary to purchase an annuity that 
provides the benefit accrual for the year.
      The required contributions to a SAFE plan are deductible 
under the rules applicable to qualified defined benefit plans. 
An excise tax applies if the employer fails to make the 
required contribution for the year.
      Benefits under a SAFE plan are not guaranteed by the 
Pension Benefit Guaranty Corporation.

Distributions

      A SAFE plan may provide for distributions at any time. 
Distributions from a SAFE plan are subject to tax under the 
present-law rules applicable to distributions from qualified 
plans, except that a distribution prior to the participant's 
attainment of age 59\1/2\ generally are subject to an 
additional tax equal to 20 percent of the amount distributed.
      A SAFE plan must provide for payment of benefits in the 
form of a single life annuity payable at age 65 or any 
actuarially equivalent form of benefit. A SAFE plan is not 
subject to the joint and survivor annuity requirements 
applicable to other defined benefit pension plans.

Nondiscrimination requirements and other rules

      A SAFE plan is not subject to the nondiscrimination 
rules, the top-heavy plan rules, or the limitations on benefits 
or contributions applicable to qualified retirement plans. A 
SAFE plan is subject to the qualified plan requirement that a 
participant's benefit accrual may not cease merely because the 
participant has attained a specified age (sec. 411(b)(1)(H)). 
Simplified reporting and disclosure requirements apply to SAFE 
plans.

Effective date

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

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

                    B. Enhancing Fairness for Women


1. Additional catch-up contributions (sec. 1221 of the House bill, sec. 
        321 of the Senate amendment, and secs. 219, 402(g), 408(p), and 
        457 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 $10,000 (for 1999). 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 1999) or (2) 33\1/3\ percent of compensation. The 
$8,000 dollar limit is increased 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.

IRAs

      Under present law, the maximum annual contribution that 
can be made to all an individuals IRAs is the lesser of $2,000 
or the individual's compensation for the year. Special rules 
apply in the case of a married couple to allow up to the 
maximum contribution for each spouse, provided that the 
combined compensation of the spouses is at least equal to the 
total IRA contributions.

                               House Bill

      The House bill 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 
457plan are increased for individuals who have attained age 50 
by the end of the year.\124\ The otherwise applicable dollar limit is 
increased by $1,000 in each year beginning in 2001 until the amount of 
the increase is $5,000 in 2005. Thereafter, the $5,000 limit is indexed 
for inflation in $500 increments. In the case of section 457 plans, 
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).
---------------------------------------------------------------------------
        \124\ Another provision in the House bill increases the dollar 
limit on elective deferrals under such arrangements.
---------------------------------------------------------------------------
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment provides that individuals who have 
attained age 50 may make additional catch-up elective 
contributions to employer-sponsored retirement plans and 
additional catch-up IRA contributions.
      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 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. Under the provision, the additional 
amount of elective contributions that may 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.\125\ The 
applicable percent is 10 percent in 2001, and increases by 10 
percentage points until the applicable percent is 50 in 2005 
and thereafter.
---------------------------------------------------------------------------
        \125\ In the case of a section 457 plans, 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. In addition, 
such contributions are not subject to applicable 
nondiscrimination rules.\126\
---------------------------------------------------------------------------
        \126\ Another provision in the Senate amendment provides that 
elective contributions are deductible without regard to the otherwise 
applicable deduction limits.
---------------------------------------------------------------------------
      An employer may make matching contributions with respect 
to catch-up contributions. Any such matching contributions are 
subject to the normally applicable rules.\127\
---------------------------------------------------------------------------
        \127\ The Senate amendment contains a similar catch-up rule for 
IRAs, described earlier.
---------------------------------------------------------------------------
      Effective date.--The Senate amendment is effective for 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

2. Equitable treatment for contributions of employees to defined 
        contribution plans (sec. 1222 of the House bill, sec. 322 of 
        the Senate amendment, and secs. 403(b), 415, and 457 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 1999) 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 beginning 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.
      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 1999) 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 House bill increases the 25 percent of compensation 
limitation on annual additions under a defined contribution 
plan to 100 percent.\128\
---------------------------------------------------------------------------
        \128\ Another provision of the House bill increases the defined 
contribution plan dollar limit.
---------------------------------------------------------------------------

Conforming limits on tax-sheltered annuities

      The House 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.

Section 457 plans

      The House 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 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, with a modification. The conference agreement 
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.
      Effective date.--The provisions are generally 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.

3. Faster vesting of employer matching contributions (sec. 1223 of the 
        bill, sec. 325 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.\129\
---------------------------------------------------------------------------
        \129\ The minimum vesting requirements are also contained in 
title I of the Employee Retirement Income Security Act of 1974, as 
amended (``ERISA'').
---------------------------------------------------------------------------

                               House Bill

      Under the House bill, employer matching contributions 
have to 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 matchingcontributions 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 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 is taken into account.

                            Senate Amendment

      The Senate amendment is the same as the House bill.\130\
---------------------------------------------------------------------------
        \130\ The Senate amendment makes corresponding changes to title 
I of ERISA.
---------------------------------------------------------------------------

                          Conference Agreement

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

4. Simplify and update the minimum distribution rules (secs. 1224 and 
        1239 of the House bill and secs. 401(a)(9) 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.\131\ 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.
---------------------------------------------------------------------------
        \131\ 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 period 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 lifeexpectancy 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\.

Special rules for section 457 plans

      Eligible deferred compensation plans of State and local 
and tax-exempt employers (``section 457 plans'') are subject to 
the minimum distribution rules described above. Such plans are 
also subject to additional minimum distribution requirements 
(sec. 457(d)(2)(b)).

                               House Bill


Modification of post-death distribution rules

      The House bill 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 must 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 surviving spouse attains age 70\1/2\. Minimum distributions 
that have already begun may be recalculated under the new rule.

Reduction in excise tax

      The House 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 Treasury is directed to update, simplify and finalize 
the regulations relating to the minimum distribution rules. The 
Treasury is directed to reflect in the 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 effective for 
years beginning after December 31, 2000.

Section 457 plans

      The House bill repeals the special minimum distribution 
rules applicable to section 457 plans. Thus, such plans are 
subject to the same minimum distribution rules applicable to 
other types of tax-favored arrangements.

                             Effective date

      In general, the provision is effective for years 
beginning after December 31, 2000.

Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

5. Clarification of tax treatment of division of section 457 plan 
        benefits upon divorce (sec. 1225 of the House bill, sec. 323 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 House 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.

                          Conference Agreement

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

6. Modification of safe harbor relief for hardship withdrawals from 
        401(k) plans (sec. 324 of the Senate amendment)

                              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 \132\ 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.
---------------------------------------------------------------------------
        \132\ 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.

                               House Bill

      No provision.

                            Senate Amendment

      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.
      Effective date.--The Senate amendment provision is 
effective for years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

               C. Increasing Portability for Participants


1. Rollovers of retirement plan and IRA distributions (secs. 1231-1233 
        and 1239 of the House bill, secs. 331-333 and 339 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'') \133\ or another qualified plan.\134\ 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.
---------------------------------------------------------------------------
        \133\ A ``traditional'' IRA refers to IRAs other than Roth IRAs 
or SIMPLE IRAs. All references to IRAs refers only to traditional IRAs.
        \134\ 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.

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 beforemaking 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 Treasury Department has 
provided more specific guidance regarding timing and 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 House 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.\135\ 
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. 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.
---------------------------------------------------------------------------
        \135\ Hardship distributions from governmental section 457 
plans would be considered eligible rollover distributions.
---------------------------------------------------------------------------
      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 
has to 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.
      The provision also provides that benefits in governmental 
section 457 plans are includible in income when paid.

Rollover of after-tax contributions

      The provision 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 may not accept rollovers of after-tax 
contributions unless 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 provision provides that surviving spouses may roll 
over distributions to a qualified plan, section 403(b) annuity, 
or governmental section 457 plan in which the 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 anticipated 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 provision is effective for 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.

2. Waiver of 60-day rule (sec. 1234 of the House bill, sec. 334 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 House 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 House bill 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.

3. Treatment of forms of distribution (sec. 1235 of the House bill, 
        sec. 335 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)).\136\
---------------------------------------------------------------------------
        \136\ A similar provision is contained in Title I of ERISA.
---------------------------------------------------------------------------
      The prohibition against the elimination of an optional 
form of benefit applies to plan mergers, spinoffs, transfers, 
and transactions amending or having the effect of amending a 
plan or plans to transfer plan benefits. For example, if Plan 
A, a profit-sharing plan that provides for distribution of 
benefits in annual installments over ten or twenty years, is 
merged with Plan B, a profit-sharing plan that provides for 
distribution of benefits in annual installments over life 
expectancy at the time of retirement, the merged plan must 
preserve the ten- or twenty-year installment option with 
respect to benefits accrued under Plan A as of the date of the 
merger and the installments over life expectancy with respect 
to benefits accrued under Plan B as of the date of the merger. 
Similarly, for example, if a participant's benefit under a 
defined contribution plan is transferred to another defined 
contribution plan maintained by the same or a different 
employer, the optional forms of benefit available with respect 
to the participant's accrued benefit under the transferor plan 
must be preserved.\137\
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        \137\ Treas. Reg. sec. 1.411(d)-4, Q&A-2(a)(3)(i).
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                               House Bill

      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) if the transferor plan provides for an annuity as 
the normal form of distribution in accordance with the joint 
and survivor annuity 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.
      In addition, 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 greaterportion of the participant's accrued benefit as 
the form of distribution eliminated by the amendment.
      The Secretary is directed to issue, not later than 
December 31, 2001, final regulations under section 411(d)(6) 
implementing the provision.
      Furthermore, the provision authorizes 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 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.
      Effective date.--The provision is effective for years 
beginning after December 31, 2000, except that the direction to 
the Secretary regarding regulations 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, with the modification that the Secretary is 
required 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 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. As under the House bill and the Senate amendment, 
the conferees intend 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.
      The conference agreement clarifies that the Secretary is 
to issue final regulations under section 411(d)(6), including 
regulations required under the provision, no later than 
December 31, 2001.
      Effective date.--The provision is generally effective for 
years beginning after December 31, 2001. The direction to the 
Secretary regarding regulations is effective on the date of 
enactment.

4. Rationalization of restrictions on distributions (sec. 1236 of the 
        House bill, sec. 336 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. \138\
---------------------------------------------------------------------------
        \138\ 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 House 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 fordistribution from a 
section 401(k) plan based upon a corporation's disposition of its 
assets or a subsidiary are repealed; this special rule is no longer 
necessary under the provision.
      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.

5. Purchase of service credit under governmental pension plans (sec. 
        1237 of the House bill, sec. 337 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.

6. Employers may disregard rollovers for purposes of cash-out rules 
        (sec. 1238 of the House bill, sec. 338 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. \139\
---------------------------------------------------------------------------
        \139\ A similar provision is cntained 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. \140\
---------------------------------------------------------------------------
        \140\ Other provisions of the House bill expand the kinds of 
plans to which benefits may be rolled over.
---------------------------------------------------------------------------

                               House Bill

      Under the House bill, 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.\141\
---------------------------------------------------------------------------
        \141\ The Senate amendment also makes changes to the 
corresponding provisions of ERISA.
---------------------------------------------------------------------------

                          Conference Agreement

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

           D. Strengthening Pension Security And Enforcement


1. Phase in repeal of 150 percent of current liability funding limit; 
        deduction for contributions to fund termination liability 
        (secs. 1241-1242 of the House bill, secs. 341 and 347 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)).\142\ 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.\143\ 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.
---------------------------------------------------------------------------
        \142\ The minimum funding requirements, including the full 
funding limit, are also contained in title I of ERISA.
        \143\ 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 House 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.

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.\144\
---------------------------------------------------------------------------
        \144\ The PBGC termination insurance program does not cover 
plans of professional service employers that have fewer than 25 
participants.
---------------------------------------------------------------------------
      The House 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 House bill is effective for plan years beginning 
after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.\145\
---------------------------------------------------------------------------
        \145\ The Senate amendment also amends the corresponding 
provisions of ERISA.
---------------------------------------------------------------------------

                          Conference Agreement

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

2. Excise tax relief for sound pension funding (sec. 1243 of the House 
        bill, sec. 343 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.\146\ 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.
---------------------------------------------------------------------------
        \146\ 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 
provision in the bill gradually increases and then repeals 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 may 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 may not take advantage of the present-law 
exceptions for certain terminating plans and certain 
contributions to defined contribution plans.
      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.

3. Notice of significant reduction in plan benefit accruals (sec. 1244 
        of the House bill, sec. 344 of the Senate amendment, new sec. 
        4980F of the Code, and sec. 204(h) of ERISA)

                              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 \147\ 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.
---------------------------------------------------------------------------
        \147\ 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.

                               House Bill

      The House bill 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 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 House bill, 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.
      The legislative history indicates that it is anticipated 
that the Secretary will issue the necessary regulations within 
90 days of enactment and 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.
      Effective date.--The House bill is effective for plan 
amendments taking effect on or after the date of enactment. The 
period for providing any notice required under the House bill 
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 Senate amendment adds to the Internal Revenue Code a 
requirement that the plan administrator of a defined benefit 
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.\148\ The notice must set forth the plan amendment and 
its effective date and provide sufficient information (as 
defined in Treasury regulations) to allow participants to 
understand how the amendment generally will affect different 
classes of employees. The plan administrator is required to 
provide the notice not less than 30 days before the effective 
date of the plan amendment.
---------------------------------------------------------------------------
        \148\ 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 unles the 
plan administrator complies with a notice requirement similar to the 
notice requirement that the provision adds to the Internal Revenue 
Code.
---------------------------------------------------------------------------
      The plan administrator must provide this generalized 
notice to each participant and alternate payee to whom the 
amendment applies, and to each employee organization 
representing such individuals. The plan administrator is not 
required to provide this notice to any participant who has less 
than 1 year of participation in the plan or who is entitled to 
receive the greater of the participant's accrued benefit under 
the amended plan formula or under the formula as in effect 
immediately prior to the amendment effective date.
      If the amendment provides for a significant change in the 
manner in which accrued benefits are determined under the plan, 
or requires an affected participant or affected alternate payee 
to choose between 2 or more benefit formulas, the plan 
administrator is required to provide an additional notice to 
each affected participant and affected alternate payee within 6 
months after the effective date of the amendment. For purposes 
of the Senate amendment, an affected participant or alternate 
payee generally is a participant or alternate payee to whom the 
significant reduction in the rate of future benefit accrual is 
reasonably expected to apply. A participant who has less than 1 
year of participation in the plan, or who is entitled to 
receive the greater of the participant's accrued benefit under 
the amended plan formula or under the formula as in effect 
immediately prior to the amendment effective date, is not an 
affected participant.
      The legislative history provides that an example of an 
amendment that provides for a significant change in the manner 
in which accrued benefits are determined is an amendment that 
replaces a benefit formula that defines a participant's normal 
retirement benefit as a percentage of the participant's final 
average compensation with a benefit formula that defines a 
participant's normal retirement benefit in terms of a 
hypothetical account credited with annual allocations of 
contributions and interest. The legislative history also 
provides that examples of amendments that do not provide for a 
significant change in the manner in which accrued benefits are 
determined are (1) an amendment that reduces the percentage of 
average compensation that the plan provides as an annual 
benefit commencing at normal retirement age from 60 percent to 
50 percent, and (2) an amendment that modifies the definition 
of compensation used to determine average compensation by 
providing for the exclusion of bonuses and overtime.
      The plan administrator is required to provide in this 
additional notice (1) the individual's accrued benefit (and, if 
the amendment adds the option of an immediate lump sum 
distribution, the present value of the accrued benefit) as of 
the amendment effective date, determined under the terms of the 
plan in effect immediately before the effective date, (2) the 
individual's accrued benefit as of the amendment effective 
date, determined under the terms of the plan in effect on the 
amendment effective date and without regard to any minimum 
accrued benefit that may not be decreased by the amendment 
(sec. 411(d)(6)), and (3) either (a) sufficient information (as 
defined in Treasury regulations) for the individual to compute 
his or her projected accrued benefit or to acquire information 
necessary to compute such projected accrued benefit, or (b) a 
determination of the individual's projected accrued benefit 
with a disclosure of the assumptions (which must be reasonable 
in the aggregate) used by the plan in determining the projected 
accrued benefit. For purposes of this additional notice, an 
individual's accrued benefit and projected accrued benefit are 
computed as if the accrued benefit were in the form of a single 
life annuity at normal retirement age, taking into account any 
early retirement subsidy.
      The legislative history provides that, with respect to 
the description of the individual's accrued benefit as of the 
amendment effective date, an example of determining such 
benefit under the terms of the plan in effect on the amendment 
effective date and without regard to the sec. 411(d)(6) 
protected benefit is a situation in which (1) an amendment 
replaces a benefit formula that defines a participant's normal 
retirement benefit as a percentage of the participant's final 
average compensation with a benefit formula that defines a 
participant's normal retirement benefit in terms of a 
hypothetical account credited with annual allocations of 
contributions and interest, (2) the amendment adds the option 
of an immediate lump sum distribution, (3) the present value of 
a participant's sec. 411(d)(6) protected benefit is $50,000, 
and (4) the beginning balance of the participant's hypothetical 
account balance under the terms of the plan in effect on the 
amendment effective date is $25,000. In this example, the 
required notice would inform theparticipant that, as of the 
amendment effective date, the individual's accrued benefit determined 
under the terms of the plan in effect immediately before the effective 
date is $50,000, and the individual's accrued benefit determined under 
the terms of the plan in effect on the amendment effective date is 
$25,000.
      With respect to a plan amendment that requires an 
affected participant or affected alternate payee to choose 
between 2 or more benefit formulas, the Secretary of the 
Treasury, after consultation with the Secretary of Labor, is 
authorized to require additional information to be provided in 
the notices and to require either of the notices to be provided 
at a different time. The legislative history states that this 
authorization is not intended to result in a modification of 
the present-law fiduciary requirements under Title I of ERISA.
      Under the Senate 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 Senate amendment generally 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. The legislative history provides that an example of 
facts and circumstances under which reasonable cause may exist 
for a failure to comply with the notice requirement is a plan 
administrator's inability to provide the required generalized 
notice concerning a plan amendment if the amendment results 
from a business merger or acquisition transaction and the 
timing of the transaction prevents the plan administrator from 
providing the notice at least 30 days prior to the effective 
date of the amendment.
      Effective date.--The Senate amendment 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. Pending the issuance 
of regulations, the legislative history provides that examples 
of good faith compliance in which the Senate amendment would 
not require additional employee communications include: (1) A 
plan amendment provides that participants may choose to have 
their accrued benefits determined under the amended plan 
formula or under the formula as in effect immediately prior to 
the amendment effective date, and the plan administrator 
provides participants with comparison information, including 
clearly stated assumptions, relative to the amended and prior 
formulas so that participants are able to make an informed 
decision; (2) A plan administrator provides to participants 
estimates of accrued benefits at various career stages, 
determined under the amended plan formula and under the formula 
as in effect immediately prior to the amendment effective date, 
including clearly stated assumptions, and stated as annuities 
and/or lump sums (without regard to section 417) as appropriate 
under the plan provisions; (3) An employer informs certain 
employees before they are hired that the employer's current 
plan benefit formula will be amended at a specified future 
date, and these employees participate in the plan under the 
formula as in effect immediately prior to the amendment until 
such specified future date (good faith compliance would be 
relevant for these employees only).

                          Conference Agreement

      The conference agreement follows the House bill, with 
modifications. Under the conference agreement, 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 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 unless the plan administrator 
complies with a notice requirement similar to the notice 
requirement that the provision adds to the Internal Revenue 
Code.
      The conferees intend that in issuing regulations under 
the provision, the Treasury Department generally will follow 
the approach under the Senate amendment. Thus, the conferees 
intend that Treasury regulations will provide for a notice that 
describes how the amendment generally will affect different 
classes of employees and that the regulations will require the 
plan administrator to furnish this notice not less than 30 days 
before the effective date of the amendment. With respect to an 
amendment that provides for a significant change in the manner 
in which accrued benefits are determined under the plan, or 
requires an affected participant or affected alternate payee to 
choose between 2 or more benefit formulas, the conferees intend 
that the regulations will require the plan administrator to 
provide an additional notice to each affected participant and 
affected alternate payee within 6 months after the effective 
date of the amendment.
      An example of an amendment that provides for a 
significant change in the manner in which accrued benefits are 
determined is an amendment that replaces a benefit formula that 
defines a participant's normal retirement benefit as a 
percentage of the participant's final average compensation with 
a benefit formula that defines a participant's normal 
retirement benefit in terms of a hypothetical account credited 
with annual allocations of contributions and interest. Examples 
of amendments that do not provide for a significant change in 
the manner in which accrued benefits are determined are (1) an 
amendment that reduces the percentage of average compensation 
that the plan provides as an annual benefit commencing at 
normal retirement age from 60 percent to 50 percent, and (2) an 
amendment that modifies the definition of compensation used to 
determine average compensation by providing for the exclusion 
of bonuses and overtime.
      The conferees intend that the regulations will require 
the plan administrator to provide in this additional notice (1) 
the individual's accrued benefit (and, if the amendment adds 
the option of an immediate lump sum distribution, the present 
value of the accrued benefit) as of the amendment effective 
date, determined under the terms of the plan in effect 
immediately before the effective date, (2) the individual's 
accrued benefit as of the amendment effective date, determined 
under the terms of the plan in effect on the amendment 
effective date and without regard to any minimum accrued 
benefit that may not be decreased by the amendment (sec. 
411(d)(6)), and (3) either (a) sufficient information for the 
individual to compute his or her projected accrued benefit or 
to acquire information necessary to compute such projected 
accrued benefit, or (b) a determination of the individual's 
projected accrued benefit with a disclosure of the assumptions 
(which must be reasonable in the aggregate) used by the plan in 
determining the projected accrued benefit. The conferees intend 
that the regulations will provide that, for purposes of this 
additional notice, an individual's accrued benefit and 
projected accrued benefit are computed as if the accrued 
benefit were in the form of a single life annuity at normal 
retirement age, taking into account any early retirement 
subsidy.
      With respect to the description of the individual's 
accrued benefit as of the amendment effective date, an example 
of determining such benefit under the terms of the plan in 
effect on the amendment effective date and without regard to 
the sec. 411(d)(6) protected benefit is a situation in which 
(1) an amendment replaces a benefit formula that defines a 
participant's normal retirement benefit as a percentage of the 
participant's final average compensation with a benefit formula 
that defines a participant's normal retirement benefit in terms 
of a hypothetical account credited with annual allocations of 
contributions and interest, (2) the amendment adds the option 
of an immediate lump sum distribution, (3) the present value of 
a participant's sec. 411(d)(6) protected benefit is $50,000, 
and (4) the beginning balance of the participant's hypothetical 
account balance under the terms of the plan in effect on the 
amendment effective date is $25,000. In this example, the 
conferees intend that the regulations would provide that the 
required notice would inform the participant that, as of the 
amendment effective date, the individual's accrued benefit 
determined under the terms of the plan in effect immediately 
before the effective date is $50,000, and the individual's 
accrued benefit determined under the terms of the plan in 
effect on the amendment effective date is $25,000.
      With respect to a plan amendment that requires an 
affected participant or affected alternate payee to choose 
between 2 or more benefit formulas, the conferees intend that 
the Secretary of the Treasury, after consultation with the 
Secretary of Labor, may require additional information to be 
provided in the notices and to require either of the notices to 
be provided at a different time. The conferees do not intend 
this authorization to result in a modification of the present-
law fiduciary requirements under Title I of ERISA.
      An example of facts and circumstances under which 
reasonable cause may exist for a failure to comply with the 
notice requirement is a plan administrator's inability to 
provide the required generalized notice concerning a plan 
amendment if the amendment results from a business merger or 
acquisition transaction and the timing of the transaction 
prevents the plan administrator from providing the notice at 
least 30 days prior to the effective date of the amendment.
      Effective date.--The conference agreement follows the 
House bill and the Senate amendment. As under the Senate 
amendment, pending the issuance of regulations, examples of 
good faith compliance in which the provision would not require 
additional employee communications include: (1) A plan 
amendment provides that participants may choose to have their 
accrued benefits determined under the amended plan formula or 
under the formula as in effect immediately prior to the 
amendment effective date, and the plan administrator provides 
participants with comparison information, including clearly 
stated assumptions, relative to the amended and prior formulas 
so that participants are able to make an informed decision; (2) 
A plan administrator provides to participants estimates of 
accrued benefits at various career stages, determined under the 
amended plan formula and under the formula as in effect 
immediately prior to the amendment effective date, including 
clearly stated assumptions, and stated as annuities and/or lump 
sums (without regard to section 417) as appropriate under the 
plan provisions; (3) An employer informs certain employees 
before they are hired that the employer's current plan benefit 
formula will be amended at a specified future date, and these 
employees participate in the plan under the formula as in 
effect immediately prior to the amendment until such specified 
future date (good faith compliance would be relevant for these 
employees only).

4. Extension of PBGC missing participants program (sec. 342 of the 
        Senate amendment, and secs. 206(f) and 4050 of ERISA)

                              Present Law

      The plan administrator of a defined benefit pension plan 
that is subject to Title IV of ERISA, is maintained by a single 
employer, 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

      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.
      Effective date.--The Senate amendment is effective for 
distributions from terminating plans that occur after the PBGC 
adopts final regulations implementing the Senate amendment.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with modifications. In addition to the extension of the missing 
participant program to multiemployer plans, to the extent 
provided in PBGC regulations, plan administrators of certain 
types of plans that are not covered by the PBGC missing 
participant 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 do not have more 
than 25 active participants and are maintained by professional 
service employers, and the portions of defined benefit plans 
that provide benefits based upon the separate accounts of 
participants and therefore are treated as defined contribution 
plans under ERISA.
      Effective date.--The conference agreement is effective 
with respect to distributions made after the PBGC adopts final 
regulations implementing the provision.

5. Investment of employee contributions in 401(k) plans (sec. 345 of 
        the Senate amendment)

                              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 Senate amendment 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 an interest in the income or gain from employer 
securities or employer real property acquired (1) before 
January 1, 1999, or (2) after such date pursuant to a written 
contract which was binding on such date and at all times 
thereafter.
      Effective date.--The Senate amendment 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).

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with a modification to eliminate the exception for employer 
securities or real property acquired pursuant to certain 
binding contracts. Thus, under the conference agreement, the 
rule excluding certain elective deferrals (and earnings 
thereon) from the definition of individual account plan does 
not apply toany elective deferral used to acquire an interest 
in the income or gain from employer securities or employer real 
property acquired before January 1, 1999.
      Effective date.--The conference agreement follows the 
Senate amendment.

6. Periodic pension benefit statements (sec. 351 of the Senate 
        amendment and sec. 105 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 must 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 
beneficiary upon written request, the plan administrator of a 
defined benefit plan generally must either (1) 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) 
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.\149\
---------------------------------------------------------------------------
        \149\ 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 (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 Senate amendment is effective for 
plan years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

                     E. Reducing Regulatory Burdens


1. Repeal of the multiple use test (sec. 1251 of the House bill 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 House bill repeals the Multiple Use test.
      Effective date.--The House bill is effective for years 
beginning after December 31, 2000.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

2. Modification of timing of plan valuations (sec. 1252 of the House 
        bill, sec. 362 of the Senate amendment, and sec. 412 of the 
        Code)

                              Present Law

      Under present law, in the case of plans subject to the 
minimum funding rules, a plan valuation is generally required 
annually. The Secretary may require that a valuation be made 
more frequently in particular cases.
      Prior to the Retirement Protection Act of 1994, plan 
valuations generally were required at least once every three 
years.

                               House Bill

      The House bill allows an employer to elect to use the 
prior year's plan valuation in certain cases. The election may 
be made only with respect to a defined benefit plan with assets 
of at least 125 percent of current liability (determined as of 
the valuation date for the preceding year). If the prior year's 
valuation is used, it must be adjusted, as provided in 
regulations, to reflect significant differences in 
participants. An election made under the House bill may be 
revoked only with the consent of the Secretary. In any event, a 
plan valuation is required once every three years.\150\
---------------------------------------------------------------------------
        \150\ As under present law, the Secretary could require that a 
valuation be made more frequently in particular cases.
---------------------------------------------------------------------------
      Effective date.--The House bill 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.

3. Flexibility in nondiscrimination and line of business rules (sec. 
        1253 of the House bill, sec. 361 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 modify, on 
or before December 31, 2000, the existing regulations issued 
under section 401(a)(4) and 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 nondiscrimination and line of business requirements 
based upon the facts and circumstances surrounding the design 
and operation of the plan, even though the plan is unable to 
satisfy the mechanical tests currently used to determine 
compliance.
      Effective date.--The House bill is effective on the date 
of enactment.

                            Senate Amendment

      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, and is submitted to the Secretary 
for a determination of whether it satisfies such test (to the 
extent provided by the Secretary).
      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.
      Effective date.--The Senate amendment is effective on the 
date of enactment.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
with respect to coverage and nondiscrimination rules and the 
House bill with respect to line of business rules.

4. ESOP dividends may be reinvested without loss of dividend deduction 
        (sec. 1254 of the House bill, sec. 364 of the Senate amendment, 
        and sec. 404(k) 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 
ownershipplan (``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.

                               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.
      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.

                          Conference Agreement

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

5. Notice and consent period regarding distributions (sec. 1255 of the 
        House bill, sec. 365 of the Senate amendment, and sec. 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 and the consent of the participant's 
spouse 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.\151\
---------------------------------------------------------------------------
        \151\ Similar provisions are contained in Title I of ERISA.
---------------------------------------------------------------------------
      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, and (2) in certain cases, the 
right, if any, to defer receipt of the distribution. In 
addition, the plan must provide to the participant notice 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. If the 
joint and survivor annuity requirements apply to the 
participant, the plan must provide to the participant 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 these 3 notices 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.

                               House Bill

      A qualified retirement plan is required to provide the 
applicable distribution notice no less than 30 days and no more 
than 6 months 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 6 
months 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 House bill is effective for years 
beginning after December 31, 2000.

                            Senate Amendment

      A qualified retirement plan is required to provide the 
applicable distribution notice no less than 30 days and no more 
than 12 months 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 12 
months 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 Senate amendment is effective for 
years beginning after December 31, 2000.

                          Conference Agreement

      No provision.

6. Repeal transition rule relating to certain highly compensated 
        employees (sec. 1256 of the House bill, sec. 366 of the Senate 
        amendment, and sec. 414(q) of the Code)

                              Present Law

      Under present law, for purposes of the rules relating to 
qualified plans, a highly compensated employee is generally 
defined as an employee \152\ 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 $80,000 (for 1999) or (b) at the election of the 
employer, had compensation in excess of $80,000 for the 
preceding year and was in the top 20 percent of employees by 
compensation for such year.
---------------------------------------------------------------------------
        \152\ 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 House bill repeals the special definition of highly 
compensated employee under the Tax Reform Act of 1986. Thus, 
the present-law definition applies.
      Effective date.--The House bill is effective for plan 
years beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.
      Effective date.--The Senate amendment is effective for 
plan years beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

7. Employees of tax-exempt entities (sec. 1257 of the House bill, sec. 
        367 of the Senate amendment, and sec. 410 of the Code)

                              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.\153\
---------------------------------------------------------------------------
        \153\ 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 will be effective for years 
beginning after December 31, 1996.
      Effective date.--The House bill 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.

8. Treatment of employer-provided retirement advice (sec. 1258 of the 
        House bill, sec. 352 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 May 
31, 2000.\154\ Education not excludable under section 127 may 
be excludable as a working condition fringe.
---------------------------------------------------------------------------
        \154\ 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 are excludable from income and 
wages. 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 pension plan. The exclusion is not limited to 
information regarding the plan but includes, for example, 
information regarding how the plan relates to retirement income 
planning as a whole.
      Effective date.--The House bill is effective with respect 
to taxable years beginning after December 31, 2000.

                            Senate Amendment

      Under the Senate amendment, 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. 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. The exclusion is intended to 
allow employers to provide 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 is not 
intended to apply to services that may be related to retirement 
planning, such as tax preparation, accounting, legal or 
brokerage services.
      Effective date.--The Senate amendment is effective with 
respect to taxable years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment. As 
under the Senate amendment, the exclusion is intended to allow 
employers to provide 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 is not 
intended to apply to services that may be related to retirement 
planning, such as tax preparation, accounting, legal or 
brokerage services. The conferees also intend that the 
provision is not to be interpreted as narrowing present law.

9. Provisions relating to plan amendments (sec. 1259 of the House bill 
        and sec. 371 of the Senate amendment)

                              Present Law

      Plan amendments to reflect amendments to the law 
generally must be made by the time prescribed by law for filing 
the income tax return of the employer for the employer's 
taxable year in which the change in law occurs.

                               House Bill

      Any amendments to a plan or annuity contract required to 
be made by the House bill are not required to be made before 
the last day of the first plan year beginning on or after 
January 1,2003. In the case of a governmental plan, the date 
for amendments is extended to the last day of the first plan year 
beginning on or after January 1, 2005.
      Effective date.--The House bill 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.

10. Model plans for small businesses (sec. 1260 of the House bill)

                              Present Law

      The Internal Revenue Service (``IRS'') previously has 
established uniform plan \155\ and prototype plan \156\ 
programs that were designed, in part, to simplify the 
preparation of qualified retirement plan documents and the 
determination letter application process. Neither the IRS nor 
the Secretary of the Treasury previously have issued model plan 
documents.
---------------------------------------------------------------------------
        \155\ Rev. Proc. 84-46, 1984-2 C.B. 787.
        \156\ Rev. Proc. 84-23, 1984-1 C.B. 457; Rev. Proc. 89-9, 1989-
1 C.B. 780; Rev. Proc. 89-13, 1989-1 C.B. 801.
---------------------------------------------------------------------------

                               House Bill

      The Secretary of the Treasury is directed to issue, not 
later than December 31, 2000, at least one model defined 
contribution plan document and at least one model defined 
benefit plan document that fit the needs of small businesses 
and that is treated as meeting the requirements of section 
401(a) with respect to the form of the plan. To the extent that 
the requirements of section 401(a) are modified after the 
issuance of the model plans, the Secretary is directed to 
issue, in a timely manner, model amendments that, if adopted in 
a timely manner by an employer that adopts a model plan, will 
cause the model plan to be treated as meeting the requirements 
of section 401(a), as modified, with respect to the form of the 
plan.
      Alternatively, the Secretary is permitted, in its 
discretion, to enhance and simplify the existing prototype plan 
programs in a manner that achieves the purposes of the model 
plans.
      Effective date.--The House bill is effective on the date 
of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the House bill 
provision.

11. Reporting simplification (sec. 1261 of the House bill and sec. 371 
        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. 
\157\ 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 Internal Revenue Service (``IRS''), 
which forwards the form to the Department of Labor and the 
PBGC.
---------------------------------------------------------------------------
        \157\ 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 valueof 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.
      Effective date.--The House bill is effective on the date 
of enactment.

                            Senate Amendment

      The Secretary of the Treasury 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 $500,000, the plan administrator is not 
required to file a return.
      In addition, 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.
      Effective date.--The provision is effective on January 1, 
2001.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with a modification. The Secretary of the Treasury 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.

12. Improvement to Employee Plans Compliance Resolution System (sec. 
        1262 of the House bill)

                              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. \158\ EPCRS permits 
employers to correct compliance failures and continue to 
provide their employees with retirement benefits on a tax-
favored basis.
---------------------------------------------------------------------------
        \158\ 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 House bill is effective on the date 
of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

13. Modifications to section 415 limits for multiemployer and 
        governmental plans (sec. 1263 of the House bill, secs. 346 and 
        348 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) $130,000 (for 1999). 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 increases in the case of retirement after 
the social security retirement age.
      A special rule applies to governmental, tax-exempt 
organization, and qualified merchant marine 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 \159\ or (2) $30,000 (for 1999). In applying the 
limits on contributions and benefits, plans of the same 
employer are aggregated.
---------------------------------------------------------------------------
        \159\ Another provision of the Senate amendment increases this 
limit to 100 percent of compensation.
---------------------------------------------------------------------------

                               House Bill

      The 100 percent of compensation defined benefit plan 
limit does not apply to multiemployer plans.
      Effective date.--The House bill is effective for years 
beginning after December 31, 2000.

                            Senate Amendment


Treatment of multiemployer plans

      The 100 percent of compensation defined benefit plan 
limit does not apply to multiemployer plans. In addition, 
except in applying the defined benefit plan dollar limitation, 
multiemployer plans are not aggregated with other plans 
maintained by an employer contributing to the multiemployer 
plan in applying the limits on contributions and benefits.
      The Senate amendment also applies the special rules for 
defined benefit plans of governmental employers, tax-exempt 
organizations, and qualified merchant marines to multiemployer 
plans.

Increase in early retirement floor for governmental, multiemployer, and 
        other plans

      The floor for reductions of the dollar limit prior to age 
62 for defined benefit plans of governmental employers and tax-
exempt organizations, qualified merchant marine plans and 
multiemployer plans is increased from $75,000 to 80 percent of 
the defined benefit dollar limit.

Effective date

      The Senate amendment is effective for years beginning 
after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the House bill.

14. Rules for substantial owner benefits in terminated plans (sec. 363 
        of the Senate amendment and sec. 4022 of ERISA)

                              Present Law

      Under present law, the Pension Benefit Guaranty 
Corporation (``PBGC'') provides participants and beneficiaries 
in a defined benefit pension plan with certain minimal 
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, directly or 
indirectly, more than 10 percent of the voting stock of a 
corporation or all the stock of a corporation. Special rules 
restricting the amount of benefit guaranteed and the allocation 
of assets also apply to substantial owners.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment provides that the 60 month phase-in 
of guaranteed benefits applies to a substantial owner with less 
than 50 percent ownership interest. For a substantial owner 
with a 50 percent or more ownership interest (``majority 
owner''), the phase-in 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 Senate amendment 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.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

15. Extension to international organizations of moratorium on 
        application of certain nondiscrimination rules applicable to 
        State and local government plans (sec. 368 of the Senate 
        amendment, sec. 1505 of the Taxpayer Relief Act of 1997, and 
        secs. 401(a) and 401(k) of the Code)

                              Present Law

      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)). A governmental plan maintained by an 
international organization that is exempt from taxation by 
reason of the International Organizations Immunities Act is not 
exempt from the nondiscrimination and minimum participation 
rules.

                               House Bill

      No provision.

                            Senate Amendment

      A governmental plan maintained by a tax-exempt 
international organization is exempt from the nondiscrimination 
and minimum participation rules.
      Effective date.--The Senate amendment is effective for 
plan years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

16. Annual report dissemination (sec. 369 of the Senate amendment and 
        sec. 104 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 7 months 
after the end of the plan year. Within 9 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 9 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 Senate amendment is effective for 
reports for years beginning after December 31, 1998.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

17. Clarification of exclusion for employer-provided transit passes 
        (sec. 370 of the Senate amendment and sec. 132 of the Code)

                              Present Law

      Qualified transportation fringe benefits provided by an 
employer are excluded from an employee's gross income and 
wages. Qualified transportation fringe benefits include 
parking, transit passes, and vanpool benefits. Up to $175 per 
month (for 1999) of employer-provided parking is excludable 
from income and up to $65 (for 1999) per month of employer-
provided transit and vanpool benefits are excludable from 
income.
      Qualified transportation benefits generally include a 
cash reimbursement by an employer to an employee. However, in 
the case of transit passes, a cash reimbursement is considered 
a qualified transportation fringe benefit only if a voucher or 
similar item which may be exchanged only for a transit pass is 
not readily available for direct distribution by the employer 
to the employee.
      No amount is includible in the gross income of an 
employee merely because the employee is offered a choice 
between cash and any qualified transportation benefit (or a 
choice among such benefits).

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment repeals the rule providing that cash 
reimbursements for transit benefits are excludable from income 
only if a voucher or similar item which may be exchanged only 
for a transit pass is not readily available for direct 
distribution by the employer.
      Effective date.--The Senate amendment is effective for 
taxable years beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

                     XIII. MISCELLANEOUS PROVISIONS


 A. Expand Employer Reporting on Annual Wage and Tax Statements (sec. 
           1303 of the House bill and sec. 6051 of the Code)


                              Present Law

      An employer must provide certain information annually to 
each employee in the form of a wage and tax statement (``Form 
W-2''). The information required to be included on such form 
includes the individual's name, address, social security number 
and a statement of total wages, tips, and other compensation 
for the year. The form must also include the amount of federal 
income tax withheld as well as the employee's share of social 
security and medicare taxes withheld for the year by the 
employer. There is no requirement that the form include a 
statement of the employer's share of social security and 
medicare taxes paid by the employer with respect to that 
individual.

                               House Bill

      The House bill requires the Form W-2 to include a 
statement of social security and medicare taxes paid by the 
employer on behalf of each employee.
      Effective date.--The House bill provision is effective 
with respect to Form W-2's with respect to remuneration paid 
after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the House bill 
provision. However, the conferees intend that the Internal 
Revenue Service provide the employer's share of social security 
and medicare taxes to each employee, no less frequently than 
annually.

 B. Survivor Benefits of Public Safety Officers Killed in The Line of 
      Duty (sec. 1304 of the House bill and sec. 101 of the Code)


                              Present Law

      The Taxpayer Relief Act of 1997 included a provision 
providing that an amount paid as a survivor annuity on account 
of the death of a public safety officer who is killed in the 
line of duty is excludable from income to the extent the 
survivor annuity is attributable to the officer's service as a 
law enforcement officer. The survivor annuity must be provided 
under a governmental plan to the surviving spouse (or former 
spouse) of the public safety officer or to a child of the 
officer. Public safety officers include law enforcement 
officers, firefighters, rescue squad or ambulance crew. The 
provision does not apply with respect to the death of a public 
safety officer if it is determined by the appropriate 
supervising authority that (1) the death was caused by the 
intentional misconduct of the officer or by the officer's 
intention to bring about the death, (2) the officer was 
voluntarily intoxicated at the time of death, (3) the officer 
was performing his or her duties in a grossly negligent manner 
at the time of death, or (4) the actions of the individual to 
whom payment is to be made were a substantial contributing 
factor to the death of the officer.
      The provision applies to amounts received in taxable 
years beginning after December 31, 1996, with respect to 
individuals dying after that date.

                               House Bill

      The provision extends the present-law treatment of 
survivor annuities with respect to public safety officers 
killed in the line of duty to payments received in taxable 
years beginning after December 31, 1999, with respect to 
individuals dying on or before December 31, 1996.
      Effective date.--The provision is effective on the date 
of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

   C. Income from Publicly Traded Partnerships Treated as Qualifying 
 Income of Regulated Investment Companies (secs. 1311 and 1312 of the 
          House bill and secs. 851(b) and 469(k) of the Code)


                              Present Law

      A regulated investment company (``RIC'') generally is 
treated as a conduit for Federal income tax purposes. In 
computing its taxable income, a RIC deducts dividends paid to 
its shareholders to achieve conduit treatment (sec. 852(b)). In 
order to qualify for conduit treatment, a RIC must be a 
domestic corporation that, at all times during the taxable 
year, is registered under the Investment Company Act of 1940 as 
a management company or as a unit investment trust, or has 
elected to be treated as a business development company under 
that Act (sec. 851(a)). In addition, the corporation must elect 
RIC status, and must satisfy certain other requirements (sec. 
851(b)).
      One of the requirements is that at least 90 percent of 
its gross income is derived from dividends, interest, payments 
with respect to securities loans, and gains from the sale or 
other disposition of stock or securities or foreign currencies, 
or other income (including but not limited to gains from 
options, futures, or forward contracts) derived with respect to 
its business of investing in such stock, securities, or 
currencies. Income derived from a partnership is treated as 
meeting this requirement only to the extent such income is 
attributable to items of income of the partnership that would 
meet the requirement if realized by the RIC in the same manner 
as realized by the partnership (the ``look-through'' rule for 
partnership income). Under present law, no distinction is made 
under this rule between a publicly traded partnership and any 
other partnership.
      Present law provides that a publicly traded partnership 
means a partnership, interests in which are traded on an 
established securities market, or are readily tradable on a 
secondary market (or the substantial equivalent thereof). In 
general, a publicly traded partnership is treated as a 
corporation (sec. 7704(a)), but an exception to corporate 
treatment is provided if 90 percent or more of its gross income 
is interest, dividends, real property rents, or certain other 
types of qualifying income (sec. 7704(c) and (d)).
      A special rule for publicly traded partnerships applies 
under the passive loss rules. The passive loss rules limit 
deductions and credits from passive trade or business 
activities (sec. 469). Deductions attributable to passive 
activities, to the extent they exceed income from passive 
activities, generally may not be deducted against other income. 
Deductions and credits that are suspended under these rules are 
carried forward and treated as deductions and credits from 
passive activities in the next year. The suspended losses from 
a passive activity are allowed in full when a taxpayer disposes 
of his entire interest in the passive activity to an unrelated 
person. The special rule for publicly traded partnerships 
provides that the passive loss rules are applied separately 
with respect to items attributable to each publicly traded 
partnership (sec. 469(k)). Thus, income or loss from the 
publicly traded partnership is treated as separate from income 
or loss from other passive activities.

                               House Bill

      The House bill modifies the 90 percent test with respect 
to income of a RIC to include income derived from an interest 
in a publicly traded partnership. The provision also modifies 
the lookthrough rule for partnership income of a RIC so that it 
applies only to income from a partnership other than a publicly 
traded partnership.
      The provision provides that the special rule for publicly 
traded partnerships under the passive loss rules (requiring 
separate treatment) applies to a RIC holding an interest in a 
publicly traded partnership, with respect to items attributable 
to the interest in the publicly traded partnership.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

D. Equalize the Tax Treatment of Oversized ``Clean Fuel'' Vehicles and 
Electric Vehicles (sec. 1313 of the House bill and sec. 30 and 179A of 
                               the Code)


                              Present Law

      Taxpayers may claim a credit of 10 percent of the cost of 
an electric vehicle up to a maximum credit of $4,000 (sec. 30). 
Taxpayers may claim an immediate deduction (expensing) for up 
to $50,000 of the cost of a qualified clean-fuel vehicle which 
is a truck or van with a gross vehicle weight greater than 13 
tons or a bus with a seating capacity of at least 20 adults 
(sec. 179A). For the purposes of the deduction permitted under 
section 179A, electric trucks, vans, or buses are not qualified 
clean fuel vehicles.

                               House bill

      The House bill provides that an electric truck or van 
with a gross vehicle weight rating greater than 13 tons or an 
electric bus which has seating capacity of at least 20 adults 
is a qualified clean fuel vehicle for which the taxpayer may 
expense up to $50,000 of cost and that such vehicles are not 
eligible for the electric vehicle credit.
      Effective date.--The provision is effective for vehicles 
placed in service after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.
      Effective date.--The provision is effective for vehicles 
placed in service after December 31, 1999.

E. Nuclear Decommissioning Costs (sec. 1314 of the House bill and sec. 
                           468A of the Code)


                              Present Law

      Special rules dealing with nuclear decommissioning 
reserve funds were adopted by Congress in the Deficit Reduction 
Act of 1984 (``1984 Act'') when tax issues regarding the time 
value of money were addressed generally. Under general tax 
accounting rules, a deduction for accrual basis taxpayers 
generally is deferred until there is economic performance for 
the item for which the deduction is claimed. However, the 1984 
Act contains an exception to those rules under which a taxpayer 
responsible for nuclear power plant decommissioning may elect 
to deduct contributions made to a qualified nuclear 
decommissioning fund for future payment costs. Taxpayers who do 
not elect this provision are subject to the general rules in 
the 1984 Act.
      A qualified decommissioning fund is a segregated fund 
established by the taxpayer that is used exclusively for the 
payment of decommissioning costs, taxes on fund income, payment 
of management costs of the fund, and making investments. The 
fund is prohibited from dealing with the taxpayer that 
established the fund. The income of the fund is taxed at a 
reduced rate of 20 percent \160\ for taxable years beginning 
after December 31, 1995.
---------------------------------------------------------------------------
        \160\ As originally enacted in 1984, the fund paid tax on its 
earnings at the top corporate rate. Also, as originally enacted, the 
funds in the trust could be invested only in certain low risk 
investments. Subsequent amendments to the provision have reduced the 
rate of tax on the fund to 20 percent, and removed the restrictions on 
the types of permitted investments that the fund can make.
---------------------------------------------------------------------------
      Contributions to the fund are deductible in the year made 
to the extent that these amounts were collected as part of the 
cost of service to ratepayers. Withdrawal of funds by the 
taxpayer to pay for decommissioning expenses are included in 
income at that time, but the taxpayer also is entitled to a 
deduction at that time for decommissioning expenses as economic 
performance for those costs occurs.
      A taxpayer's contributions to the fund may not exceed the 
amount of nuclear decommissioning costs included in the 
taxpayer's cost of service for ratemaking purposes for the 
taxable year. Additionally, in order to prevent accumulations 
of funds over the remaining life of a nuclear power plant in 
excess of those required to pay future decommissioning costs 
and to ensure that contributions to the funds are not deducted 
more rapidly than level funding, taxpayers must obtain a ruling 
from the IRS to establish the maximum contribution that may be 
made to the fund.
      If the decommissioning fund fails to comply with the 
qualification requirements or when the decommissioning is 
substantially completed, the fund's qualification may be 
terminated, in which case the amounts in the fund must be 
included in income of the taxpayer.
      A qualified decommissioning fund may be transferred in 
connection with the sale, exchange or other transfer of the 
nuclear power plant to which it relates. If the transferee is a 
regulated public utility and meets certain other requirements, 
the transfer will be treated as a nontaxable transaction. No 
gain or loss will be recognized on the transfer of the 
qualified decommissioning fund and the transferee will take the 
transferor's basis in the fund. \161\ The transferee is 
required to obtain a new ruling amount from the IRS, or accept 
a discretionary determination by the IRS. \162\ However, if the 
transferee does not qualify to continue the qualified 
decommissioning fund, the balance in the fund will be treated 
as distributed (and thus taxable) at the time of the transfer.
---------------------------------------------------------------------------
        \161\  Treas. Regs. sec. 1.468A-6.
        \162\  Treas. Regs. sec. 1.468A-6(f).
---------------------------------------------------------------------------
      State and Federal regulators may require utilities to set 
aside funds for nuclear decommissioning purposes in excess of 
the amount allowed as a deductible contribution to a qualified 
decommissioning fund. In addition, the taxpayer may have set 
aside funds prior to the effective date of the qualified 
decommissioning fund rules. In some cases, a deduction may have 
been taken for such amounts at the time they were set aside. 
\163\ These nonqualified funds are not eligible for the special 
rules that apply to qualified decommissioning funds. Since 
1984, no deduction has been allowed with respect to the 
contribution or segregation of nonqualified funds, and the 
income on nonqualified funds is taxed to the taxpayer at the 
taxpayer's marginal rate.
---------------------------------------------------------------------------
        \163\ Prior to July 17, 1984 (the date of enactment of the 
Deficit Reduction Act of 1984), accrual basis taxpayers could deduct 
items without regard to the time the items were economically performed. 
Some taxpayers may have taken the position that amounts for nuclear 
decommissioning were deductible prior to July 17, 1984.
---------------------------------------------------------------------------

                               House Bill

      The cost of service requirement for deductible 
contributions to nuclear decommissioning funds is repealed. 
Taxpayers, including unregulated taxpayers, are allowed a 
deduction for amounts contributed to a qualified nuclear 
decommissioning fund. As under current law, however, the 
maximum contribution and deduction for a taxable year can not 
exceed the IRS ruling amount for that year.
      The provision also clarifies the Federal income tax 
treatment of the transfer of qualified nuclear decommissioning 
funds. No gain or loss is recognized to the transferor or the 
transferee as a result of the transfer of a qualified fund in 
connection with the transfer of the power plant with respect to 
which the fund was established.
      The provision provides an election to transfer the 
balance of certain nonqualified funds to qualified fund. Any 
portion of the amount transferred that has not previously been 
deducted is allowed as a deduction over the remainder of the 
useful life of the nuclear power plant (as determined for the 
purpose of the ruling amount) beginning with the first taxable 
year that begins after 2001. If a qualified fund that has 
received a transfer from a nonqualified fund is transferred to 
another person, that person will be entitled to the deduction 
at the same time and in the same manner as the transferor. 
Thus, if the transferor was not subject to tax at the time and 
thus would have been unable to utilize the deduction, the 
transferee will similarly not be able to utilize the deduction. 
A taxpayer is not considered to have a basis in any qualified 
nuclear decommissioning fund.
      Nonqualified funds eligible to be transferred to a 
qualified fund are funds that have been irrevocably set aside 
pursuant to the requirements of a state of Federal agency 
exclusively for the purpose of funding the decommissioning of 
the taxpayer's nuclear power plant. Funds that constitute a 
``prepaid decommissioning fund'' or ``external sinking trust 
fund'' that would qualify for the purpose of providing 
financial assurance that funds will be available for the 
decommisioning process under 10 CFR 50.75 are expected to meet 
the definition of nonqualified funds for this purpose.
      A new ruling amount must be obtained following the 
transfer of nonqualified funds to a qualified fund.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

 F. Permit Consolidation of Life and Nonlife Insurance Companies (sec. 
 1315 of the House bill, sec. 1113 of the Senate amendment, and secs. 
                  1504(b)(2) and 1504(c) of the Code)


                              Present Law

      Under present law, an affiliated group of corporations 
means one or more chains of includible corporations connected 
through stock ownership with a common parent corporation (sec. 
1504(a)(1)). The stock ownership requirement consists of an 80-
percent voting and value test. In general, an affiliated group 
of corporations may file a consolidated tax return for Federal 
income tax purposes.
      Life insurance companies (subject to tax under section 
801) generally are not treated as includible corporations, and 
therefore may not be included in a consolidated return of an 
affiliated group including nonlife-insurance companies, unless 
the common parent of the group elects to treat the life 
insurance companies as includible corporations (sec. 
1504(c)(2)).
      Under the election to treat life insurance companies as 
includible corporations of an affiliated group, two special 5-
year limitation rules apply. The first 5-year rule provides 
that a life insurance company may not be treated as an 
includible corporation until it has been a member of the group 
for the 5 taxable years immediately preceding the taxable year 
for which the consolidated return is filed (sec. 1504(c)(2)). 
The second 5-year rule provides that any net operating loss of 
a nonlife-insurance member of the group may not offset the 
taxable income of a life insurance member for any of the first 
5 years the life and nonlife-insurance corporations have been 
members of the same affiliated group (sec. 1503(c)(2)). This 
rule applies to nonlife losses for the current taxable year or 
as a carryover or carryback.
      A separate 35-percent limitation also applies under the 
election to treat life insurance companies as includible 
corporations of an affiliated group (sec. 1503(c)(1)). This 
rule provides that if the non-life-insurance members of the 
group have a net operating loss, then the amount of the loss 
that is not absorbed by carrybacks against the nonlife-
insurance members' income may offset the life insurance 
members' income only to the extent of the lesser of: (1) 35 
percent of the amount of the loss; or (2) 35 percent of the 
life insurance members' taxable income. The unused portion of 
the loss is available as a carryover and is added to 
subsequent-year losses, subject to the same 35-percent 
limitation.

                               House Bill

      The House bill repeals the two 5-year limitation rules 
under the election to treat life insurance companies as 
includible corporations of an affiliated group. The provision 
also repeals the rule that a life insurance corporation is not 
an includible corporation unless the common parent makes an 
election to treat life insurance companies as includible 
corporations. Thus, under the provision, a life insurance 
company is treated as an includible corporation starting with 
the first taxable year for which it becomes a member of the 
affiliated group and otherwise meets the definition of an 
includible corporation. In addition, any net operating loss of 
a nonlife-insurance member of the group can offset the taxable 
income of a life insurance member starting with the first 
taxable year for which it becomes a member of the affiliated 
group and otherwise meets the definition of an includible 
corporation. The provision retains the 35-percent limitation of 
present law with respect to any life insurance company that is 
an includible corporation of an affiliated group.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2004. To the extent that a 
consolidated net operating loss is created or increased by the 
provision, the loss may not be carried back to a taxable year 
beginning before January 1, 2005. In addition, no affiliated 
group terminates solely by reason of the provision. The 
provision waives the 5-year waiting period for reconsolidation 
under section 1504(a)(3), in the case of any corporation that 
was previously an includible corporation, but was subsequently 
deemed not to be an includible corporation as a result of 
becoming a subsidiary of a corporation that was not an 
includible corporation by reason of the 5-year rule of section 
1504(c)(2) (providing that a life insurance company may not be 
treated as an includible corporation until it has been a member 
of the group for the 5 taxable years immediately preceding the 
taxable year for which the consolidated return is filed).

                            Senate Amendment

      The Senate amendment repeals the 5-year limitation rule 
relating to consolidation under the election to treat life 
insurance companies as includible corporations of an affiliated 
group. The provision also repeals the rule that a life 
insurance corporation is not an includible corporation unless 
the common parent makes an election to treat life insurance 
companies as includible corporations. Thus, under the 
provision, a life insurance company is treated as an includible 
corporation starting with the first taxable year for which it 
becomes a member of the affiliated group and otherwise meets 
the definition of an includible corporation. However, as under 
present law, any net operating loss of a nonlife-insurance 
member of the group may not offset the taxable income of a life 
insurance member for any of the first five years the life and 
nonlife-insurance corporations have been members of the same 
affiliated group. The provision retains the 35-percent 
limitation of present law with respect to any life insurance 
company that is an includible corporation of an affiliated 
group.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000. To the extent that a 
consolidated net operating loss is created or increased by the 
provision, the loss may not be carried back to a taxable year 
beginning before January 1, 2001. In addition, no affiliated 
group terminates solely by reason of the provision. The 
provision waives the 5-year waiting period for reconsolidation 
under section 1504(a)(3), in the case of any corporation that 
was previously an includible corporation, but was subsequently 
deemed not to be an includible corporation as a result of 
becoming a subsidiary of a corporation that was not an 
includible corporation by reason of the 5-year rule of section 
1504(c)(2) (providing that a lifeinsurance company may not be 
treated as an includible corporation until it has been a member of the 
group for the 5 taxable years immediately preceding the taxable year 
for which the consolidated return is filed).

                          Conference Agreement

      The conference agreement follows the Senate amendment. 
The conference agreement also follows the House bill with 
respect to repeal of the second 5-year rule (which provides 
that any net operating loss of a nonlife-insurance member of 
the group may not offset the taxable income of a life insurance 
member for any of the first 5 years the life and nonlife-
insurance corporations have been members of the same affiliated 
group (sec. 1503(c)(2)), with a modification as to the 
effective date of repeal of the second 5-year rule. Under the 
conference agreement, repeal of the second 5-year rule is 
effective for taxable years beginning after December 31, 2005.
      Effective date.--The repeal of the first 5-year rule and 
the repeal of the election to treat a life insurance company as 
an includible corporation are effective for taxable years 
beginning after December 31, 2000. The repeal of the second 5-
year rule (sec. 1503(c)(2)) is effective for taxable years 
beginning after December 31, 2005. To the extent that a 
consolidated net operating loss is created or increased by the 
provision, the loss may not be carried back to a taxable year 
beginning before January 1, 2006. In addition, no affiliated 
group terminates solely by reason of the provision. The 
provision waives the 5-year waiting period for reconsolidation 
under section 1504(a)(3), in the case of any corporation that 
was previously an includible corporation, but was subsequently 
deemed not to be an includible corporation as a result of 
becoming a subsidiary of a corporation that was not an 
includible corporation by reason of the 5-year rule of section 
1504(c)(2) (providing that a life insurance company may not be 
treated as an includible corporation until it has been a member 
of the group for the 5 taxable years immediately preceding the 
taxable year for which the consolidated return is filed).

   G. Consolidate Code Provisions Governing the Hazardous Substance 
  Superfund and the Leaking Underground Storage Tank Trust Fund (sec. 
      1321 of the House bill and secs. 9507 and 9508 of the Code)


                              Present Law

      Present law includes two separate Trust Funds to finance 
similar ground and water cleanup programs related to hazardous 
substances. These funds are the Hazardous Substance Superfund 
(the ``Superfund'') and the Leaking Underground Storage Tank 
Trust Fund (the ``LUST Trust Fund''). Amounts in both Trust 
Funds are available as provided in cross-referenced 
authorization and appropriations Acts.

                               House Bill

      The Code provisions governing the Superfund and the LUST 
Trust Fund are consolidated into a single Environmental 
Remediation Trust Fund (the ``Environmental Trust Fund''). 
Amounts in the consolidated Trust Fund (i.e., all amounts in 
both of the present-law Trust Funds) are available for 
expenditure, as provided in appropriations Acts, for the 
combined purposes of the two present-law Trust Funds, as of 
July 12, 1999.
      Provisions similar to those currently included in the 
Highway Trust Fund, the Aquatic Resources Trust Fund, and the 
Vaccine Injury Compensation Trust Fund clarifying that 
expenditures from the Environmental Trust Fund may occur only 
as provided in the Code are incorporated into the new Trust 
Fund statute, notwithstanding provisions of any other Act 
(including subsequently enacted non-revenue Act legislation).
      Effective date.--The provision is effective on October 1, 
1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill, with a 
modification providing that the LUST and Superfund provisions 
of the new Environmental Remediation Trust Fund will be divided 
into separate accounts upon future enactment of Superfund 
authorizing legislation. Upon enactment of such authorizing 
legislation, the LUST Account will be reimbursed from the 
Superfund Account for any amounts attributable to the LUST 
excise tax (and interest thereon) used to finance Superfund 
programs.

H. Repeal Certain Excise Taxes on Rail Diesel Fuel and Inland Waterway 
   Barge Fuels (sec. 1322 of the House bill, sec. 1101 of the Senate 
            amendment, and secs. 4041 and 4042 of the Code)


                              Present Law

      Under present law, diesel fuel used in trains is subject 
to a 4.4-cents-per-gallon excise tax. Revenues from 4.3 cents 
per gallon of this excise tax are retained in the General Fund 
of the Treasury. The remaining 0.1 cent per gallon is deposited 
in the Leaking Underground Storage Tank (``LUST'') Trust Fund.
      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. This tax is in addition to 
the 20.1-cents-per-gallon tax rates that are imposed on fuels 
used in these barges to fund the Inland Waterways Trust Fund 
and the Leaking Underground Storage Tank Trust Fund.
      In both cases, the 4.3-cents-per-gallon excise tax rates 
are permanent. The LUST tax is scheduled to expire after March 
31, 2005.

                               House Bill

      The 0.1-cent-per-gallon LUST tax on diesel fuel used in 
trains is repealed. In addition, 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 repeal of the 0.1-cent-per-gallon 
LUST tax on diesel fuel used in trains is effective on October 
1, 1999. The repeal of the 4.3-cents-per-gallon excise taxes on 
train diesel and inland waterway barge fuels is effective after 
September 30, 2003.
      Repeal of these taxes is contingent upon enactment as 
part of the bill of a separate provision that consolidates the 
Code provisions governing the Hazardous Substance Superfund and 
the Leaking Underground Storage Tank Trust Fund into an 
Environmental Remediation Trust Fund.

                            Senate Amendment

      The Senate amendment is the same as the House bill.
      Effective date.--The provision of the Senate amendment is 
effective on October 1, 2000.

                          Conference Agreement

      The conference agreement follows the House bill.

 I. Repeal Excise Tax on Fishing Tackle Boxes (sec. 1323 of the House 
                    bill and sec. 4162 of the Code)


                              Present Law

      Under present law, a 10-percent manufacturer's excise tax 
is imposed on specified sport fishing equipment. Examples of 
taxable equipment include fishing rods and poles, fishing 
reels, artificial bait, fishing lures, line and hooks, and 
fishing tackle boxes. Revenues from the excise tax on sport 
fishing equipment are deposited in the Sport Fishing Account of 
the Aquatic Resources Trust Fund. Monies in the fund are spent, 
subject to an existing permanent appropriation, to support 
Federal-State sport fish enhancement and safety programs.
      In addition to the revenues from the sport fishing 
equipment excise tax, the Sport Fishing Account also receives 
revenues from excise taxes imposed on motorboat gasoline and 
special fuels. These motorboat fuels are subject to an excise 
tax totaling 18.4 cents per gallon. Of this amount, 11.5 cents 
per gallon is dedicated to the Sport Fishing Account. This 
amount is scheduled to increase to 13 cents per gallon (October 
1, 2001-September 30, 2003) and to 13.5 cents per gallon 
(beginning October 1, 2003). The balance of these motorboat 
fuels taxes (other than 0.1 cent per gallon which is dedicated 
to the Leaking Underground Storage Tank Trust Fund) is retained 
in the General Fund.

                               House Bill

      The excise tax on fishing tackle boxes is repealed.
      Effective date.--The provision is effective beginning 30 
days after the date of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill, with a 
modification increasing by 0.2 cent per gallon the amount of 
the motorboat gasoline and special motor fuels taxes that are 
dedicated to the Sport Fishing Account of the Aquatic Resources 
Trust Fund. Thus, the amount transferred to that Account will 
be 11.7 cents per gallon (through September 30, 2001), 13.2 
cents per gallon (October 1, 2001-September 30, 2003), and 13.7 
cents per gallon thereafter.
      Effective date.--The conference agreement follows the 
House bill with regard to repeal of the fishing tackle excise 
tax; the modification relating to transfer of the motorboat 
fuels taxes is effective for taxes received beginning 30 days 
after the date of enactment.

J. Modify Excise Tax on Arrow Components and Accessories (sec. 1324 of 
the House bill, sec. 1109 of the Senate amendment, and sec. 4161 of the 
                                 Code)


                              Present Law

      An 12.4 percent excise tax is imposed on the sale by a 
manufacturer or importer of any shaft, point, nock, or vane 
designed for use as part of an arrow which (1) is over 18 
inches long, or (2) is designed for use with a taxable bow (if 
shorter than 18 inches). An 11-percent tax is imposed on 
certain bows and on certain accessories for taxable bows and 
arrows.

                               House Bill

      The House bill makes two modifications to the excise tax 
on arrows and arrow accessories. First, the bill extends the 
12.4-percent tax on arrow components to inserts and outserts 
designed for use with taxable arrows. Inserts and outserts are 
defined as articles used to attach a point to an arrow shaft. 
Second, the bill reclassifies ``broadheads,'' or arrow points 
designed for hunting fish or large animals, as arrow 
accessories subject to the 11-percent tax rather than arrow 
points subject to the 12.4-percent tax (as under present law).
      Effective date.--The provisions apply to sales by 
manufacturers beginning on the first day of the first calendar 
quarter that begins more than 30 days after the bill's 
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.

 K. Entrepreneurial Equity Capital Formation (``SSBICS'') (secs. 1341-
    1347 of the House bill and secs. 851, 1044 and 1202 of the Code)


                              Present Law

      Under present law, a taxpayer may elect to roll over 
without payment of tax any capital gain realized upon the sale 
of publicly-traded securities where the taxpayer uses the 
proceeds from the sale to purchase common stock in a 
specialized small business investment company (``SSBIC'') 
within 60 days of the sale of the securities. The maximum 
amount of gain that an individual may roll over under this 
provision for a taxable year is limited to the lesser of (1) 
$50,000 or (2) $500,000 reduced by any gain previously excluded 
under this provision. For corporations, these limits are 
$250,000 and $1 million.
      In addition, under present law, an individual may exclude 
50 percent of the gain \164\ from the sale of qualifying small 
business stock held more than five years. An SSBIC is 
automatically deemed to satisfy the active business requirement 
which a corporation must satisfy to qualify its stock for the 
exclusion.
---------------------------------------------------------------------------
        \164\ 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.
---------------------------------------------------------------------------
    Regulated investment companies (``RICs'') are entitled to 
deduct dividends paid to shareholders. To qualify for the 
deduction, 90 percent of the company's income must be derived 
from dividends, interest and other specified passive income, 
the company must distribute 90 percent of its investment 
income, and at least 50 percent of the value of its assets must 
be invested in certain diversified investments.
      For purposes of these provisions, an SSBIC means any 
partnership or corporation that is licensed by the Small 
Business Administration under section 301(d) of the Small 
Business Investment Act of 1958 (as in effect on May 13, 1993). 
SSBICs make long-term loans to, or equity investments in, small 
businesses owned by persons who are socially or economically 
disadvantaged.

                               House Bill

      Under the House the tax-free rollover provision is 
expanded by (1) extending the 60-day period to 180 days, (2) 
making preferred stock (as well as common stock) in an SSBIC an 
eligible investment, and (3) increasing the lifetime caps to 
$750,000 in the case of an individual and to $2 million in the 
case of a corporation, and repealing the annual caps.
      The House also provides that an SSBIC that is organized 
as a corporation may convert to a partnership without 
imposition of a tax to either the corporation or its 
shareholders, by transferring its assets to a partnership in 
which it holds at least an 80-percent interest and 
thenliquidating. The corporation is required to distribute all its 
earnings and profits before liquidating. The transaction must take 
place within 180 days of enactment of the bill. The partnership will be 
liable for a tax on any ``built-in'' gain in the assets transferred by 
the corporation at the time of the conversion.
      The 50-percent exclusion for gain on the sale of 
qualifying small business stock is increased to 60 percent 
where the taxpayer, or a pass-through entity in which the 
taxpayer holds an interest, sells qualifying stock of an SSBIC.
      For purposes of determining status as a RIC eligible for 
the dividends received deduction, the proposal would treat 
income derived by a SSBIC from its limited partner interest in 
a partnership whose business operations the SSBIC does not 
actively manage as income qualifying for the 90-percent test; 
would deem the SSBIC to satisfy the 90-percent distribution 
requirement if it distributes all its income that it is 
permitted to distribute under the Small Business Investment Act 
of 1958; and would deem the RIC diversification of assets 
requirement to be met to the extent the SSBIC's investments are 
permitted under that Act.
      Effective date.--The rollover and small business stock 
provisions of the proposal are effective for sales after date 
of enactment. The RIC provisions are effective for taxable 
years beginning after date of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the House bill 
provision.

 L. Tax Treatment of Alaska Native Settlement Trusts (sec. 1352 of the 
House bill, sec. 1102 of the Senate amendment, and new sec. 646 of the 
                                 Code)


                              Present Law

      An Alaska Native Settlement Corporation (``ANC'') may 
establish a Settlement Trust (``Trust'') under section 39 of 
the Alaska Native Claims Settlement Act (``ANCSA'') \165\ and 
transfer money or other property to such Trust for the benefit 
of beneficiaries who constitute all or a class of the 
shareholders of the ANC, to promote the health, education and 
welfare of the beneficiaries and preserve the heritage and 
culture of Alaska Natives.
---------------------------------------------------------------------------
        \165\ 43 U.S.C. 1601 et. seq.
---------------------------------------------------------------------------
    With certain exceptions, once an ANC has made a conveyance 
to a Trust, the assets conveyed shall not be subject to 
attachment, distraint, or sale or execution of judgement, 
except with respect to the lawful debts and obligations of the 
Trust.
      The Internal Revenue Service has indicated that 
contributions to a Trust constitute distributions to the 
beneficiary-shareholders at the time of the contribution and 
are treated as dividends to the extent of earnings and profits 
as provided under section 301 of the Code. The Trust and its 
beneficiaries are taxed according to the rules of Subchapter J 
of the Code.

                               House Bill

      An Alaska Native Corporation may establish a Trust under 
section 39 of ANCSA and if the Trust makes an election for its 
first taxable year ending after December 31, 1999, no amount 
will be includible in the gross income of a beneficiary of such 
Trust by reason of a contribution to the Trust. The earnings 
and profits of the ANC are not reduced at the time of a 
conveyance to the Trust, but only after all earnings of the 
Trust have been distributed, and subsequent distributions to 
beneficiaries are made from the original principal conveyed.
      Qualification of the Trust for tax-free conveyances 
terminates if interests in the Trust or in the ANC may be 
transferred or exchanged to a person in a manner that would not 
be permitted under ANCSA if the trust interests were Settlement 
Common Stock (generally, to anyone other than an Alaska 
Native).
      The final distributions of principal, which reduce 
earnings and profits of the ANC, are treated as ordinary income 
to the beneficiaries and may be reported on Form 1099 rather 
than form K-1. If annualized distributions exceed the sum of 
the standard deduction plus the personal exemption, withholding 
is required. All other Trust earnings and distributions are 
treated under present law.
      Effective date.--The provision is effective for 
contributions after, and taxable years of Trusts ending after, 
December 31, 1999.

                            Senate Amendment

      The Senate amendment follows the House bill, with 
additions and modifications. Under the Senate amendment, unless 
the Trust fails to meet the other requirements of the 
provision, the Trust will be permitted to accumulate up to 45 
percent of its income each year without tax to the Trust or the 
beneficiaries on that income. To qualify for this treatment, an 
electing Trust must distribute at least 55 percent of its 
adjusted taxable income for the year. If the Trust fails to 
meet this distribution requirement, tax at trust rates is 
imposed on the amount of the failure.
      Every distribution by the Trust to beneficiaries is 
taxable as ordinary income to the beneficiaries. Reporting to 
beneficiaries for the future could be made on form 1099 rather 
than on form K-1. Distributions to beneficiaries would be 
subject to withholding to the extent such distributions, on an 
annualized basis, exceed the sum of the standard deduction and 
the personal exemption.
      Certain additional restrictions apply. If the beneficial 
interests in the Trust may be sold or exchanged to a person in 
a manner that would not be permitted under ANCSA if the 
interests were Settlement Common Stock (generally, to a person 
other than an Alaska Native), then the value of all assets of 
the Trust that have not been distributed at the end of the 
taxable year of the Trust is subject to a tax at the highest 
individual tax rate; thereafter all amounts retained that were 
subject to that tax are treated as corpus under subchapter J. 
Also, if the shares of the ANC may be sold or exchanged to a 
person in such a manner, the Trust may continue in existence 
without an excise tax only if no new contributions are made to 
the Trust and the beneficial interests in the Trust cannot be 
sold or exchanged in such a manner.
      Apart from these rules, the Trust and its beneficiaries 
would be taxed according to the provisions of subchapter J of 
the Code.
      Effective date.--The effective date is the same as the 
House bill.

                          Conference Agreement

      The conference agreement follows the House bill.

 M. Increase Joint Committee on Taxation Refund Review Threshold to $2 
     Million (sec. 1353 of the House bill, sec. 1110 of the Senate 
                 amendment, 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

      The provision 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.

                            Senate Amendment

      Same as House bill.

                          Conference Agreement

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

  N. Clarification of Depreciation Study (sec. 1354 of the House bill)


                              Present Law

      The Secretary of the Treasury (or his delegate) is 
directed to conduct a comprehensive study of the recovery 
periods and depreciation methods under section 168 of the Code, 
and to provide recommendations for determining such periods and 
methods in a more rational manner. The Secretary of the 
Treasury (or his delegate) is directed to submit the results of 
the study and recommendations to the House Ways and Means and 
Senate Finance Committees by March 31, 2000.

                               House Bill

      The Secretary of the Treasury (or his delegate) is 
directed to include a study of such periods and methods 
applicable to section 1250 property used in connection with a 
franchise (within the meaning of section 1253) and owned by the 
franchisee in the study of recovery periods and depreciation 
methods under section 168 of the Code that is due to be 
submitted to the House Ways and Means and Senate Finance 
Committees by March 31, 2000.
      Effective date.--The provision is effective on the date 
of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the provision 
of the House bill. Nonetheless, the conferees expect that the 
study will include an examination of the depreciation issues 
raised in the House bill and the Senate amendment, including 
leasehold improvements and section 1250 property used in 
connection with a franchise.

                        O. Tax Court Provisions


1. Tax Court filing fee (sec. 1361 of the House bill and sec. 7451 of 
        the Code)

                              Present Law

      Section 7451 authorizes the Tax Court to impose a fee of 
up to $60 for the filing of any petition ``for the 
redetermination of a deficiency or for a declaratory judgment 
under part IV of this subchapter or under section 7428 or for 
judicial review under section 6226 or section 6228(a).'' The 
statute does not specifically authorize the Tax Court to impose 
a filing fee for the filing of a petition for review of the 
IRS's failure to abate interest under section 6404 or for 
administrative costs under section 7430. The practice of the 
Tax Court is to impose a $60 filing fee in all cases commenced 
by petition.\166\
---------------------------------------------------------------------------
        \166\ See Rule 20(a) of the Tax Court Rules of Practice and 
Procedure.
---------------------------------------------------------------------------

                               House Bill

      Under the House bill, section 7451 is amended to provide 
that the Tax Court is authorized to charge a filing fee of up 
to $60 in all cases commenced by the filing of a petition.
      Effective date.--The provision is effective on the date 
of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

2. Use of practitioner fee (sec. 1362 of the House bill and sec. 7475 
        of the code)

                              Present Law

      Section 7475 authorizes the Tax Court to impose on 
practitioners a fee of up to $30 per year and permits these 
fees to be used to employ independent counsel to pursue 
disciplinary matters.

                               House Bill

      The House bill provides that Tax Court fees imposed on 
practitioners also are available to provide services to pro se 
taxpayers.
      Effective date.--The provision is effective on the date 
of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

3. Tax Court authority to apply equitable recoupment (sec. 1363 of the 
        House bill and sec. 6214 of the code)

                              Present Law

      Equitable recoupment is a common-law equitable principle 
which permits the defensive use of an otherwise time-barred 
claim to reduce or defeat an opponent's claim if both claims 
arise from the same transaction. U.S. District Courts and the 
U.S. Court of Federal Claims, the two Federal tax refund 
forums, may apply equitable recoupment in deciding tax refund 
cases.\167\ In Estate of Mueller v. Commissioner,\168\ the Tax 
Court held that it may apply equitable recoupment in deciding 
cases over which it has jurisdiction. However, the Court of 
Appeals for the Sixth Circuit recently held that the Tax Court 
may not apply the doctrine of equitable recoupment.\169\
---------------------------------------------------------------------------
        \167\ See Stone v. White, 301 U.S. 532 (1937); Bull v. United 
States, 295 U.S. 247 (1935).
        \168\ 101 T.C. 551 (1993).
        \169\ See Estate of Mueller v. Commission, 153 F.3d 302 (6th 
Cir. 1998), cert. denied, 67 U.S.L.W. 3525 (U.S. Feb. 22, 1999) (No. 
98-794). In an earlier case, the Supreme Court specifically reserved 
ruling on whether the Tax Court may apply equitable recoupment in a 
case over which it otherwise has jurisdiction. United States v. Dalm, 
494 U.S. 596, 611 n.8 (1990).
---------------------------------------------------------------------------

                               House Bill

      Under the House bill, section 6214(b) is amended to 
provide that the Tax Court may apply the principle of equitable 
recoupment to the same extent that it may be applied in Federal 
civil tax cases by the U.S. District Courts of U.S. Court of 
Federal Claims.\170\
---------------------------------------------------------------------------
        \170\ No implication is intended with respect to whether the 
Tax court has the authority to continue to apply other equitable 
principles in deciding matters over which it has jurisdiction.
---------------------------------------------------------------------------
    Effective date.--The provision is effective for any action 
or proceeding in the Tax Court with respect to which a decision 
has not become final as of the date of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

 P. Allow Certain Wholesale Distributors and Control State Entities to 
 Elect To Be Treated as Distilled Spirits Plants Operators (sec. 1371-
 1377 of the House bill and secs. 5002, 5005, 5011, 5113, 5171, 5178, 
       5212, 5214, 5232, 5551, 5601, 5602, and 5684 of the Code)


                              Present Law

      Distilled spirits produced or imported (or brought) into 
the United States are subject to a $13.50 per proof gallon 
excise tax. A proof gallon is a U.S. gallon consisting of 50 
percent alcohol. The tax is imposed on removal of the distilled 
spirits from the distillery where produced in the case of 
domestically produced spirits. In the case of distilled spirits 
imported in bulk and transferred to a U.S. distillery, the tax 
is imposed upon removal from the distillery. In the case of 
bottled distilled spirits imported into the United States, the 
tax is imposed on removal of the spirits from customs custody 
or the first customs bonded warehouse in the United States (or 
in a foreign trade zone) to which the spirits are transferred.

                               House Bill

      The House bill allows certain wholesale dealers and 
certain control State entities \171\ (collectively, ``bonded 
dealers'') to elect to become distilled spirits taxpayers. Code 
regulations relating to operation of distilled spirits plants, 
other than requirements directly related to production and 
bottling of distilled spirits, are extended to qualified bonded 
dealers. As under present law, excise tax will be determined in 
all cases upon removal from the distilled spirits plant or upon 
importation; however, in the case of distilled spirits 
transferred to a bonded dealer, payment of the tax will be 
delayed until the distilled spirits are removed from the bonded 
dealer's premises. All removals (including removals to other 
bonded dealers) of non-tax-paid distilled spirits by bonded 
dealers are subject to tax.
---------------------------------------------------------------------------
        \171\ A control state entity is a State or political 
subdivision of a State in which only the state or political subdivision 
is allowed by law to perform distilled spirits operations.
---------------------------------------------------------------------------
    Operators of distilled spirits plants and importers will be 
required to certify to bonded dealers the amount of tax due 
with respect to all distilled spirits transferred without 
payment of tax. Bonded dealers are liable for the full amount 
of tax reflected in the certification supplied by the operator 
of distilled spirits plant from which the spirits are 
transferred without payment of tax. Distilled spirits plant 
operators remain liable for any understatement of tax on the 
certifications.
      Only wholesale distributors or control State entities 
having gross receipts from the sale of distilled spirits within 
the United States in the 12-month period preceding the date on 
which the election is made equal to or exceeding $10 million 
may qualify as bonded dealers. Additionally, except in the case 
of control State entities, bonded dealers qualify only if they 
sell distilled spirits exclusively to other wholesale 
distributors (including other bonded dealers) or to independent 
retail dealers. Retail dealers, other than control State 
entities, are not permitted to be bonded dealers. For purposes 
of this rule, a wholesale distributor is treated as a retail 
dealer if the dealer directly, or indirectly through common 
ownership by or of a third party, more than 10 percent of a 
retail dealer.
      As a condition of being granted and retaining bonded 
dealers status, electing wholesale distributors and control 
State entities are subject to a new Federal excise surtax equal 
to 1.5 percent of their liability for distilled spirits tax. 
The surtax is imposed in the same manner as the present-law 
distilled spirits tax; payment of the tax must be made in the 
same manner as the underlying distilled spirits excise tax. The 
surtax will expire after December 31, 2010.
      Studies.--The House bill directs the Treasury Department 
to study and report to the House Committee on Ways and Means 
and the Senate Committee on Finance whether administrative 
efficiencies could result from cooperative tax collection 
agreements between the Federal Government and States. This 
report is due no later than the date which is one year after 
the bill's enactment. The House bill further directs the 
Treasury Department to study and report to these two 
Committees, the effect allowing bonded dealers to receive non-
tax-paid distilled spirits on taxpayer compliance with the 
provisions of Code section 5010 (the ``wine and flavors 
credits''). This report is due no later than June 1, 2002.
      Effective date.--The provision is effective beginning on 
the first day of the first calendar quarter that begins at 
least 120 days after the bill's enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the House bill 
provision.

Q. Simplify the Active Trade or Business Requirement for Tax-Free Spin-
   offs (sec. 1107 of the Senate amendment and sec. 355 of the Code)


                              Present Law

      A corporation generally is required to recognize gain on 
the distribution of property (including stock of a subsidiary) 
to its shareholders as if such property had been sold for its 
fair market value. An exception to this rule is where the 
distribution of the stock of a controlled corporation satisfies 
the requirements of section 355. Among the requirements that 
must be satisfied in order to qualify for tax-free treatment 
under section 355 is that, immediately after the distribution, 
both the distributing corporation and the controlled 
corporation must be engaged in the active conduct of a trade or 
business (sec. 355(b)(1)).\172\ For this purpose, a corporation 
is engaged in the active conduct of a trade or business only if 
(1) the corporation is directly engaged in the active conduct 
of a trade or business, or (2) if the corporation is not 
directly engaged in an active trade or business, then 
substantially all of its assets consist of stock and securities 
of a corporation it controls that is engaged in the active 
conduct of a trade or business (sec. 355(b)(2)(A)).
---------------------------------------------------------------------------
        \172\ If immediately before the distribution, the distributing 
corporation had no assets other than stock or securities in the 
controlled corporations, then each of the controlled corporations must 
be engaged immediately after the distribution in the active conduct of 
a trade or business.
---------------------------------------------------------------------------
    In determining whether a corporation satisfies the active 
trade or business requirement, the Internal Revenue Service's 
position for advance ruling purposes is that the value of the 
gross assets of the trade or business being relied on must 
constitute at least five percent of the total fair market value 
of the gross assets of the corporation directly conducting the 
trade or business.\173\ However, if the corporation is not 
directly engaged in an active trade or business, then the 
``substantially all'' test requires that at least 90 percent of 
the value of the corporation's gross assets consist of stock 
and securities of a controlled corporation that is engaged in 
the active conduct of a trade or business.\174\
---------------------------------------------------------------------------
        \173\ Rev. Proc. 99-3, sec. 4.01(33), 1999-1 I.R.B. 111.
        \174\ Rev. Proc. 86-41, sec. 4.03(4), 1986-2 C.B. 716; Rev. 
Proc. 77-37, sec. 3.04, 1977-2 C.B. 568.
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment eliminates the ``substantially all'' 
test, and instead, applies the active trade or business 
requirement on an affiliated group basis. In applying the 
active trade or business test to an affiliated group, each 
separate affiliated group (immediately after the distribution) 
must satisfy the requirement. For the distributing corporation, 
the separate affiliated group consists of the distributing 
corporation as the common parent and all corporations connected 
with the distributing corporation through stock ownership 
described in section 1504(a)(1)(B) (regardless of whether the 
corporations are includible corporations under section 
1504(b)). The separate affiliated group for a controlled 
corporation is determined in a similar manner (with the 
controlled corporation as the common parent).
      Effective date.--The provision is effective for 
distributions after the date of enactment. Transition relief is 
provided for any distribution that is (1) made pursuant to an 
agreement which is binding on the date of enactment and at all 
times thereafter; (2) described in a ruling request submitted 
to the Internal Revenue Service on or before such date; or (3) 
described on or before such date in a public announcement or in 
a filing with the Securities and Exchange Commission. A 
corporation can make an irrevocable election to have the 
transition relief not apply (so that the provision would apply 
to all distributions after the date of enactment).

                          Conference Agreement

      The conference agreement follows the Senate amendment.

  R. Modify the Definition of Rural Airport Eligible for Reduced Air 
 Passenger Ticket Tax Rate (sec. 1111 of the Senate amendment and sec. 
                           4261 of the Code)


                              Present Law

      Air passenger transportation is subject to an excise tax 
equal to 8 percent of the amount paid plus $2 per flight 
segment. After September 30, 1999, the ad valorem portion of 
this tax will decrease to 7.5 percent and the flight segment 
portion will increase to $2.25. Additional increases in the 
flight segment tax are scheduled until that rate equals $3 per 
flight segment (with indexing of the $3 amount one year after 
it is reached).
      Flight segments to or from qualified rural airports are 
eligible for a reduced air passenger tax of 7.5 percent, with 
no segment tax being imposed on those segments. A qualified 
rural airport is defined as an airport that enplaned fewer than 
100,000 passengers in the second preceding calendar year and 
either (1) is not located within 75 miles of a larger airport 
that is not qualified for the reduced tax rate or (2) was 
receiving essential air service subsidy payments as of August 
5, 1997.

                               House Bill

      No provision.

                            Senate Amendment

      The definition of qualified rural airport is expanded to 
include otherwise qualified airports that are located within 75 
miles of an unqualified, larger airports if the smaller 
airports are not connected by road to the larger airports 
(e.g., an airport on an island not connected by bridge to the 
mainland).
      Effective date.--The provision is effective for amounts 
paid after December 31, 1999, for air transportation beginning 
after that date.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

 S. Dividends Paid by Cooperatives (sec. 1112 of the Senate amendment 
                     and sec. 1388(a) of the Code)


                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      Under the amendment, patronage-sourced income is not 
reduced to the extent that the organizational documents 
(articles of incorporation, bylaws, or contract with patrons) 
provide that dividends on capital stock (or other proprietary 
capital interests) are ``in addition'' to amounts otherwise 
payable as patronage dividends.
      Effective date.--The Senate amendment is effective for 
distributions made in taxable years beginning after the date of 
enactment.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

  T. Modify Personal Holding Company ``Lending or Finance Business'' 
       Exception (sec. 1114 of the bill and sec. 542 of the Code)

      Personal holding companies (PHC's) are subject to a 39.6% 
tax on undistributed PHC income. This tax can be avoided by 
distributing the income to shareholders, who then pay 
shareholder level tax. PHC's are closely held companies with at 
least 60% ``personal holding company income'' (PHCI). This is 
generally passive income, including interest, dividends, and 
rents. Certain rent is excluded from the definition, if rent is 
at least 50 percent of the adjusted ordinary gross income of 
the company and other undistributed PHCI does not exceed 10 
percent of the adjusted ordinary gross income.
      In the case of a group of corporations filing a 
consolidated return, with certain exceptions, the application 
of the PHC tax to the group and any member thereof is generally 
determined on the basis of consolidated income and consolidated 
PHCI. If any member of the group is excluded from the 
definition of a PHC under certain provisions (including one for 
certain lending or finance businesses), then each other member 
of the group is tested separately for PHC status.
      A special rule of present law excludes a lending or 
finance business from the definition of a PHC if certain 
requirements are met. At least 60% of its income must come from 
the active conduct of a lending or finance business, and no 
more than 20% of its adjusted gross income may be from certain 
other PHCI. A lending or finance business does not include a 
business of making loans longer than 144 months (12 years). 
Also, the deductions attributable to this active lending or 
finance business (but not including interest expense) must be 
at least 5 percent of income over $500,000 (plus 15 percent of 
income under that amount).

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment modifies the personal holding 
company exclusion for lending or finance companies to provide 
that, in determining whether a member of an affiliated group 
(as defined in section 1504(a)(1)) filing a consolidated return 
is a lending or finance company, only corporations engaged in a 
lending or finance business are taken into account, and all 
such companies are aggregated for purposes of this 
determination. The effect of this rule is to treat a 
corporation as a lending or finance company if all companies 
engaged in a lending or finance business in the affiliated 
group, in the aggregate, satisfy the requirements of the 
exclusion.
      The provision also repeals the business expense 
requirement and the limitation on the maturity of loans made by 
a lending or finance business.
      The provision also broadens the definition of a lending 
or finance business to include providing financial or 
investment advisory services, as well as engaging in leasing, 
including entering into leases and/or purchasing, servicing, 
and/or disposing of leases and leased assets.
      Rents that are not derived from the active and regular 
conduct of a lending or finance business would continue to be 
treated under the present law personal holding company income 
rules.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

U. Tax Credit for Modifications to Inter-City Buses Required Under the 
   Americans with Disabilities Act of 1990 (sec. 1115 of the Senate 
                   amendment and sec. 44 of the Code)


                              Present Law

      Present law provides a tax credit (``the disabled access 
credit'') for eligible access expenditures paid or incurred by 
an eligible small business so that such business may comply 
with the Americans with Disabilities Act of 1990, (the 
``ADA''). The amount of the credit for any taxable year is 
equal to 50 percent of the eligible access expenditures for the 
taxable year that exceed $250 but do not exceed $10,250. 
Therefore the maximum annual credit is $5,000. An eligible 
small business is defined for any taxable year as a person that 
had gross receipts for the preceding taxable year that did not 
exceed $1 million or had no more than 30 full-time employees 
during the preceding taxable year.
      Eligible access expenditures are defined as amounts paid 
or incurred by an eligible small business for the purpose of 
enabling such eligible small business to comply with applicable 
requirements of the ADA, as in effect on the date of enactment 
of the credit. Eligible access expenditures generally include 
amounts paid or incurred (1) for the purpose of removing 
architectural, communication, physical, or transportation 
barriers which prevent a business from being accessible to, or 
usable by, individuals with disabilities; (2) to provide 
qualified interpreters or other effective methods of making 
aurally delivered materials available to individuals with 
hearing impairments; (3) to provide qualified readers, taped 
texts, hearing impairments; (3) to provide qualified readers, 
taped texts and other effective methods of making visually 
delivered materials available to individuals with visual 
impairments; (4) to acquire or modify equipment or devices for 
individuals with disabilities; or (5) to provide other similar 
services, modifications, materials, or equipment. The 
expenditures must be reasonable and necessary to accomplish 
these purposes.
      The disabled access credit is a general business credit 
and is subject to the present-law limitations on the amount of 
the general business credit that may be used for any taxable 
year. However, the portion of the unused business credit for 
any taxable year that is attributable to the disabled access 
credit may not to be carried back to any taxable year ending 
before the date of enactment of the credit.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment extends the disabled access credit 
to a business without regard to the eligible small business 
limitation generally applicable under the credit for the cost 
of making certain inter-city buses comply with the ADA under 
the Department of Transportation's (``DOT's'') final rule 
making on September 28, 1998, (49 CFR Part 37). Specifically, 
the definition of eligible access expenditure under the credit 
is expanded to include the incremental capital cost paid or 
incurred by the taxpayer so that certain inter-city buses 
satisfy the DOT's rule making under the ADA. For purposes of 
this provision, the allowable credit is 50 percent of the 
eligible access expenditures, per bus, for the taxable year 
that exceed $250 but do not exceed $30,250. Therefore the 
maximum credit is $15,000, per bus. The otherwise allowable 
eligible access expenditures are reduced by any Federal or 
State grant monies received by the taxpayer to subsidize such 
expenditures relating to such intercity buses. For these 
purposes, inter-city buses are buses eligible for the reduced 
diesel fuel tax rate of 7.4 cents per gallon.
      Effective date.--The Senate amendment provision is 
effective for taxable years beginning after December 31, 1999 
and before January 1, 2012.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

         V. Provisions Relating to Deduction for Business Meals


1. Increase deduction for business meals (sec. 804 of the House 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 
business meal and entertainment expenses 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, as well as to individuals subject 
to the hours of service limitations of the Department of 
Transportation.

                               House Bill

      The provision phases in an increase from 50 percent to 80 
percent in the deductible percentage of business meal (food and 
beverage) expenses.\175\ The increase in the deductible 
percentage is phased in according to the following schedule:
---------------------------------------------------------------------------
        \175\ The present-law 50 percent limitation continues to apply 
to entertainment expenses.

Taxable years beginning in--                       Deductible percentage
2005..............................................................    55
2006..............................................................    60
2007..............................................................    65
2008..............................................................    70
2009..............................................................    75
2010 and thereafter...............................................    80

      Effective date.--The provision is effective for taxable 
years beginning after 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement increases the deductible 
percentage for business meal (food and beverage) expenses as 
follows:

Taxable years beginning in--                       Deductible percentage
2006..............................................................    55
2007 and thereafter...............................................    60

      Effective date.--The provision is effective for taxable 
years beginning after 1999.

2. Increased deduction for business meals while operating under 
        Department of Transportation hours of service limitations (sec. 
        1116 of the Senate amendment and sec. 274 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 the 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.

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

                               House Bill

      No provision.

                            Senate Amendment

      The bill accelerates to taxable years beginning after 
2006 the full 80 percent deduction for business meals while 
operating under Department of Transportation hours of service 
limitations.
      Effective date.--The provision is effective for taxable 
years beginning after 2006.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

W. Authorize Limited Private Activity Tax-Exempt Financing for Highway 
        Construction (sec. 1117 of the Senate amendment)

                              Present Law

      Present law exempts interest on State or local government 
bonds from the regular income tax if the proceeds of the bonds 
are used to finance governmental activities of those units and 
the bonds are repaid with governmental revenues. Interest on 
bonds issued by States or local governments acting as conduits 
to provide financing for private persons is taxable unless a 
specific exception is provided in the Code. No such exception 
is provided for bonds issued to provide conduit financing for 
privately constructed and/or privately operated highways (e.g. 
toll roads).

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment authorizes issuance of up to $15 
billion of private activity tax-exempt bonds to finance the 
construction of up the 15 private highway pilot projects. Bonds 
for these projects generally will be subject to all Code 
provisions governing issuance of tax-exempt private activity 
bonds except (1) the annual State private activity bond volume 
limits and (2) no proceeds of these bonds may be used to 
finance land.
      Effective date.--The provision applies to bonds issued 
after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
with a modification deleting the statutorily required report to 
Congress on the pilot program. The conferees intend that the 
Secretary of the Treasury and the Secretary of Transportation 
will prepare and submit to the Congress a report evaluating the 
overall effects of the program, including a description of each 
project receiving tax-exempt financing, the extent to which new 
technologies or construction techniques are used in the 
projects, information regarding any cost savings to the 
projects from the use of the new technologies or construction 
techniques, and the use and efficiency of the Federal subsidy 
provided by the tax-exempt financing.

 X. Provisions Relating to Tax Incentives for the District of Columbia


1. Extend Tax Credit for First-time D.C. Homebuyers (sec. 1118 of the 
        Senate amendment 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, 2000.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment extends the D.C. first-time 
homebuyer tax credit for 1 year, through December 31, 2001. In 
addition, the Senate amendment increases the phase-out range 
for married individuals filing a joint return so that it is 
twice that of unmarried individuals (i.e., the credit phases 
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, 1999.

                          Conference Agreement

      The conference agreement includes the provision in the 
Senate amendment increasing the phase-out range for married 
individuals filing a joint return so that it is twice that of 
unmarried individuals (i.e., the credit phases out for joint 
filers with adjusted gross income between $140,000 and 
$180,000). The increase in the phase-out range is effective 
with respect to property purchased on or after the date of 
enactment.
      The conference agreement does not include the Senate 
amendment provision extending the homebuyer credit.

2. Expand the Zero-Percent Capital Gains Rate for DC Zone Assets (sec. 
        1119 of the Senate amendment and sec. 1400B of the Code)

                              Present Law

      Present law provides a zero-percent capital gains rate 
for capital gains from the sale of certain qualified DC Zone 
assets held for more than five years. In general, a ``DC Zone 
asset'' means stock or partnership interests held in, or 
tangible assets held by, a DC Zone business. A DC Zone business 
generally refers to certain enterprise zone businesses within 
the DC Zone.\176\ For purposes of the zero-percent capital 
gains rate, the D.C. Zone is defined to include all census 
tracts within the District of Columbia where the poverty rate 
is not less than 10 percent as determined on the basis of the 
1990 Census (sec. 1400B(d)).
---------------------------------------------------------------------------
        \71\ For purposes of the zero-percent capital gains rate, a DC 
Zone business is defined by reference to the definition of an 
enterprise zone business in section 1397B, except that (1) the 
requirement that 35 percent of the employees of the business must be 
residents of the DC Zone does not apply, and (2) the DC Zone business 
must derive at least 80 percent (as opposed to 50 percent) of its total 
gross income from the active conduct of a qualified business within the 
DC Zone (sec. 1400B(c)).
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment eliminates the 10-percent poverty 
rate limitation for purposes of the zero-percent capital gains 
rate. Thus, the zero-percent capital gains rate applies to 
capital gains from the sale of assets held more than five years 
attributable to certain qualifying businesses located in the 
District of Columbia.
      Effective date.--The provision is effective for DC Zone 
business stock and partnership interests originally issued 
after, and DC Zone business property assets originally acquired 
by the taxpayer after, December 31, 1999.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

  Y. Establish a Seven-Year Recovery Period for Natural Gas Gathering 
   Lines (sec. 1120 of the Senate amendment and sec. 168 of the Code)


                              Present Law

      The applicable recovery period for assets placed in 
service under the Modified Accelerated Cost Recovery System is 
based on the ``class life of the property.'' The class lives of 
assets placed in service after 1986 are set forth in Revenue 
Procedure 87-56.\177\ Revenue Procedure 87-56 includes two 
asset classes that could describe natural gas gathering lines 
owned by nonproducers of natural gas. Asset class 13.2, 
describing assets used in the exploration for and production of 
petroleum and natural gas deposits, provides a class life of 14 
years and a depreciation recovery period of seven years. Asset 
class 46.0, describing pipeline transportation, provides a 
class life of 22 years and a recovery period of 15 years. The 
uncertainty regarding the appropriate recovery period has 
resulted in litigation between taxpayers and the IRS. Recently, 
the 10th Circuit Court of Appeals held that natural gas 
gathering lines owned by nonproducers fall within the scope of 
Asset class 13.2 (i.e., 7-year recovery period).\178\
---------------------------------------------------------------------------
        \177\ 1987-2 C.B. 674.
        \178\ Duke Energy v. Commissioner, 172 F. 3d 1255 (10th Cir. 
1999), Rev'g 109 T.C. 416 (1997). See also True v. United States, 97-2 
U.S. Tax Cas. (CCH) par. 50,946 (D. Wyo. 1997).
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment establishes a statutory 7-year 
recovery period for all natural gas gathering lines. A natural 
gas gathering line is defined to include pipe, equipment, and 
appurtenances that is (1) determined to be a gathering line by 
the Federal Energy Regulatory Commission, or (2) used to 
deliver natural gas from the wellhead or a common point to the 
point at which such gas first reaches (a) a gas processing 
plant, (b) an interconnection with an interstate transmission 
line, (c) an interconnection with an intrastate transmission 
line, or (d) a direct interconnection with a local distribution 
company, a gas storage facility, or an industrial consumer.
      Effective date.--The provision is effective for property 
placed in service on or after the date of enactment. No 
inference is intended as to the proper treatment of such 
property placed in service before the date of enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

  Z. Reclassify Air Transportation on Certain Small Seaplanes as Non-
 Commercial Aviation for Excise Tax Purposes (sec. 1121 of the Senate 
                  amendment and sec. 4261 of the Code)


                              Present Law

      Commercial air passenger transportation is subject to an 
excise tax equal to 8 percent of the amount paid plus $2 per 
flight segment. After September 30, 1999, the ad valorem 
portion of this tax will decrease to 7.5 percent and the flight 
segment portion will increase to $2.25. Additional increases in 
the flight segment tax are scheduled until that rate equals $3 
per flight segment (with indexing of the $3 amount one year 
after it is reached). In addition, fuel used in commercial 
aviation is subject to a 4.3-cents-per-gallon excise tax on 
fuels used in the aircraft.
      In lieu of the ticket taxes imposed on commercial air 
passenger transportation, non-commercial transportation is 
subject to excise taxes on the fuels used in the aircraft. Non-
commercial air transportation is defined as transportation 
which is not for hire. The fuels excise tax rates are 19.3 
cents per gallon (aviation gasoline) and 21.8 cents per gallon 
(jet fuel).
      Revenues from all of these excise taxes are deposited in 
the Airport and Airway Trust Fund to finance Federal Aviation 
Administration programs.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment re-classifies passenger 
transportation for hire on certain small seaplanes as non-
commercial aviation. As such, the transportation will be 
subject to the full 19.3 cents-per-gallon and 21.8-cents-per-
gallon Airport and Airway Trust Fund excise taxes rather than 
the passenger ticket tax. Transportation is eligible for this 
provision only if it occurs on seaplanes (planes that both take 
off from and land on water) and that have a maximum 
certificated takeoff weight of 6,000 pounds or less with 
respect to any flight segment.
      Effective date.--The provision is effective for 
transportation beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

                XIV. ADDITIONAL MISCELLANEOUS PROVISIONS


A. Exemption From Federal Income Tax for Amounts Received by Holocaust 
      Victims' and Their Heirs (sec. 1122 of the Senate Amendment)


                              Present Law

      Under the Code, gross income means ``income from whatever 
source derived'' except for certain items specifically exempt 
or excluded by statute (sec. 61). There is no explicit 
statutory exception from gross income provided for amounts 
received by Holocaust victims or their heirs.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment provides an exclusion from gross 
income for any amount received by an individual or any heir of 
the individual: (1) from the Swiss Humanitarian Fund 
established by the government of Switzerland or from any 
similar fund established in any foreign country; (2) as a 
result of the settlement of the action entitled, ``In re 
Holocaust Victims' Asset Litigation'', (E.D. NY), C.A. No. 96-
4849, or as a result of any similar action; and (3) the value 
of land (including structures thereon) recovered by an 
individual (or any heir of the individual) from a government of 
a foreign country as a result of a settlement of a claim 
arising out of the confiscation of such land in connection with 
the Holocaust.
      Effective date.--The provision is effective with regard 
to any amounts received before, on, or after the date of 
enactment.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
provision but only on a prospective basis.
      Effective date.--The provision is effective with regard 
to any amounts received on or after the date of enactment. No 
inference is intended as to the proper treatment of payments 
made before the date of enactment.

B. Medical Innovation Tax Credit (section 1137 of the Senate amendment 
                    and new section 41A of the Code)


                              Present Law

      Section 41 provides for a research tax credit equal to 20 
percent of the amount by which a taxpayer's qualified research 
expenditures for a taxable year exceeds its base amount for 
that year. In the case of contract research expenditures, 
generally only 65 percent of such expenditures are included in 
the calculation of a taxpayer's total qualified research 
expenditures. The research tax credit expired and generally 
does not apply to amounts paid or incurred after June 30, 1998.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment permits a taxpayer to claim a 40-
percent credit for qualified medical research expenditures made 
with respect to certain human clinical testing of any drug, 
biologic, or medical device. The credit would apply to 
qualified medical research expenditures in excess of a base 
period amount. Qualified medical research expenditures are only 
those amounts paid to certain academic institutions.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1998.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

   C. Capital Gain Holding Period for Horses (sec. 812 of the Senate 
                  amendment and sec. 1231 of the Code)


                              Present Law

      Under present law, cattle and horses held by the taxpayer 
for draft, breeding, dairy, or sporting purposes and held 24 
months or more are eligible for capital gain treatment. Other 
livestock held for these purposes are eligible for capital gain 
treatment if held for 12 months or more.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment reduces the 24-month capital gain 
holding period for horses to 12 months.
      Effective date.--The provision is effective for 
dispositions after December 31, 2000.

                          Conference Agreement

      The conference agreement does not include the provision 
in the Senate amendment.

  D. Disclosure of Tax Return Information for Combined Employment Tax 
 Reporting (sec. 1131 of the Senate amendment and sec. 6103(d) of the 
                                 Code)


                              Present Law

      Traditionally, Federal tax forms are filed with the 
Federal government and State tax forms are filed with 
individual States. This necessitates duplication of items 
common to both returns. Some States have recently been working 
with the IRS to implement combined State and Federal reporting 
of certain types of items on one form as a way of reducing the 
burdens on taxpayers.
      The State of Montana and the IRS have cooperatively 
developed a system to combine State and Federal employment tax 
reporting on one form. The one form contains exclusively 
Federal data, exclusively State data, and information common to 
both: the taxpayer's name, address, TIN, and signature.
      The Code permits implementation of a demonstration 
project to assess the feasibility and desirability of expanding 
combined reporting in the future. There are several limitations 
on the demonstration project. First, it is limited to the State 
of Montana and the IRS. Second, it is limited to employment tax 
reporting. Third, it is limited to disclosure of the name, 
address, TIN, and signature of the taxpayer, which is 
information common to both the Montana and Federal portions of 
the combined form. Fourth, it is limited to a period of five 
years. The provision will expire on August 5, 2002.
      The Internal Revenue Code prohibits disclosure of tax 
returns and return information, except to the extent 
specifically authorized by the Internal Revenue Code (sec. 
6103). Unauthorized disclosure is a felony punishable by a fine 
not exceeding $5,000 or imprisonment of not more than five 
years, or both (sec. 7213). An action for civil damages also 
may be brought for unauthorized disclosure (sec. 7431). No tax 
information may be furnished by the Internal Revenue Service 
(``IRS'') to another agency unless the other agency establishes 
procedures satisfactory to the IRS for safeguarding the tax 
information it receives (sec. 6103(p)).

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment permits the Secretary to disclose 
taxpayer identity information and signatures to any State for 
purposes of carrying out a combined Federal and State 
employment tax reporting program.
      Effective date.--The provision is effective on the date 
of enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

  E. Tax Rates for Trusts with Disabled Beneficiary (sec. 211 of the 
              Senate amendment and section 1 of the Code)


                              Present Law


Taxation of trusts

      Trusts are treated as conduits where income distributed 
to beneficiaries is taxed to the beneficiaries and not the 
trust. Income which the trust accumulates and does not 
distribute to beneficiaries in the year earned is taxed to the 
trust.

Income tax rate structure

      To determine regular income tax liability, a taxpayer 
generally must apply the tax rate schedules (or the tax tables) 
to his or her taxable income. The rate schedules are broken 
into several ranges of income, known as income brackets, and 
the marginal tax rate increases as a taxpayer's income 
increases. The income bracket amounts are indexed for 
inflation. Separate rate schedules apply based on an 
individual's filing status, including estates and trusts. For 
1999, the individual regular income tax rate schedules are 
shown below.

         Table 1.--Federal Individual Income Tax Rates for 1999

If taxable income isThen income tax equals:

                           Single individuals

  $0-25,750.........15 percent of taxable income........................
  $25,750-$62,450...$3,862.50, plus 28% of the amount over $25,750......
  $62,450-$130,250..$14,138.50 plus 31% of the amount over $62,450......
  Over $283,150,150.$35,156.50 plus 36% of the amount over $130,250.....
                    $90,200.50 plus 39.6% of the amount over $283,150

                           Estates and trusts

  $0-$1,750.........15 percent of taxable income........................
  $1,750-$4,050.....$262.50 plus 28% of the excess over $1,750..........
  $4,050-$6,200.....$906.50 plus 31% of the amount over $4,050..........
  $6,200-$8,450.....$1,573 plus 36% of the amount over $6,200...........
  Over $8,450.......$2,383 plus 39.6% of the amount over $8,450.........
  Over $283,150.....$87,548 plus 39.6% of the amount over $283,150......

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment provides that the tax rates 
applicable to a single individual will also apply to a trust 
whose exclusive purpose is to provide reasonable amounts for 
the support and maintenance of its sole beneficiary who is 
totally and permanently disabled (within the meaning of sec. 
22(e)(3)) for the trust's entire taxable year.
      Effective date.--The Senate amendment provision is 
effective for taxable years beginning after December 31, 2006.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

   F. Taxation of Flights on Noncommercial Aircraft (sec. 370 of the 
               Senate amendment and sec. 132 of the Code)


                              Present Law

      In general under present law, the value of personal use 
of an employer-provided aircraft is includible in the gross 
income and wages of the employee. Under one exception to this 
rule, if 50 percent or more of the regular seating capacity of 
an aircraft is occupied by individuals whose flights are 
primarily for the employer's business, the value of a flight on 
that aircraft by any employee who is not flying primarily for 
the employer's business is deemed to be zero.\179\ Thus, no 
amount is includible in the income of the employee by reason of 
such a flight.
---------------------------------------------------------------------------
        \179\ Treas. reg. sec. 1.61-21(g)(12).
---------------------------------------------------------------------------
      Present law also provides an exclusion from gross income 
and wages for no-additional-cost-services. In general, a no-
additional-cost-service is any service provided by an employer 
to an employee if such service if offered for sale to customers 
in the ordinary course of the line of business of the employer 
in which the employee is performing services, and the employer 
incurs no substantial additional cost (including forgone 
revenue) in providing such service to the employee (determined 
without regard to any amount paid for the employee for such 
service). Under this rule, services provided to the spouse or 
dependent child of the employee are treated as if provided to 
the employee. In addition, the term ``employee'' includes 
former employees who separated from service from the employer 
by reason of retirement or disability and surviving spouses of 
employees. The exclusion does not apply with respect to a no-
additional-cost service provided to a highly compensated 
employee unless the service is available on a nondiscriminatory 
basis.
      Except as described above, these exclusions are generally 
not available with respect to individuals who are not 
employees, e.g., independent contractors.

                               House Bill

      No provision.

                            Senate Amendment

      Under the provision, the value of certain transportation 
provided to an employee on a noncommercially operated aircraft 
is treated as a no-additional-cost-service. The provision 
applies to transportation provided to an employee by an 
employer on a noncommercially operated aircraft if (1) the 
transportation is provided on a flight made in the ordinary 
course of the trade or business of the employer owning or 
leasing such aircraft for use in such trade or business, (2) 
the flight would have been made even if the employee were not 
being transported, and (3) and no substantial additional cost 
is incurred in providing the transportation.
      As under the present-law rule relating to no-additional-
cost-services, services provided to the spouse or dependent 
child of the employee are treated as if provided to the 
employee. In addition, the term ``employee'' includes former 
employees who separated from service from the employer by 
reason of retirement or disability and surviving spouses of 
employees. Also, the exclusion does not apply with respect to a 
no-additional-cost service provided to a highly compensated 
employee unless the service is available on a nondiscriminatory 
basis.
      In addition, under the provision, use of noncommercial 
aircraft by any individual is treated as use by an employee if 
no regularly scheduled commercial flight is available on the 
day of the flight from the air facility at the individual's 
location to the area surrounding the air facility where the 
noncommercial flight ends.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

 G. Exclusion for Certain Severance Payments (sec. 1135 of the Senate 
                amendment and new sec. 139 of the Code)


                              Present Law

      Under present law, severance payments are includible in 
gross income.

                               House Bill

      No provision.

                            Senate Amendment

      Under the provision, up to $2,000 of qualified severance 
payments received with respect to a separation from employment 
are excludable from the gross income of the recipient. 
Qualified severance payments are payments received by an 
individual on account of separation from employment in 
connection with a reduction in the employer's work force. The 
exclusion is not available if the individual becomes employed 
within 6 months of the separation from employment at a 
compensation level that is at least 95 percent of the 
compensation the individual received before the separation. The 
exclusion does not apply if the total severance payments 
received by the individual in connection with the separation 
from employment exceed $75,000.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000, and before January 1, 
2002.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

   H. FUTA Treatment of Maple Syrup Workers (sec. 1132 of the Senate 
                    amendment and sec. of the Code)


                              Present Law


In general

      For purposes of the FUTA tax, a person is considered an 
employer, if the person pays wages of $1,500 or more in any 
calendar quarter in the calendar year or the immediately prior 
calendar year and employs at least one individual for one day 
(or portion thereof) on at least 20 days during the calender 
year or immediately prior calender year. For these purposes, 
each day must occur in a different calendar week. Generally, 
qualifying as an employer results in the obligation to pay FUTA 
taxes.

Agricultural labor

      In the case of agricultural labor, a person is considered 
an employer, if the person pays wages of $20,000 or more of 
agricultural labor in any calendar quarter in the calendar year 
or the immediately prior calendar year and employs at least ten 
individuals for one day (or portion thereof) on at least 20 
days during the calender year or immediately prior calender 
year. For these purposes, each day must occur in a different 
calendar week. Generally, qualifying as an employer results in 
the obligation to pay FUTA taxes.
      The production or harvesting of maple syrup generally 
constitutes agricultural labor only if such services are 
performed on a farm.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment provides that, for purposes of FUTA 
tax, agricultural labor includes any labor connected to the 
harvesting or production of maple sap into maple syrup or 
sugar, regardless of the location of the labor.
      Effective date.--The Senate amendment provision is 
effective on the date of enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

   I. Modify Rules Governing Tax-Exempt Bonds for Section 501(c)(3) 
      Organizations as Applied to Organizations Engaged in Timber 
Conservation Activities (sec. 1133 of the Senate amendment and sec. 145 
                              of the Code)


                              Present Law

      Interest on State or local government bonds is tax-exempt 
when the proceeds of the bonds are used to finance activities 
carried out by or paid for by those governmental units. 
Interest on bonds issued by State or local governments acting 
as conduit borrowers for private businesses is taxable unless a 
specific exception is included in the Code. One such exemption 
allows tax-exempt bonds to be issued to finance activities of 
non-profit organizations described in Code section 501(c)(3) 
(``qualified 501(c)(3) bonds'').
      Qualified 501(c)(3) bonds may be issued only to finance 
exempt, as opposed to unrelated business, activities of these 
organizations. However, if the bonds are issued to finance 
property which is intended to be, or is in fact, sold to a 
private business while the bonds are outstanding, bond interest 
may be taxable. An example of such an issue would be qualified 
501(c)(3) bonds issued to finance purchase of land and standing 
timber, when the timber was to be sold.
      As is true of other private activities receiving tax-
exempt financing, beneficiaries of qualified 501(c)(3) bonds 
are restricted in the arrangements they may have with private 
businesses relating to control and use of bond-financed 
property.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment modifies the rules governing 
issuance of qualified 501(c)(3) bonds to permit issuance of 
long-term bonds for the acquisition of timber land by 
organizations a principal purpose of which is conservation of 
that land as timber land. Under these rules, the bonds will not 
have to be repaid (to avoid loss of tax-exemption on interest) 
when the timber is harvested and sold. In addition, the Senate 
amendment provision allows these section 501(c)(3) 
organizations to enter into certain otherwise prohibited timber 
management arrangements with private businesses without losing 
tax-exemption on bonds used to finance the property and timber.
      Effective date.--The provision is effective for bonds 
issued after the date of enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

                XV. EXTENSION OF EXPIRING TAX PROVISIONS


A. Extension of Research and Experimentation Tax Credit and Increase in 
the Rates for the Alternative Incremental Research Credit (sec. 1401 of 
 the House bill, sec. 1201 of the Senate amendment, and sec. 41 of the 
                                 Code)


                              Present Law

      Section 41 provides for a research tax credit equal to 20 
percent of the amount by which a taxpayer's qualified research 
expenditures for a taxable year exceeded its base amount for 
that year. The research tax credit expired and generally does 
not apply to amounts paid or incurred after June 30, 1998.
      Except for certain university basic research payments 
made by corporations, the research tax credit applies only to 
the extent that the taxpayer's qualified research expenditures 
for the current taxable year exceed its base amount. The base 
amount for the current year generally is computed by 
multiplying the taxpayer's ``fixed-base percentage'' by the 
average amount of the taxpayer's gross receipts for the four 
preceding years. If a taxpayer both incurred qualified research 
expenditures and had gross receipts during each of at least 
three years from 1984 through 1988, then its ``fixed-base 
percentage'' is the ratio that its total qualified research 
expenditures for the 1984-1988 period bears to its total gross 
receipts for that period (subject to a maximum ratio of .16). 
All other taxpayers (so-called ``start-up firms'') are assigned 
a fixed-base percentage of 3 percent.
      Taxpayers are allowed to elect an alternative incremental 
research credit regime. If a taxpayer elects to be subject to 
this alternative regime, the taxpayer is assigned a three-
tiered fixed-base percentage (that is lower than the fixed-base 
percentage otherwise applicable under present law) and the 
credit rate likewise is reduced. Under the alternative credit 
regime, a credit rate of 1.65 percent applies to the extent 
that a taxpayer's current-year research expenses exceed a base 
amount computed by using a fixed-base percentage of 1 percent 
(i.e., the base amount equals 1 percent of the taxpayer's 
average gross receipts for the four preceding years) but do not 
exceed a base amount computed by using a fixed-base percentage 
of 1.5 percent. A credit rate of 2.2 percent applies to the 
extent that a taxpayer's current-year research expenses exceed 
a base amount computed by using a fixed-base percentage of 1.5 
percent but do not exceed a base amount computed by using a 
fixed-base percentage of 2 percent. A credit rate of 2.75 
percent applies to the extent that a taxpayer's current-year 
research expenses exceed a base amount computed by using a 
fixed-base percentage of 2 percent. An election to be subject 
to this alternative incremental credit regime may be made for 
any taxable year beginning after June 30, 1996, and such an 
election applies to that taxable year and all subsequent years 
(in the event that the credit subsequently is extended by 
Congress) unless revoked with the consent of the Secretary of 
the Treasury.

                               House Bill

      The House bill extends the research tax credit for five 
years--i.e., generally, for the period July 1, 1999, through 
June 30, 2004.
      In addition, the House bill increases the credit rate 
applicable under the alternative incremental research credit 
one percentage point per step, that is from 1.65 percent to 
2.65 percent when a taxpayer's current-year research expenses 
exceed a base amount of 1 percent but do not exceed a base 
amount of 1.5 percent; from 2.2 percent to 3.2 percent when a 
taxpayer's current-year research expenses exceed a base amount 
of 1.5 percent but do not exceed a base amount of 2 percent; 
and from 2.75 percent to 3.75 percent when a taxpayer's 
current-year research expenses exceed a base amount of 2 
percent.
      Effective date.--The extension of the research credit is 
effective for qualified research expenditures paid or incurred 
during the period July 1, 1999, through June 30, 2004. The 
increase in the credit rate under the alternative incremental 
research credit is effective for taxable years beginning after 
June 30, 1999.

                            Senate Amendment

      The Senate amendment extends the research tax credit 
permanently.
      In addition, the Senate amendment increases the credit 
rate applicable under the alternative incremental research 
credit one percentage point per step, that is, identical to the 
House bill.
      Effective date.--The extension of the research credit is 
effective for qualified research expenditures paid or incurred 
after June 30, 1999. The increase in the credit rate under the 
alternative incremental research credit is effective for 
taxable years beginning after June 30, 1999.

                          Conference Agreement

      The conference agreement follows the House bill by 
extending the research credit through June 30, 2004.
      In addition, the conference agreement follows the House 
bill and the Senate amendment by increasing the credit rate 
applicable under the alternative incremental research credit by 
one percentage point per step.
      Effective date.--The extension of the research credit is 
effective for qualified research expenditures paid or incurred 
during the period July 1, 1999, through June 30, 2004. The 
increase in the credit rate under the alternative incremental 
research credit is effective for taxable years beginning after 
June 30, 1999.

B. Extend Exceptions under Subpart F for Active Financing Income (sec. 
 1402 of the House bill, sec. 1202 of the Senate amendment, and secs. 
                        953 and 954 of the Code)


                              Present Law

      Under the subpart F rules, 10-percent U.S. shareholders 
of a controlled foreign corporation (``CFC'') are subject to 
U.S. tax currently on certain income earned by the CFC, whether 
or not such income is distributed to the shareholders. The 
income subject to current inclusion under the subpart F rules 
includes, among other things, foreign personal holding company 
income and insurance income. In addition, 10-percent U.S. 
shareholders of a CFC are subject to current inclusion with 
respect to their shares of the CFC's foreign base company 
services income (i.e., income derived from services performed 
for a related person outside the country in which the CFC is 
organized).
      Foreign personal holding company income generally 
consists of the following: (1) dividends, interest, royalties, 
rents, and annuities; (2) net gains from the sale or exchange 
of (a) property that gives rise to the preceding types of 
income, (b) property that does not give rise to income, and (c) 
interests in trusts, partnerships, and REMICs; (3) net gains 
from commodities transactions; (4) net gains from foreign 
currency transactions; (5) income that is equivalent to 
interest; (6) income from notional principal contracts; and (7) 
payments in lieu of dividends.
      Insurance income subject to current inclusion under the 
subpart F rules includes any income of a CFC attributable to 
the issuing or reinsuring of any insurance or annuity contract 
in connection with risks located in a country other than the 
CFC's country of organization. Subpart F insurance income also 
includes income attributable to an insurance contract in 
connection with risks located within the CFC's country of 
organization, as the result of an arrangement under which 
another corporation receives a substantially equal amount of 
consideration for insurance of other-country risks. Investment 
income of a CFC that is allocable to any insurance or annuity 
contract related to risks located outside the CFC's country of 
organization is taxable as subpart F insurance income (Prop. 
Treas. Reg. sec. 1.953-1(a)).
      Temporary exceptions from foreign personal holding 
company income, foreign base company services income, and 
insurance income apply for subpart F purposes for certain 
income that is derived in the active conduct of a banking, 
financing, or similar business, or in the conduct of an 
insurance business (so-called ``active financing income''). 
These exceptions are applicable only for taxable years 
beginning in 1999.\180\
---------------------------------------------------------------------------
        \180\ Temporary exceptions from the subpart F provisions for 
certain active financing income applied only for taxable years 
beginning in 1998. Those exceptions were extended and modified as part 
of the present-law provisions.
---------------------------------------------------------------------------
      With respect to income derived in the active conduct of a 
banking, financing, or similar business, a CFC is required to 
be predominantly engaged in such business and to conduct 
substantial activity with respect to such business in order to 
qualify for the exceptions. In addition, certain nexus 
requirements apply, which provide that income derived by a CFC 
or a qualified business unit (``QBU'') of a CFC from 
transactions with customers is eligible for the exceptions if, 
among other things, substantially all of the activities in 
connection with such transactions are conducted directly by the 
CFC or QBU in its home country, and such income is treated as 
earned by the CFC or QBU in its home country for purposes of 
such country's tax laws. Moreover, the exceptions apply to 
income derived from certain cross border transactions, provided 
that certain requirements are met. Additional exceptions from 
foreign personal holding company income apply for certain 
income derived by a securities dealer within the meaning of 
section 475 and for gain from the sale of active financing 
assets.
      In the case of insurance, in addition to a temporary 
exception from foreign personal holding company income for 
certain income of a qualifying insurance company with respect 
to risks located within the CFC's country of creation or 
organization, certain temporary exceptions from insurance 
income and from foreign personal holding company income apply 
for certain income of a qualifying branch of a qualifying 
insurance company with respect to risks located within the home 
country of the branch, provided certain requirements are met 
under each of the exceptions. Further, additional temporary 
exceptions from insurance income and from foreign personal 
holding company income apply for certain income of certain CFCs 
or branches with respect to risks located in a country other 
than the United States, provided that the requirements for 
these exceptions are met.

                               House Bill

      The House bill extends for five years the present-law 
temporary exceptions from subpart F foreign personal holding 
company income, foreign base company services income, and 
insurance income for certain income that is derived in the 
active conduct of a banking, financing, or similar business, or 
in the conduct of an insurance business.
      Effective date.--The provision is effective for taxable 
years of a foreign corporation beginning after December 31, 
1999, and before January 1, 2005, and for taxable years of U.S. 
shareholders with or within which such taxable years of such 
foreign corporation end.

                            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. Extend Suspension of Net Income Limitation on Percentage Depletion 
from Marginal Oil and Gas Wells (sec. 1403 of the House bill, sec. 1203 
          of the Senate amendment, and sec. 613A of the Code)


                              Present Law

      The Code permits taxpayers to recover their investments 
in oil and gas wells through depletion deductions. In the case 
of certain properties, the deductions may be determined using 
the percentage depletion method. Among the limitations that 
apply in calculating percentage depletion deductions is a 
restriction that, for oil and gas properties, the amount 
deducted may not exceed 100 percent of the net income from that 
property in any year (sec. 613(a)).
      Special percentage depletion rules apply to oil and gas 
production from ``marginal'' properties (sec. 613A(c)(6)). 
Marginal production is defined as domestic crude oil and 
natural gas production from stripper well property or from 
property substantially all of the production from which during 
the calendar year is heavy oil. Stripper well property is 
property from which the average daily production is 15 barrel 
equivalents or less, determined by dividing the average daily 
production of domestic crude oil and domestic natural gas from 
producing wells on the property for the calendar year by the 
number of wells. Heavy oil is domestic crude oil with a 
weighted average gravity of 20 degrees API or less (corrected 
to 60 degrees Fahrenheit). Under one such special rule, the 
100-percent-of-net-income limitation does not apply to domestic 
oil and gas production from marginal properties during taxable 
years beginning after December 31, 1997, and before January 1, 
2000.

                               House Bill

      The House bill extends the present-law suspension of the 
100-percent-of-net-income limitation with respect to oil and 
gas production from marginal wells to include taxable years 
beginning after December 31, 1999, and before January 1, 2005.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1999.

                            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. Extend the Work Opportunity Tax Credit (sec. 1404 of the House bill, 
      sec. 1204 of the Senate amendment, and sec. 51 of the Code)


                              Present Law


In general

      The work opportunity tax credit (``WOTC''), which expired 
on June 30, 1999, was available on an elective basis for 
employers hiring individuals from one or more of eight targeted 
groups. The credit equals 40 percent (25 percent for employment 
of 400 hours or less) of qualified wages. Generally, qualified 
wages are wages attributable to service rendered by a member of 
a targeted group during the one-year period beginning with the 
day the individual began work for the employer.
      The maximum credit per employee is $2,400 (40% of the 
first $6,000 of qualified first-year wages). With respect to 
qualified summer youth employees, the maximum credit is $1,200 
(40 percent of the first $3,000 of qualified first-year wages).
      The employer's deduction for wages is reduced by the 
amount of the credit.

Targeted groups eligible for the credit

      The eight targeted groups are: (1) families eligible to 
receive benefits under the Temporary Assistance for Needy 
Families (TANF) Program; (2) high-risk youth; (3) qualified ex-
felons; (4) vocational rehabilitation referrals; (5) qualified 
summer youth employees; (6) qualified veterans; (7) families 
receiving food stamps; and (8) persons receiving certain 
Supplemental Security Income (SSI) benefits.

Minimum employment period

      No credit is allowed for wages paid to employees who work 
less than 120 hours in the first year of employment.

Expiration date

      The credit is effective for wages paid or incurred to a 
qualified individual who began work for an employer before July 
1, 1999.

House Bill

      The House bill extends the work opportunity tax credit 
for 30 months (through December 31, 2001). The House bill also 
directs the Secretary of the Treasury to expedite procedures to 
allow taxpayers to satisfy their WOTC filing requirements 
(e.g., Form 8850) by electronic means.
      Effective date.--The House bill provision is effective 
for wages paid or incurred to qualified individuals who begin 
work for the employer on or after July 1, 1999, and before 
January 1, 2002.

                            Senate Amendment

      The Senate amendment extends the work opportunity tax 
credit for five years (through June 30, 2004).
      Effective date.--The Senate amendment provision is 
effective for wages paid or incurred to qualified individuals 
who begin work for the employer on or after July 1, 1999, and 
before July 1, 2004.

                          Conference Agreement

      The conference agreement provides for a 30-month 
extension of the work opportunity tax credit. The conferees 
also direct the Secretary of the Treasury to expedite the use 
of electronic filing of requests for certification under the 
credit. They believe that participation in the program by 
businesses should not be discouraged by the requirement that 
such forms (i.e., the Form 8850) be submitted in paper form.
      Effective date.--The provision is effective for wages 
paid or incurred to qualified individuals who begin work for 
the employer on or after July 1, 1999, and before January 1, 
2002.

E. Extend the Welfare-To-Work Tax Credit (sec. 1404 of the House bill, 
      sec. 1204 of the Senate amendment, and sec. 51A of the Code)


                              Present Law

      The Code provides to employers a tax credit on the first 
$20,000 of eligible wages paid to qualified long-term family 
assistance (AFDC or its successor program) recipients during 
the first two years of employment. The credit is 35 percent of 
the first $10,000 of eligible wages in the first year of 
employment and 50 percent of the first $10,000 of eligible 
wages in the second year of employment. The maximum credit is 
$8,500 per qualified employee.
      Qualified long-term family assistance recipients are: (1) 
members of a family that has received family assistance for at 
least 18 consecutive months ending on the hiring date; (2) 
members of a family that has received family assistance for a 
total of at least 18 months (whether or not consecutive) after 
the date of enactment of this credit if they are hired within 2 
years after the date that the 18-month total is reached; and 
(3) members of a family who are no longer eligible for family 
assistance because of either Federal or State time limits, if 
they are hired within 2 years after the Federal or State time 
limits made the family ineligible for family assistance.
      Eligible wages include cash wages paid to an employee 
plus amounts paid by the employer for the following: (1) 
educational assistance excludable under a section 127 program 
(or that would be excludable but for the expiration of sec. 
127); (2) health plan coverage for the employee, but not more 
than the applicable premium defined under section 4980B(f)(4); 
and (3) dependent care assistance excludable under section 129.
      The welfare to work credit is effective for wages paid or 
incurred to a qualified individual who begins work for an 
employer on or after January 1, 1998, and before July 1, 1999.

                               House Bill

      The House bill extends the welfare-to-work tax credit for 
30 months.
      Effective date.--The House bill provision extends the 
welfare-to-work credit effective for wages paid or incurred to 
a qualified individual who begins work for an employer on or 
after July 1, 1999, and before January 1, 2002.

                            Senate Amendment

      The Senate amendment extends the welfare-to-work tax 
credit five years.
      Effective date.--The Senate amendment provision extends 
the welfare-to-work credit effective for wages paid or incurred 
to a qualified individual who begins work for an employer on or 
after July 1, 1999, and before July 1, 2004.

                          Conference Agreement

      The conference agreement provides for a 30-month 
extension of the welfare-to-work tax credit.
      Effective date.--The provision is effective for wages 
paid or incurred to a qualified individual who begins work for 
an employer on or after July 1, 1999, and before January 1, 
2002.

 F. Extend and Modify Tax Credit for Electricity Produced by Wind and 
 Closed-Loop Biomass Facilities (sec. 1205 of the Senate amendment and 
                          sec. 45 of the Code)


                              Present Law

      An income tax credit is allowed for the production of 
electricity from either qualified wind energy or qualified 
``closed-loop'' biomass facilities (sec. 45). The credit 
applies to electricity produced by a qualified wind energy 
facility placed in service after December 31, 1993, and before 
July 1, 1999, and to electricity produced by a qualified 
closed-loop biomass facility placed in service after December 
31, 1992, and before July 1, 1999. The credit is allowable for 
production during the 10-year period after a facility is 
originally placed in service.
      Closed-loop biomass is the use of plant matter, where the 
plants are grown for the sole purpose of being used to generate 
electricity. It does not include the use of waste materials 
(including, but not limited to, scrap wood, manure, and 
municipal or agricultural waste). The credit also is not 
available to taxpayers who use standing timber to produce 
electricity. In order to claim the credit, a taxpayer must own 
the facility and sell the electricity produced by the facility 
to an unrelated party.

                               House Bill

      No provision.

                            Senate Amendment

      The present-law tax credit for electricity produced by 
wind and closed-loop biomass is extended for five years, for 
facilities placed in service after June 30, 1999, and before 
July 1, 2004. The provision also modifies the tax credit to 
include electricity produced from poultry litter, for 
facilities placed in service after December 31, 1999, and 
before July 1, 2004. The credit for electricity produced from 
poultry litter is available to the lessor/operator of a 
qualified facility that is owned by a governmental entity. The 
credit further is expanded to include electricity produced from 
landfill gas by the owner of the gas collection facility, for 
electricity produced from facilities placed in service after 
December 31, 1999, and before June 30, 2004.
      Finally, the credit is expanded to include electricity 
produced from certain other biomass (in addition to closed-loop 
biomass and poultry waste). This additional biomass is defined 
as solid, nonhazardous, cellulose waste material which is 
segregated from other waste materials and which is derived from 
forest resources, but not including old-growth timber. The term 
also includes urban sources such as waste pallets, crates, 
manufacturing and construction wood waste, and tree trimmings, 
or agricultural sources (including grain, orchard tree crops, 
vineyard legumes, sugar, and other crop by-products or 
residues. The term does not include unsegregated municipal 
solid waste or paper that commonly is recycled. In the case of 
this additional biomass, the credit applies to electricity 
produced after December 31, 1999 from facilities that are 
placed in service before January 1, 2003 (including facilities 
placed in service before the date of enactment of this 
provision). The credit is allowed for production attributable 
to biomass produced at facilities that are co-fired with coal.
      Effective date.--The extension of the tax credit for 
electricity produced from wind and closed-loop biomass is 
effective for facilities placed in service after June 30, 1999. 
The modification to include electricity produced from poultry 
waste and landfill gas is effective for facilities placed in 
service after December 31, 1999. The modification to include 
other types of biomass is effective for facilities placed in 
service before January 1, 2003, but no credits may be claimed 
for production before January 1, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with a modification limiting the extension to facilities 
producing electricity from wind, closed-loop biomass, and 
poultry waste (i.e., the conference agreement does not include 
landfill gas, closed-loop biomass, or other biomass as 
qualified sources of electricity). The provision applies to 
facilities placed in service after June 30, 1999 and before 
July 1, 2003 (wind and closed-loop biomass) and after December 
31, 1999 and before July 1, 2003 (poultry waste).

G. Extend Exemption From Diesel Dyeing Requirement for Certain Areas in 
  Alaska (sec. 1206 of the Senate amendment and sec. 4082 of the Code)


                              Present Law

      An excise tax totaling 24.4 cents per gallon is imposed 
on diesel fuel. The diesel fuel tax is imposed on removal of 
the fuel from a pipeline or barge terminal facility (i.e., at 
the ``terminal rack''). Present law provides that tax is 
imposed on all diesel fuel removed from terminal facilities 
unless the fuel is destined for a nontaxable use and is 
indelibly dyed pursuant to Treasury Department regulations.
      In general, the diesel fuel tax does not apply to non-
transportation uses of the fuel. Off-highway business uses are 
included within this non-transportation use exemption. This 
exemption includes use on a farm for farming purposes and as 
fuel powering off-highway equipment (e.g., oil drilling 
equipment). Use as heating oil also is exempt. (Most fuel 
commonly referred to as heating oil is diesel fuel.) The tax 
also does not apply to fuel used by State and local 
governments, to exported fuels, and to fuels used in commercial 
shipping. Fuel used by intercity buses and trains is partially 
exempt from the diesel fuel tax.
      A similar dyeing regime exists for diesel fuel under the 
Clean Air Act. That Act prohibits the use on highways of diesel 
fuel with a sulphur content exceeding prescribed levels. This 
``high sulphur'' diesel fuel is required to be dyed by the EPA.
      The State of Alaska generally is exempt from the Clean 
Air Act dyeing regime for a period established by the U.S. 
Environmental Protection Agency (urban areas) or permanently 
(remote areas). Diesel fuel used in Alaska is exempt from the 
excise tax dyeing requirements for periods when the EPA 
requirements do not apply.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment makes the excise tax exemption for 
Alaska urban areas permanent (i.e., independent of the EPA 
rules).
      Effective date.--The provision is effective on the date 
of enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

H. Expensing of Environmental Remediation Expenditures and Expansion of 
Qualifying Sites (sec. 1207 of the Senate amendment 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, 2001.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment extends the expiration date for 
eligible expenditures to include those paid or incurred before 
July 1, 2004.
      In addition, the bill eliminates the targeted area 
requirement, thereby expanding eligible sites to include any 
site containing (or potentially containing) a hazardous 
substance that is certified by the appropriate State 
environmental agency, but not those sites that are identified 
on the national priorities list under the Comprehensive 
Environmental Response, Compensation, and Liability Act of 
1980.
      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 December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment by 
expanding eligible sites to include any site containing (or 
potentially containing) a hazardous substance that is certified 
by the appropriate State environmental agency, but not those 
sites that are identified on the national priorities list under 
the Comprehensive Environmental Response, Compensation, and 
Liability Act of 1980.
      The conference agreement does not include an extension of 
the present-law expiration date for section 198.
      Effective date.--The provision to expand the class of 
eligible sites is effective for expenditures paid or incurred 
after December 31, 1999.

                     XVI. REVENUE OFFSET PROVISIONS


 A. Expand Reporting of Cancellation of Indebtedness Income (sec. 1501 
of the House bill, sec. 1302 of the Senate amendment, and sec. 6050P of 
                               the Code)


                              Present Law

      Under section 61(a)(12), a taxpayer's gross income 
includes income from the discharge of indebtedness. Section 
6050P requires ``applicable entities'' to file information 
returns with the Internal Revenue Service (IRS) regarding any 
discharge of indebtedness of $600 or more.
      The information return must set forth the name, address, 
and taxpayer identification number of the person whose debt was 
discharged, the amount of debt discharged, the date on which 
the debt was discharged, and any other information that the IRS 
requires to be provided. The information return must be filed 
in the manner and at the time specified by the IRS. The same 
information also must be provided to the person whose debt is 
discharged by January 31 of the year following the discharge.
      ``Applicable entities'' include: (1) the Federal Deposit 
Insurance Corporation (FDIC), the Resolution Trust Corporation 
(RTC), the National Credit Union Administration, and any 
successor or subunit of any of them; (2) any financial 
institution (as described in sec. 581 (relating to banks) or 
sec. 591(a) (relating to savings institutions)); (3) any credit 
union; (4) any corporation that is a direct or indirect 
subsidiary of an entity described in (2) or (3) which, by 
virtue of being affiliated with such entity, is subject to 
supervision and examination by a Federal or State agency 
regulating such entities; and (5) an executive, judicial, or 
legislative agency (as defined in 31 U.S.C. sec. 3701(a)(4)).
      Failures to file correct information returns with the IRS 
or to furnish statements to taxpayers with respect to these 
discharges of indebtedness are subject to the same general 
penalty that is imposed with respect to failures to provide 
other types of information returns. Accordingly, the penalty 
for failure to furnish statements to taxpayers is generally $50 
per failure, subject to a maximum of $100,000 for any calendar 
year. These penalties are not applicable if the failure is due 
to reasonable cause and not to willful neglect.

                               House Bill

      The bill requires information reporting on indebtedness 
discharged by any organization a significant trade or business 
of which is the lending of money (such as finance companies and 
credit card companies whether or not affiliated with financial 
institutions).
      Effective date.--The provision is effective with respect 
to discharges of indebtedness after December 31, 1999.

                            Senate Amendment

      Same as House bill.

                          Conference Agreement

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

 B. Extension of IRS User Fees (sec. 1502 of the House bill, sec. 1304 
        of the Senate amendment, and new sec. 7527 of the Code)


                              Present Law

      The IRS provides written responses to questions of 
individuals, corporations, and organizations relating to their 
tax status or the effects of particular transactions for tax 
purposes. The IRS generally charges a fee for requests for a 
letter ruling, determination letter, opinion letter, or other 
similar ruling or determination. Public Law 104-117 \181\ 
extended the statutory authorization for these user fees \182\ 
through September 30, 2003.
---------------------------------------------------------------------------
        \181\ An Act to provide that members of the Armed Froces 
performing 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).
        \182\ These user fees were originally enacted in section 10511 
of the Revenue Act of 1987 (Public Law 100-203, December 22, 1987).
---------------------------------------------------------------------------

                               House Bill

      The bill extends the statutory authorization for these 
user fees through September 30, 2009. The bill also moves the 
statutory authorization for these fees into the Internal 
Revenue Code.
      Effective date.--The provision, including moving the 
statutory authorization for these fees into the Code and 
repealing the off-Code statutory authorization for these fees, 
is effective for requests made after the date of enactment.

                            Senate Amendment

      Same as House bill.

                          Conference Agreement

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

 C. Impose Limitation on Prefunding of Certain Employee Benefits (sec. 
 1503 of the House bill, sec. 1312 of the Senate amendment, and secs. 
                       419A and 4976 of the Code)


                              Present Law

      Under present law, contributions to a welfare benefit 
fund generally are deductible when paid, but only to the extent 
permitted under the rules of sections 419 and 419A. The amount 
of an employer's deduction in any year for contributions to a 
welfare benefit fund cannot exceed the fund's qualified cost 
for the year minus the fund's after-tax income for the year. 
With certain exceptions, the term qualified cost means the sum 
of (1) the amount that would be deductible for benefits 
provided during the year if the employer paid them directly and 
was on the cash method of accounting, and (2) within limits, 
the amount of any addition to a qualified asset account for the 
year. A qualified asset account includes any account consisting 
of assets set aside for the payment of disability benefits, 
medical benefits, supplemental unemployment compensation or 
severance pay benefits, or life insurance benefits. The account 
limit for a qualified asset account for a taxable year is 
generally the amount reasonably and actuarially necessary to 
fund claims incurred but unpaid (as of the close of the taxable 
year) for benefits with respect to which the account is 
maintained and the administrative costs incurred with respect 
to those claims. Specific additional reserves are allowed for 
future provision of post-retirement medical and life insurance 
benefits.
      The deduction limits of sections 419 and 419A for 
contributions to welfare benefit funds do not apply in the case 
of certain 10-or-more employer plans. A plan is a 10-or-more 
employer plan if (1) more than one employer contributes to it, 
and (2) no employer is normally required to contribute more 
than 10 percent of the total contributions contributed under 
the plan by all employers. The exception is not available if 
the plan maintains experience-rating arrangements with respect 
to individual employers.
      If any portion of a welfare benefit fund reverts to the 
benefit of an employer, an excise tax equal to 100 percent of 
the reversion is imposed on the employer.

                               House Bill

      The present-law exception to the deduction limit for 10-
or-more employer plans is limited to plans that provide only 
medical benefits, disability benefits, and qualifying group-
term life insurance benefits to plan beneficiaries. The 
legislative history provides that qualifying group-term life 
insurance benefits do not include any arrangements that permit 
a plan beneficiary to directly or indirectly access all or part 
of the account value of any life insurance contract, whether 
through a policy loan, a partial or complete surrender of the 
policy, or otherwise. Also, the legislative history provides 
that it is intended that qualifying group-term life insurance 
benefits do not include any arrangement whereby a plan 
beneficiary may receive a policy without a stated account value 
that has the potential to give rise to an account value whether 
through the exchange of such policy for another policy that 
would have an account value or otherwise. The 10-or-more 
employer plan exception is no longer available with respect to 
plans that provide supplemental unemployment compensation, 
severance pay, or life insurance (other than qualifying group-
term life insurance) benefits. Thus, the generally applicable 
deduction limits (sections 419 and 419A) apply to plans 
providing these benefits.
      In addition, if any portion of a welfare benefit fund 
attributable to contributions that are deductible pursuant to 
the 10-or-more employer exception (and earnings thereon) is 
used for a purpose other than for providing medical benefits, 
disability benefits, or qualifying group-term life insurance 
benefits to plan beneficiaries, such portion is treated as 
reverting to the benefit of the employers maintaining the fund 
and is subject to the imposition of the 100-percent excise tax. 
Thus, for example, cash payments to employees upon termination 
of the fund, and loans or other distributions to the employee 
or employer, would be treated as giving rise to a reversion 
that is subject to the excise tax.
      The legislative history indicates that no inference is 
intended with respect to the validity of any 10-or-more 
employer arrangement under the provisions of present law.
      Effective date.--The House bill is effective with respect 
to contributions paid or accrued on or after June 9, 1999, in 
taxable years ending after such date.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except the Senate amendment states that group-term life 
insurance benefits that qualify for the 10-or-more employer 
exception are group-term life insurance benefits that do not 
provide directly or indirectly for any cash surrender value or 
other money that can be paid, assigned, borrowed, or pledged 
for collateral for a loan. In addition, the legislative history 
indicates that it is intended that group-term life insurance 
benefits do not fail to be qualifying group-term life insurance 
benefits solely as a result of the inclusion of de minimis 
ancillary benefits, as described in Treasury regulations.
      Effective date.--The effective date of the Senate 
amendment is the same as the effective date of the House bill.

                          Conference Agreement

      The conference agreement follows the Senate amendment. It 
is intended that group-term life insurance benefits do not fail 
to be qualifying group-term life insurance benefits solely as a 
result of the inclusion of de minimis ancillary benefits, as 
described in Treasury regulations under the provision.

  D. Increase Elective Withholding Rate for Nonperiodic Distributions 
 from Deferred Compensation Plans (sec. 1504 of the bill and sec. 3405 
                              of the Code)


                              Present Law

      Present law provides that income tax withholding is 
required on designated distributions from employer compensation 
plans (whether or not such plans are tax qualified), individual 
retirement arrangements (``IRAs''), and commercial annuities 
unless the payee elects not to have withholding apply. A 
designated distribution does not include any payment (1) that 
is wages, (2) the portion of which it is reasonable to believe 
is not includible in gross income,\183\ (3) that is subject to 
withholding of tax on nonresident aliens and foreign 
corporations (or would be subject to such withholding but for a 
tax treaty), or (4) that is a dividend paid on certain employer 
securities (as defined in sec. 404(k)(2)).
---------------------------------------------------------------------------
        \183\ All IRA distributions are treated as if includible in 
income for purposes of this rule. A technical correction contained in 
the bill modifies this rule in the case of Roth IRAs.
---------------------------------------------------------------------------
    Tax is generally withheld on the taxable portion of any 
periodic payment as if the payment is wages to the payee. A 
periodic payment is a designated distribution that is an 
annuity or similar periodic payment.
      In the case of a nonperiodic distribution, tax generally 
is withheld at a flat 10-percent rate unless the payee makes an 
election not to have withholding apply. A nonperiodic 
distribution is any distribution that is not a periodic 
distribution. Under current administrative rules, an individual 
receiving a nonperiodic distribution can designate an amount to 
be withheld in addition to the 10-percent otherwise required to 
be withheld.
      Under present law, in the case of a nonperiodic 
distribution that is an eligible rollover distribution, tax is 
withheld at a 20-percent rate unless the payee elects to have 
the distribution rolled directly over to an eligible retirement 
plan (i.e., an IRA, a qualified plan (sec. 401(a)) that is a 
defined contribution plan permitting direct deposits of 
rollover contributions, or a qualified annuity plan (sec. 
403(a)). In general, an eligible rollover distribution includes 
any distribution to an employee of all or any portion of the 
balance to the credit of the employee in a qualified plan or 
qualified annuity plan. An eligible rollover distribution does 
not include any distribution that is part of a series of 
substantially equal periodic payments made (1) for the life (or 
life expectancy) of the employee or for the joint lives (or 
joint life expectancies) of the employee and the employee's 
designated beneficiary, or (2) over a specified period of 10 
years or more. An eligible rollover distribution also does not 
include any distribution required under the minimum 
distribution rules of section 401(a)(9), hardship distributions 
from section 401(k) plans, or the portion of a distribution 
that is not includible in income. The payee of an eligible 
rollover distribution can only elect not to have withholding 
apply by making the direct rollover election.

                               House Bill

      Under the bill, the withholding rate for nonperiodic 
distributions would be increased from 10 percent to 15 percent. 
As under present law, unless the distribution is an eligible 
rollover distribution, the payee could elect not to have 
withholding apply. The bill does not modify the 20-percent 
withholding rate that applies to any distribution that is an 
eligible rollover distribution.
      Effective date.--The provision is effective for 
distributions made after December 31, 1999.

                            Senate Amendment

      The provision is the same as the House bill.
      Effective date.--Distributions made after December 31, 
2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

E. Modify Treatment of Closely-Held REITs (sec. 1505 of the House bill, 
      sec. 1320 of the Senate amendment, and sec. 856 of the Code)


                              Present Law

      In general, a real estate investment trust (``REIT'') is 
an entity that receives most of its income from passive real 
estate related investments and that receives pass-through 
treatment for income that is distributed to shareholders. If an 
electing entity meets the qualifications for REIT status, the 
portion of its income that is distributed to the investors each 
year generally is taxed to the investors without being 
subjected to tax at the REIT level.
      A REIT must satisfy a number of tests on a year-by-year 
basis that relate to the entity's: (1) organizational 
structure; (2) source of income; (3) nature of assets; and (4) 
distribution of income.
      Under the organizational structure test, except for the 
first taxable year for which an entity elects to be a REIT, the 
beneficial ownership of the entity must be held by 100 or more 
persons. Generally, no more than 50 percent of the value of the 
REIT's stock can be owned by five or fewer individuals during 
the last half of the taxable year. Certain attribution rules 
apply in making this determination. No similar rule applies to 
corporate ownership of a REIT. Certain transactions have been 
structured to attempt to achieve special tax benefits for an 
entity that controls a REIT.

                               House Bill

      The House bill provision imposes as an additional 
requirement for REIT qualification that, except for the first 
taxable year for which an entity elects to be a REIT, no one 
person can own stock of a REIT possessing 50 percent or more of 
the combined voting power of all classes of voting stock or 50 
percent or more of the total value of shares of all classes of 
stock of the REIT. For purposes of determining a person's stock 
ownership, rules similar to attribution rules for REIT 
independent contractor qualification under present law apply 
(secs. 856(d)(5) and 856(h)(3)). The provision does not apply 
to ownership by a REIT of 50 percent or more of the stock (vote 
or value) of another REIT.
      An exception applies for a limited period to certain 
``incubator REITs''. An incubator REIT is a corporation that 
elects to be treated as an incubator REIT and that meets all 
the following other requirements. (1) it has only voting common 
stock outstanding, (2) not more than 50 percent of the 
corporation's real estate assets consist of mortgages, (3) from 
not later than the beginning of the last half of the second 
taxable year, at least 10 percent of the corporation's capital 
is provided by lenders or equity investors who are unrelated to 
the corporation's largest shareholder, (4) the directors of the 
corporation must adopt a resolution setting forth an intent to 
engage in a going public transaction, and (5) no predecessor 
entity (including any entity from which the electing incubator 
REIT acquired assets in a transaction in which gain or loss was 
not recognized in whole or in part) had elected incubator REIT 
status.
      The new ownership requirement does not apply to an 
electing incubator REIT until the end of the REIT's third 
taxable year; and can be extended for an additional two taxable 
years if the REIT so elects. However, a REIT cannot elect the 
additional two year extension unless the REIT agrees that if it 
does not engage in a going public transaction by the end of the 
extended eligibility period, it shall pay Federal income taxes 
for the two years of the extended period as if it had not made 
an incubator REIT election and had ceased to qualify as a REIT 
for those two taxable years. In such case, the corporation 
shall file appropriate amended returns within 3 months of the 
close of the extended eligibility period. Interest would be 
payable, but no substantial underpayment penalties would apply 
except in cases where there is a finding that incubator REIT 
status was elected for a principal purpose other than as part 
of a reasonable plan to engage in a going public transaction. 
Notification of shareholders and any other person whose tax 
position would reasonably be expected to be affected is also 
required.
      If an electing incubator REIT does not elect to extend 
its initial 2-year extended eligibility period and has not 
engaged in a going public transaction by the end of such 
period, it must satisfy the new control requirements as of the 
beginning of its fourth taxable year (i.e., immediately after 
the close of the last taxable year of the two-year initial 
extension period) or it will be required to notify its 
shareholders and other persons that may be affected by its tax 
status, and pay Federal income tax as a corporation that has 
ceased to qualify as a REIT at that time.
      If the Secretary of the Treasury determines that an 
incubator REIT election was filed for a principal purpose other 
than as part of a reasonable plan to undertake a going public 
transaction, an excise tax of $20,000 is imposed on each of the 
corporation's directors for each taxable year for which the 
election was in effect.
      A going public transaction is defined as either (1) a 
public offering of shares of stock of the incubator REIT, (2) a 
transaction, or series of transactions, that result in the 
incubator REIT stock being regularly traded on an established 
securities market (as defined in section 897) and being held by 
shareholders unrelated to persons who held such stock before it 
began to be so regularly traded, or (3) any transaction 
resulting in ownership of the REIT by 200 or more persons 
(excluding the largest single shareholder) who in the aggregate 
own at least 50 percent of the stock of the REIT. Attribution 
rules apply in determining ownership of stock.
      Effective date.--The provision is effective for taxable 
years ending after July 12, 1999. Any entity that elects (or 
has elected) REIT status for a taxable year including July 12, 
1999, and which is both a controlled entity and has significant 
business assets or activities on such date, will not be subject 
to the proposal. Under this rule, a controlled entity with 
significant business assets or activities on July 14, 1999, can 
be grandfathered even if it makes its first REIT election after 
that date with its return for the taxable year including that 
date.
      For purposes of the transition rules, the significant 
business assets or activities in place on July 12, 1999, must 
be real estate assets and activities of a type that would be 
qualified real estate assets and would produce qualified real 
estate related income for a REIT.

                            Senate Amendment

      The Senate amendment is the same as the House bill except 
that the Senate amendment contains an additional qualification 
for incubator REIT status, namely, that the corporation must 
annually increase the value of real estate assets by at least 
10 percent,
      For purposes of determining whether a corporation has met 
the requirement that it annually increase the value of its real 
estate assets by 10 percent, the following rules shall apply. 
First, values shall be based on cost and properly capitalizable 
expenditures with no adjustment for depreciation. Second, the 
test shall be applied by comparing the value of assets at the 
end of the first taxable year with those at the end of the 
second taxable year and by similar successive taxable year 
comparisons during the eligibility period. Third, if a 
corporation fails the 10 percent comparison test for one 
taxable year, it may remedy the failure by increasing the value 
of real estate assets by 25 percent in the following taxable 
year, provided it meets all the other eligibility period 
requirements in that following taxable year.
      Effective date.--The effective date of the Senate 
amendment is the same as the House bill except that the Senate 
amendment substitutes the date July 14, 1999 for the date July 
12, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
with a modification in the attribution rules so that once stock 
is deemed owned by a qualified entity (a REIT or a partnership 
of which a REIT is at least a 50 percent partner) it will not 
be reattributed under section 318(a)(3)(C).
      Effective date.--The effective date is the same as that 
of the Senate amendment.

F. Limit Conversion of Character of Income from Constructive Ownership 
  Transactions (sec. 1506 of the House bill, sec. 1314 of the Senate 
               amendment, and new sec. 1260 of the Code)


                              Present Law

      The maximum individual income tax rate on ordinary income 
and short-term capital gain is 39.6 percent, while the maximum 
individual income tax rate on long-term capital gain generally 
is 20 percent. Long-term capital gain means gain from the sale 
or exchange of a capital asset held more than one year. For 
this purpose, gain from the termination of a right with respect 
to property that would be a capital asset in the hands of the 
taxpayer is treated as capital gain.\184\
---------------------------------------------------------------------------
        \184\ Section 1234A, as amended by the Taxpayer Relief Act of 
1997.
---------------------------------------------------------------------------
      A pass-thru entity (such as a partnership) generally is 
not subject to Federal income tax. Rather, each owner includes 
its share of a pass-thru entity's income, gain, loss, deduction 
or credit in its taxable income. Generally, the character of 
the item is determined at the entity level and flows through to 
the owners. Thus, for example, the treatment of an item of 
income by a partnership as ordinary income, short-term capital 
gain, or long-term capital gain retains its character when 
reported by each of the partners.
      Investors may enter into forward contracts, notional 
principal contracts, and other similar arrangements with 
respect to property that provides the investor with the same or 
similar economic benefits as owning the property directly but 
with potentially different tax consequences (as to the 
character and timing of any gain).

                               House Bill

      The House bill limits the amount of long-term capital 
gain a taxpayer could recognize from certain derivative 
contracts (``constructive ownership transaction'') with respect 
to certain financial assets. The amount of long-term capital 
gain is limited to the amount of such gain the taxpayer would 
have had if the taxpayer held the asset directly during the 
term of the derivative contract. Any gain in excess of this 
amount is treated as ordinary income. An interest charge is 
imposed on the amount of gain that is treated as ordinary 
income. The House bill does not alter the tax treatment of the 
long-term capital gain that is not treated as ordinary income.
      A taxpayer is treated as having entered into a 
constructive ownership transaction if the taxpayer (1) holds a 
long position under a notional principal contract with respect 
to the financial asset, (2) enters into a forward contract to 
acquire the financial asset, (3) is the holder of a call 
option, and the grantor of a put option, with respect to a 
financial asset, and the options have substantially equal 
strike prices and substantially contemporaneous maturity dates, 
or (4) to the extent provided in regulations, enters into one 
or more transactions, or acquires one or more other positions, 
that have substantially the same effect as any of the 
transactions described.The House bill anticipates that Treasury 
regulations, when issued, will provide specific standards for 
determining when other types of financial transactions, like those 
specified in the provision, have the effect of replicating the economic 
benefits of direct ownership of a financial asset (and will be treated 
as a constructive ownership transaction).
      A ``financial asset'' is defined as (1) any equity 
interest in a pass-thru entity, and (2) to the extent provided 
in regulations, any debt instrument and any stock in a 
corporation that is not a pass-thru entity. A ``pass-thru 
entity'' refers to (1) a regulated investment company, (2) a 
real estate investment trust, (3) an S corporation, (4) a 
partnership, (5) a trust, (6) a common trust fund, (7) a 
passive foreign investment company, (8) a foreign personal 
holding company, and (9) a foreign investment company.
      The amount of recharacterized gain is calculated as the 
excess of the amount of long-term gain the taxpayer would have 
had absent this provision over the ``net underlying long-term 
capital gain'' attributable to the financial asset. The net 
underlying long-term capital gain is the amount of net capital 
gain the taxpayer would have realized if it had acquired the 
financial asset for its fair market value on the date the 
constructive ownership transaction was opened and sold the 
financial asset on the date the transaction was closed (only 
taking into account gains and losses that would have resulted 
from the constructive ownership of the financial asset).\185\ 
The long-term capital gains rate on the net underlying long-
term capital gain is determined by reference to the individual 
capital gains rates in section 1(h).
---------------------------------------------------------------------------
        \185\ A taxpayer must establish the amount of the net 
underlying long-term capital gain with clear and convincing evidence; 
otherwise, the amount is deemed to be zero.
---------------------------------------------------------------------------
      An interest charge is imposed on the underpayment of tax 
for each year that the constructive ownership transaction was 
open. The interest charge is the amount of interest that would 
be imposed under section 6601 had the recharacterized gain been 
included in the taxpayer's gross income during the term of the 
constructive ownership transaction. The recharacterized gain is 
treated as having accrued such that the gain in each successive 
year is equal to the gain in the prior year increased by a 
constant growth rate \186\ during the term of the constructive 
ownership transaction.
---------------------------------------------------------------------------
        \186\ The accrual rate is the applicable Federal rate on the 
day the transaction closed.
---------------------------------------------------------------------------
      A taxpayer is treated as holding a long position under a 
notional principal contract with respect to a financial asset 
if the person (1) has the right to be paid (or receive credit 
for) all or substantially all of the investment yield 
(including appreciation) on the financial asset for a specified 
period, and (2) is obligated to reimburse (or provide credit) 
for all or substantially all of any decline in the value of the 
financial asset. A forward contract is a contract to acquire in 
the future (or provide or receive credit for the future value 
of) any financial asset.
      If the constructive ownership transaction is closed by 
reason of taking delivery of the underlying financial asset, 
the taxpayer is treated as having sold the contracts, options, 
or other positions that are part of the transaction for its 
fair market value on the closing date. However, the amount of 
gain that is recognized as a result of having taken delivery is 
limited to the amount of gain that is treated as ordinary 
income by reason of this provision (with appropriate basis 
adjustments for such gain).
      The provision does not apply to any constructive 
ownership transaction if all of the positions that are part of 
the transaction are marked to market under the Code or 
regulations. The provision also does not apply to transactions 
entered into by tax-exempt organizations and foreign taxpayers.
      The Treasury Department is authorized to prescribe 
regulations as necessary to carry out the purposes of the 
provision, including to (1) permit taxpayers to mark to market 
constructive ownership transactions in lieu of the provision, 
and (2) exclude certain forward contracts that do not convey 
substantially all of the economic return with respect to a 
financial asset.
      Effective date.--The provision applies to transactions 
entered into on or after July 12, 1999.

                            Senate Amendment

      The Senate amendment is the same as the House bill with 
some modifications. The Senate amendment modifies the 
definition of a ``pass-thru entity'' to include (1) a real 
estate mortgage investment conduit and (2) a passive foreign 
investment company that is also a controlled foreign 
corporation. The Committee report clarifies (1) the types of 
financial transactions that, under Treasury regulations, are 
expected to have substantially the same effect as those 
specified in the provision, and (2) the determination of the 
amount of any net underlying long-term capital gain. The 
Committee report further provides that no inference is intended 
as to the proper treatment of a constructive ownership 
transaction entered into prior to the effective date of the 
provision.
      Effective date.--The provision applies to transactions 
entered into on or after July 12, 1999. It is intended that a 
contract, option or any other arrangement that is entered into 
or exercised on or after July 12, 1999 which extends or 
otherwise modifies the terms of a transaction entered into 
prior to such date is treated as a transaction entered into on 
or after July 12, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

G. Treatment of Excess Pension Assets Used for Retiree Health Benefits 
        (sec. 1507 of the House bill, sec. 1305 of the Senate 
        amendment, sec. 420 of the Code, and secs. 101, 403, and 408 of 
        ERISA)

Present Law

      Defined benefit pension plan assets generally may not 
revert to an employer prior to the termination of the plan and 
the satisfaction of all plan liabilities. A reversion prior to 
plan termination may constitute a prohibited transaction and 
may result in disqualification of the plan. Certain limitations 
and procedural requirements apply to a reversion upon plan 
termination. Any assets that revert to the employer upon plan 
termination are includible in the gross income of the employer 
and subject to an excise tax. The excise tax rate, which may be 
as high as 50 percent of the reversion, varies depending upon 
whether or not the employer maintains a replacement plan or 
makes certain benefit increases. Upon plan termination, the 
accrued benefits of all plan participants are required to be 
100-percent vested.
      A pension plan may provide medical benefits to retired 
employees through a section 401(h) account that is a part of 
such plan. A qualified transfer of excess assets of a defined 
benefit pension plan (other than a multiemployer plan) into a 
section 401(h) account that is a part of such plan does not 
result in plan disqualification and is not treated as a 
reversion to the employer or a prohibited transaction. 
Therefore, the transferred assets are not includible in the 
gross income of the employer and are not subject to the excise 
tax on reversions.
      Qualified transfers are subject to amount and frequency 
limitations, use requirements, deduction limitations, vesting 
requirements and minimum benefit requirements. Excess assets 
transferred in a qualified transfer may not exceed the amount 
reasonably estimated to be the amount that the employer will 
pay out of such account during the taxable year of the transfer 
for qualified current retiree health liabilities. No more than 
one qualified transfer with respect to any plan may occur in 
any taxable year.
      The transferred assets (and any income thereon) must be 
used to pay qualified current retiree health liabilities 
(either directly or through reimbursement) for the taxable year 
of the transfer. Transferred amounts generally must benefit all 
pension plan participants, other than key employees, who are 
entitled upon retirement to receive retiree medical benefits 
through the section 401(h) account. Retiree health benefits of 
key employees may not be paid (directly or indirectly) out of 
transferred assets. Amounts not used to pay qualified current 
retiree health liabilities for the taxable year of the transfer 
are to be returned at the end of the taxable year to the 
general assets of the plan. These amounts are not includible in 
the gross income of the employer, but are treated as an 
employer reversion and are subject to a 20-percent excise tax.
      No deduction is allowed for (1) a qualified transfer of 
excess pension assets into a section 401(h) account, (2) the 
payment of qualified current retiree health liabilities out of 
transferred assets (and any income thereon) or (3) a return of 
amounts not used to pay qualified current retiree health 
liabilities to the general assets of the pension plan.
      In order for the transfer to be qualified, accrued 
retirement benefits under the pension plan generally must be 
100-percent vested as if the plan terminated immediately before 
the transfer.
      The minimum benefit requirement requires each group 
health plan under which applicable heath benefits are provided 
to provide substantially the same level of applicable health 
benefits for the taxable year of the transfer and the following 
4 taxable years. The level of benefits that must be maintained 
is based on benefits provided in the year immediately preceding 
the taxable year of the transfer. Applicable health benefits 
are health benefits or coverage that are provided to (1) 
retirees who, immediately before the transfer, are entitled to 
receive such benefits upon retirement and who are entitled to 
pension benefits under the plan and (2) the spouses and 
dependents of such retirees.
      The provision permitting a qualified transfer of excess 
pension assets to pay qualified current retiree health 
liabilities expires for taxable years beginning after December 
31, 2000.\187\
---------------------------------------------------------------------------
        \187\ Title I of the Employee Retirement Income Security Act of 
1974, as amended (``ERISA''), provides that plan participants, the 
Secretaries of Treasury and the Department of Labor, the plan 
administrator, and each employee organization representing plan 
participants must be notified 60 days before a qualified transfer of 
excess assets to a retiree health benefits account occurs (ERISA sec. 
103(e)). ERISA also provides that a qualified transfer is not a 
prohibited transaction under ERISA (ERISA sec. 408(b)(13)) or a 
prohibited reversion of assets to the employer (ERISA sec. 403(c)(1)). 
For purposes of these provisions, a qualified transfer is generally 
defined as a transfer pursuant to section 420 of the Internal Revenue 
Code, as in effect on January 1, 1995.
---------------------------------------------------------------------------

House Bill

      The present-law provision permitting qualified transfers 
of excess defined benefit pension plan assets to provide 
retiree health benefits under a section 401(h) account is 
extended through September 30, 2009. In addition, the present-
law minimum benefit requirement is replaced by the minimum cost 
requirement that applied to qualified transfers before December 
9, 1994, to section 401(h) accounts. Therefore, each group 
health plan or arrangement under which applicable health 
benefits are provided is required to provide a minimum dollar 
level of retiree health expenditures for the taxable year of 
the transfer and the following 4 taxable years. The minimum 
dollar level is the higher of the applicable employer costs for 
each of the 2 taxable years immediately preceding the taxable 
year of the transfer. The applicable employer cost for a 
taxable year is determined by dividing the employer's qualified 
current retiree health liabilities by the number of individuals 
to whom coverage for applicable health benefits was provided 
during the taxable year.
      Effective date.--The House bill is effective with respect 
to qualified transfers of excess defined benefit pension plan 
assets to section 401(h) accounts after December 31, 2000, and 
before October 1, 2009. The modification of the minimum benefit 
requirement is effective with respect to transfers after the 
date of enactment.

                            Senate Amendment

      The Senate amendment is the same as the House bill.\188\
---------------------------------------------------------------------------
        \188\ The Senate amendment modifies the corresponding 
provisions of ERISA.
---------------------------------------------------------------------------
      Effective date.--Same as the House bill, except that the 
modification of the minimum benefit requirement is effective 
with respect to transfers after the date of enactment. In 
addition, the Senate amendment contains a transition rule 
regarding the minimum cost requirement. Under this rule, an 
employer must satisfy the minimum benefit requirement with 
respect to a qualified transfer that occurs after the date of 
enactment during the portion of the cost maintenance period of 
such transfer that overlaps the benefit maintenance period of a 
qualified transfer that occurs on or before the date of 
enactment. For example, suppose an employer (with a calendar 
year taxable year) made a qualified transfer in 1998. The 
minimum benefit requirement must be satisfied for calendar 
years 1998, 1999, 2000, 2001, and 2002. Suppose the employer 
also makes a qualified transfer in 2000. Then, the employer is 
required to satisfy the minimum benefit requirement in 2000, 
2001, and 2002, and is required to satisfy the minimum cost 
requirement in 2003 and 2004.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

  H. Modify Installment Method and Prohibit its Use by Accrual Method 
    Taxpayers (sec. 1508 of the House bill, sec. 1313 of the Senate 
             amendment, and secs. 453 and 453A of the Code)


                              Present Law

      An accrual method taxpayer is generally required to 
recognize income when all the events have occurred that fix the 
right to the receipt of the income and the amount of the income 
can be determined with reasonable accuracy. The installment 
method of accounting provides an exception to this general 
principle of income recognition by allowing 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.
      A pledge rule provides that if an installment obligation 
is pledged as security for any indebtedness, the net proceeds 
\189\ 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.
---------------------------------------------------------------------------
        \189\ The net proceeds equal the gross loan proceeds less the 
direct expenses of obtaining the loan.
---------------------------------------------------------------------------
      An additional rule requires the payment of interest on 
the deferred tax that is attributable to most large installment 
sales.

                               House Bill


Prohibition on the use of the installment method for accrual method 
        dispositions

      The provision generally prohibits the use of the 
installment method of accounting for dispositions of property 
that would otherwise be reported for Federal income tax 
purposes using an accrual method of accounting. The provision 
does not change present law regarding the availability of the 
installment method for dispositions of property used or 
produced in the trade or business of farming. The provision 
also does not change present law regarding the availability of 
the installment method for dispositions of timeshares or 
residential lots if the taxpayer elects to pay interest under 
section 453(l).
      The provision does not change the ability of a cash 
method taxpayer to use the installment method. For example, a 
cash method individual owns all of the stock of a closely held 
accrual method corporation. This individual sells his stock for 
cash, a ten year note, and a percentage of the gross revenues 
of the company for next ten years. The provision would not 
change the ability of this individual to use the installment 
method in reporting the gain on the sale of the stock.

Modifications to the pledge rule

      The provision modifies the pledge rule to provide that 
entering into any arrangement that gives the taxpayer the right 
to satisfy an obligation with an installment note will be 
treated in the same manner as the direct pledge of the 
installment note. For example, a taxpayer disposes of property 
for an installment note. The disposition is properly reported 
using the installment method. The taxpayer only recognizes gain 
as it receives the deferred payment. However, were the taxpayer 
to pledge the installment note as security for a loan, it would 
be required to treat the proceeds of such loan as a payment on 
the installment note, and recognize the appropriate amount of 
gain. Under the provision, the taxpayer would also be required 
to treat the proceeds of a loan as payment on the installment 
note to the extent the taxpayer had the right to ``put'' or 
repay the loan by transferring the installment note to the 
taxpayer's creditor. Other arrangements that have a similar 
effect would be treated in the same manner.
      The modification of the pledge rule applies only to 
installment sales where the pledge rule of present law applies. 
Accordingly, the provision does not apply to installment method 
sales made by a dealer in timeshares and residential lots where 
the taxpayer elects to pay interest under section 453(l)(2)(B), 
to sales of property used or produced in the trade or business 
of farming, or to dispositions where the sales price does not 
exceed $150,000, since such sales are not subject to the pledge 
rule under present law.
      Effective date.--The provision of the House bill is 
effective for sales or other dispositions entered into on or 
after the date of enactment.

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

I. Limitation on the Use of Non-accrual Experience Method of Accounting 
        (sec. 1509 of the House bill, sec. 1311 of the Senate 
        amendment, and sec. 448 of the Code)

                              Present Law

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

                               House Bill

      The House bill provides that the non-accrual experience 
method will be available only for amounts to be received for 
the performance of qualified personal services. Amounts to be 
received for the performance of all other services will be 
subject to the general rule regarding inclusion in income. 
Qualified personal services are personal services in the fields 
of health, law, engineering, architecture, accounting, 
actuarial science, performing arts or consulting. As under 
present law, the availability of the method is conditioned on 
the taxpayer not charging interest or a penalty for failure to 
timely pay the amount.
      Effective date.--The provision of the House bill is 
effective for taxable years ending after the date of enactment. 
Any change in the taxpayer's method of accounting necessitated 
as a result of the proposal will be treated as a voluntary 
change initiated by the taxpayer with the consent of the 
Secretary of the Treasury. Any required section 481(a) 
adjustment is to be taken into account over a period not to 
exceed four years under principles consistent with those in 
Rev. Proc. 98-60.\190\
---------------------------------------------------------------------------
        \190\ 1998-51 I.R.B. 16.
---------------------------------------------------------------------------

                            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.

    J. Exclusion of Like-Kind Exchange Property from Nonrecognition 
 Treatment on the Sale or Exchange of a Principal Residence (sec. 1510 
              of the House bill and sec. 121 of the Code)


                              Present Law

      Under present law, a taxpayer may exclude up to $250,000 
($500,000 if married filing a joint return) of gain realized on 
the sale or exchange of a principal residence. To be eligible 
for the exclusion, the taxpayer must have owned and used the 
residence as a principal residence for at least two of the five 
years prior to the sale or exchange. A taxpayer who fails to 
meet these requirements by reason of a change of place of 
employment, health, or, to the extent provided under 
regulations, unforeseen circumstances is able to exclude an 
amount equal to the fraction of the $250,000 ($500,000 if 
married filing a joint return) that is equal to the fraction of 
the two years that the ownership and use requirements are met. 
There are no special rules relating to the sale or exchange of 
a principal residence that was acquired in a like-kind exchange 
within the prior five years.

                               House Bill

      The House bill denies the principal residence exclusion 
(sec. 121) for gain on the sale or exchange of a principal 
residence if such principal residence was acquired in a like-
kind exchange in which any gain was not recognized within the 
prior five years.
      Effective date.--The House bill provision is effective 
for sales or exchanges of principal residences after the date 
of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the House bill 
provision.

K. Denial of Charitable Contribution Deduction for Transfers Associated 
with Split-Dollar Insurance Arrangements (sec. 1003 of the House bill, 
sec. 1315 of the Senate amendment, and new sec. 501(c)(28) of the Code)


                              Present Law

      Under present law, in computing taxable income, a 
taxpayer who itemizes deductions generally is allowed to deduct 
charitable contributions paid during the taxable year. The 
amount of the deduction allowable for a taxable year with 
respect to any charitable contribution depends on the type of 
property contributed, the type of organization to which the 
property is contributed, and the income of the taxpayer (secs. 
170(b) and 170(e)). A charitable contribution is defined to 
mean a contribution or gift to or for the use of a charitable 
organization or certain other entities (sec. 170(c)). The term 
``contribution or gift'' is not defined by statute, but 
generally is interpreted to mean a voluntary transfer of money 
or other property without receipt of adequate consideration and 
with donative intent. If a taxpayer receives or expects to 
receive a quid pro quo in exchange for a transfer to charity, 
the taxpayer may be able to deduct the excess of the amount 
transferred over the fair market value of any benefit received 
in return, provided the excess payment is made with the 
intention of making a gift.\191\
---------------------------------------------------------------------------
        \191\ United States v. American Bar Endowment, 477 U.S. 105 
(1986). Treas. Reg. sec. 1.170A-1(h).
---------------------------------------------------------------------------
      In general, no charitable contribution deduction is 
allowed for a transfer to charity of less than the taxpayer's 
entire interest (i.e., a partial interest) in any property 
(sec. 170(f)(3)). In addition, no deduction is allowed for any 
contribution of $250 or more unless the taxpayer obtains a 
contemporaneous written acknowledgment from the donee 
organization that includes a description and good faith 
estimate of the value of any goods or services provided by the 
donee organization to the taxpayer in consideration, whole or 
part, for the taxpayer's contribution (sec. 170(f)(8)).

                               House Bill


Deduction denial

      The House bill provision \192\ restates present law to 
provide that no charitable contribution deduction is allowed 
for purposes of Federal tax, for a transfer to or for the use 
of an organization described in section 170(c) of the Internal 
Revenue Code, if in connection with the transfer (1) the 
organization directly or indirectly pays, or has previously 
paid, any premium on any ``personal benefit contract'' with 
respect to the transferor, or (2) there is an understanding or 
expectation that any person will directly or indirectly pay any 
premium on any ``personal benefit contract'' with respect to 
the transferor. It is intended that an organization be 
considered as indirectly paying premiums if, for example, 
another person pays premiums on its behalf.
---------------------------------------------------------------------------
        \192\ The provision is similar to H.R. 630, introduced by Mr. 
Archer and Mr. Rangel (106th Cong., 1st Sess.).
---------------------------------------------------------------------------
    A personal benefit contract with respect to the transferor 
is any life insurance, annuity, or endowment contract, if any 
direct or indirect beneficiary under the contract is the 
transferor, any member of the transferor's family, or any other 
person (other than a section 170(c) organization) designated by 
the transferor. For example, such a beneficiary would include a 
trust having a direct or indirect beneficiary who is the 
transferor or any member of the transferor's family, and would 
include an entity that is controlled by the transferor or any 
member of the transferor's family. It is intended that a 
beneficiary under the contract include any beneficiary under 
any side agreement relating to the contract. If a transferor 
contributes a life insurance contract to a section 170(c) 
organization and designates one or more section 170(c) 
organizations as the sole beneficiaries under the contract, 
generally, it is not intended that the deduction denial rule 
under the provision apply. If, however, there is an outstanding 
loan under the contract upon the transfer of the contract, then 
the transferor is considered as a beneficiary. The fact that a 
contract also has other direct or indirect beneficiaries 
(persons who are not the transferor or a family member, or 
designated by the transferor) does not prevent it from being a 
personal benefit contract. The provision is not intended to 
affect situations in which an organization pays premiums under 
a legitimate fringe benefit plan for employees.
      It is intended that a person be considered as an indirect 
beneficiary under a contract if, for example, the person 
receives or will receive any economic benefit as a result of 
amounts paid under or with respect to the contract. For this 
purpose, as described below, an indirect beneficiary is not 
intended to include a person that benefits exclusively under a 
bona fide charitable gift annuity (within the meaning of sec. 
501(m)).
      In the case of a charitable gift annuity, if the 
charitable organization purchases an annuity contract issued by 
an insurance company to fund its obligation to pay the 
charitable gift annuity, a person receiving payments under the 
charitable gift annuity is not treated as an indirect 
beneficiary, provided certain requirements are met. The 
requirements are that (1) the charitable organization possess 
all of the incidents of ownership (within the meaning of Treas. 
Reg. sec. 20.2042-1(c)) under the annuity contract purchased by 
the charitable organization; (2) the charitable organization be 
entitled to all the payments under the contract; and (3) the 
timing and amount of payments under the contract be 
substantially the same as the timing and amount of payments to 
each person under the organization's obligation under the 
charitable gift annuity (as in effect at the time of the 
transfer to the charitable organization).
      Under the provision, an individual's family consists of 
the individual's grandparents, the grandparents of the 
individual's spouse, the lineal descendants of such 
grandparents, and any spouse of such a lineal descendant.
      In the case of a charitable gift annuity obligation that 
is issued under the laws of a State that requires, in order for 
the charitable gift annuity to be exempt from insurance 
regulation by that State, that each beneficiary under the 
charitable gift annuity be named as a beneficiary under an 
annuity contract issued by an insurance company authorized to 
transact business in that State, then the foregoing 
requirements (1) and (2) are treated as if they are met, 
provided that certain additional requirements are met. The 
additional requirements are that the State law requirement was 
in effect on February 8, 1999, each beneficiary under the 
charitable gift annuity is a bona fide resident of the State at 
the time the charitable gift annuity was issued, the only 
persons entitled to payments under the annuity contract issued 
by the insurance company are persons entitled to payments under 
the charitable gift annuity when it was issued, and (as 
required by clause (iii) of subparagraph (D) of the provision) 
the timing and amount of payments under the annuity contract to 
each person are substantially the same as the timing and amount 
of payments to the person under the charitable organization's 
obligation under the charitable gift annuity (as in effect at 
the time of the transfer to the charitable organization).
      In the case of a charitable remainder annuity trust or 
charitable remainder unitrust (as defined in section 664(d)) 
that holds a life insurance, endowment or annuity contract 
issued by an insurance company, a person is not treated as an 
indirect beneficiary under the contract held by the trust, 
solely by reason of being a recipient of an annuity or unitrust 
amount paid by the trust, provided that the trust possesses all 
of the incidents of ownership under the contract and is 
entitled to all the payments under such contract. No inference 
is intended as to the applicability of other provisions of the 
Code with respect to the acquisition by the trust of a life 
insurance, endowment or annuity contract, or the 
appropriateness of such an investment by a charitable remainder 
trust.
      Nothing in the provision is intended to suggest that a 
life insurance, endowment, or annuity contract would be a 
personal benefit contract, solely because an individual who is 
a recipient of an annuity or unitrust amount paid by a 
charitable remainder annuity trust or charitable remainder 
unitrust uses such a payment to purchase a life insurance, 
endowment or annuity contract, and a beneficiary under the 
contract is the recipient, a member of his or her family, or 
another person he or she designates.

Excise tax

      The provision imposes on any organization described in 
section 170(c) of the Code an excise tax, equal to the amount 
of the premiums paid by the organization on any life insurance, 
annuity, or endowment contract, if the premiums are paid in 
connection with a transfer for which a deduction is not 
allowable under the deduction denial rule of the provision 
(without regard to when the transfer to the charitable 
organization was made). The excise tax does not apply if all of 
the direct and indirect beneficiaries under the contract 
(including any related side agreement) are organizations 
described in section 170(c). Under the provision, payments are 
treated as made by the organization, if they are made by any 
other person pursuant to an understanding or expectation of 
payment. The excise tax is to be applied taking into account 
rules ordinarily applicable to excise taxes in chapter 41 or 42 
of the Code (e.g., statute of limitation rules).

Reporting

      The provision requires that the charitable organization 
annually report the amount of premiums that is paid during the 
year and that is subject to the excise tax imposed under the 
provision, and the name and taxpayer identification number of 
each beneficiary under the life insurance, annuity or endowment 
contract to which the premiums relate, as well as other 
information required by the Secretary of the Treasury. For this 
purpose, it is intended that a beneficiary include any 
beneficiary under any side agreement to which the section 
170(c) organization is a party (or of which it is otherwise 
aware). Penalties applicable to returns required under Code 
section 6033 apply to returns under this reporting requirement. 
Returns required under this provision are to be furnished at 
such time and in such manner as the Secretary shall by forms or 
regulations require.

Regulations

      The provision provides for the promulgation of 
regulations necessary or appropriate to carry out the purposes 
of the provisions, including regulations to prevent the 
avoidance of the purposes of the provision. For example, it is 
intended that regulations prevent avoidance of the purposes of 
the provision by inappropriate or improper reliance on the 
limited exceptions provided for certain beneficiaries under 
bona fide charitable gift annuities and for certain 
noncharitable recipients of an annuity or unitrust amount paid 
by a charitable remainder trust.

Effective date

      The deduction denial provision applies to transfers after 
February 8, 1999 (as provided in H.R. 630). The excise tax 
provision applies to premiums paid after the date of enactment. 
The reporting provision applies to premiums paid after February 
8, 1999 (determined as if the excise tax imposed under the 
provision applied to premiums paid after that date).
      No inference is intended that a charitable contribution 
deduction is allowed under present law with respect to a 
charitable split-dollar insurance arrangement. The provision 
does not change the rules with respect to fraud or criminal or 
civil penalties under present law; thus, actions constituting 
fraud or that are subject to penalties under present law would 
still constitute fraud or be subject to the penalties after 
enactment of the provision.

                            Senate Amendment

      Same as House bill.

                          Conference Agreement

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

 L. Modify Foreign Tax Credit Carryover Rules (sec. 1301 of the Senate 
                  amendment and sec. 904 of the Code)


                              Present Law

      U.S. persons may credit foreign taxes against U.S. tax on 
foreign-source income. The amount of foreign tax credits that 
can be claimed in a year is subject to a limitation that 
prevents taxpayers from using foreign tax credits to offset 
U.S. tax on U.S.-source income. Separate foreign tax credit 
limitations are applied to specific categories of income.
      The amount of creditable taxes paid or accrued (or deemed 
paid) in any taxable year which exceeds the foreign tax credit 
limitation is permitted to be carried back two years and 
forward five years. The amount carried over may be used as a 
credit in a carryover year to the extent the taxpayer otherwise 
has excess foreign tax credit limitation for such year. The 
separate foreign tax credit limitations apply for purposes of 
the carryover rules.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment reduces the carryback period for 
excess foreign tax credits from two years to one year. The 
Senate amendment also extends the excess foreign tax credit 
carryforward period from five years to seven years.
      Effective date.--The provision applies to foreign tax 
credits arising in taxable years beginning after December 31, 
1999.

                          Conference Agreement

      The conference agreement does not include the provision 
in the Senate amendment.

  M. Modify Estimated Tax Rules for Closely Held REIT Dividends (sec. 
        1316 of the Senate amendment and sec. 6655 of the Code)


                              Present Law

      If a person has a direct interest or a partnership 
interest in income-producing assets (such as securities 
generally, or mortgages) that produce income throughout the 
year, that person's estimated tax payments must reflect the 
quarterly amounts expected from the asset.
      However, a dividend distribution of earnings from a REIT 
is considered for estimated tax purposes when the dividend is 
paid. Some corporations have established closely held REITS 
that hold property (e.g. mortgages) that if held directly by 
the controlling entity would produce income throughout the 
year. The REIT may make a single distribution for the year, 
timed such that it need not be taken into account under the 
estimated tax rules as early as would be the case if the assets 
were directly held by the controlling entity. The controlling 
entity thus defers the payment of estimated taxes.

                               House Bill

      No provision.

                            Senate Amendment

      In the case of a REIT that is closely held, any person 
owning at least 10 percent of the vote or value of the REIT is 
required to accelerate the recognition of year-end dividends 
attributable to the closely held REIT, for purposes of such 
person's estimated tax payments. A closely held REIT is defined 
as one in which at least 50 percent of the vote or value is 
owed by five or fewer persons. Attribution rules apply to 
determine ownership.
      No inference is intended regarding the treatment of any 
transaction prior to the effective date.
      Effective date.--The provision is effective for estimated 
tax payments due on or after September 15, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

N. Prohibited Allocations of Stock in an S Corporation ESOP (sec. 1317 
      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

      No provision.

                            Senate Amendment

      Under the provision, if there is a prohibited allocation 
of stock to a disqualified person under an ESOP sponsored by an 
S corporation (a ``Sub S ESOP'') for a nonallocation year: (1) 
an excise tax is imposed on the employer equal to 50 percent of 
the amount involved in the prohibited allocation; and (2) the 
stock allocated in the prohibited allocation is treated as 
distributed to the disqualified individual.
      A nonallocation year means any plan year of a Sub S ESOP 
if, at any time during the plan year, disqualified individuals 
own at least 50 percent of the number of outstanding shares of 
the S corporation.
      An individual is a disqualified person if the individual 
is either (1) a member of a ``deemed 20-percent shareholder 
group'' or (2) a ``deemed 10-percent shareholder''. An 
individual is a member of a ``deemed 20-percent shareholder 
group'' if the number of deemed-owned shares of the individual 
and his or her family members is at least 20 percent of the 
number of outstanding shares of the corporation. An individual 
is a deemed 10-percent shareholder if the individual is not a 
member of a deemed 20-percent shareholder group and the number 
of theindividual's deemed-owned shares is at least 10 percent 
of the number of outstanding shares of stock of the corporation.
      ``Deemed-owned shares'' mean: (1) stock allocated to the 
account of the individual under the ESOP, and (2) the 
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 disqualified 
individuals own 50 percent or more of the outstanding stock of 
the corporation, deemed-owned shares and shares owned directly 
by an individual are taken into account. The family attribution 
rules of section 318 would apply, modified to include certain 
other family members, as described below.
      Under the provision, family members of an individual 
include (1) the spouse 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).
      The Secretary is directed to prescribe rules under which 
holders of options, restricted stock and similar interests are 
or are not treated as owning stock attributable to such 
interests as appropriate to carry out the purposes of the 
provision. For example, it is intended that such interests 
would be taken into account if so doing would result in 
disqualified individuals owning at least 50 percent of the 
stock of the corporation and that such interests would not be 
taken into account if so doing would result in disqualified 
individuals owning less than 50 percent of the stock of the 
corporation.
      Effective date.--The provision is generally effective 
with respect to years beginning after December 31, 2000. In the 
case of an ESOP established after July 14, 1999, or an ESOP 
established on or before such date if the employer maintaining 
the plan was not an S corporation on such date, the provision 
is effective with respect to plan years ending after July 14, 
1999.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.
      The conferees remain concerned that ESOPs of S 
corporations may continue to be used to avoid or 
inappropriately defer taxes. Thus, the conferees view the 
provision as a first step in addressing possible tax avoidance 
issues relating to the use of S corporation ESOPs and believe 
that further study of these issues, and further legislation, 
may be appropriate.

 O. Modify Anti-abuse Rules Related to Assumption of Liabilities (sec. 
         1318 of the Senate amendment and sec. 357 of the Code)


                              Present Law

      Generally, no gain or loss is recognized if property is 
exchanged for stock of a controlled corporation. The transferor 
may recognize gain to the extent other property (``boot'') is 
received by the transferor. The assumption of liabilities by 
the transferee generally is not treated as boot received by the 
transferor. The assumption of a liability is treated as boot to 
the transferor, however, ``[i]f, taking into consideration the 
nature of the liability and the circumstances in the light of 
which the arrangement for the assumption or acquisition was 
made, it appears that the principal purpose of the taxpayer . . 
. was a purpose to avoid Federal income tax on the exchange, or 
. . . if not such purpose, was not a bona fide business 
purpose.'' Sec. 357(b). Thus, this exception requires that the 
principal purpose of having the transferee assume the liability 
was the avoidance of tax on the exchange.
      The transferor's basis in the stock of the transferee 
received in the exchange is the basis of the property 
contributed, reduced by the amount of any liability assumed, 
but generally increased in the amount of any gain recognized by 
the transferor on the exchange. If the transferee assumes 
liabilities in excess of the basis of assets transferred, the 
transferor recognizes gain in the amount of the excess. 
However, this gain recognition rule does not apply if the 
assumption of a liability is treated as boot under the tax 
avoidance rule. Stock basis is reduced, however, for such an 
assumption.\193\ For other liabilities (where the assumption is 
not treated as boot under the tax avoidance rule), no gain 
recognition or basis reduction is required for the assumption 
of a liability that would give rise to a deduction.
---------------------------------------------------------------------------
        \193\ Pursuant to section 357(c)92)(A), liabilities that are 
treated as assumed in a tax avoidance transaction under section 
357(b)(1) are not within the scope of section 357(c)(3) or section 
358(d)(2) under present law. Thus, the transferee's assumption of a 
liability that is treated as a tax avoidance transaction under section 
357(b)(1) is treated as the transferor's receipt of money for purposes 
of 358 and related provisions, regardless of whether the liability 
would give rise to a deduction.
---------------------------------------------------------------------------
    Similar rules apply in connection with certain tax-free 
reorganizations.
      A different set of rules applies with respect to 
partnerships. However, generally a partner's basis in its 
partnership interest is the basis of property contributed. 
Liabilities affect that basis by causing a decrease in basis of 
the partnership interest to the extent the partnership has 
assumed the partner's liabilities, and an increase in basis to 
the extent the partner has assumed liabilities of the 
partnership. Similarly, there is an increase (or decrease) in 
basis for an increase (or decrease) in the partner's share of 
partnership liabilities.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment deletes the limitation that the 
assumption of liabilities anti-abuse rule only applies to tax 
avoidance on the exchange itself, and changes ``the principal 
purpose'' standard to ``a principal purpose.'' The provision 
also affects the basis rule that requires a decrease in the 
transferor's basis in the transferee's stock when a liability, 
the payment of which would give rise to a deduction, is treated 
as boot under the tax avoidance rule. The committee report 
refers to a specific type of transaction involving certain 
contingent liabilities as one example of a transaction that is 
of concern under present law.
      Effective date.--The provision is effective for 
assumptions of liabilities on or after July 15, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment.
      It is also expected that the Treasury Department will 
promptly examine the use of partnerships and apply similar 
rules (for example, with respect to adjustments to the basis of 
a partnership interest with respect to certain contingent 
liabilities) where there is a principal purpose of avoiding 
Federal income tax through the use of a transaction that 
includes the assumption of liabilities by a partnership. The 
conferees note that pursuant to section 7805(b)(3), if 
necessary to prevent abuse, the Secretary could determine that 
any regulations applying such rules should be effective on the 
same date as this provision, i.e., July 15, 1999.
      No inference is intended regarding the proper treatment 
of any transaction under present law.
      Effective date.--The effective date is the same as that 
of the Senate amendment.

P. Require Consistent Treatment and Provide Basis Allocation Rules for 
 Transfers of Intangibles in Certain Nonrecognition Transactions (sec. 
    1319 of the Senate amendment and secs. 351 and 721 of the Code)


                              Present Law

      Generally, no gain or loss is recognized if one or more 
persons transfer property to a corporation solely in exchange 
for stock in the corporation and, immediately after the 
exchange such person or persons are in control of the 
corporation. Similarly, no gain or loss is recognized in the 
case of a contribution of property in exchange for a 
partnership interest. Neither the Internal Revenue Code nor the 
regulations provide the meaning of the requirement that a 
person ``transfer property'' in exchange for stock (or a 
partnership interest). The Internal Revenue Service interprets 
the requirement consistent with the ``sale or other disposition 
of property'' language in the context of a taxable disposition 
of property. See, e.g., Rev. Rul. 69-156, 1969-1 C.B. 101. 
Thus, a transfer of less than ``all substantial rights'' to use 
property will not qualify as a tax-free exchange and stock 
received will be treated as payments for the use of property 
rather than for the property itself. These amounts are 
characterized as ordinary income. However, the Claims Court has 
rejected the Service's position and held that the transfer of a 
nonexclusive license to use a patent (or any transfer of 
``something of value'') could be a ``transfer'' of ``property'' 
for purposes of the nonrecognition provision. See E.I. DuPont 
de Nemours & Co. v. U.S., 471 F.2d 1211 (Ct. Cl. 1973).

                               House Bill

      No provision.

                            Senate Amendment

      The provision treats a transfer of an interest in 
intangible property constituting less than all of the 
substantial rights of the transferor in the property as a 
transfer of property for purposes of the nonrecognition 
provisions regarding transfers of property to controlled 
corporations and partnerships. In the case of a transfer of 
less than all of the substantial rights, the transferor is 
required to allocate the basis of the intangible between the 
retained rights and the transferred rights based upon their 
respective fair market values.
      No inference is intended as to the treatment of these or 
similar transactions prior to the effective date.
      Effective date.--The provision is effective for transfers 
on or after the date of enactment.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

 Q. Distributions by a Partnership to a Corporate Partner of Stock in 
Another Corporation (sec. 1321 of the Senate amendment and sec. 732 of 
                               the Code)


                              Present Law

      Present law generally provides that no gain or loss is 
recognized on the receipt by a corporation of property 
distributed in complete liquidation of another corporation in 
which it holds 80 percent of the stock (by vote and value) 
(sec. 332). The basis of property received by a corporate 
distributee in the distribution in complete liquidation of the 
80-percent-owned subsidiary is a carryover basis, i.e., the 
same as the basis in the hands of the subsidiary (provided no 
gain or loss is recognized by the liquidating corporation with 
respect to the distributed property) (sec. 334(b)).
      Present law provides two different rules for determining 
a partner's basis in distributed property, depending on whether 
or not the distribution is in liquidation of the partner's 
interest in the partnership. Generally, a substituted basis 
rule applies to property distributed to a partner in 
liquidation. Thus, the basis of property distributed in 
liquidation of a partner's interest is equal to the partner's 
adjusted basis in its partnership interest (reduced by any 
money distributed in the same transaction) (sec. 732(b)).
      By contrast, generally, a carryover basis rule applies to 
property distributed to a partner other than in liquidation of 
its partnership interest, subject to a cap (sec. 732(a)). Thus, 
in a non-liquidating distribution, the distributee partner's 
basis in the property is equal to the partnership's adjusted 
basis in the property immediately before the distribution, but 
not to exceed the partner's adjusted basis in its partnership 
interest (reduced by any money distributed in the same 
transaction). In a non-liquidating distribution, the partner's 
basis in its partnership interest is reduced by the amount of 
the basis to the distributee partner of the property 
distributed and is reduced by the amount of any money 
distributed (sec. 733).
      If corporate stock is distributed by a partnership to a 
corporate partner with a low basis in its partnership interest, 
the basis of the stock is reduced in the hands of the partner 
so that the stock basis equals the distributee partner's 
adjusted basis in its partnership interest. No comparable 
reduction is made in the basis of the corporation's assets, 
however. The effect of reducing the stock basis can be negated 
by a subsequent liquidation of the corporation under section 
332.\194\
---------------------------------------------------------------------------
        \194\ In a similar situation involving the purchase of stock of 
a subsidiary corporation as replacement property following an 
involuntary conversion, the Code generally requires the basis of the 
assets held by the subsidiary to be reduced to the extent that the 
basis of the stock in the replacement corporation itself is reduced 
(sec. 1033).
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment


In general

      The provision provides for a basis reduction to assets of 
a corporation, if stock in that corporation is distributed by a 
partnership to a corporate partner. The reduction applies if, 
after the distribution, the corporate partner controls the 
distributed corporation.

Amount of the basis reduction

      Under the provision, the amount of the reduction in basis 
of property of the distributed corporation generally equals the 
amount of the excess of (1) the partnership's adjusted basis in 
the stock of the distributed corporation immediately before the 
distribution, over (2) the corporate partner's basis in that 
stock immediately after the distribution.
      The provision limits the amount of the basis reduction in 
two respects. First, the amount of the basis reduction may not 
exceed the amount by which (1) the sum of the aggregate 
adjusted bases of the property and the amount of money of the 
distributed corporation exceeds (2) the corporate partner's 
adjusted basis in the stock of the distributed corporation. 
Thus, for example, if the distributed corporation has cash of 
$300 and other property with a basis of $600 and the corporate 
partner's basis in the stock of the distributed corporation is 
$400, then the amount of the basis reduction could not exceed 
$500 (i.e., ($300+$600)-$400 = $500).
      Second, the amount of the basis reduction may not exceed 
the adjusted basis of the property of the distributed 
corporation. Thus, the basis of property (other than money) of 
the distributed corporation may not be reduced below zero under 
the provision, even though the total amount of the basis 
reduction would otherwise be greater.
      The provision provides that the corporate partner 
recognizes long-term capital gain to the extent the amount of 
the basis reduction does exceed the basis of the property 
(other than money) of the distributed corporation. In addition, 
the corporate partner's adjusted basis in the stock of the 
distribution is increased in the same amount. For example, if 
the amount of the basis reduction were $400, and the 
distributed corporation has money of $200 and other property 
with an adjusted basis of $300, then the corporate partner 
would recognize a $100 capital gain under the provision. The 
corporate partner's basis in the stock of the distributed 
corporation would also be increased by $100 in this example, 
under the provision.
      The basis reduction is to be allocated among assets of 
the controlled corporation in accordance with the rules 
provided under section 732(c).

Partnership distributions resulting in control

      The basis reduction generally applies with respect to a 
partnership distribution of stock if the corporate partner 
controls the distributed corporation immediately after the 
distribution or at any time thereafter. For this purpose, the 
term control means ownership of stock meeting the requirements 
of section 1504(a)(2) (generally, an 80-percent vote and value 
requirement).
      The provision applies to reduce the basis of any property 
held by the distributed corporation immediately after the 
distribution, or, if the corporate partner does not control the 
distributed corporation at that time, then at the time the 
corporate partner first has such control. The provision does 
not apply to any distribution if the corporate partner does not 
have control of the distributed corporation immediately after 
the distribution and establishes that the distribution was not 
part of a plan or arrangement to acquire control.
      Under the provision, a corporation is treated as 
receiving a distribution of stock from a partnership, if the 
corporation acquires stock other than in a distribution from a 
partnership and the basis of the stock is determined in whole 
or in part by reference to the partnership rules limiting the 
basis of the stock to a partner's basis in his partnership 
interest (secs. 732(a)(2) or 732(b)).
      In the case of tiered corporations, a special rule 
provides that if the property held by a distributed corporation 
is stock in a corporation that the distributed corporation 
controls, then the provision is applied to reduce the basis of 
the property of that controlled corporation. The provision is 
also reapplied to any property of any controlled corporation 
that is stock in a corporation that it controls. Thus, for 
example, if stock of a controlled corporation is distributed to 
a corporate partner, and the controlled corporation has a 
subsidiary, the amount of the basis reduction allocable to 
stock of the subsidiary is applied again to reduce the basis of 
the assets of the subsidiary, under the special rule.

Effective date

      The provision is effective for distributions made after 
July 14, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with clarifications and with a modification to the effective 
date.
      The conference agreement clarifies the rule relating to 
stock acquired other than in a distribution from a partnership 
when the basis of the stock is determined in whole or in part 
by reference to the partnership rules limiting the basis of the 
stock to a partner's basis in his partnership interest (secs. 
732(a)(2) or 732(b)). As clarified, the rule provides that, for 
purposes of the provision, if a corporation acquires (other 
than in a distribution from a partnership) stock the basis of 
which is determined (by reason of being distributed from a 
partnership) in whole or in part by reference to section 
732(a)(2) or (b), then the corporation is treated as receiving 
a distribution of stock from a partnership. For example, if a 
partnership distributes property other than stock (such as real 
estate) to a corporate partner, and that corporate partner 
contributes the real estate to another corporation in a section 
351 transaction, then the stock received in the section 351 
transaction is not treated as distributed by a partnership, and 
the basis reduction under this provision does not apply. As 
another example, if a partnership distributes stock to two 
corporate partners, neither of which have control of the 
distributed corporation, and the two corporate partners merge 
and the survivor obtains control of the distributed 
corporation, the stock of the distributed corporation that is 
acquired as a result of the merger is treated as received in a 
partnership distribution; the basis reduction rule of the 
provision applies.
      The conference agreement also provides additional 
clarification with respect to the regulations under the 
provision (which include regulations to avoid double counting 
and to prevent the abuse of the purposes of the provision). The 
conferees intend that regulations prevent the avoidance of the 
purposes of the provision through the use of tiered 
partnerships.
      Effective date.--The provision is effective for 
distributions made after July 14, 1999, except that in the case 
of a corporation that is a partner in a partnership on July 14, 
1999, the provision is effective for distributions by that 
partnership to the corporation after the date of enactment.

XVII. TAX TECHNICAL CORRECTIONS (secs. 1601-1605 of the House bill and 
          secs. 504(c) and 1401-1405 of the Senate amendment)


                               House Bill

      The House bill contains technical, clerical and 
conforming amendments to the Tax and Trade Relief Extension Act 
of 1998 and other recently enacted legislation. The provisions 
generally are effective as if enacted in the original 
legislation to which each provision relates.\195\
---------------------------------------------------------------------------
        \195\ For a description of the House provisions, see H. Rept. 
106-238 (H.R. 2488), July 16, 1999.
---------------------------------------------------------------------------

                            Senate Amendment

      Same as House bill.

                          Conference Agreement

      The conference agreement does not include the House bill 
or the Senate amendment provisions.

            XVIII. SENSE OF THE SENATE AND OTHER PROVISIONS


A. Sense of the Congress Regarding Empowerment Zones (sec. 1128 of the 
                           Senate amendment)


                              Present Law

      Pursuant to the Omnibus Budget Reconciliation Act of 1993 
(``OBRA 1993'') and the Taxpayer Relief Act of 1997 (``1997 
Act''), the Secretaries of the Department of Housing and Urban 
Development and the Department of Agriculture have designated a 
number of areas as empowerment zones and enterprise 
communities. In general, businesses located in empowerment 
zones and enterprise communities qualify for certain tax 
incentives (though the empowerment zones designated in the 1997 
Act are not necessarily entitled to all of the tax incentives 
as those designated in OBRA 1993).
      The Agriculture, Rural Development, Food and Drug 
Administration, and Related Agencies Appropriations Act for 
Fiscal Year 1999 appropriated funds for 20 new rural enterprise 
communities that meet the designation and eligibility 
requirements set out the Code (but are not designated as 
enterprise communities for Federal tax purposes).

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment provides a Sense of the Congress 
resolution that if Congress and the President agree to a 
substantial tax relief measure, it should ensure that such tax 
relief measure includes full funding for the empowerment zones 
and enterprise communities authorized in 1997 and 1998, as well 
as those areas currently designated as rural economic area 
partnerships by the Department of Agriculture. In addition, all 
such designated areas should equally share at least the same 
aggregate level of funding, tax incentives, and other Federal 
support that Congress provided to urban and rural empowerment 
zones and enterprise communities authorized by OBRA 1993.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

 B. Sense of the Senate Regarding Savings Incentives (sec. 1127 of the 
                           Senate amendment)


                              Present Law

      The Code states that, except as otherwise provided, 
``gross income means all income from whatever source derived'' 
(sec. 61). Because there is no exclusion for interest and 
dividends, interest and dividends received by individuals are 
includible in gross income and subject to tax.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment states that, before December 31, 
1999, Congress should pass legislation that creates savings 
incentives by providing a partial Federal income tax exclusion 
for income derived from interest and dividends of no less than 
$400 for married taxpayers and $200 for single taxpayers.
      Effective date.--The provision is effective upon 
enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

C. Sense of the Congress Regarding Small Business Incentives (sec. 1129 
                        of the Senate amendment)


                              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 $19,000 (for taxable years beginning 
in 1999) 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 $19,000 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 $19,000 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 2000, the amount 
is $20,000; 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.

                            Senate Amendment

      The Senate amendment states that it is the sense of the 
Congress that many small businesses would benefit from the 
expansion of present-law expensing provisions to cover 
investments in depreciable real property, and that Congress 
should consider such expansion in any reform legislation that 
follows the depreciation study that the Treasury Department is 
currently undertaking.
      Effective date.--The provision is effective upon 
enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

 D. Direct Expenditure Block Grant (sec. 1126 of the Senate amendment 
                and sec. 418 of the Social Security Act)


                              Present Law

      Section 418 of the Social Security Act provides grants to 
the States for the purpose of providing child care assistance. 
At least 70 percent of the amounts received by the States must 
be used to provide child care assistance to families who are 
receiving assistance under a State program of Temporary 
Assistance for Needy Families (Title IV, part A of the Social 
Security Act), to families who are attempting through work 
activities to transition off of such assistance program, or to 
families who are at risk of becoming dependent on such 
assistance program.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment increases appropriations for grants 
under Section 418 of the Social Security Act from $2,717 
million to $3,918 million for fiscal year 2002, and provides 
appropriations of $3,979 million for fiscal year 2003, $4,010 
million for fiscal year 2004, $3,860 million for fiscal year 
2005, $3,954 million for fiscal year 2006, $4,004 million for 
fiscal year 2007, $4,073 million for fiscal year 2008, and 
$4,075 million for fiscal year 2009.
      Effective date.--The provision is effective upon 
enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

 XIX. CONTINGENCY FOR RATE REDUCTIONS AND COMMITMENT TO DEBT REDUCTION 
                 (secs. 101 and 1701 of the House bill)


                              Present Law

      No provision.

                               House Bill

      The House-passed version contained a 10-percent across-
the-board rate reduction. The trigger attached to these 
provisions would delay the scheduled reductions in these rates 
depending on the level of gross interest costs. Gross interest 
expenses accrue from debt held publically as well as debt held 
by all government trust funds.
      In order for a rate reduction to occur on January 1, the 
government's gross interest expense during the 12 month period 
ending on July 31 of the previous year must not increase. This 
measurement is referred to in the bill as the debt reduction 
calendar year. If the gross interest expense increased, the tax 
rate reduction was delayed one year but previous rate 
reductions were not rescinded.
      The across the board rate reduction scheduled to take 
place in 2001 was not subject to the trigger.
      The House bill contained a provision reflecting the sense 
of the Congress that the national debt held by the public shall 
be reduced from $3.619 trillion to a level below $1.61 trillion 
by fiscal year 2009.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference report contains the same trigger mechanism 
as in the House passed bill. The trigger mechanism is based on 
gross debt interest expenses which must not increase from the 
previous year through July 31 of the year before the scheduled 
increase.
      The conference report, however, contains a different 
structure for reducing tax rates and expanding certain tax 
brackets. In three instances, the trigger may delay one or more 
of these provisions. The following items are subject to the 
trigger mechanism:
      --In 2003, the 14.5 percent marginal tax rate will be 
reduced to 14.0 percent.
      --In 2005, the top four marginal tax rates will each be 
reduced by 1 percentage point.
      --In 2006, the width of the 14 percent tax bracket will 
be increased by $5,000.
      The first rate reduction from 15 percent to 14.5 percent 
is permanent and not subject to the trigger.
      In addition, the conferees express the sense of the 
Congress that: (1) the national debt of the United States held 
by the public is $3.619 trillion as of fiscal year 1999; (2) 
the Federal budget is projected to produce a surplus each year 
in the next 10 fiscal years; (3) refunding taxes and reducing 
the national debt held by the public will assure continued 
economic growth and financial freedom for future generations; 
and (4) The provision reflects the sense of the Congress that: 
(1) the national debt of the United States held by the public 
is $3.619 trillion as of fiscal year 1999; (2) the Federal 
budget is projected to produce a surplus each year in the next 
10 fiscal years; (3) refunding taxes and reducing the national 
debt held by the public will assure continued economic growth 
and financial freedom for future generations; and (4) the 
national debt held by the public shall be reduced from $3.619 
trillion to a level below $1.61 trillion by fiscal year 2009.

    XX. EXCLUSION FROM PAYGO SCORECARD (sec. 1801 of the House bill)


                              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

      The House bill 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.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the Senate amendment due 
to the Senate's procedural requirements under the Byrd rule. 
The conferees note that the reduction in revenues from the 
conference agreement is fully accommodated under the 
Congressional budget resolution from the on-budget non-social 
security surplus, leaving greater amounts set aside for Social 
Security, Medicare and debt relief greater than under the 
President's budget. The conferees further believe that the 
application of current PAYGO rules to the conference report is 
anachronistic in an era of sustained projected surpluses. 
Therefore, the conferees intend that, upon enactment of the 
Act, the Director of OMB should be directed to 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.

XXI. COMPLIANCE WITH CONGRESSIONAL BUDGET ACT (sec. 1501 of the Senate 
                               amendment)


                              Present Law

      Reconciliation is a procedure under the Congressional 
Budget Act of 1974 (``the Budget Act'') by which Congress 
implements spending and tax policies contained in a budget 
resolution. The Budget Act contains numerous rules enforcing 
the scope of items permitted to be considered under budget 
reconciliation process. One such rule, the so-called ``Byrd 
rule,'' was incorporated into the Budget Act in 1990. The Byrd 
rule, named after its principal sponsor, Senator Robert C. 
Byrd, is contained in section 313 of the Budget Act. The Byrd 
rule is generally interpreted to permit members to make a 
motion to strike extraneous provisions (those which are 
unrelated to the deficit reduction goals of the reconciliation 
process) from either a budget reconciliation bill or a 
conference report on such bill.
      Under the Byrd rule, a provision is considered to be 
extraneous if it falls under one or more of the following six 
definitions:
      (1) It does not produce a change in outlays or revenues;
      (2) It produces an outlay increase or revenue decrease 
when the instructed committee is not in compliance with its 
instructions;
      (3) It is outside of the jurisdiction of the committee 
that submitted the title or provision for inclusion in the 
reconciliation measure;
      (4) It produces a change in outlays or revenues which is 
merely incidental to the non-budgetary components of the 
provision;
      (5) It would increase the deficit for a fiscal year 
beyond those covered by the reconciliation measure; and
      (6) it recommends changes in Social Security.

                               House Bill

      No provision.

                            Senate Amendment

      To ensure compliance with the Budget Act, the provision 
provides that all provisions of, and amendments made by, this 
Senate amendment, which are in effect on September 30, 2009, 
shall cease to apply as of such date, and shall begin to apply 
again as of October 1, 2009.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
but provides that certain provisions of the bill sunset on 
December 31, 2008.

                     XXII. 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 and the type 
of affected taxpayers, and a discussion regarding the relevant 
complexity and administrative issues.
      Following the analysis of the staff of the Joint 
Committee on Taxation are the comments of the IRS regarding 
each of the provisions included in the complexity analysis, 
including a discussion of the likely effect on IRS forms and 
any expected impact on the IRS.

1. Reduce the income tax rates (sec. 101 of the conference agreement)

Summary description of provision

      The provision reduces the individual regular income tax 
rates as follows: (1) from 15 percent to 14 percent; (2) from 
28 percent to 27 percent; (3) from 31 percent to 30 percent; 
(4) from 36 percent to 35 percent; and (5) from 39.6 percent to 
38.6 percent. The reduction of the 15-percent rate to a 14-
percent rate is phased-in over three years; (1) 14.5 percent in 
2001 and 2002; and (2) 14 percent in 2003 and thereafter. The 
reductions in the other rates are effective for taxable years 
beginning after 2004. The provision also widens the lowest 
regular income tax bracket for singles and head of households 
by $3,000 for taxable years beginning after 2005. For years 
after 2006, the $3,000 amount is indexed for inflation.

Number of affected taxpayers

      It is estimated that the reduction of the regular income 
tax rates will affect approximately 112 million individual 
income tax returns.

Discussion

      It is not anticipated that individuals will need to keep 
additional records due to this provision. The information 
necessary to implement the provision will be readily available 
to taxpayers (in the form of new tax tables and tax rate 
schedules). The rate reduction should not result in an increase 
in disputes with the IRS, nor will regulatory guidance be 
necessary to implement this provision.
      Because the provision includes corresponding reductions 
in the individual alternative minimum tax rates, the provision 
should not result in taxpayers having to calculate their tax 
liability under the alternative minimum tax (AMT).

2. Marriage penalty relief (sec. 111 of the conference agreement)

Summary description of provision

      The provision increases the basic standard deduction for 
a married couple filing a joint return to twice the basic 
standard deduction for an unmarried individual. This increase 
is phased-in over five years (2001-2005) and is fully effective 
in 2005. The provision also increases the size of the lowest 
regular income tax rate bracket to twice the size of the rate 
bracket for an unmarried individual. This increase in the rate 
bracket is phased-in over four years (2005-2008) and is fully 
effective in 2008.

Number of affected taxpayers

      It is estimated that this provision will affect 
approximately 36 million individual income tax returns.

Discussion

      The provision is not expected to result in an increase in 
disputes with the IRS, nor should regulatory guidance be 
necessary to implement this provision. In addition, the 
provision should not increase individuals' tax preparation 
costs. Some taxpayers who currently itemize deductions may 
respond to the provision by claiming the increased standard 
deduction in lieu of itemizing. Such taxpayers will no longer 
have to file Schedule A or need to engage in the record keeping 
inherent in itemizing below-the-line deductions. This reduction 
in complexity and record keeping may also result in a decline 
in the number of individuals using a tax preparation service 
(or a decline in the cost of using such a service). It may also 
reduce the number of disputes between taxpayers and the IRS 
regarding substantiation of itemized deductions.

3. Individual capital gains rates (secs. 201 and 202 of the conference 
        agreement)

Summary description of provision

      The provision reduces the present-law individual capital 
gain rates of 10, 20, and 25 percent to 8, 18, and 23 percent 
respectively, effective for transactions on or after January 1, 
1999. The provision also provides for the indexation of capital 
gains beginning in 2000 (with mark-to-market treatment with 
respect to assets held on January 1, 2000).

Number of affected taxpayers

      It is estimated that the provision will affect 
approximately 20 million individual income tax returns.

Discussion

      The capital gains rate reductions are not expected to 
cause taxpayers to keep additional records. The repeal of the 
reduced rates for five-year property after 2000 will simplify 
the forms and recordkeeping for years after 2000. In addition, 
since the provision applies with respect to capital gains 
realized for all of 1999, it obviates the need for multiple 
rate schedules for 1999.
      Indexing of assets for inflation beginning in 2000 is 
expected to cause taxpayers to keep additional records because, 
in the case of the disposition of capital assets held more than 
one year, it will be necessary to establish the calendar 
quarter in which the asset was purchased. The taxpayer will 
have the additional complexity of computing the basis 
adjustments on the sale of the assets by multiplying the basis 
by the inflation adjustment. This will be particularly complex 
where assets are purchased periodically, such as in the case of 
common stock acquired pursuant to dividend reinvestment plans.
      The indexing of assets will result in additional 
computations by the taxpayer, and guidance will be necessary to 
implement the provision. For example, guidance will be 
necessary with respect to assets that are held on January 1, 
2000 that are marked-to-market, as well as the application of 
the indexing provision with respect to pass-through entities.
      The indexing of assets may result in an increase in 
disputes with the IRS. The provision can be expected to 
increase the tax preparation cost of individuals using a tax 
preparation service, depending on the type of assets that are 
indexed and the extent to which a taxpayer maintains adequate 
records.

4. Increase in IRA contribution limit (sec. 211 of the conference 
        agreement)

Summary description of provision

      The provision increases the $2,000 IRA contribution limit 
to $3,000 for 2001-03, to $4,000 in 2004-05, to $5,000 in 2006-
08.

Number of affected taxpayers

      It is estimated that the provision will affect 15 million 
individual tax returns.

Discussion

      It is not anticipated that individuals will need to keep 
additional records due to the provision. It is not anticipated 
that the provision will result in increased disputes with the 
IRS. Itis not anticipated that the provision will increase tax 
return preparation costs. Regulatory guidance will not be needed to 
implement the provision. Because the maximum contribution limit will 
change, some taxpayers may be confused as to how much they can 
contribute to an IRA. It is expected that IRS Forms and publications 
will contain the limit applicable for each year.

5. Accelerate 100-percent self-employed health insurance deduction 
        (sec. 801 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, 1999.

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.

6. Repeal of the temporary federal unemployment ``FUTA'' surtax (sec. 
        803 of the conference agreement)

Summary description of provision

      Under present law, in addition to the regular FUTA tax of 
0.6 percent of taxable wages, a temporary surtax of 0.2 percent 
of taxable wages applies through 2007. The provision repeals 
the temporary FUTA surtax (of 0.2 percent of taxable wages) 
after December 31, 2004.

Number of affected taxpayers

      It is estimated that the repeal of the FUTA surtax will 
affect over six million small businesses.

Discussion

      It is not anticipated that small businesses will need to 
keep additional records due to this provision, nor is it 
anticipated that this provision will result in an increase in 
disputes with the IRS. Additional regulatory guidance should 
not be necessary to implement this provision. The provision 
should not increase the tax preparation cost of small 
businesses using a tax preparation service.

7. Increase deduction for business meals (sec. 804 of the conference 
        agreement)

Summary description of provision

      The provision phases in an increase in the deductible 
percentage of business meal (food and beverage) expenses. The 
increase in the deductible percentage is phased in as follows: 
55 percent in 2006; and 60 percent in 2007 and thereafter.

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). The provision may increase 
complexity because the percentage of the deduction is phased 
in.

8. Sunset the provisions of the act (sec. 1602 of the conference 
        agreement)

Summary description of provision

      The provision sunsets the provisions and amendments made 
by this Act on the close of September 30, 2009. Certain 
enumerated provisions of the bill sunset on December 31, 2008.

Number of affected taxpayers

      It is estimated that the provision would affect almost 
all individuals and small businesses.

Discussion

      The provision will result in additional complexity and 
record keeping requirements for individuals and small 
businesses. Additional forms will be necessary to the extent 
the sunset causes a provision that had been eliminated to once 
again become effective. Similarly, additional regulatory 
guidance may be necessary to provide rules regarding transition 
issues that may arise as a result of this provision. The 
provision also can be expected to result in an increase in the 
tax preparation cost of individuals and small businesses using 
a tax preparation service.
                        Department of the Treasury,
                                  Internal Revenue Service,
                                    Washington, DC, August 4, 1999.
Ms. Lindy L. Paull,
Chief of Staff, Joint Committee on Taxation,
Washington, DC.
      Dear Ms. Paull: Attached are the Internal Revenue 
Service's comments on the eight provisions of the conference 
agreement to H.R. 2488 that you identified for complexity 
analysis in your letter of August 4, 1999. We have reiterated 
your description of those provisions in the attachment to this 
letter. Our comments are based on the information provided in 
the attachment to your letter, as well as language from the 
House and Senate versions of the bill.
      Due to the short turnaround time, and the fact that we 
did not have the exact language of the conference report, our 
comments are provisional and subject to change upon a more 
complete and in-depth analysis of the provisions.
            Sincerely,
                                       Charles O. Rossotti,
                                                      Commissioner.
      Attachment.

  Complexity Analysis of Provisions From Conference Agreement on H.R. 
                                  2488


                             rate reduction

      Provision: A reduction in the individual regular income 
tax rates as follows: (1) from 15 percent to 14 percent; (2) 
from 28 percent to 27 percent; (3) from 31 percent to 30 
percent; (4) from 36 percent to 35 percent; and (5) from 39.6 
percent to 38.6 percent. The reduction of the 15-percent rate 
to a 14-percent rate is phased-in over three years: (1) 14.5 
percent in 2001 and 2002; and (2) 14 percent in 2003 and 
thereafter. The reductions in the other rates are effective for 
taxable years beginning after 2004. The provision also widens 
the lowest regular income tax bracket for singles and heads of 
household by $3,000 for taxable years beginning after 2005. For 
years after 2006, the $3,000 amount is indexed for inflation.
      IRS Comments: The tax rate changes and the increase in 
the width of the 14 percent bracket mandated by the provision 
would be incorporated in the tax tables and tax rate schedules 
during IRS' annual update of these items. Changes would be 
required to the tax tables and tax rate schedules shown in the 
instructions for Forms 1040, 1040A, 1040EZ, 1040NR, 1040NR-EZ, 
and 1041, and on Forms 1040-ES, W-4V, and 8814 for 2001, 2003, 
2005, and later years. Other forms (e.g., Form 8752) would also 
be affected. No new forms would be required. Programming 
changes would be required to reflect the new rates and wider 14 
percent rate bracket.

                        marriage penalty relief

      Provision: An increase in the basic standard deduction 
for a married couple filing a joint return to twice the basic 
standard deduction for an unmarried individual. This increase 
is phased-in over five years (2001-2005) and is fully effective 
in 2005. The provision also increases the size of the lowest 
regular income tax rate bracket to twice the size of the rate 
bracket for an unmarried individual. This increase in the rate 
bracket is phased-in over four years (2005-2008) and is fully 
effective in 2008.
      IRS Comments: The increase in the basic standard 
deduction for married taxpayers filing jointly would be 
incorporated in the instructions for Forms 1040, 1040A, 1040EZ, 
1040NR, and 1040NR-EZ, and on Forms 1040, 1040A, 1040EZ, and 
1040-ES for each year during the phase-in period (2001-2005). 
The increase in the width of the 14 percent bracket would be 
incorporated in the tax tables and tax rate schedules in the 
instructions for Forms 1040, 1040A, 1040EZ, 1040NR, and 1040NR-
EZ for each year during the phase-in period (2005-2008). No new 
forms would be required. Programming changes would be required 
to reflect the increased standard deduction and wider 14 
percent rate bracket for married taxpayers filing jointly.

                Reduced capital gains rate and indexing

      Provision: A reduction of the individual capital gain 
rates of 10, 20, and 25 percent to 8, 18, and 23 percent, 
respectively, effective for transactions on or after January 1, 
1999. The provision also provides for the indexation of capital 
gains beginning in 2000 (with mark-to-market treatment with 
respect to assets held on January 1, 2000).
      IRS Comments: The provision would require revision of the 
following 1999 forms to reflect the reduced capital gains tax 
rates: Schedule D (Form 1040). Schedule D (Form 1041), Form 
6251, and Schedule I of Form 1041. No additional lines or 
worksheets would be necessary, provided that section 
1(h)(13)(C) of the Code, relating to special rules for pass-
through entities, is repealed. No new forms would be required. 
Programming changes would be required to reflect the new rates. 
Programming changes would be required to reflect the reduced 
capital gain rates.
      The indexing provision would result in an increase in 
taxpayer burden. The IRS would need to develop a 6-column 
worksheet and a table of indexing factors beginning with the 
2000 (or 2001) instructions for Schedules D of Forms 1040, 
1041, 1065, 1065-B, and 1120-S, to help taxpayers figure the 
increase in the basis of each asset they sell. Indexing would 
be especially burdensome for taxpayers who have dividend 
reinvestment plans or who periodically add small amounts to 
their mutual funds. Each dividend reinvestment and/or periodic 
addition would be viewed as a separate asset purchase that 
would have to be indexed based on when the reinvestment or 
addition was made. Most capital improvements would be similarly 
treated as separate asset acquisitions. Assuming corporations 
are ineligible for indexing, the provision would also require 
two separate basis calculations for assets held by partnerships 
that have corporate partners. No new forms or programming 
changes would be required.
      Indexing would lead to increased taxpayer error. Errors 
detected on the face of the return during processing would be 
sent to Error Resolution for correction, which would result in 
additional taxpayer contacts as well as delays in issuing 
refunds. Such errors would increase the IRS' processing costs. 
Most indexing errors would only be detectable through an 
examination of the return.
      Taxpayers would have to maintain proof (i.e., a copy of 
their return) of their mark-to-market election well into the 
future in order to establish their asset basis. Failure to 
maintain this proof could lead to disputes with the IRS when 
the asset is eventually sold or disposed of.
      Complications from indexing would likely cause an 
increase in the number of taxpayers who use a paid preparer and 
discourage the use by taxpayers of the electronic On-Line 
Filing program. The indexing and the mark-to-market provisions 
would result in increased taxpayer inquiries over the toll-free 
telephone lines, which might be beyond the capacity of the IRS 
to handle.

                   increased ira contribution limits

      Provision: An increase in the $2,000 IRA contribution 
limit to $3,000 for 2001-03, to $4,000 in 2004-05, and to 
$5,000 in 2006-08.
      IRS Comments: This provision would require a change to 
the dollar limit specified in the Form 1040, Form 1040A, Form 
8606, and Form 5329 instructions for 2001, 2004, and 2006. The 
change would also be reflected in the Form 1040-ES for all 
applicable years. No new forms or additional lines would be 
required. Programming changes would be needed to reflect the 
increased contribution limits.
      IRS would need to provide guidance to financial 
institutions that sponsor IRAs on how to take into account the 
higher contribution limits (currently all sponsors utilize IRS 
approved documents). In addition, the following model IRA and 
Roth IRA documents that are issued by the Assistant 
Commissioner (EPEO) would need to be modified to take into 
account the increased contribution limits:
      Form 5305, Individual Retirement Trust Account
      Form 5305-A, Individual Retirement Custodial Account
      Form 5305-R, Roth Individual Retirement Account
      Form 5305-RA, Roth individual Retirement Custodial 
Account
      Form 5305-RB, Roth Individual Retirement Annuity 
Endorsement
      Increase Health Insurance Deduction for Self-Employed to 
100 Percent.
      Provision: An acceleration of the increase in the 
deduction of health insurance expenses of self-employed 
individuals so that the deduction is 100 percent in years 
beginning after December 31, 1999.
      IRS Comments: This provision would enable IRS to 
eliminate one line from the self-employed health insurance 
deduction worksheet contained in the 2000 instructions for 
Forms 1040 and 1040NR. This worksheet is currently four lines. 
The Form 1040-ES for 2000 would also reflect the provision. No 
new forms would be required.

               repeal futa surtax after December 31, 2004

      Provision: A repeal of the temporary FUTA surtax (0.2 
percent of wages) after December 31, 2004.
      IRS Comments: The provision would require a change to the 
FUTA tax rate on forms 940, 940-EZ, 940-PR and Schedule H of 
Form 1040 for 2005. The rate would be reduced from 6.2 percent 
to 6.0 percent. No new forms would be required. Programming 
changes would be necessary to reflect the reduced FUTA rate.

         restoration of 80 percent deduction for meal expenses

      Provision: An increase from 50 percent to 80 percent in 
the deductible percentage of business meal (food and beverage) 
expenses. The increase in the deductible percentage is phased-
in according to the following schedule: 55 percent in 2005; 60 
percent in 2006; 65 percent in 2007; 70 percent in 2008; 75 
percent in 2009; and 80 percent in 2010 and thereafter.
      IRS Comments: This provision would require the addition 
of a new 5-line column on Form 2106 and a new line on form 
2106-EZ to account for the different limits on meal expenses 
and entertainment expenses. Currently, the same 50 percent 
limit generally applies both types of expenses. Minor changes 
to the instructions for Schedules, C, C-EZ, E, and F of Form 
1040; Form 1065; and the Form 1120 series would also be 
required. No new forms would be required.

                                 sunset

      Provision: A sunset of all the provisions in the Act, as 
of the close of September 30, 2009.
      IRS Comments: Sunsetting all of the Act provisions at the 
same time would result in massive changes to tax forms and 
instructions (and related programming) for the sunset year. For 
taxpayers, the changes would be both burdensome and confusing. 
The ``mid-year'' sunset (i.e., September 30 as opposed to 
December 31) would greatly complicate matters and exacerbate 
the burden and confusion for taxpayers.


        
                For consideration of the House bill, and the 
                Senate amendment, and modifications committed 
                to conference:
                                   Wm. Archer.
                                   Dick Armey.
                                   Philip M. Crane.
                                   Wm. Thomas.
                As additional conferees for consideration of 
                sections 313, 315-316, 318, 325, 335, 338, 341-
                42, 344-45, 351, 362-63, 365, 371, 381, 1261, 
                1305, and 1406 of the Senate amendment, and 
                modifications committed to conference:
                                   Bill Goodling.
                                   John Boehner.
                                 Managers on the Part of the House.

                                   Wm. V. Roth, Jr.
                                   Trent Lott.
                                Managers on the Part of the Senate.
        

                                  
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