Small Business Job Protection Act of 1996 (P.L. 104-188)
Small Business Job Protection Act of 1996 (P.L. 104-188)
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- LanguageEnglish
H.R. 3448, Enrolled Bill
One Hundred Fourth Congress
of the
United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Wednesday, the third day of January, one thousand nine hundred and ninety-six
An Act
To provide tax relief for small businesses, to protect jobs, to create opportunities, to increase the take home pay of workers, to amend the Portal-to-Portal Act of 1947 relating to the payment of wages to employees who use employer owned vehicles, and to amend the Fair Labor Standards Act of 1938 to increase the minimum wage rate and to prevent job loss by providing flexibility to employers in complying with minimum wage and overtime requirements under that Act.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.--This Act may be cited as the 'Small Business Job Protection Act of 1996'.
(b) TABLE OF CONTENTS.--
Sec. 1. Short title; table of contents.
Sec. 1102. Underpayments of estimated tax.
Sec. 1112. Treatment of employee tips.
Sec. 1113. Treatment of storage of product samples.
Sec. 1114. Treatment of certain charitable risk pools.
Sec. 1115. Treatment of dues paid to agricultural or horticultural organizations.
Sec. 1116. Clarification of employment tax status of certain fishermen.
Sec. 1117. Modifications of tax-exempt bond rules for first-time farmers.
Sec. 1118. Newspaper distributors treated as direct sellers.
Sec. 1119. Application of involuntary conversion rules to presidentially declared disasters.
Sec. 1120. Class life for gas station convenience stores and similar structures.
Sec. 1121. Treatment of abandonment of lessor improvements at termination of lease.
Sec. 1123. Treatment of housing provided to employees by academic health centers.
Sec. 1202. Employer-provided educational assistance programs.
Sec. 1203. FUTA exemption for alien agricultural workers.
Sec. 1204. Research credit.
Sec. 1205. Orphan drug tax credit.
Sec. 1206. Contributions of stock to private foundations.
Sec. 1207. Extension of binding contract date for biomass and coal facilities.
Sec. 1208. Moratorium for excise tax on diesel fuel sold for use or used in diesel-powered motorboats.
Sec. 1302. Electing small business trusts.
Sec. 1303. Expansion of post-death qualification for certain trusts.
Sec. 1304. Financial institutions permitted to hold safe harbor debt.
Sec. 1305. Rules relating to inadvertent terminations and invalid elections.
Sec. 1306. Agreement to terminate year.
Sec. 1307. Expansion of post-termination transition period.
Sec. 1308. S corporations permitted to hold subsidiaries.
Sec. 1309. Treatment of distributions during loss years.
Sec. 1310. Treatment of S corporations under subchapter C.
Sec. 1311. Elimination of certain earnings and profits.
Sec. 1312. Carryover of disallowed losses and deductions under at-risk rules allowed.
Sec. 1313. Adjustments to basis of inherited S stock to reflect certain items of income.
Sec. 1315. Financial institutions.
Sec. 1316. Certain exempt organizations allowed to be shareholders.
Sec. 1317. Effective date.
Chapter 1--Simplified Distribution Rules
Sec. 1401. Repeal of 5-year income averaging for lump-sum distributions.
Sec. 1402. Repeal of $5,000 exclusion of employees' death benefits.
Sec. 1403. Simplified method for taxing annuity distributions under certain employer plans.
Sec. 1404. Required distributions.
Chapter 2--Increased Access to Retirement Plans
Sec. 1427. Homemakers eligible for full IRA deduction.
Chapter 3--Nondiscrimination Provisions
Sec. 1431. Definition of highly compensated employees; repeal of family aggregation.
Sec. 1432. Modification of additional participation requirements.
Sec. 1433. Nondiscrimination rules for qualified cash or deferred arrangements and matching contributions.
Sec. 1434. Definition of compensation for section 415 purposes.
Chapter 4--Miscellaneous Provisions
Sec. 1441. Plans covering self-employed individuals.
Sec. 1442. Elimination of special vesting rule for multiemployer plans.
Sec. 1443. Distributions under rural cooperative plans.
Sec. 1444. Treatment of governmental plans under section 415.
Sec. 1445. Uniform retirement age.
Sec. 1446. Contributions on behalf of disabled employees.
Sec. 1448. Trust requirement for deferred compensation plans of State and local governments.
Sec. 1449. Transition rule for computing maximum benefits under section 415 limitations.
Sec. 1450. Modifications of section 403(b).
Sec. 1451. Special rules relating to joint and survivor annuity explanations.
Sec. 1453. Tax on prohibited transactions.
Sec. 1454. Treatment of leased employees.
Sec. 1455. Uniform penalty provisions to apply to certain pension reporting requirements.
Sec. 1456. Retirement benefits of ministers not subject to tax on net earnings from self-employment.
Sec. 1457. Sample language for spousal consent and qualified domestic relations forms.
Sec. 1459. Alternative nondiscrimination rules for certain plans that provide for early participation.
Sec. 1460. Clarification of application of ERISA to insurance company general accounts.
Sec. 1461. Special rules for chaplains and self-employed ministers.
Sec. 1462. Definition of highly compensated employee for pre-ERISA rules for church plans.
Sec. 1463. Rule relating to investment in contract not to apply to foreign missionaries.
Sec. 1464. Waiver of excise tax on failure to pay liquidity shortfall.
Sec. 1465. Date for adoption of plan amendments.
Part I--General Provisions
Sec. 1601. Modifications of Puerto Rico and possession tax credit.
Sec. 1602. Repeal of exclusion for interest on loans used to acquire employer securities.
Sec. 1603. Certain amounts derived from foreign corporations treated as unrelated business taxable income.
Sec. 1604. Depreciation under income forecast method.
Sec. 1606. Repeal of diesel fuel tax rebate to purchasers of diesel-powered automobiles and light trucks.
Sec. 1607. Extension and phasedown of luxury passenger automobile tax.
Sec. 1608. Termination of future tax-exempt bond financing for local furnishers of electricity and gas.
Sec. 1609. Extension of Airport and Airway Trust Fund excise taxes.
Sec. 1611. Treatment of certain insurance contracts on retired lives.
Sec. 1612. Treatment of modified guaranteed contracts.
Sec. 1613. Treatment of contributions in aid of construction.
Sec. 1614. Election to cease status as qualified scholarship funding corporation.
Sec. 1615. Certain tax benefits denied to individuals failing to provide taxpayer identification numbers.
Sec. 1616. Repeal of bad debt reserve method for thrift savings associations.
Sec. 1617. Exclusion for energy conservation subsidies limited to subsidies with respect to dwelling units.
Part II--Financial Asset Securitization Investments
Sec. 1621. Financial Asset Securitization Investment Trusts.
Sec. 1702. Amendments related to Revenue Reconciliation Act of 1990.
Sec. 1703. Amendments related to Revenue Reconciliation Act of 1993.
Sec. 1704. Miscellaneous provisions.
Sec. 1802. Treatment of certain university accounts.
Sec. 1803. Modifications to excise tax on ozone-depleting chemicals.
Sec. 1804. Tax-exempt bonds for sale of Alaska Power Administration facility.
Sec. 1806. Qualified State tuition programs.
Sec. 1807. Adoption assistance.
Sec. 1808. Removal of barriers to interethnic adoption.
Sec. 1809. 6-month delay of electronic fund transfer requirement.
Sec. 1902. Comparable penalties for failure to file return relating to transfers to foreign entities.
Sec. 1903. Modifications of rules relating to foreign trusts having one or more United States beneficiaries.
Sec. 1904. Foreign persons not to be treated as owners under grantor trust rules.
Sec. 1905. Information reporting regarding foreign gifts.
Sec. 1906. Modification of rules relating to foreign trusts which are not grantor trusts.
Sec. 1907. Residence of trusts, etc.
Sec. 1952. Generalized System of Preferences.
Sec. 1953. Effective date.
Sec. 1954. Conforming amendments.
SEC. 1101. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in this title an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.
No addition to the tax shall be made under section 6654 or 6655 of the Internal Revenue Code of 1986 (relating to failure to pay estimated tax) with respect to any underpayment of an installment required to be paid before the date of the enactment of this Act to the extent such underpayment was created or increased by any provision of this title.
SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.
(a) GENERAL RULE.--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 the following applicable amount:
begins in: amount is:
1997 18,000
1998 18,500
1999 19,000
2000 20,000
2001 or 2002 24,000
2003 or thereafter 25,000.'.
SEC. 1112. TREATMENT OF EMPLOYEE TIPS.
(a) EMPLOYEE CASH TIPS.--
(1) REPORTING REQUIREMENT NOT CONSIDERED.--Subparagraph (A) of section 45B(b)(1) (relating to excess employer social security tax) is amended by inserting '(without regard to whether such tips are reported under section 6053)' after 'section 3121(q)'.
(2) TAXES PAID.--Subsection (d) of section 13443 of the Revenue Reconciliation Act of 1993 is amended by inserting ', with respect to services performed before, on, or after such date' after '1993'.
(3) EFFECTIVE DATE.--The amendments made by this subsection shall take effect as if included in the amendments made by, and the provisions of, section 13443 of the Revenue Reconciliation Act of 1993.
(b) TIPS FOR EMPLOYEES DELIVERING FOOD OR BEVERAGES.--
(1) IN GENERAL.--Paragraph (2) of section 45B(b) is amended to read as follows:
'(2) ONLY TIPS RECEIVED FOR FOOD OR BEVERAGES TAKEN INTO ACCOUNT.--In applying paragraph (1), there shall be taken into account only tips received from customers in connection with the providing, delivering, or serving of food or beverages for consumption if the tipping of employees delivering or serving food or beverages by customers is customary.'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to tips received for services performed after December 31, 1996.
(a) IN GENERAL.--Paragraph (2) of section 280A(c) is amended by striking 'inventory' and inserting 'inventory or product samples'.
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1995.
SEC. 1114. TREATMENT OF CERTAIN CHARITABLE RISK POOLS.
(a) GENERAL RULE.--Section 501 (relating to exemption from tax on corporations, certain trusts, etc.) is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection:
'(n) CHARITABLE RISK POOLS.--
'(1) IN GENERAL.--For purposes of this title--
'(A) a qualified charitable risk pool shall be treated as an organization organized and operated exclusively for charitable purposes, and
'(B) subsection (m) shall not apply to a qualified charitable risk pool.
'(2) QUALIFIED CHARITABLE RISK POOL.--For purposes of this subsection, the term 'qualified charitable risk pool' means any organization--
'(A) which is organized and operated solely to pool insurable risks of its members (other than risks related to medical malpractice) and to provide information to its members with respect to loss control and risk management,
'(B) which is comprised solely of members that are organizations described in subsection (c)(3) and exempt from tax under subsection (a), and
'(C) which meets the organizational requirements of paragraph (3).
'(3) ORGANIZATIONAL REQUIREMENTS.--An organization (hereinafter in this subsection referred to as the 'risk pool') meets the organizational requirements of this paragraph if--
'(A) such risk pool is organized as a nonprofit organization under State law provisions authorizing risk pooling arrangements for charitable organizations,
'(B) such risk pool is exempt from any income tax imposed by the State (or will be so exempt after such pool qualifies as an organization exempt from tax under this title),
'(C) such risk pool has obtained at least $1,000,000 in startup capital from nonmember charitable organizations,
'(D) such risk pool is controlled by a board of directors elected by its members, and
'(E) the organizational documents of such risk pool require that--
'(i) each member of such pool shall at all times be an organization described in subsection (c)(3) and exempt from tax under subsection (a),
'(ii) any member which receives a final determination that it no longer qualifies as an organization described in subsection (c)(3) shall immediately notify the pool of such determination and the effective date of such determination, and
'(iii) each policy of insurance issued by the risk pool shall provide that such policy will not cover the insured with respect to events occurring after the date such final determination was issued to the insured.
'(4) OTHER DEFINITIONS.--For purposes of this subsection--
'(A) STARTUP CAPITAL.--The term 'startup capital' means any capital contributed to, and any program-related investments (within the meaning of section 4944(c)) made in, the risk pool before such pool commences operations.
'(B) NONMEMBER CHARITABLE ORGANIZATION.--The term 'nonmember charitable organization' means any organization which is described in subsection (c)(3) and exempt from tax under subsection (a) and which is not a member of the risk pool and does not benefit (directly or indirectly) from the insurance coverage provided by the pool to its members.'.
SEC. 1115. TREATMENT OF DUES PAID TO AGRICULTURAL OR HORTICULTURAL ORGANIZATIONS.
(a) GENERAL RULE.--Section 512 (defining unrelated business taxable income) is amended by adding at the end the following new subsection:
'(d) TREATMENT OF DUES OF AGRICULTURAL OR HORTICULTURAL ORGANIZATIONS.--
'(1) IN GENERAL.--If--
'(A) an agricultural or horticultural organization described in section 501(c)(5) requires annual dues to be paid in order to be a member of such organization, and
'(B) the amount of such required annual dues does not exceed $100,
in no event shall any portion of such dues be treated as derived by such organization from an unrelated trade or business by reason of any benefits or privileges to which members of such organization are entitled.
'(2) INDEXATION OF $100 AMOUNT.--In the case of any taxable year beginning in a calendar year after 1995, the $100 amount in paragraph (1) shall be increased by an amount equal to--
'(A) $100, multiplied by
'(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting 'calendar year 1994' for 'calendar year 1992' in subparagraph (B) thereof.
'(3) DUES.--For purposes of this subsection, the term 'dues' means any payment (whether or not designated as dues) which is required to be made in order to be recognized by the organization as a member of the organization.'.
(b) EFFECTIVE DATES.--
(1) IN GENERAL.--The amendment made by this section shall apply to taxable years beginning after December 31, 1986.
(2) TRANSITIONAL RULE.--If--
(A) for purposes of applying part III of subchapter F of chapter 1 of the Internal Revenue Code of 1986 to any taxable year beginning before January 1, 1987, an agricultural or horticultural organization did not treat any portion of membership dues received by it as income derived in an unrelated trade or business, and
(B) such organization had a reasonable basis for not treating such dues as income derived in an unrelated trade or business,
then, for purposes of applying such part III to any such taxable year, in no event shall any portion of such dues be treated as derived in an unrelated trade or business.
(3) REASONABLE BASIS.--For purposes of paragraph (2), an organization shall be treated as having a reasonable basis for not treating membership dues as income derived in an unrelated trade or business if the taxpayer's treatment of such dues was in reasonable reliance on any of the following:
(A) Judicial precedent, published rulings, technical advice with respect to the organization, or a letter ruling to the organization.
(B) A past Internal Revenue Service audit of the organization in which there was no assessment attributable to the reclassification of membership dues for purposes of the tax on unrelated business income.
(C) Long-standing recognized practice of agricultural or horticultural organizations.
(a) CLARIFICATION OF EMPLOYMENT TAX STATUS.--
(1) AMENDMENTS OF INTERNAL REVENUE CODE OF 1986.--
(A) DETERMINATION OF SIZE OF CREW.--Subsection (b) of section 3121 (defining employment) is amended by adding at the end the following new sentence:
'(A) such individual does not receive any cash remuneration other than as provided in subparagraph (B) and other than cash remuneration--
'(i) which does not exceed $100 per trip;
'(ii) which is contingent on a minimum catch; and
'(iii) which is paid solely for additional duties (such as mate, engineer, or cook) for which additional cash remuneration is traditional in the industry,'.
(C) CONFORMING AMENDMENT.--Section 6050A(a) is amended by striking 'and' at the end of paragraph (3), by striking the period at the end of paragraph (4) and inserting '; and', and by adding at the end the following new paragraph:
'(5) any cash remuneration described in section 3121(b)(20)(A).'.
(2) AMENDMENT OF SOCIAL SECURITY ACT.--
(A) DETERMINATION OF SIZE OF CREW.--Subsection (a) of section 210 of the Social Security Act is amended by adding at the end the following new sentence:
'(A) such individual does not receive any additional compensation other than as provided in subparagraph (B) and other than cash remuneration--
'(i) which does not exceed $100 per trip;
'(ii) which is contingent on a minimum catch; and
'(iii) which is paid solely for additional duties (such as mate, engineer, or cook) for which additional cash remuneration is traditional in the industry,'.
(A) IN GENERAL.--The amendments made by this subsection shall apply to remuneration paid--
(i) after December 31, 1994, and
(ii) after December 31, 1984, and before January 1, 1995, unless the payor treated such remuneration (when paid) as being subject to tax under chapter 21 of the Internal Revenue Code of 1986.
(B) REPORTING REQUIREMENT.--The amendment made by paragraph (1)(C) shall apply to remuneration paid after December 31, 1996.
(1) IN GENERAL.--Subpart B of part III of subchapter A of chapter 68 (relating to information concerning transactions with other persons) is amended by inserting after section 6050Q the following new section:
'(a) REQUIREMENT OF REPORTING.--Every person--
'(1) who is engaged in the trade or business of purchasing fish for resale from any person engaged in the trade or business of catching fish; and
'(2) who makes payments in cash in the course of such trade or business to such a person of $600 or more during any calendar year for the purchase of fish,
shall make a return (at such times as the Secretary may prescribe) described in subsection (b) with respect to each person to whom such a payment was made during such calendar year.
'(b) RETURN.--A return is described in this subsection if such return--
'(1) is in such form as the Secretary may prescribe, and
'(2) contains--
'(A) the name, address, and TIN of each person to whom a payment described in subsection (a)(2) was made during the calendar year;
'(B) the aggregate amount of such payments made to such person during such calendar year and the date and amount of each such payment, and
'(C) such other information as the Secretary may require.
'(1) the name and address of the person required to make such a return, and
'(2) the aggregate amount of payments to the person required to be shown on the return.
The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) is required to be made.
'(d) DEFINITIONS.--For purposes of this section:
'(1) CASH.--The term 'cash' has the meaning given such term by section 6050I(d).
'(2) FISH.--The term 'fish' includes other forms of aquatic life.'.
(2) TECHNICAL AMENDMENTS.--
(A) Subparagraph (A) of section 6724(d)(1) is amended by striking 'or' at the end of clause (vi), by striking 'and' at the end of clause (vii) and inserting 'or', and by adding at the end the following new clause:
'(viii) section 6050R (relating to returns relating to certain purchases of fish), and'.
(B) Paragraph (2) of section 6724(d) is amended by redesignating subparagraphs (R) through (U) as subparagraphs (S) through (V), respectively, and by inserting after subparagraph (Q) the following new subparagraph:
'(R) section 6050R(c) (relating to returns relating to certain purchases of fish),'.
(C) The table of sections for subpart B of part III of subchapter A of chapter 68 is amended by inserting after the item relating to 6050Q the following new item:
(a) ACQUISITION FROM RELATED PERSON ALLOWED.--Section 147(c)(2) (relating to exception for first-time farmers) is amended by adding at the end the following new subparagraph:
'(i) the acquisition price is for the fair market value of such land or property, and
'(ii) subsequent to such acquisition, the related person does not have a financial interest in the farming operation with respect to which the bond proceeds are to be used.'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to bonds issued after the date of the enactment of this Act.
SEC. 1118. NEWSPAPER DISTRIBUTORS TREATED AS DIRECT SELLERS.
(a) IN GENERAL.--Section 3508(b)(2)(A) is amended by striking 'or' at the end of clause (i), by inserting 'or' at the end of clause (ii), and by inserting after clause (ii) the following new clause:
SEC. 1119. APPLICATION OF INVOLUNTARY CONVERSION RULES TO PRESIDENTIALLY DECLARED DISASTERS.
(a) IN GENERAL.--Section 1033(h) is amended by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by inserting after paragraph (1) the following new paragraph:
'(2) TRADE OR BUSINESS AND INVESTMENT PROPERTY.--If a taxpayer's property held for productive use in a trade or business or for investment is compulsorily or involuntarily converted as a result of a Presidentially declared disaster, tangible property of a type held for productive use in a trade or business shall be treated for purposes of subsection (a) as property similar or related in service or use to the property so converted.'.
(b) CONFORMING AMENDMENTS.--Section 1033(h) is amended--
(1) by striking 'residence' in paragraph (3) (as redesignated by subsection (a)) and inserting 'property',
(2) by striking 'PRINCIPAL RESIDENCES' in the heading and inserting 'PROPERTY', and
(3) by striking '(1) IN GENERAL.--' and inserting '(1) PRINCIPAL RESIDENCES.--'.
(c) EXPANSION OF OKLAHOMA CITY ENTERPRISE COMMUNITY.--Notwithstanding sections 1391 and 1392(a)(3)(D) of the Internal Revenue Code of 1986, the boundaries of the enterprise community for Oklahoma City, Oklahoma, designated by the Secretary of Housing and Urban Development on December 21, 1994, may be extended with respect to census tracts located in the area damaged due to the bombing of the Alfred P. Murrah Federal Building in Oklahoma City on April 19, 1995, primarily in the area bounded on the south by Robert S. Kerr Avenue, on the north by North 13th Street, on the east by Oklahoma Avenue, and on the west by Shartel Avenue.
(d) EFFECTIVE DATE.--
(1) IN GENERAL.--The amendments made by this section shall apply to disasters declared after December 31, 1994, in taxable years ending after such date.
(2) SUBSECTION (c).--Subsection (c) shall take effect on the date of the enactment of this Act.
(a) IN GENERAL.--Section 168(e)(3)(E) (classifying certain property as 15-year property) is amended by striking 'and' at the end of clause (i), by striking the period at the end of clause (ii) and inserting ', and', and by adding at the end the following new clause:
SEC. 1121. TREATMENT OF ABANDONMENT OF LESSOR IMPROVEMENTS AT TERMINATION OF LEASE.
(a) IN GENERAL.--Paragraph (8) of section 168(i) is amended to read as follows:
'(8) TREATMENT OF LEASEHOLD IMPROVEMENTS.--
'(A) IN GENERAL.--In the case of any building erected (or improvements made) on leased property, if such building or improvement is property to which this section applies, the depreciation deduction shall be determined under the provisions of this section.
'(B) TREATMENT OF LESSOR IMPROVEMENTS WHICH ARE ABANDONED AT TERMINATION OF LEASE.--An improvement--
'(i) which is made by the lessor of leased property for the lessee of such property, and
'(ii) which is irrevocably disposed of or abandoned by the lessor at the termination of the lease by such lessee,
shall be treated for purposes of determining gain or loss under this title as disposed of by the lessor when so disposed of or abandoned.'.
SEC. 1122. SPECIAL RULES RELATING TO DETERMINATION WHETHER INDIVIDUALS ARE EMPLOYEES FOR PURPOSES OF EMPLOYMENT TAXES.
(a) IN GENERAL.--Section 530 of the Revenue Act of 1978 is amended by adding at the end the following new subsection:
'(e) SPECIAL RULES FOR APPLICATION OF SECTION.--
'(1) NOTICE OF AVAILABILITY OF SECTION.--An officer or employee of the Internal Revenue Service shall, before or at the commencement of any audit inquiry relating to the employment status of one or more individuals who perform services for the taxpayer, provide the taxpayer with a written notice of the provisions of this section.
'(2) RULES RELATING TO STATUTORY STANDARDS.--For purposes of subsection (a)(2)--
'(A) a taxpayer may not rely on an audit commenced after December 31, 1996, for purposes of subparagraph (B) thereof unless such audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a position substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer,
'(B) in no event shall the significant segment requirement of subparagraph (C) thereof be construed to require a reasonable showing of the practice of more than 25 percent of the industry (determined by not taking into account the taxpayer), and
'(C) in applying the long-standing recognized practice requirement of subparagraph (C) thereof--
'(i) such requirement shall not be construed as requiring the practice to have continued for more than 10 years, and
'(ii) a practice shall not fail to be treated as long-standing merely because such practice began after 1978.
'(4) BURDEN OF PROOF.--
'(A) IN GENERAL.--If--
'(i) a taxpayer establishes a prima facie case that it was reasonable not to treat an individual as an employee for purposes of this section, and
'(ii) the taxpayer has fully cooperated with reasonable requests from the Secretary of the Treasury or his delegate,
then the burden of proof with respect to such treatment shall be on the Secretary.
'(B) EXCEPTION FOR OTHER REASONABLE BASIS.--In the case of any issue involving whether the taxpayer had a reasonable basis not to treat an individual as an employee for purposes of this section, subparagraph (A) shall only apply for purposes of determining whether the taxpayer meets the requirements of subparagraph (A), (B), or (C) of subsection (a)(2).
'(5) PRESERVATION OF PRIOR PERIOD SAFE HARBOR.--If--
'(A) an individual would (but for the treatment referred to in subparagraph (B)) be deemed not to be an employee of the taxpayer under subsection (a) for any prior period, and
'(B) such individual is treated by the taxpayer as an employee for employment tax purposes for any subsequent period,
then, for purposes of applying such taxes for such prior period with respect to the taxpayer, the individual shall be deemed not to be an employee.
'(6) SUBSTANTIALLY SIMILAR POSITION.--For purposes of this section, the determination as to whether an individual holds a position substantially similar to a position held by another individual shall include consideration of the relationship between the taxpayer and such individuals.'.
(b) EFFECTIVE DATES.--
(1) IN GENERAL.--The amendment made by this section shall apply to periods after December 31, 1996.
(2) NOTICE BY INTERNAL REVENUE SERVICE.--Section 530(e)(1) of the Revenue Act of 1978 (as added by subsection (a)) shall apply to audits which commence after December 31, 1996.
(3) BURDEN OF PROOF.--
(A) IN GENERAL.--Section 530(e)(4) of the Revenue Act of 1978 (as added by subsection (a)) shall apply to disputes involving periods after December 31, 1996.
(B) NO INFERENCE.--Nothing in the amendments made by this section shall be construed to infer the proper treatment of the burden of proof with respect to disputes involving periods before January 1, 1997.
(a) IN GENERAL.--Paragraph (4) of section 119(d) (relating to lodging furnished by certain educational institutions to employees) is amended to read as follows:
'(4) EDUCATIONAL INSTITUTION, ETC.--For purposes of this subsection--
'(A) IN GENERAL.--The term 'educational institution' means--
'(i) an institution described in section 170(b)(1)(A)(ii) (or an entity organized under State law and composed of public institutions so described), or
'(ii) an academic health center.
'(B) ACADEMIC HEALTH CENTER.--For purposes of subparagraph (A), the term 'academic health center' means an entity--
'(i) which is described in section 170(b)(1)(A)(iii),
'(ii) which receives (during the calendar year in which the taxable year of the taxpayer begins) payments under subsection (d)(5)(B) or (h) of section 1886 of the Social Security Act (relating to graduate medical education), and
'(iii) which has as one of its principal purposes or functions the providing and teaching of basic and clinical medical science and research with the entity's own faculty.'.
SEC. 1201. WORK OPPORTUNITY TAX CREDIT.
(a) AMOUNT OF CREDIT.--Subsection (a) of section 51 (relating to amount of credit) is amended by striking '40 percent' and inserting '35 percent'.
(b) MEMBERS OF TARGETED GROUPS.--Subsection (d) of section 51 is amended to read as follows:
'(d) MEMBERS OF TARGETED GROUPS.--For purposes of this subpart--
'(1) IN GENERAL.--An individual is a member of a targeted group if such individual is--
'(A) a qualified IV-A recipient,
'(B) a qualified veteran,
'(C) a qualified ex-felon,
'(D) a high-risk youth,
'(E) a vocational rehabilitation referral,
'(F) a qualified summer youth employee, or
'(G) a qualified food stamp recipient.
'(2) QUALIFIED IV-A RECIPIENT.--
'(A) IN GENERAL.--The term 'qualified IV-A recipient' means any individual who is certified by the designated local agency as being a member of a family receiving assistance under a IV-A program for at least a 9-month period ending during the 9-month period ending on the hiring date.
'(B) IV-A PROGRAM.--For purposes of this paragraph, the term 'IV-A program' means any program providing assistance under a State plan approved under part A of title IV of the Social Security Act (relating to assistance for needy families with minor children) and any successor of such program.
'(3) QUALIFIED VETERAN.--
'(A) IN GENERAL.--The term 'qualified veteran' means any veteran who is certified by the designated local agency as being--
'(i) a member of a family receiving assistance under a IV-A program (as defined in paragraph (2)(B)) for at least a 9-month period ending during the 12-month period ending on the hiring date, or
'(ii) a member of a family receiving assistance under a food stamp program under the Food Stamp Act of 1977 for at least a 3-month period ending during the 12-month period ending on the hiring date.
'(B) VETERAN.--For purposes of subparagraph (A), the term 'veteran' means any individual who is certified by the designated local agency as--
'(i)(I) having served on active duty (other than active duty for training) in the Armed Forces of the United States for a period of more than 180 days, or
'(II) having been discharged or released from active duty in the Armed Forces of the United States for a service-connected disability, and
'(ii) not having any day during the 60-day period ending on the hiring date which was a day of extended active duty in the Armed Forces of the United States.
For purposes of clause (ii), the term 'extended active duty' means a period of more than 90 days during which the individual was on active duty (other than active duty for training).
'(4) QUALIFIED EX-FELON.--The term 'qualified ex-felon' means any individual who is certified by the designated local agency--
'(A) as having been convicted of a felony under any statute of the United States or any State,
'(B) as having a hiring date which is not more than 1 year after the last date on which such individual was so convicted or was released from prison, and
'(C) as being a member of a family which had an income during the 6 months immediately preceding the earlier of the month in which such income determination occurs or the month in which the hiring date occurs, which, on an annual basis, would be 70 percent or less of the Bureau of Labor Statistics lower living standard.
Any determination under subparagraph (C) shall be valid for the 45-day period beginning on the date such determination is made.
'(5) HIGH-RISK YOUTH.--
'(A) IN GENERAL.--The term 'high-risk youth' means any individual who is certified by the designated local agency--
'(i) as having attained age 18 but not age 25 on the hiring date, and
'(ii) as having his principal place of abode within an empowerment zone or enterprise community.
'(B) YOUTH MUST CONTINUE TO RESIDE IN ZONE.--In the case of a high-risk youth, the term 'qualified wages' shall not include wages paid or incurred for services performed while such youth's principal place of abode is outside an empowerment zone or enterprise community.
'(6) VOCATIONAL REHABILITATION REFERRAL.--The term 'vocational rehabilitation referral' means any individual who is certified by the designated local agency as--
'(A) having a physical or mental disability which, for such individual, constitutes or results in a substantial handicap to employment, and
'(B) having been referred to the employer upon completion of (or while receiving) rehabilitative services pursuant to--
'(i) an individualized written rehabilitation plan under a State plan for vocational rehabilitation services approved under the Rehabilitation Act of 1973, or
'(ii) a program of vocational rehabilitation carried out under chapter 31 of title 38, United States Code.
'(A) IN GENERAL.--The term 'qualified summer youth employee' means any individual--
'(i) who performs services for the employer between May 1 and September 15,
'(ii) who is certified by the designated local agency as having attained age 16 but not 18 on the hiring date (or if later, on May 1 of the calendar year involved),
'(iii) who has not been an employee of the employer during any period prior to the 90-day period described in subparagraph (B)(i), and
'(iv) who is certified by the designated local agency as having his principal place of abode within an empowerment zone or enterprise community.
'(B) SPECIAL RULES FOR DETERMINING AMOUNT OF CREDIT.--For purposes of applying this subpart to wages paid or incurred to any qualified summer youth employee--
'(i) subsection (b)(2) shall be applied by substituting 'any 90-day period between May 1 and September 15' for 'the 1-year period beginning with the day the individual begins work for the employer', and
'(ii) subsection (b)(3) shall be applied by substituting '$3,000' for '$6,000'.
The preceding sentence shall not apply to an individual who, with respect to the same employer, is certified as a member of another targeted group after such individual has been a qualified summer youth employee.
'(C) YOUTH MUST CONTINUE TO RESIDE IN ZONE.--Paragraph (5)(B) shall apply for purposes of subparagraph (A)(iv).
'(8) QUALIFIED FOOD STAMP RECIPIENT.--
'(A) IN GENERAL.--The term 'qualified food stamp recipient' means any individual who is certified by the designated local agency--
'(i) as having attained age 18 but not age 25 on the hiring date, and
'(ii) as being a member of a family--
'(I) receiving assistance under a food stamp program under the Food Stamp Act of 1977 for the 6-month period ending on the hiring date, or
'(II) receiving such assistance for at least 3 months of the 5-month period ending on the hiring date, in the case of a member of a family who ceases to be eligible for such assistance under section 6(o) of the Food Stamp Act of 1977.
'(9) HIRING DATE.--The term 'hiring date' means the day the individual is hired by the employer.
'(10) DESIGNATED LOCAL AGENCY.--The term 'designated local agency' means a State employment security agency established in accordance with the Act of June 6, 1933, as amended (29 U.S.C. 49-49n).
'(11) SPECIAL RULES FOR CERTIFICATIONS.--
'(A) IN GENERAL.--An individual shall not be treated as a member of a targeted group unless--
'(i) on or before the day on which such individual begins work for the employer, the employer has received a certification from a designated local agency that such individual is a member of a targeted group, or
'(ii)(I) on or before the day the individual is offered employment with the employer, a pre-screening notice is completed by the employer with respect to such individual, and
'(II) not later than the 21st day after the individual begins work for the employer, the employer submits such notice, signed by the employer and the individual under penalties of perjury, to the designated local agency as part of a written request for such a certification from such agency.
'(B) INCORRECT CERTIFICATIONS.--If--
'(i) an individual has been certified by a designated local agency as a member of a targeted group, and
'(ii) such certification is incorrect because it was based on false information provided by such individual,
the certification shall be revoked and wages paid by the employer after the date on which notice of revocation is received by the employer shall not be treated as qualified wages.
'(C) EXPLANATION OF DENIAL OF REQUEST.--If a designated local agency denies a request for certification of membership in a targeted group, such agency shall provide to the person making such request a written explanation of the reasons for such denial.'.
'(3) INDIVIDUALS NOT MEETING MINIMUM EMPLOYMENT PERIOD.--No wages shall be taken into account under subsection (a) with respect to any individual unless such individual either--
'(A) is employed by the employer at least 180 days (20 days in the case of a qualified summer youth employee), or
'(B) has completed at least 400 hours (120 hours in the case of a qualified summer youth employee) of services performed for the employer.'.
'(4) TERMINATION.--The term 'wages' shall not include any amount paid or incurred to an individual who begins work for the employer--
'(A) after December 31, 1994, and before October 1, 1996, or
'(B) after September 30, 1997.'.
(1) Sections 38(b)(2), 41(b)(2)(D)(iii), 45A(b)(1)(B), 51 (a) and (g), and 196(c) are each amended in the text by striking 'targeted jobs credit' each place it appears and inserting 'work opportunity credit'.
(2) The subpart heading for subpart F of part IV of subchapter A of chapter 1 is amended by striking 'Targeted Jobs Credit' and inserting 'Work Opportunity Credit'.
(3) The table of subparts for such part IV is amended by striking 'targeted jobs credit' and inserting 'work opportunity credit'.
(4) The headings for sections 41(b)(2)(D)(iii) and 1396(c)(3) are each amended by striking 'TARGETED JOBS CREDIT' and inserting 'WORK OPPORTUNITY CREDIT'.
(5) The heading for subsection (j) of section 51 is amended by striking 'TARGETED JOBS CREDIT' and inserting 'WORK OPPORTUNITY CREDIT'.
(f) TECHNICAL AMENDMENT.--Paragraph (1) of section 51(c) is amended by striking ', subsection (d)(8)(D),'.
(g) EFFECTIVE DATE.--The amendments made by this section shall apply to individuals who begin work for the employer after September 30, 1996.
SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE PROGRAMS.
(a) EXTENSION.--Subsection (d) of section 127 (relating to educational assistance programs) is amended by striking 'December 31, 1994.' and inserting 'May 31, 1997. In the case of any taxable year beginning in 1997, only expenses paid with respect to courses beginning before July 1, 1997, shall be taken into account in determining the amount excluded under this section.'.
(b) LIMITATION TO EDUCATION BELOW GRADUATE LEVEL.--The last sentence of section 127(c)(1) is amended by inserting before the period the following: ', and such term also does not include any payment for, or the provision of any benefits with respect to, any graduate level course of a kind normally taken by an individual pursuing a program leading to a law, business, medical, or other advanced academic or professional degree'.
(c) EFFECTIVE DATES.--
(1) EXTENSION.--The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1994.
(2) GRADUATE EDUCATION.--The amendment made by subsection (b) shall apply with respect to expenses relating to courses beginning after June 30, 1996.
(3) EXPEDITED PROCEDURES.--The Secretary of the Treasury shall establish expedited procedures for the refund of any overpayment of taxes imposed by the Internal Revenue Code of 1986 which is attributable to amounts excluded from gross income during 1995 or 1996 under section 127 of such Code, including procedures waiving the requirement that an employer obtain an employee's signature where the employer demonstrates to the satisfaction of the Secretary that any refund collected by the employer on behalf of the employee will be paid to the employee.
(a) IN GENERAL.--Subparagraph (B) of section 3306(c)(1) (defining employment) is amended by striking 'before January 1, 1995,'.
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to services performed after December 31, 1994.
SEC. 1204. RESEARCH CREDIT.
(a) IN GENERAL.--Subsection (h) of section 41 (relating to credit for research activities) is amended to read as follows:
'(h) TERMINATION.--
'(1) IN GENERAL.--This section shall not apply to any amount paid or incurred--
'(A) after June 30, 1995, and before July 1, 1996, or
'(B) after May 31, 1997.
Notwithstanding the preceding sentence, in the case of a taxpayer making an election under subsection (c)(4) for its first taxable year beginning after June 30, 1996, and before July 1, 1997, this section shall apply to amounts paid or incurred during the first 11 months of such taxable year.
'(2) COMPUTATION OF BASE AMOUNT.--In the case of any taxable year with respect to which this section applies to a number of days which is less than the total number of days in such taxable year, the base amount with respect to such taxable year shall be the amount which bears the same ratio to the base amount for such year (determined without regard to this paragraph) as the number of days in such taxable year to which this section applies bears to the total number of days in such taxable year.'.
(b) BASE AMOUNT FOR START-UP COMPANIES.--Clause (i) of section 41(c)(3)(B) (relating to start-up companies) is amended to read as follows:
'(I) the first taxable year in which a taxpayer had both gross receipts and qualified research expenses begins after December 31, 1983, or
'(II) there are fewer than 3 taxable years beginning after December 31, 1983, and before January 1, 1989, in which the taxpayer had both gross receipts and qualified research expenses.'.
'(4) ELECTION OF ALTERNATIVE INCREMENTAL CREDIT.--
'(A) IN GENERAL.--At the election of the taxpayer, the credit determined under subsection (a)(1) shall be equal to the sum of--
'(i) 1.65 percent of so much of the qualified research expenses for the taxable year as exceeds 1 percent of the average described in subsection (c)(1)(B) but does not exceed 1.5 percent of such average,
'(ii) 2.2 percent of so much of such expenses as exceeds 1.5 percent of such average but does not exceed 2 percent of such average, and
'(iii) 2.75 percent of so much of such expenses as exceeds 2 percent of such average.
'(B) ELECTION.--An election under this paragraph may be made only for the first taxable year of the taxpayer beginning after June 30, 1996. Such an election shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Secretary.'.
'(i) IN GENERAL.--Subparagraph (A) shall be applied by substituting '75 percent' for '65 percent' with respect to amounts paid or incurred by the taxpayer to a qualified research consortium for qualified research on behalf of the taxpayer and 1 or more unrelated taxpayers. For purposes of the preceding sentence, all persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as related taxpayers.
'(ii) QUALIFIED RESEARCH CONSORTIUM.--The term 'qualified research consortium' means any organization which--
'(I) is described in section 501(c)(3) or 501(c)(6) and is exempt from tax under section 501(a),
'(II) is organized and operated primarily to conduct scientific research, and
'(III) is not a private foundation.'.
(f) EFFECTIVE DATES.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years ending after June 30, 1996.
(2) SUBSECTIONS (c) AND (d).--The amendments made by subsections (c) and (d) shall apply to taxable years beginning after June 30, 1996.
(3) ESTIMATED TAX.--The amendments made by this section shall not be taken into account under section 6654 or 6655 of the Internal Revenue Code of 1986 (relating to failure to pay estimated tax) in determining the amount of any installment required to be paid for a taxable year beginning in 1997.
(a) RECATEGORIZED AS A BUSINESS CREDIT.--
(1) IN GENERAL.--Section 28 (relating to clinical testing expenses for certain drugs for rare diseases or conditions) is transferred to subpart D of part IV of subchapter A of chapter 1, inserted after section 45B, and redesignated as section 45C.
(2) CONFORMING AMENDMENT.--Subsection (b) of section 38 (relating to general business credit) is amended by striking 'plus' at the end of paragraph (10), by striking the period at the end of paragraph (11) and inserting ', plus', and by adding at the end the following new paragraph:
'(12) the orphan drug credit determined under section 45C(a).'.
(3) CLERICAL AMENDMENTS.--
(A) The table of sections for subpart B of such part IV is amended by striking the item relating to section 28.
(B) The table of sections for subpart D of such part IV is amended by adding at the end the following new item:
(b) CREDIT TERMINATION.--Subsection (e) of section 45C, as redesignated by subsection (a)(1), is amended to read as follows:
'(e) TERMINATION.--This section shall not apply to any amount paid or incurred--
'(1) after December 31, 1994, and before July 1, 1996, or
'(2) after May 31, 1997.'.
(c) NO PRE-JULY 1, 1996 CARRYBACKS.--Subsection (d) of section 39 (relating to carryback and carryforward of unused credits) is amended by adding at the end the following new paragraph:
'(7) NO CARRYBACK OF SECTION 45C CREDIT BEFORE JULY 1, 1996.--No portion of the unused business credit for any taxable year which is attributable to the orphan drug credit determined under section 45C may be carried back to a taxable year ending before July 1, 1996.'.
(d) ADDITIONAL CONFORMING AMENDMENTS.--
(1) Section 45C(a), as redesignated by subsection (a)(1), is amended by striking 'There shall be allowed as a credit against the tax imposed by this chapter for the taxable year' and inserting 'For purposes of section 38, the credit determined under this section for the taxable year is'.
(2) Section 45C(d), as so redesignated, is amended by striking paragraph (2) and by redesignating paragraphs (3), (4), and (5) as paragraphs (2), (3), and (4).
(3) Section 29(b)(6)(A) is amended by striking 'sections 27 and 28' and inserting 'section 27'.
(4) Section 30(b)(3)(A) is amended by striking 'sections 27, 28, and 29' and inserting 'sections 27 and 29'.
(5) Section 53(d)(1)(B) is amended--
(A) by striking 'or not allowed under section 28 solely by reason of the application of section 28(d)(2)(B),' in clause (iii), and
(B) by striking 'or not allowed under section 28 solely by reason of the application of section 28(d)(2)(B)' in clause (iv)(II).
(6) Section 55(c)(2) is amended by striking '28(d)(2),'.
(7) Section 280C(b) is amended--
(A) by striking 'section 28(b)' in paragraph (1) and inserting 'section 45C(b)',
(B) by striking 'section 28' in paragraphs (1) and (2)(A) and inserting 'section 45C', and
(C) by striking 'subsection (d)(2) thereof' in paragraphs (1) and (2)(A) and inserting 'section 38(c)'.
SEC. 1206. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.
(a) IN GENERAL.--Subparagraph (D) of section 170(e)(5) (relating to special rule for contributions of stock for which market quotations are readily available) is amended to read as follows:
'(i) after December 31, 1994, and before July 1, 1996, or
'(ii) after May 31, 1997.'.
SEC. 1207. EXTENSION OF BINDING CONTRACT DATE FOR BIOMASS AND COAL FACILITIES.
(a) IN GENERAL.--Subparagraph (A) of section 29(g)(1) (relating to extension of certain facilities) is amended by striking 'January 1, 1997' and inserting 'July 1, 1998' and by striking 'January 1, 1996' and inserting 'January 1, 1997'.
(b) EFFECTIVE DATE.--The amendment made by this section shall take effect on the date of the enactment of this Act.
SEC. 1208. MORATORIUM FOR EXCISE TAX ON DIESEL FUEL SOLD FOR USE OR USED IN DIESEL-POWERED MOTORBOATS.
Subparagraph (D) of section 4041(a)(1) (relating to the imposition of tax on diesel fuel and special motor fuels) is amended by redesignating clauses (i) and (ii) as clauses (ii) and (iii), respectively, and by inserting before clause (ii) (as redesignated) the following new clause:
SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75 SHAREHOLDERS.
Subparagraph (A) of section 1361(b)(1) (defining small business corporation) is amended by striking '35 shareholders' and inserting '75 shareholders'.
SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.
(a) GENERAL RULE.--Subparagraph (A) of section 1361(c)(2) (relating to certain trusts permitted as shareholders) is amended by inserting after clause (iv) the following new clause:
'(e) ELECTING SMALL BUSINESS TRUST DEFINED.--
'(1) ELECTING SMALL BUSINESS TRUST.--For purposes of this section--
'(A) IN GENERAL.--Except as provided in subparagraph (B), the term 'electing small business trust' means any trust if--
'(i) such trust does not have as a beneficiary any person other than (I) an individual, (II) an estate, or (III) an organization described in paragraph (2), (3), (4), or (5) of section 170(c) which holds a contingent interest and is not a potential current beneficiary,
'(ii) no interest in such trust was acquired by purchase, and
'(iii) an election under this subsection applies to such trust.
'(B) CERTAIN TRUSTS NOT ELIGIBLE.--The term 'electing small business trust' shall not include--
'(i) any qualified subchapter S trust (as defined in subsection (d)(3)) if an election under subsection (d)(2) applies to any corporation the stock of which is held by such trust, and
'(ii) any trust exempt from tax under this subtitle.
'(C) PURCHASE.--For purposes of subparagraph (A), the term 'purchase' means any acquisition if the basis of the property acquired is determined under section 1012.
'(2) POTENTIAL CURRENT BENEFICIARY.--For purposes of this section, the term 'potential current beneficiary' means, with respect to any period, any person who at any time during such period is entitled to, or at the discretion of any person may receive, a distribution from the principal or income of the trust. If a trust disposes of all of the stock which it holds in an S corporation, then, with respect to such corporation, the term 'potential current beneficiary' does not include any person who first met the requirements of the preceding sentence during the 60-day period ending on the date of such disposition.
'(3) ELECTION.--An election under this subsection shall be made by the trustee. Any such election shall apply to the taxable year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the Secretary.
'(4) CROSS REFERENCE.--
'For special treatment of electing small business trusts, see section 641(d).'.
(d) TAXATION OF ELECTING SMALL BUSINESS TRUSTS.--Section 641 (relating to imposition of tax on trusts) is amended by adding at the end the following new subsection:
'(d) SPECIAL RULES FOR TAXATION OF ELECTING SMALL BUSINESS TRUSTS.--
'(1) IN GENERAL.--For purposes of this chapter--
'(A) the portion of any electing small business trust which consists of stock in 1 or more S corporations shall be treated as a separate trust, and
'(B) the amount of the tax imposed by this chapter on such separate trust shall be determined with the modifications of paragraph (2).
'(2) MODIFICATIONS.--For purposes of paragraph (1), the modifications of this paragraph are the following:
'(A) Except as provided in section 1(h), the amount of the tax imposed by section 1(e) shall be determined by using the highest rate of tax set forth in section 1(e).
'(B) The exemption amount under section 55(d) shall be zero.
'(C) The only items of income, loss, deduction, or credit to be taken into account are the following:
'(i) The items required to be taken into account under section 1366.
'(ii) Any gain or loss from the disposition of stock in an S corporation.
'(iii) To the extent provided in regulations, State or local income taxes or administrative expenses to the extent allocable to items described in clauses (i) and (ii).
No deduction or credit shall be allowed for any amount not described in this paragraph, and no item described in this paragraph shall be apportioned to any beneficiary.
'(D) No amount shall be allowed under paragraph (1) or (2) of section 1211(b).
'(3) TREATMENT OF REMAINDER OF TRUST AND DISTRIBUTIONS.--For purposes of determining--
'(A) the amount of the tax imposed by this chapter on the portion of any electing small business trust not treated as a separate trust under paragraph (1), and
'(B) the distributable net income of the entire trust,
the items referred to in paragraph (2)(C) shall be excluded. Except as provided in the preceding sentence, this subsection shall not affect the taxation of any distribution from the trust.
'(4) TREATMENT OF UNUSED DEDUCTIONS WHERE TERMINATION OF SEPARATE TRUST.--If a portion of an electing small business trust ceases to be treated as a separate trust under paragraph (1), any carryover or excess deduction of the separate trust which is referred to in section 642(h) shall be taken into account by the entire trust.
'(5) ELECTING SMALL BUSINESS TRUST.--For purposes of this subsection, the term 'electing small business trust' has the meaning given such term by section 1361(e)(1).'.
(e) TECHNICAL AMENDMENT.--Paragraph (1) of section 1366(a) is amended by inserting ', or of a trust or estate which terminates,' after 'who dies'.
SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION FOR CERTAIN TRUSTS.
Subparagraph (A) of section 1361(c)(2) (relating to certain trusts permitted as shareholders) is amended--
(2) by striking the last sentence in clause (ii).
Clause (iii) of section 1361(c)(5)(B) (defining straight debt) is amended by striking 'or a trust described in paragraph (2)' and inserting 'a trust described in paragraph (2), or a person which is actively and regularly engaged in the business of lending money'.
SEC. 1305. RULES RELATING TO INADVERTENT TERMINATIONS AND INVALID ELECTIONS.
(a) GENERAL RULE.--Subsection (f) of section 1362 (relating to inadvertent terminations) is amended to read as follows:
'(f) INADVERTENT INVALID ELECTIONS OR TERMINATIONS.--If--
'(1) an election under subsection (a) by any corporation--
'(A) was not effective for the taxable year for which made (determined without regard to subsection (b)(2)) by reason of a failure to meet the requirements of section 1361(b) or to obtain shareholder consents, or
'(B) was terminated under paragraph (2) or (3) of subsection (d),
'(2) the Secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent,
'(3) no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination, steps were taken--
'(A) so that the corporation is a small business corporation, or
'(B) to acquire the required shareholder consents, and
'(4) the corporation, and each person who was a shareholder in the corporation at any time during the period specified pursuant to this subsection, agrees to make such adjustments (consistent with the treatment of the corporation as an S corporation) as may be required by the Secretary with respect to such period,
then, notwithstanding the circumstances resulting in such ineffectiveness or termination, such corporation shall be treated as an S corporation during the period specified by the Secretary.'.
(b) LATE ELECTIONS, ETC.--Subsection (b) of section 1362 is amended by adding at the end the following new paragraph:
'(5) AUTHORITY TO TREAT LATE ELECTIONS, ETC., AS TIMELY.--If--
'(A) an election under subsection (a) is made for any taxable year (determined without regard to paragraph (3)) after the date prescribed by this subsection for making such election for such taxable year or no such election is made for any taxable year, and
'(B) the Secretary determines that there was reasonable cause for the failure to timely make such election,
the Secretary may treat such an election as timely made for such taxable year (and paragraph (3) shall not apply).'.
(c) EFFECTIVE DATE.--The amendments made by subsections (a) and (b) shall apply with respect to elections for taxable years beginning after December 31, 1982.
SEC. 1306. AGREEMENT TO TERMINATE YEAR.
Paragraph (2) of section 1377(a) (relating to pro rata share) is amended to read as follows:
'(A) IN GENERAL.--Under regulations prescribed by the Secretary, if any shareholder terminates the shareholder's interest in the corporation during the taxable year and all affected shareholders and the corporation agree to the application of this paragraph, paragraph (1) shall be applied to the affected shareholders as if the taxable year consisted of 2 taxable years the first of which ends on the date of the termination.
'(B) AFFECTED SHAREHOLDERS.--For purposes of subparagraph (A), the term 'affected shareholders' means the shareholder whose interest is terminated and all shareholders to whom such shareholder has transferred shares during the taxable year. If such shareholder has transferred shares to the corporation, the term 'affected shareholders' shall include all persons who are shareholders during the taxable year.'.
(a) IN GENERAL.--Paragraph (1) of section 1377(b) (relating to post-termination transition period) is amended by striking 'and' at the end of subparagraph (A), by redesignating subparagraph (B) as subparagraph (C), and by inserting after subparagraph (A) the following new subparagraph:
(1) GENERAL RULE.--Subchapter D of chapter 63 (relating to tax treatment of subchapter S items) is hereby repealed.
(2) CONSISTENT TREATMENT REQUIRED.--Section 6037 (relating to return of S corporation) is amended by adding at the end the following new subsection:
'(c) SHAREHOLDER'S RETURN MUST BE CONSISTENT WITH CORPORATE RETURN OR SECRETARY NOTIFIED OF INCONSISTENCY.--
'(1) IN GENERAL.--A shareholder of an S corporation shall, on such shareholder's return, treat a subchapter S item in a manner which is consistent with the treatment of such item on the corporate return.
'(2) NOTIFICATION OF INCONSISTENT TREATMENT.--
'(A) IN GENERAL.--In the case of any subchapter S item, if--
'(i)(I) the corporation has filed a return but the shareholder's treatment on his return is (or may be) inconsistent with the treatment of the item on the corporate return, or
'(II) the corporation has not filed a return, and
'(ii) the shareholder files with the Secretary a statement identifying the inconsistency,
paragraph (1) shall not apply to such item.
'(B) SHAREHOLDER RECEIVING INCORRECT INFORMATION.--A shareholder shall be treated as having complied with clause (ii) of subparagraph (A) with respect to a subchapter S item if the shareholder--
'(i) demonstrates to the satisfaction of the Secretary that the treatment of the subchapter S item on the shareholder's return is consistent with the treatment of the item on the schedule furnished to the shareholder by the corporation, and
'(ii) elects to have this paragraph apply with respect to that item.
'(A) described in subparagraph (A)(i)(I) of paragraph (2), and
'(B) in which the shareholder does not comply with subparagraph (A)(ii) of paragraph (2),
any adjustment required to make the treatment of the items by such shareholder consistent with the treatment of the items on the corporate return shall be treated as arising out of mathematical or clerical errors and assessed according to section 6213(b)(1). Paragraph (2) of section 6213(b) shall not apply to any assessment referred to in the preceding sentence.
'(4) SUBCHAPTER S ITEM.--For purposes of this subsection, the term 'subchapter S item' means any item of an S corporation to the extent that regulations prescribed by the Secretary provide that, for purposes of this subtitle, such item is more appropriately determined at the corporation level than at the shareholder level.
'(5) ADDITION TO TAX FOR FAILURE TO COMPLY WITH SECTION.--
'For addition to tax in the case of a shareholder's negligence in connection with, or disregard of, the requirements of this section, see part II of subchapter A of chapter 68.'.
(3) CONFORMING AMENDMENTS.--
(A) Section 1366 is amended by striking subsection (g).
(B) Subsection (b) of section 6233 is amended to read as follows:
(a) IN GENERAL.--Paragraph (2) of section 1361(b) (defining ineligible corporation) is amended by striking subparagraph (A) and by redesignating subparagraphs (B), (C), (D), and (E) as subparagraphs (A), (B), (C), and (D), respectively.
(b) TREATMENT OF CERTAIN WHOLLY OWNED S CORPORATION SUBSIDIARIES.--Section 1361(b) (defining small business corporation) is amended by adding at the end the following new paragraph:
'(3) TREATMENT OF CERTAIN WHOLLY OWNED SUBSIDIARIES.--
'(A) IN GENERAL.--For purposes of this title--
'(i) a corporation which is a qualified subchapter S subsidiary shall not be treated as a separate corporation, and
'(ii) all assets, liabilities, and items of income, deduction, and credit of a qualified subchapter S subsidiary shall be treated as assets, liabilities, and such items (as the case may be) of the S corporation.
'(B) QUALIFIED SUBCHAPTER S SUBSIDIARY.--For purposes of this paragraph, the term 'qualified subchapter S subsidiary' means any domestic corporation which is not an ineligible corporation (as defined in paragraph (2)), if--
'(i) 100 percent of the stock of such corporation is held by the S corporation, and
'(ii) the S corporation elects to treat such corporation as a qualified subchapter S subsidiary.
'(C) TREATMENT OF TERMINATIONS OF QUALIFIED SUBCHAPTER S SUBSIDIARY STATUS.--For purposes of this title, if any corporation which was a qualified subchapter S subsidiary ceases to meet the requirements of subparagraph (B), such corporation shall be treated as a new corporation acquiring all of its assets (and assuming all of its liabilities) immediately before such cessation from the S corporation in exchange for its stock.
'(D) ELECTION AFTER TERMINATION.--If a corporation's status as a qualified subchapter S subsidiary terminates, such corporation (and any successor corporation) shall not be eligible to make--
'(i) an election under subparagraph (B)(ii) to be treated as a qualified subchapter S subsidiary, or
'(ii) an election under section 1362(a) to be treated as an S corporation,
before its 5th taxable year which begins after the 1st taxable year for which such termination was effective, unless the Secretary consents to such election.'.
(1) Subsection (c) of section 1361 is amended by striking paragraph (6).
(2) Subsection (b) of section 1504 (defining includible corporation) is amended by adding at the end the following new paragraph:
'(8) An S corporation.'.
(a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO ACCOUNT BEFORE LOSSES.--
(1) Subparagraph (A) of section 1366(d)(1) (relating to losses and deductions cannot exceed shareholder's basis in stock and debt) is amended by striking 'paragraph (1)' and inserting 'paragraphs (1) and (2)(A)'.
(2) Subsection (d) of section 1368 (relating to certain adjustments taken into account) is amended by adding at the end the following new flush sentence:
'In the case of any distribution made during any taxable year, the adjusted basis of the stock shall be determined with regard to the adjustments provided in paragraph (1) of section 1367(a) for the taxable year.'.
(b) ACCUMULATED ADJUSTMENTS ACCOUNT.--Paragraph (1) of section 1368(e) (relating to accumulated adjustments account) is amended by adding at the end the following new subparagraph:
'(i) IN GENERAL.--In applying this section to distributions made during any taxable year, the amount in the accumulated adjustments account as of the close of such taxable year shall be determined without regard to any net negative adjustment for such taxable year.
'(ii) NET NEGATIVE ADJUSTMENT.--For purposes of clause (i), the term 'net negative adjustment' means, with respect to any taxable year, the excess (if any) of--
'(I) the reductions in the account for the taxable year (other than for distributions), over
'(II) the increases in such account for such taxable year.'.
(1) by striking 'as provided in subparagraph (B)' and inserting 'as otherwise provided in this paragraph', and
(2) by striking 'section 1367(b)(2)(A)' and inserting 'section 1367(a)(2)'.
Subsection (a) of section 1371 (relating to application of subchapter C rules) is amended to read as follows:
'(a) APPLICATION OF SUBCHAPTER C RULES.--Except as otherwise provided in this title, and except to the extent inconsistent with this subchapter, subchapter C shall apply to an S corporation and its shareholders.'.
SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND PROFITS.
(a) IN GENERAL.--If--
(1) a corporation was an electing small business corporation under subchapter S of chapter 1 of the Internal Revenue Code of 1986 for any taxable year beginning before January 1, 1983, and
(2) such corporation is an S corporation under subchapter S of chapter 1 of such Code for its first taxable year beginning after December 31, 1996,
the amount of such corporation's accumulated earnings and profits (as of the beginning of such first taxable year) shall be reduced by an amount equal to the portion (if any) of such accumulated earnings and profits which were accumulated in any taxable year beginning before January 1, 1983, for which such corporation was an electing small business corporation under such subchapter S.
(b) CONFORMING AMENDMENTS.--
(1) Paragraph (3) of section 1362(d), as amended by section 1308, is amended--
(A) by striking 'SUBCHAPTER C' in the paragraph heading and inserting 'ACCUMULATED',
(B) by striking 'subchapter C' in subparagraph (A)(i)(I) and inserting 'accumulated', and
(C) by striking subparagraph (B) and redesignating the following subparagraphs accordingly.
(2)(A) Subsection (a) of section 1375 is amended by striking 'subchapter C' in paragraph (1) and inserting 'accumulated'.
(B) Paragraph (3) of section 1375(b) is amended to read as follows:
'(3) PASSIVE INVESTMENT INCOME, ETC.--The terms 'passive investment income' and 'gross receipts' have the same respective meanings as when used in paragraph (3) of section 1362(d).'.
(C) The section heading for section 1375 is amended by striking 'subchapter C' and inserting 'accumulated'.
(D) The table of sections for part III of subchapter S of chapter 1 is amended by striking 'subchapter C' in the item relating to section 1375 and inserting 'accumulated'.
(3) Clause (i) of section 1042(c)(4)(A) is amended by striking 'section 1362(d)(3)(D)' and inserting 'section 1362(d)(3)(C)'.
Paragraph (3) of section 1366(d) (relating to carryover of disallowed losses and deductions to post-termination transition period) is amended by adding at the end the following new subparagraph:
(a) IN GENERAL.--Subsection (b) of section 1367 (relating to adjustments to basis of stock of shareholders, etc.) is amended by adding at the end the following new paragraph:
'(4) ADJUSTMENTS IN CASE OF INHERITED STOCK.--
'(A) IN GENERAL.--If any person acquires stock in an S corporation by reason of the death of a decedent or by bequest, devise, or inheritance, section 691 shall be applied with respect to any item of income of the S corporation in the same manner as if the decedent had held directly his pro rata share of such item.
'(B) ADJUSTMENTS TO BASIS.--The basis determined under section 1014 of any stock in an S corporation shall be reduced by the portion of the value of the stock which is attributable to items constituting income in respect of the decedent.'.
SEC. 1314. S CORPORATIONS ELIGIBLE FOR RULES APPLICABLE TO REAL PROPERTY SUBDIVIDED FOR SALE BY NONCORPORATE TAXPAYERS.
(a) IN GENERAL.--Subsection (a) of section 1237 (relating to real property subdivided for sale) is amended by striking 'other than a corporation' in the material preceding paragraph (1) and inserting 'other than a C corporation'.
(b) CONFORMING AMENDMENT.--Subparagraph (A) of section 1237(a)(2) is amended by inserting 'an S corporation which included the taxpayer as a shareholder,' after 'controlled by the taxpayer,'.
SEC. 1315. FINANCIAL INSTITUTIONS.
Subparagraph (A) of section 1361(b)(2) (defining ineligible corporation), as redesignated by section 1308(a), is amended to read as follows:
(a) ELIGIBILITY TO BE SHAREHOLDERS.--
(1) IN GENERAL.--Subparagraph (B) of section 1361(b)(1) (defining small business corporation) is amended to read as follows:
'(B) have as a shareholder a person (other than an estate, a trust described in subsection (c)(2), or an organization described in subsection (c)(7)) who is not an individual,'.
(2) ELIGIBLE EXEMPT ORGANIZATIONS.--Section 1361(c) (relating to special rules for applying subsection (b)) is amended by adding at the end the following new paragraph:
'(7) CERTAIN EXEMPT ORGANIZATIONS PERMITTED AS SHAREHOLDERS.--For purposes of subsection (b)(1)(B), an organization which is--
'(A) described in section 401(a) or 501(c)(3), and
'(B) exempt from taxation under section 501(a),
may be a shareholder in an S corporation.'.
(b) CONTRIBUTIONS OF S CORPORATION STOCK.--Section 170(e)(1) (relating to certain contributions of ordinary income and capital gain property) is amended by adding at the end the following new sentence: 'For purposes of applying this paragraph in the case of a charitable contribution of stock in an S corporation, rules similar to the rules of section 751 shall apply in determining whether gain on such stock would have been long-term capital gain if such stock were sold by the taxpayer.'.
(c) TREATMENT OF INCOME.--Section 512 (relating to unrelated business taxable income), as amended by section 1113, is amended by adding at the end the following new subsection:
'(e) SPECIAL RULES APPLICABLE TO S CORPORATIONS.--
'(1) IN GENERAL.--If an organization described in section 1361(c)(7) holds stock in an S corporation--
'(A) such interest shall be treated as an interest in an unrelated trade or business, and
'(B) notwithstanding any other provision of this part--
'(i) all items of income, loss, or deduction taken into account under section 1366(a), and
'(ii) any gain or loss on the disposition of the stock in the S corporation,
'(2) BASIS REDUCTION.--Except as provided in regulations, for purposes of paragraph (1), the basis of any stock acquired by purchase (within the meaning of section 1012) shall be reduced by the amount of any dividends received by the organization with respect to the stock.'.
(d) CERTAIN BENEFITS NOT APPLICABLE TO S CORPORATIONS.--
(1) CONTRIBUTION TO ESOPs.--Paragraph (9) of section 404(a) (relating to certain contributions to employee ownership plans) is amended by inserting at the end the following new subparagraph:
'(C) S CORPORATIONS.--This paragraph shall not apply to an S corporation.'.
(2) DIVIDENDS ON EMPLOYER SECURITIES.--Paragraph (1) of section 404(k) (relating to deduction for dividends on certain employer securities) is amended by striking 'a corporation' and inserting 'a C corporation'.
(3) EXCHANGE TREATMENT.--Subparagraph (A) of section 1042(c)(1) (defining qualified securities) is amended by striking 'domestic corporation' and inserting 'domestic C corporation'.
(e) CONFORMING AMENDMENT.--Clause (i) of section 1361(e)(1)(A), as added by section 1302, is amended by striking 'which holds a contingent interest and is not a potential current beneficiary'.
(f) EFFECTIVE DATE.--The amendments made by this section shall apply to taxable years beginning after December 31, 1997.
SEC. 1317. EFFECTIVE DATE.
(a) IN GENERAL.--Except as otherwise provided in this subtitle, the amendments made by this subtitle shall apply to taxable years beginning after December 31, 1996.
(b) TREATMENT OF CERTAIN ELECTIONS UNDER PRIOR LAW.--For purposes of section 1362(g) of the Internal Revenue Code of 1986 (relating to election after termination), any termination under section 1362(d) of such Code in a taxable year beginning before January 1, 1997, shall not be taken into account.
SEC. 1401. REPEAL OF 5-YEAR INCOME AVERAGING FOR LUMP-SUM DISTRIBUTIONS.
(a) IN GENERAL.--Subsection (d) of section 402 (relating to taxability of beneficiary of employees' trust) is amended to read as follows:
'(d) TAXABILITY OF BENEFICIARY OF CERTAIN FOREIGN SITUS TRUSTS.--For purposes of subsections (a), (b), and (c), a stock bonus, pension, or profit-sharing trust which would qualify for exemption from tax under section 501(a) except for the fact that it is a trust created or organized outside the United States shall be treated as if it were a trust exempt from tax under section 501(a).'.
(b) CONFORMING AMENDMENTS.--
(1) Subparagraph (D) of section 402(e)(4) (relating to other rules applicable to exempt trusts) is amended to read as follows:
'(D) LUMP-SUM DISTRIBUTION.--For purposes of this paragraph--
'(i) IN GENERAL.--The term 'lump-sum distribution' means the distribution or payment within one taxable year of the recipient of the balance to the credit of an employee which becomes payable to the recipient--
'(I) on account of the employee's death,
'(II) after the employee attains age 59-1/2 ,
'(III) on account of the employee's separation from service, or
'(IV) after the employee has become disabled (within the meaning of section 72(m)(7)),
from a trust which forms a part of a plan described in section 401(a) and which is exempt from tax under section 501 or from a plan described in section 403(a). Subclause (III) of this clause shall be applied only with respect to an individual who is an employee without regard to section 401(c)(1), and subclause (IV) shall be applied only with respect to an employee within the meaning of section 401(c)(1). For purposes of this clause, a distribution to two or more trusts shall be treated as a distribution to one recipient. For purposes of this paragraph, the balance to the credit of the employee does not include the accumulated deductible employee contributions under the plan (within the meaning of section 72(o)(5)).
'(ii) AGGREGATION OF CERTAIN TRUSTS AND PLANS.--For purposes of determining the balance to the credit of an employee under clause (i)--
'(I) all trusts which are part of a plan shall be treated as a single trust, all pension plans maintained by the employer shall be treated as a single plan, all profit-sharing plans maintained by the employer shall be treated as a single plan, and all stock bonus plans maintained by the employer shall be treated as a single plan, and
'(II) trusts which are not qualified trusts under section 401(a) and annuity contracts which do not satisfy the requirements of section 404(a)(2) shall not be taken into account.
'(iii) COMMUNITY PROPERTY LAWS.--The provisions of this paragraph shall be applied without regard to community property laws.
'(iv) AMOUNTS SUBJECT TO PENALTY.--This paragraph shall not apply to amounts described in subparagraph (A) of section 72(m)(5) to the extent that section 72(m)(5) applies to such amounts.
'(v) BALANCE TO CREDIT OF EMPLOYEE NOT TO INCLUDE AMOUNTS PAYABLE UNDER QUALIFIED DOMESTIC RELATIONS ORDER.--For purposes of this paragraph, the balance to the credit of an employee shall not include any amount payable to an alternate payee under a qualified domestic relations order (within the meaning of section 414(p)).
'(vi) TRANSFERS TO COST-OF-LIVING ARRANGEMENT NOT TREATED AS DISTRIBUTION.--For purposes of this paragraph, the balance to the credit of an employee under a defined contribution plan shall not include any amount transferred from such defined contribution plan to a qualified cost-of-living arrangement (within the meaning of section 415(k)(2)) under a defined benefit plan.
'(vii) LUMP-SUM DISTRIBUTIONS OF ALTERNATE PAYEES.--If any distribution or payment of the balance to the credit of an employee would be treated as a lump-sum distribution, then, for purposes of this paragraph, the payment under a qualified domestic relations order (within the meaning of section 414(p)) of the balance to the credit of an alternate payee who is the spouse or former spouse of the employee shall be treated as a lump-sum distribution. For purposes of this clause, the balance to the credit of the alternate payee shall not include any amount payable to the employee.'.
(3) Paragraph (1) of section 55(c) (defining regular tax) is amended by striking 'shall not include any tax imposed by section 402(d) and'.
(4) Paragraph (8) of section 62(a) (relating to certain portion of lump-sum distributions from pension plans taxed under section 402(d)) is hereby repealed.
(5) Section 401(a)(28)(B) (relating to coordination with distribution rules) is amended by striking clause (v).
(6) Subparagraph (B)(ii) of section 401(k)(10) (relating to distributions that must be lump-sum distributions) is amended to read as follows:
(8) Section 407(c) (relating to termination of status as deemed employee not to be treated as separation from service for purposes of limitation of tax) is hereby repealed.
(9) Section 691(c) (relating to deduction for estate tax) is amended by striking paragraph (5).
(10) Paragraph (1) of section 871(b) (relating to imposition of tax) is amended by striking 'section 1, 55, or 402(d)(1)' and inserting 'section 1 or 55'.
(11) Subsection (b) of section 877 (relating to alternative tax) is amended by striking 'section 1, 55, or 402(d)(1)' and inserting 'section 1 or 55'.
(12) Section 4980A(c)(4) is amended--
(A) by striking 'to which an election under section 402(d)(4)(B) applies' and inserting '(as defined in section 402(e)(4)(D)) with respect to which the individual elects to have this paragraph apply',
(B) by adding at the end the following new flush sentence:
'An individual may elect to have this paragraph apply to only one lump-sum distribution.', and
(C) by striking the heading and inserting:
'(4) SPECIAL ONE-TIME ELECTION.--'.
(13) Section 402(e) is amended by striking paragraph (5).
(c) EFFECTIVE DATES.--
(1) IN GENERAL.--The amendments made by this section shall apply to taxable years beginning after December 31, 1999.
(2) RETENTION OF CERTAIN TRANSITION RULES.--The amendments made by this section shall not apply to any distribution for which the taxpayer is eligible to elect the benefits of section 1122(h)(3) or (5) of the Tax Reform Act of 1986. Notwithstanding the preceding sentence, individuals who elect such benefits after December 31, 1999, shall not be eligible for 5-year averaging under section 402(d) of the Internal Revenue Code of 1986 (as in effect immediately before such amendments).
(a) IN GENERAL.--Subsection (b) of section 101 is hereby repealed.
(b) CONFORMING AMENDMENTS.--
(1) Subsection (c) of section 101 is amended by striking 'subsection (a) or (b)' and inserting 'subsection (a)'.
(2) Sections 406(e) and 407(e) are each amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).
(3) Section 7701(a)(20) is amended by striking ', for the purpose of applying the provisions of section 101(b) with respect to employees' death benefits'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply with respect to decedents dying after the date of the enactment of this Act.
SEC. 1403. SIMPLIFIED METHOD FOR TAXING ANNUITY DISTRIBUTIONS UNDER CERTAIN EMPLOYER PLANS.
(a) GENERAL RULE.--Subsection (d) of section 72 (relating to annuities; certain proceeds of endowment and life insurance contracts) is amended to read as follows:
'(d) SPECIAL RULES FOR QUALIFIED EMPLOYER RETIREMENT PLANS.--
'(1) SIMPLIFIED METHOD OF TAXING ANNUITY PAYMENTS.--
'(A) IN GENERAL.--In the case of any amount received as an annuity under a qualified employer retirement plan--
'(i) subsection (b) shall not apply, and
'(ii) the investment in the contract shall be recovered as provided in this paragraph.
'(B) METHOD OF RECOVERING INVESTMENT IN CONTRACT.--
'(i) IN GENERAL.--Gross income shall not include so much of any monthly annuity payment under a qualified employer retirement plan as does not exceed the amount obtained by dividing--
'(I) the investment in the contract (as of the annuity starting date), by
'(II) the number of anticipated payments determined under the table contained in clause (iii) (or, in the case of a contract to which subsection (c)(3)(B) applies, the number of monthly annuity payments under such contract).
'(ii) CERTAIN RULES MADE APPLICABLE.--Rules similar to the rules of paragraphs (2) and (3) of subsection (b) shall apply for purposes of this paragraph.
'(iii) NUMBER OF ANTICIPATED PAYMENTS.--
primary annuitant on The number
the annuity starting of anticipated
date is: payments is:
Not more than 55 360
More than 55 but not
more than 60 310
More than 60 but not
more than 65 260
More than 65 but not
more than 70 210
More than 70 160.
'(D) SPECIAL RULE WHERE LUMP SUM PAID IN CONNECTION WITH COMMENCEMENT OF ANNUITY PAYMENTS.--If, in connection with the commencement of annuity payments under any qualified employer retirement plan, the taxpayer receives a lump-sum payment--
'(i) such payment shall be taxable under subsection (e) as if received before the annuity starting date, and
'(ii) the investment in the contract for purposes of this paragraph shall be determined as if such payment had been so received.
'(E) EXCEPTION.--This paragraph shall not apply in any case where the primary annuitant has attained age 75 on the annuity starting date unless there are fewer than 5 years of guaranteed payments under the annuity.
'(F) ADJUSTMENT WHERE ANNUITY PAYMENTS NOT ON MONTHLY BASIS.--In any case where the annuity payments are not made on a monthly basis, appropriate adjustments in the application of this paragraph shall be made to take into account the period on the basis of which such payments are made.
'(G) QUALIFIED EMPLOYER RETIREMENT PLAN.--For purposes of this paragraph, the term 'qualified employer retirement plan' means any plan or contract described in paragraph (1), (2), or (3) of section 4974(c).
'(2) TREATMENT OF EMPLOYEE CONTRIBUTIONS UNDER DEFINED CONTRIBUTION PLANS.--For purposes of this section, employee contributions (and any income allocable thereto) under a defined contribution plan may be treated as a separate contract.'.
(b) EFFECTIVE DATE.--The amendment made by this section shall apply in cases where the annuity starting date is after the 90th day after the date of the enactment of this Act.
SEC. 1404. REQUIRED DISTRIBUTIONS.
(a) IN GENERAL.--Section 401(a)(9)(C) (defining required beginning date) is amended to read as follows:
'(i) IN GENERAL.--The term 'required beginning date' means April 1 of the calendar year following the later of--
'(I) the calendar year in which the employee attains age 70-1/2, or
'(II) the calendar year in which the employee retires.
'(ii) EXCEPTION.--Subclause (II) of clause (i) shall not apply--
'(I) except as provided in section 409(d), in the case of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 70-1/2, or
'(II) for purposes of section 408 (a)(6) or (b)(3).
'(iii) ACTUARIAL ADJUSTMENT.--In the case of an employee to whom clause (i)(II) applies who retires in a calendar year after the calendar year in which the employee attains age 70-1/2, the employee's accrued benefit shall be actuarially increased to take into account the period after age 70-1/2 in which the employee was not receiving any benefits under the plan.
'(iv) EXCEPTION FOR GOVERNMENTAL AND CHURCH PLANS.--Clauses (ii) and (iii) shall not apply in the case of a governmental plan or church plan. For purposes of this clause, the term 'church plan' means a plan maintained by a church for church employees, and the term 'church' means any church (as defined in section 3121(w)(3)(A)) or qualified church-controlled organization (as defined in section 3121(w)(3)(B)).'.
SEC. 1421. ESTABLISHMENT OF SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES OF SMALL EMPLOYERS.
(a) IN GENERAL.--Section 408 (relating to individual retirement accounts) is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:
'(p) SIMPLE RETIREMENT ACCOUNTS.--
'(1) IN GENERAL.--For purposes of this title, the term 'simple retirement account' means an individual retirement plan (as defined in section 7701(a)(37))--
'(A) with respect to which the requirements of paragraphs (3), (4), and (5) are met; and
'(B) with respect to which the only contributions allowed are contributions under a qualified salary reduction arrangement.
'(2) QUALIFIED SALARY REDUCTION ARRANGEMENT.--
'(A) IN GENERAL.--For purposes of this subsection, the term 'qualified salary reduction arrangement' means a written arrangement of an eligible employer under which--
'(i) an employee eligible to participate in the arrangement may elect to have the employer make payments--
'(I) as elective employer contributions to a simple retirement account on behalf of the employee, or
'(II) to the employee directly in cash,
'(ii) the amount which an employee may elect under clause (i) for any year is required to be expressed as a percentage of compensation and may not exceed a total of $6,000 for any year,
'(iii) the employer is required to make a matching contribution to the simple retirement account for any year in an amount equal to so much of the amount the employee elects under clause (i)(I) as does not exceed the applicable percentage of compensation for the year, and
'(iv) no contributions may be made other than contributions described in clause (i) or (iii).
'(B) EMPLOYER MAY ELECT 2-PERCENT NONELECTIVE CONTRIBUTION.--
'(i) IN GENERAL.--An employer shall be treated as meeting the requirements of subparagraph (A)(iii) for any year if, in lieu of the contributions described in such clause, the employer elects to make nonelective contributions of 2 percent of compensation for each employee who is eligible to participate in the arrangement and who has at least $5,000 of compensation from the employer for the year. If an employer makes an election under this subparagraph for any year, the employer shall notify employees of such election within a reasonable period of time before the 60-day period for such year under paragraph (5)(C).
'(ii) COMPENSATION LIMITATION.--The compensation taken into account under clause (i) for any year shall not exceed the limitation in effect for such year under section 401(a)(17).
'(C) DEFINITIONS.--For purposes of this subsection--
'(i) ELIGIBLE EMPLOYER.--
'(I) IN GENERAL.--The term 'eligible employer' means, with respect to any year, an employer which had no more than 100 employees who received at least $5,000 of compensation from the employer for the preceding year.
'(II) 2-YEAR GRACE PERIOD.--An eligible employer who establishes and maintains a plan under this subsection for 1 or more years and who fails to be an eligible employer for any subsequent year shall be treated as an eligible employer for the 2 years following the last year the employer was an eligible employer. If such failure is due to any acquisition, disposition, or similar transaction involving an eligible employer, the preceding sentence shall apply only in accordance with rules similar to the rules of section 410(b)(6)(C)(i).
'(ii) APPLICABLE PERCENTAGE.--
'(I) IN GENERAL.--The term 'applicable percentage' means 3 percent.
'(II) ELECTION OF LOWER PERCENTAGE.--An employer may elect to apply a lower percentage (not less than 1 percent) for any year for all employees eligible to participate in the plan for such year if the employer notifies the employees of such lower percentage within a reasonable period of time before the 60-day election period for such year under paragraph (5)(C). An employer may not elect a lower percentage under this subclause for any year if that election would result in the applicable percentage being lower than 3 percent in more than 2 of the years in the 5-year period ending with such year.
'(III) SPECIAL RULE FOR YEARS ARRANGEMENT NOT IN EFFECT.--If any year in the 5-year period described in subclause (II) is a year prior to the first year for which any qualified salary reduction arrangement is in effect with respect to the employer (or any predecessor), the employer shall be treated as if the level of the employer matching contribution was at 3 percent of compensation for such prior year.
'(i) IN GENERAL.--An arrangement shall not be treated as a qualified salary reduction arrangement for any year if the employer (or any predecessor employer) maintained a qualified plan with respect to which contributions were made, or benefits were accrued, for service in any year in the period beginning with the year such arrangement became effective and ending with the year for which the determination is being made.
'(ii) QUALIFIED PLAN.--For purposes of this subparagraph, the term 'qualified plan' means a plan, contract, pension, or trust described in subparagraph (A) or (B) of section 219(g)(5).
'(E) COST-OF-LIVING ADJUSTMENT.--The Secretary shall adjust the $6,000 amount under subparagraph (A)(ii) 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 ending September 30, 1996, and any increase under this subparagraph which is not a multiple of $500 shall be rounded to the next lower multiple of $500.
'(3) VESTING REQUIREMENTS.--The requirements of this paragraph are met with respect to a simple retirement account if the employee's rights to any contribution to the simple retirement account are nonforfeitable. For purposes of this paragraph, rules similar to the rules of subsection (k)(4) shall apply.
'(4) PARTICIPATION REQUIREMENTS.--
'(A) IN GENERAL.--The requirements of this paragraph are met with respect to any simple retirement account for a year only if, under the qualified salary reduction arrangement, all employees of the employer who--
'(i) received at least $5,000 in compensation from the employer during any 2 preceding years, and
'(ii) are reasonably expected to receive at least $5,000 in compensation during the year,
are eligible to make the election under paragraph (2)(A)(i) or receive the nonelective contribution described in paragraph (2)(B).
'(B) EXCLUDABLE EMPLOYEES.--An employer may elect to exclude from the requirement under subparagraph (A) employees described in section 410(b)(3).
'(5) ADMINISTRATIVE REQUIREMENTS.--The requirements of this paragraph are met with respect to any simplified retirement account if, under the qualified salary reduction arrangement--
'(A) an employer must--
'(i) make the elective employer contributions under paragraph (2)(A)(i) not later than the close of the 30-day period following the last day of the month with respect to which the contributions are to be made, and
'(ii) make the matching contributions under paragraph (2)(A)(iii) or the nonelective contributions under paragraph (2)(B) not later than the date described in section 404(m)(2)(B),
'(B) an employee may elect to terminate participation in such arrangement at any time during the year, except that if an employee so terminates, the arrangement may provide that the employee may not elect to resume participation until the beginning of the next year, and
'(C) each employee eligible to participate may elect, during the 60-day period before the beginning of any year (and the 60-day period before the first day such employee is eligible to participate), to participate in the arrangement, or to modify the amounts subject to such arrangement, for such year.
'(6) DEFINITIONS.--For purposes of this subsection--
'(A) COMPENSATION.--
'(i) IN GENERAL.--The term 'compensation' means amounts described in paragraphs (3) and (8) of section 6051(a).
'(ii) SELF-EMPLOYED.--In the case of an employee described in subparagraph (B), the term 'compensation' means net earnings from self-employment determined under section 1402(a) without regard to any contribution under this subsection.
'(B) EMPLOYEE.--The term 'employee' includes an employee as defined in section 401(c)(1).
'(C) YEAR.--The term 'year' means the calendar year.
'(7) USE OF DESIGNATED FINANCIAL INSTITUTION.--A plan shall not be treated as failing to satisfy the requirements of this subsection or any other provision of this title merely because the employer makes all contributions to the individual retirement accounts or annuities of a designated trustee or issuer. The preceding sentence shall not apply unless each plan participant is notified in writing (either separately or as part of the notice under subsection (l)(2)(C)) that the participant's balance may be transferred without cost or penalty to another individual account or annuity in accordance with subsection (d)(3)(G).'.
(b) TAX TREATMENT OF SIMPLE RETIREMENT ACCOUNTS.--
(1) DEDUCTIBILITY OF CONTRIBUTIONS BY EMPLOYEES.--
(A) Section 219(b) (relating to maximum amount of deduction) is amended by adding at the end the following new paragraph:
'(4) SPECIAL RULE FOR SIMPLE RETIREMENT ACCOUNTS.--This section shall not apply with respect to any amount contributed to a simple retirement account established under section 408(p).'.
(B) Section 219(g)(5)(A) (defining active participant) is amended by striking 'or' at the end of clause (iv) and by adding at the end the following new clause:
'(vi) any simple retirement account (within the meaning of section 408(p)), or'.
'(m) SPECIAL RULES FOR SIMPLE RETIREMENT ACCOUNTS.--
'(1) IN GENERAL.--Employer contributions to a simple retirement account shall be treated as if they are made to a plan subject to the requirements of this section.
'(2) TIMING.--
'(A) DEDUCTION--Contributions described in paragraph (1) shall be deductible in the taxable year of the employer with or within which the calendar year for which the contributions were made ends.
'(B) CONTRIBUTIONS AFTER END OF YEAR.--For purposes of this subsection, contributions shall be treated as made for a taxable year if they are made on account of the taxable year and are made not later than the time prescribed by law for filing the return for the taxable year (including extensions thereof).'.
(3) CONTRIBUTIONS AND DISTRIBUTIONS.--
(A) Section 402 (relating to taxability of beneficiary of employees' trust) is amended by adding at the end the following new subsection:
'(G) SIMPLE RETIREMENT ACCOUNTS.--This paragraph shall not apply to any amount paid or distributed out of a simple retirement account (as defined in subsection (p)) unless--
'(i) it is paid into another simple retirement account, or
'(ii) in the case of any payment or distribution to which section 72(t)(6) does not apply, it is paid into an individual retirement plan.'.
(C) Clause (i) of section 457(c)(2)(B) is amended by striking 'section 402(h)(1)(B)' and inserting 'section 402 (h)(1)(B) or (k)'.
(4) PENALTIES.--
(A) EARLY WITHDRAWALS.--Section 72(t) (relating to additional tax in early distributions) is amended by adding at the end the following new paragraph:
'(6) SPECIAL RULES FOR SIMPLE RETIREMENT ACCOUNTS.--In the case of any amount received from a simple retirement account (within the meaning of section 408(p)) during the 2-year period beginning on the date such individual first participated in any qualified salary reduction arrangement maintained by the individual's employer under section 408(p)(2), paragraph (1) shall be applied by substituting '25 percent' for '10 percent'.'.
(B) FAILURE TO REPORT.--Section 6693 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:
'(1) EMPLOYER PENALTIES.--An employer who fails to provide 1 or more notices required by section 408(l)(2)(C) shall pay a penalty of $50 for each day on which such failures continue.
'(2) TRUSTEE PENALTIES.--A trustee who fails--
'(A) to provide 1 or more statements required by the last sentence of section 408(i) shall pay a penalty of $50 for each day on which such failures continue, or
'(B) to provide 1 or more summary descriptions required by section 408(l)(2)(B) shall pay a penalty of $50 for each day on which such failures continue.
'(3) REASONABLE CAUSE EXCEPTION.--No penalty shall be imposed under this subsection with respect to any failure which the taxpayer shows was due to reasonable cause.'.
(5) REPORTING REQUIREMENTS.--
(A) Section 408(l) is amended by adding at the end the following new paragraph:
'(2) SIMPLE RETIREMENT ACCOUNTS.--
'(A) NO EMPLOYER REPORTS.--Except as provided in this paragraph, no report shall be required under this section by an employer maintaining a qualified salary reduction arrangement under subsection (p).
'(B) SUMMARY DESCRIPTION.--The trustee of any simple retirement account established pursuant to a qualified salary reduction arrangement under subsection (p) shall provide to the employer maintaining the arrangement, each year a description containing the following information:
'(i) The name and address of the employer and the trustee.
'(ii) The requirements for eligibility for participation.
'(iii) The benefits provided with respect to the arrangement.
'(iv) The time and method of making elections with respect to the arrangement.
'(v) The procedures for, and effects of, withdrawals (including rollovers) from the arrangement.
'(C) EMPLOYEE NOTIFICATION.--The employer shall notify each employee immediately before the period for which an election described in subsection (p)(5)(C) may be made of the employee's opportunity to make such election. Such notice shall include a copy of the description described in subparagraph (B).'.
(B) Section 408(l) is amended by striking 'An employer' and inserting the following:
'(1) IN GENERAL.--An employer'.
(6) REPORTING REQUIREMENTS.--Section 408(i) is amended by adding at the end the following new flush sentence:
'In the case of a simple retirement account under subsection (p), only one report under this subsection shall be required to be submitted each calendar year to the Secretary (at the time provided under paragraph (2)) but, in addition to the report under this subsection, there shall be furnished, within 30 days after each calendar year, to the individual on whose behalf the account is maintained a statement with respect to the account balance as of the close of, and the account activity during, such calendar year.'.
(7) EXEMPTION FROM TOP-HEAVY PLAN RULES.--Section 416(g)(4) (relating to special rules for top-heavy plans) is amended by adding at the end the following new subparagraph:
'(G) SIMPLE RETIREMENT ACCOUNTS.--The term 'top-heavy plan' shall not include a simple retirement account under section 408(p).'.
(8) EMPLOYMENT TAXES.--
(A) Paragraph (5) of section 3121(a) is amended by striking 'or' at the end of subparagraph (F), by inserting 'or' at the end of subparagraph (G), and by adding at the end the following new subparagraph:
'(H) under an arrangement to which section 408(p) applies, other than any elective contributions under paragraph (2)(A)(i) thereof,'.
(B) Section 209(a)(4) of the Social Security Act is amended by inserting '; or (J) under an arrangement to which section 408(p) of such Code applies, other than any elective contributions under paragraph (2)(A)(i) thereof' before the semicolon at the end thereof.
(C) Paragraph (5) of section 3306(b) is amended by striking 'or' at the end of subparagraph (F), by inserting 'or' at the end of subparagraph (G), and by adding at the end the following new subparagraph:
'(H) under an arrangement to which section 408(p) applies, other than any elective contributions under paragraph (2)(A)(i) thereof,'. (D) Paragraph (12) of section 3401(a) is amended by adding the following new subparagraph:
'(D) under an arrangement to which section 408(p) applies; or'.
(9) CONFORMING AMENDMENTS.--
(A) Section 280G(b)(6) is amended by striking 'or' at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting ', or' and by adding after subparagraph (C) the following new subparagraph:
'(D) a simple retirement account described in section 408(p).'.
(B) Section 402(g)(3) 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 adding after subparagraph (C) the following new subparagraph:
'(D) any elective employer contribution under section 408(p)(2)(A)(i).'.
(C) Subsections (b), (c), (m)(4)(B), and (n)(3)(B) of section 414 are each amended by inserting '408(p),' after '408(k),'.
(D) Section 4972(d)(1)(A) is amended by striking 'and' at the end of clause (ii), by striking the period at the end of clause (iii) and inserting ', and', and by adding after clause (iii) the following new clause:
'(iv) any simple retirement account (within the meaning of section 408(p)).'.
(1) REPORTING REQUIREMENTS.--Section 101 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1021) is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection:
'(g) SIMPLE RETIREMENT ACCOUNTS.--
'(1) NO EMPLOYER REPORTS.--Except as provided in this subsection, no report shall be required under this section by an employer maintaining a qualified salary reduction arrangement under section 408(p) of the Internal Revenue Code of 1986.
'(2) SUMMARY DESCRIPTION.--The trustee of any simple retirement account established pursuant to a qualified salary reduction arrangement under section 408(p) of such Code shall provide to the employer maintaining the arrangement each year a description containing the following information:
'(A) The name and address of the employer and the trustee.
'(B) The requirements for eligibility for participation.
'(C) The benefits provided with respect to the arrangement.
'(D) The time and method of making elections with respect to the arrangement.
'(E) The procedures for, and effects of, withdrawals (including rollovers) from the arrangement.
'(3) EMPLOYEE NOTIFICATION.--The employer shall notify each employee immediately before the period for which an election described in section 408(p)(5)(C) of such Code may be made of the employee's opportunity to make such election. Such notice shall include a copy of the description described in paragraph (2).'
(2) FIDUCIARY DUTIES.--Section 404(c) of such Act (29 U.S.C. 1104(c)) is amended by inserting '(1)' after '(c)', by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively, and by adding at the end the following new paragraph:
'(2) In the case of a simple retirement account established pursuant to a qualified salary reduction arrangement under section 408(p) of the Internal Revenue Code of 1986, a participant or beneficiary shall, for purposes of paragraph (1), be treated as exercising control over the assets in the account upon the earliest of--
'(A) an affirmative election among investment options with respect to the initial investment of any contribution,
'(B) a rollover to any other simple retirement account or individual retirement plan, or
'(C) one year after the simple retirement account is established.
No reports, other than those required under section 101(g), shall be required with respect to a simple retirement account established pursuant to such a qualified salary reduction arrangement.'.
(e) EFFECTIVE DATE.--The amendments made by this section shall apply to taxable years beginning after December 31, 1996.
SEC. 1422. EXTENSION OF SIMPLE PLAN TO 401(k) ARRANGEMENTS.
(a) ALTERNATIVE METHOD OF SATISFYING SECTION 401(k) NONDISCRIMINATION TESTS.--Section 401(k) (relating to cash or deferred arrangements) is amended by adding at the end the following new paragraph:
'(11) ADOPTION OF SIMPLE PLAN TO MEET NONDISCRIMINATION TESTS.--
'(A) IN GENERAL.--A cash or deferred arrangement maintained by an eligible employer shall be treated as meeting the requirements of paragraph (3)(A)(ii) if such arrangement meets--
'(i) the contribution requirements of subparagraph (B),
'(ii) the exclusive plan requirements of subparagraph (C), and
'(iii) the vesting requirements of section 408(p)(3).
'(B) CONTRIBUTION REQUIREMENTS.--
'(i) IN GENERAL.--The requirements of this subparagraph are met if, under the arrangement--
'(I) an employee may elect to have the employer make elective contributions for the year on behalf of the employee to a trust under the plan in an amount which is expressed as a percentage of compensation of the employee but which in no event exceeds $6,000,
'(II) the employer is required to make a matching contribution to the trust for the year in an amount equal to so much of the amount the employee elects under subclause (I) as does not exceed 3 percent of compensation for the year, and
'(III) no other contributions may be made other than contributions described in subclause (I) or (II).
'(ii) EMPLOYER MAY ELECT 2-PERCENT NONELECTIVE CONTRIBUTION.--An employer shall be treated as meeting the requirements of clause (i)(II) for any year if, in lieu of the contributions described in such clause, the employer elects (pursuant to the terms of the arrangement) to make nonelective contributions of 2 percent of compensation for each employee who is eligible to participate in the arrangement and who has at least $5,000 of compensation from the employer for the year. If an employer makes an election under this subparagraph for any year, the employer shall notify employees of such election within a reasonable period of time before the 60th day before the beginning of such year.
'(C) EXCLUSIVE PLAN REQUIREMENT.--The requirements of this subparagraph are met for any year to which this paragraph applies if no contributions were made, or benefits were accrued, for services during such year under any qualified plan of the employer on behalf of any employee eligible to participate in the cash or deferred arrangement, other than contributions described in subparagraph (B).
'(D) DEFINITIONS AND SPECIAL RULE.--
'(i) DEFINITIONS.--For purposes of this paragraph, any term used in this paragraph which is also used in section 408(p) shall have the meaning given such term by such section.
'(ii) COORDINATION WITH TOP-HEAVY RULES.--A plan meeting the requirements of this paragraph for any year shall not be treated as a top-heavy plan under section 416 for such year.'.
'(10) ALTERNATIVE METHOD OF SATISFYING TESTS.--A defined contribution plan shall be treated as meeting the requirements of paragraph (2) with respect to matching contributions if the plan--
'(A) meets the contribution requirements of subparagraph (B) of subsection (k)(11),
'(B) meets the exclusive plan requirements of subsection (k)(11)(C), and
'(C) meets the vesting requirements of section 408(p)(3).'.
SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER SECTION 401(k).
(a) IN GENERAL.--Subparagraph (B) of section 401(k)(4) is amended to read as follows:
'(i) TAX-EXEMPTS ELIGIBLE.--Except as provided in clause (ii), any organization exempt from tax under this subtitle may include a qualified cash or deferred arrangement as part of a plan maintained by it.
'(ii) GOVERNMENTS INELIGIBLE.--A cash or deferred arrangement shall not be treated as a qualified cash or deferred arrangement if it is part of a plan maintained by a State or local government or political subdivision thereof, or any agency or instrumentality thereof. This clause shall not apply to a rural cooperative plan or to a plan of an employer described in clause (iii).
'(iii) TREATMENT OF INDIAN TRIBAL GOVERNMENTS.--An employer which is an Indian tribal government (as defined in section 7701(a)(40)), a subdivision of an Indian tribal government (determined in accordance with section 7871(d)), an agency or instrumentality of an Indian tribal government or subdivision thereof, or a corporation chartered under Federal, State, or tribal law which is owned in whole or in part by any of the foregoing may include a qualified cash or deferred arrangement as part of a plan maintained by the employer.'.
SEC. 1427. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUCTION.
(a) SPOUSAL IRA COMPUTED ON BASIS OF COMPENSATION OF BOTH SPOUSES.--Subsection (c) of section 219 (relating to special rules for certain married individuals) is amended to read as follows:
'(c) SPECIAL RULES FOR CERTAIN MARRIED INDIVIDUALS.--
'(1) IN GENERAL.--In the case of an individual to whom this paragraph applies for the taxable year, the limitation of paragraph (1) of subsection (b) shall be equal to the lesser of--
'(A) the dollar amount in effect under subsection (b)(1)(A) for the taxable year, or
'(B) the sum of--
'(i) the compensation includible in such individual's gross income for the taxable year, plus
'(ii) the compensation includible in the gross income of such individual's spouse for the taxable year reduced by the amount allowed as a deduction under subsection (a) to such spouse for such taxable year.
'(A) such individual files a joint return for the taxable year, and
'(B) the amount of compensation (if any) includible in such individual's gross income for the taxable year is less than the compensation includible in the gross income of such individual's spouse for the taxable year.'.
(1) Paragraph (2) of section 219(f) (relating to other definitions and special rules) is amended by striking 'subsections (b) and (c)' and inserting 'subsection (b)'.
(2) Section 219(g)(1) is amended by striking '(c)(2)' and inserting '(c)(1)(A)'.
(3) Section 408(d)(5) is amended by striking '$2,250' 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, 1996.
SEC. 1431. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES; REPEAL OF FAMILY AGGREGATION.
(a) IN GENERAL.--Paragraph (1) of section 414(q) (defining highly compensated employee) is amended to read as follows:
'(1) IN GENERAL.--The term 'highly compensated employee' means any employee who--
'(A) was a 5-percent owner at any time during the year or the preceding year, or
'(B) for the preceding year--
'(i) had compensation from the employer in excess of $80,000, and
'(ii) if the employer elects the application of this clause for such preceding year, was in the top-paid group of employees for such preceding year.
(b) REPEAL OF FAMILY AGGREGATION RULES.--
(1) IN GENERAL.--Paragraph (6) of section 414(q) is hereby repealed.
(2) COMPENSATION LIMIT.--Paragraph (17)(A) of section 401(a) is amended by striking the last sentence.
(3) DEDUCTION.--Subsection (l) of section 404 is amended by striking the last sentence.
(c) CONFORMING AMENDMENTS.--
(1)(A) Subsection (q) of section 414 is amended by striking paragraphs (2), (5), and (12) and by redesignating paragraphs (3), (4), (7), (8), (9), (10), and (11) as paragraphs (2) through (8), respectively.
(B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii), 408(k)(2)(C), and 416(i)(1)(D) are each amended by striking 'section 414(q)(7)' and inserting 'section 414(q)(4)'.
(C) Section 416(i)(1)(A) is amended by striking 'section 414(q)(8)' and inserting 'section 414(q)(5)'.
(D) Subparagraph (A) of section 414(r)(2) is amended by striking 'subsection (q)(8)' and inserting 'subsection (q)(5)'.
(E) Section 414(q)(5), as redesignated by subparagraph (A), is amended by striking 'under paragraph (4), or the number of officers taken into account under paragraph (5)'.
(2) Section 1114(c)(4) of the Tax Reform Act of 1986 is amended by adding at the end the following new sentence: 'Any reference in this paragraph to section 414(q) shall be treated as a reference to such section as in effect on the day before the date of the enactment of the Small Business Job Protection Act of 1996.'.
(d) EFFECTIVE DATE.--
(1) IN GENERAL.--The amendments made by this section shall apply to years beginning after December 31, 1996, except that in determining whether an employee is a highly compensated employee for years beginning in 1997, such amendments shall be treated as having been in effect for years beginning in 1996.
(2) FAMILY AGGREGATION.--The amendments made by subsection (b) shall apply to years beginning after December 31, 1996.
(a) GENERAL RULE.--Section 401(a)(26)(A) (relating to additional participation requirements) is amended to read as follows:
'(i) 50 employees of the employer, or
'(ii) the greater of--
'(I) 40 percent of all employees of the employer, or
'(II) 2 employees (or if there is only 1 employee, such employee).'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to years beginning after December 31, 1996.
SEC. 1433. NONDISCRIMINATION RULES FOR QUALIFIED CASH OR DEFERRED ARRANGEMENTS AND MATCHING CONTRIBUTIONS.
(a) ALTERNATIVE METHODS OF SATISFYING SECTION 401(k) NONDISCRIMINATION TESTS.--Section 401(k) (relating to cash or deferred arrangements), as amended by section 1422, is amended by adding at the end the following new paragraph:
'(12) ALTERNATIVE METHODS OF MEETING NONDISCRIMINATION REQUIREMENTS.--
'(A) IN GENERAL.--A cash or deferred arrangement shall be treated as meeting the requirements of paragraph (3)(A)(ii) if such arrangement--
'(i) meets the contribution requirements of subparagraph (B) or (C), and
'(ii) meets the notice requirements of subparagraph (D).
'(B) MATCHING CONTRIBUTIONS.--
'(i) IN GENERAL.--The requirements of this subparagraph are met if, under the arrangement, the employer makes matching contributions on behalf of each employee who is not a highly compensated employee in an amount equal to--
'(I) 100 percent of the elective contributions of the employee to the extent such elective contributions do not exceed 3 percent of the employee's compensation, and
'(II) 50 percent of the elective contributions of the employee to the extent that such elective contributions exceed 3 percent but do not exceed 5 percent of the employee's compensation.
'(ii) RATE FOR HIGHLY COMPENSATED EMPLOYEES.--The requirements of this subparagraph are not met if, under the arrangement, the rate of matching contribution with respect to any elective contribution of a highly compensated employee at any rate of elective contribution is greater than that with respect to an employee who is not a highly compensated employee.
'(iii) ALTERNATIVE PLAN DESIGNS.--If the rate of any matching contribution with respect to any rate of elective contribution is not equal to the percentage required under clause (i), an arrangement shall not be treated as failing to meet the requirements of clause (i) if--
'(I) the rate of an employer's matching contribution does not increase as an employee's rate of elective contributions increase, and
'(II) the aggregate amount of matching contributions at such rate of elective contribution is at least equal to the aggregate amount of matching contributions which would be made if matching contributions were made on the basis of the percentages described in clause (i).
'(D) NOTICE REQUIREMENT.--An arrangement meets the requirements of this paragraph if, under the arrangement, each employee eligible to participate is, within a reasonable period before any year, given written notice of the employee's rights and obligations under the arrangement which--
'(i) is sufficiently accurate and comprehensive to apprise the employee of such rights and obligations, and
'(ii) is written in a manner calculated to be understood by the average employee eligible to participate.
'(E) OTHER REQUIREMENTS.--
'(i) WITHDRAWAL AND VESTING RESTRICTIONS.--An arrangement shall not be treated as meeting the requirements of subparagraph (B) or (C) of this paragraph unless the requirements of subparagraphs (B) and (C) of paragraph (2) are met with respect to all employer contributions (including matching contributions) taken into account in determining whether the requirements of subparagraphs (B) and (C) of this paragraph are met.
'(ii) SOCIAL SECURITY AND SIMILAR CONTRIBUTIONS NOT TAKEN INTO ACCOUNT.--An arrangement shall not be treated as meeting the requirements of subparagraph (B) or (C) unless such requirements are met without regard to subsection (l), and, for purposes of subsection (l), employer contributions under subparagraph (B) or (C) shall not be taken into account.
'(F) OTHER PLANS--An arrangement shall be treated as meeting the requirements under subparagraph (A)(i) if any other plan maintained by the employer meets such requirements with respect to employees eligible under the arrangement.'.
'(11) ALTERNATIVE METHOD OF SATISFYING TESTS.--
'(A) IN GENERAL.--A defined contribution plan shall be treated as meeting the requirements of paragraph (2) with respect to matching contributions if the plan--
'(i) meets the contribution requirements of subparagraph (B) or (C) of subsection (k)(12),
'(ii) meets the notice requirements of subsection (k)(12)(D), and
'(iii) meets the requirements of subparagraph (B).
'(B) LIMITATION ON MATCHING CONTRIBUTIONS.--The requirements of this subparagraph are met if--
'(i) matching contributions on behalf of any employee may not be made with respect to an employee's contributions or elective deferrals in excess of 6 percent of the employee's compensation,
'(ii) the rate of an employer's matching contribution does not increase as the rate of an employee's contributions or elective deferrals increase, and
'(iii) the matching contribution with respect to any highly compensated employee at any rate of an employee contribution or rate of elective deferral is not greater than that with respect to an employee who is not a highly compensated employee.'.
(1) CASH OR DEFERRED ARRANGEMENTS.--Section 401(k)(3)(A) is amended--
(A) by striking 'such year' in clause (ii) and inserting 'the plan year',
(B) by striking 'for such plan year' in clause (ii) and inserting 'for the preceding plan year', and
(C) by adding at the end the following new sentence: 'An arrangement may apply clause (ii) by using the plan year rather than the preceding plan year if the employer so elects, except that if such an election is made, it may not be changed except as provided by the Secretary.'.
(2) MATCHING AND EMPLOYEE CONTRIBUTIONS.--Section 401(m)(2)(A) is amended--
(A) by inserting 'for such plan year' after 'highly compensated employees',
(B) by inserting 'for the preceding plan year' after 'eligible employees' each place it appears in clause (i) and clause (ii), and
(C) by adding at the end the following flush sentence:
'This subparagraph may be applied by using the plan year rather than the preceding plan year if the employer so elects, except that if such an election is made, it may not be changed except as provided by the Secretary.'.
(1) Paragraph (3) of section 401(k) is amended by adding at the end the following new subparagraph:
'(E) For purposes of this paragraph, in the case of the first plan year of any plan (other than a successor plan), the amount taken into account as the actual deferral percentage of nonhighly compensated employees for the preceding plan year shall be--
'(i) 3 percent, or
'(ii) if the employer makes an election under this subclause, the actual deferral percentage of nonhighly compensated employees determined for such first plan year.'.
(e) DISTRIBUTION OF EXCESS CONTRIBUTIONS AND EXCESS AGGREGATE CONTRIBUTIONS.--
(1) Subparagraph (C) of section 401(k)(8) (relating to arrangement not disqualified if excess contributions distributed) is amended by striking 'on the basis of the respective portions of the excess contributions attributable to each of such employees' and inserting 'on the basis of the amount of contributions by, or on behalf of, each of such employees'.
(2) Subparagraph (C) of section 401(m)(6) (relating to method of distributing excess aggregate contributions) is amended by striking 'on the basis of the respective portions of such amounts attributable to each of such employees' and inserting 'on the basis of the amount of contributions on behalf of, or by, each such employee'.
(f) EFFECTIVE DATES.--
(1) IN GENERAL.--The amendments made by this section shall apply to years beginning after December 31, 1998.
(2) EXCEPTIONS.--The amendments made by subsections (c), (d), and (e) shall apply to years beginning after December 31, 1996.
(a) GENERAL RULE.--Section 415(c)(3) (defining participant's compensation) is amended by adding at the end the following new subparagraph:
'(i) any elective deferral (as defined in section 402(g)(3)), and
'(ii) any amount which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125 or 457.'.
(1) Section 414(q)(4), as redesignated by section 1431, is amended to read as follows:
'(4) COMPENSATION.--For purposes of this subsection, the term 'compensation' has the meaning given such term by section 415(c)(3).'.
(2) Section 414(s)(2) is amended by inserting 'not' after 'elect' in the text and heading thereof.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to years beginning after December 31, 1997.
SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.
(a) AGGREGATION RULES.--Section 401(d) (relating to additional requirements for qualification of trusts and plans benefiting owner-employees) is amended to read as follows:
'(d) CONTRIBUTION LIMIT ON OWNER-EMPLOYEES.--A trust forming part of a pension or profit-sharing plan which provides contributions or benefits for employees some or all of whom are owner-employees shall constitute a qualified trust under this section only if, in addition to meeting the requirements of subsection (a), the plan provides that contributions on behalf of any owner-employee may be made only with respect to the earned income of such owner-employee which is derived from the trade or business with respect to which such plan is established.'.
(b) EFFECTIVE DATE.--The amendments made by this section shall apply to years beginning after December 31, 1996.
SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR MULTIEMPLOYER PLANS.
(a) AMENDMENTS TO 1986 CODE.--Paragraph (2) of section 411(a) (relating to minimum vesting standards) is amended--
(1) by striking 'subparagraph (A), (B), or (C)' and inserting 'subparagraph (A) or (B)'; and
(2) by striking subparagraph (C).
(b) AMENDMENTS TO ERISA.--Paragraph (2) of section 203(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)) is amended--
(1) by striking 'subparagraph (A), (B), or (C)' and inserting 'subparagraph (A) or (B)'; and
(2) by striking subparagraph (C).
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to plan years beginning on or after the earlier of--
(1) the later of--
(A) January 1, 1997, or
(B) the date on which the last of the collective bargaining agreements pursuant to which the plan is maintained terminates (determined without regard to any extension thereof after the date of the enactment of this Act), or
(2) January 1, 1999.
Such amendments shall not apply to any individual who does not have more than 1 hour of service under the plan on or after the 1st day of the 1st plan year to which such amendments apply.
SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.
(a) DISTRIBUTIONS FOR HARDSHIP OR AFTER A CERTAIN AGE.--Section 401(k)(7) is amended by adding at the end the following new subparagraph:
'(I) is engaged primarily in providing electric service on a mutual or cooperative basis, or
'(II) is engaged primarily in providing electric service to the public in its area of service and which is exempt from tax under this subtitle or which is a State or local government (or an agency or instrumentality thereof), other than a municipality (or an agency or instrumentality thereof),'.
(1) DISTRIBUTIONS.--The amendments made by subsection (a) shall apply to distributions after the date of the enactment of this Act.
(2) PUBLIC UTILITY DISTRICTS.--The amendments made by subsection (b) shall apply to plan years beginning after December 31, 1996.
(a) COMPENSATION LIMIT.--Subsection (b) of section 415 is amended by adding immediately after paragraph (10) the following new paragraph:
'(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL PLANS.--In the case of a governmental plan (as defined in section 414(d)), subparagraph (B) of paragraph (1) shall not apply.'.
(b) TREATMENT OF CERTAIN EXCESS BENEFIT PLANS.--
(1) IN GENERAL.--Section 415 is amended by adding at the end the following new subsection:
'(m) TREATMENT OF QUALIFIED GOVERNMENTAL EXCESS BENEFIT ARRANGEMENTS.--
'(1) GOVERNMENTAL PLAN NOT AFFECTED.--In determining whether a governmental plan (as defined in section 414(d)) meets the requirements of this section, benefits provided under a qualified governmental excess benefit arrangement shall not be taken into account. Income accruing to a governmental plan (or to a trust that is maintained solely for the purpose of providing benefits under a qualified governmental excess benefit arrangement) in respect of a qualified governmental excess benefit arrangement shall constitute income derived from the exercise of an essential governmental function upon which such governmental plan (or trust) shall be exempt from tax under section 115.
'(2) TAXATION OF PARTICIPANT.--For purposes of this chapter--
'(A) the taxable year or years for which amounts in respect of a qualified governmental excess benefit arrangement are includible in gross income by a participant, and
'(B) the treatment of such amounts when so includible by the participant,
shall be determined as if such qualified governmental excess benefit arrangement were treated as a plan for the deferral of compensation which is maintained by a corporation not exempt from tax under this chapter and which does not meet the requirements for qualification under section 401.
'(3) QUALIFIED GOVERNMENTAL EXCESS BENEFIT ARRANGEMENT.--For purposes of this subsection, the term 'qualified governmental excess benefit arrangement' means a portion of a governmental plan if--
'(A) such portion is maintained solely for the purpose of providing to participants in the plan that part of the participant's annual benefit otherwise payable under the terms of the plan that exceeds the limitations on benefits imposed by this section,
'(B) under such portion no election is provided at any time to the participant (directly or indirectly) to defer compensation, and
'(C) benefits described in subparagraph (A) are not paid from a trust forming a part of such governmental plan unless such trust is maintained solely for the purpose of providing such benefits.'.
(2) COORDINATION WITH SECTION 457.--Subsection (e) of section 457 is amended by adding at the end the following new paragraph:
'(14) TREATMENT OF QUALIFIED GOVERNMENTAL EXCESS BENEFIT ARRANGEMENTS.--Subsections (b)(2) and (c)(1) shall not apply to any qualified governmental excess benefit arrangement (as defined in section 415(m)(3)), and benefits provided under such an arrangement shall not be taken into account in determining whether any other plan is an eligible deferred compensation plan.'.
(3) CONFORMING AMENDMENT.--Paragraph (2) of section 457(f) is amended by striking 'and' at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting ', and', and by inserting immediately thereafter the following new subparagraph:
'(E) a qualified governmental excess benefit arrangement described in section 415(m).'.
'(i) income received from a governmental plan (as defined in section 414(d)) as a pension, annuity, or similar allowance as the result of the recipient becoming disabled by reason of personal injuries or sickness, or
'(ii) amounts received from a governmental plan by the beneficiaries, survivors, or the estate of an employee as the result of the death of the employee.'.
(1) IN GENERAL--Subparagraph (C) of section 415(b)(10) is amended by adding at the end the following new clause:
(1) IN GENERAL.--The amendments made by subsections (a), (b), and (c) shall apply to years beginning after December 31, 1994. The amendments made by subsection (d) shall apply with respect to revocations adopted after the date of the enactment of this Act.
(2) TREATMENT FOR YEARS BEGINNING BEFORE JANUARY 1, 1995.--Nothing in the amendments made by this section shall be construed to imply that a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986) fails to satisfy the requirements of section 415 of such Code for any taxable year beginning before January 1, 1995.
(a) DISCRIMINATION TESTING.--Paragraph (5) of section 401(a) (relating to special rules relating to nondiscrimination requirements) is amended by adding at the end the following new subparagraph:
'(i) the social security retirement age (as defined in section 415(b)(8)) shall be treated as a uniform retirement age, and
'(ii) subsidized early retirement benefits and joint and survivor annuities shall not be treated as being unavailable to employees on the same terms merely because such benefits or annuities are based in whole or in part on an employee's social security retirement age (as so defined).'.
SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.
(a) ALL DISABLED PARTICIPANTS RECEIVING CONTRIBUTIONS.--Section 415(c)(3)(C) is amended by adding at the end the following: 'If a defined contribution plan provides for the continuation of contributions on behalf of all participants described in clause (i) for a fixed or determinable period, this subparagraph shall be applied without regard to clauses (ii) and (iii).'.
(b) EFFECTIVE DATE.--The amendment made by this section shall apply to years beginning after December 31, 1996.
SEC. 1447. TREATMENT OF DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.
(a) SPECIAL RULES FOR PLAN DISTRIBUTIONS.--Paragraph (9) of section 457(e) (relating to other definitions and special rules) is amended to read as follows:
'(9) BENEFITS NOT TREATED AS MADE AVAILABLE BY REASON OF CERTAIN ELECTIONS, ETC.--
'(A) TOTAL AMOUNT PAYABLE IS $3,500 OR LESS.--The total amount payable to a participant under the plan shall not be treated as made available merely because the participant may elect to receive such amount (or the plan may distribute such amount without the participant's consent) if--
'(i) such amount does not exceed $3,500, and
'(ii) such amount may be distributed only if--
'(I) no amount has been deferred under the plan with respect to such participant during the 2-year period ending on the date of the distribution, and
'(II) there has been no prior distribution under the plan to such participant to which this subparagraph applied.
'(B) ELECTION TO DEFER COMMENCEMENT OF DISTRIBUTIONS.--The total amount payable to a participant under the plan shall not be treated as made available merely because the participant may elect to defer commencement of distributions under the plan if--
'(i) such election is made after amounts may be available under the plan in accordance with subsection (d)(1)(A) and before commencement of such distributions, and
'(ii) the participant may make only 1 such election.'.
'(15) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DEFERRAL AMOUNT.--The Secretary shall adjust the $7,500 amount specified in subsections (b)(2) and (c)(1) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter ending September 30, 1994, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500.'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to taxable years beginning after December 31, 1996.
SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS.
(a) IN GENERAL.--Section 457 is amended by adding at the end the following new subsection:
'(g) GOVERNMENTAL PLANS MUST MAINTAIN SET-ASIDES FOR EXCLUSIVE BENEFIT OF PARTICIPANTS.--
'(1) IN GENERAL.--A plan maintained by an eligible employer described in subsection (e)(1)(A) shall not be treated as an eligible deferred compensation plan unless all assets and income of the plan described in subsection (b)(6) are held in trust for the exclusive benefit of participants and their beneficiaries.
'(2) TAXABILITY OF TRUSTS AND PARTICIPANTS.--For purposes of this title--
'(A) a trust described in paragraph (1) shall be treated as an organization exempt from taxation under section 501(a), and
'(B) notwithstanding any other provision of this title, amounts in the trust shall be includible in the gross income of participants and beneficiaries only to the extent, and at the time, provided in this section.
'(3) CUSTODIAL ACCOUNTS AND CONTRACTS.--For purposes of this subsection, custodial accounts and contracts described in section 401(f) shall be treated as trusts under rules similar to the rules under section 401(f).'.
(b) CONFORMING AMENDMENT.--Paragraph (6) of section 457(b) is amended by inserting 'except as provided in subsection (g),' before 'which provides that'.
(c) EFFECTIVE DATES.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to assets and income described in section 457(b)(6) of the Internal Revenue Code of 1986 held by a plan on and after the date of the enactment of this Act.
(2) TRANSITION RULE.--In the case of a plan in existence on the date of the enactment of this Act, a trust need not be established by reason of the amendments made by this section before January 1, 1999.
(a) IN GENERAL.--Subparagraph (A) of section 767(d)(3) of the Uruguay Round Agreements Act is amended to read as follows:
'(i) the later of the date a plan amendment applying the amendments made by subsection (b) is adopted or made effective, or
'(ii) the first day of the first limitation year beginning after December 31, 1999.
Determinations under section 415(b)(2)(E) of the Internal Revenue Code of 1986 before such earlier date shall be made with respect to such benefits on the basis of such section as in effect on December 7, 1994 (except that the modification made by section 1449(b) of the Small Business Job Protection Act of 1996 shall be taken into account), and the provisions of the plan as in effect on December 7, 1994, but only if such provisions of the plan meet the requirements of such section (as so in effect).'.
(1) by striking 'Except as provided in clause (ii), for purposes of adjusting any benefit or limitation under subparagraph (B) or (C),' in clause (i) and inserting 'For purposes of adjusting any limitation under subparagraph (C) and, except as provided in clause (ii), for purposes of adjusting any benefit under subparagraph (B),', and
(2) by striking 'For purposes of adjusting the benefit or limitation of any form of benefit subject to section 417(e)(3),' in clause (ii) and inserting 'For purposes of adjusting any benefit under subparagraph (B) for any form of benefit subject to section 417(e)(3),'.
(c) EFFECTIVE DATE.--The amendments made by this section shall take effect as if included in the provisions of section 767 of the Uruguay Round Agreements Act.
(d) TRANSITIONAL RULE.--In the case of a plan that was adopted and in effect before December 8, 1994, if--
(1) a plan amendment was adopted or made effective on or before the date of the enactment of this Act applying the amendments made by section 767 of the Uruguay Round Agreements Act, and
(2) within 1 year after the date of the enactment of this Act, a plan amendment is adopted which repeals the amendment referred to in paragraph (1),
the amendment referred to in paragraph (1) shall not be taken into account in applying section 767(d)(3)(A) of the Uruguay Round Agreements Act, as amended by subsection (a).
SEC. 1450. MODIFICATIONS OF SECTION 403(b).
(a) MULTIPLE SALARY REDUCTION AGREEMENTS PERMITTED.--
(1) GENERAL RULE.--For purposes of section 403(b) of the Internal Revenue Code of 1986, the frequency that an employee is permitted to enter into a salary reduction agreement, the salary to which such an agreement may apply, and the ability to revoke such an agreement shall be determined under the rules applicable to cash or deferred elections under section 401(k) of such Code.
(2) CONSTRUCTIVE RECEIPT.--Section 402(e)(3) is amended by inserting 'or which is part of a salary reduction agreement under section 403(b)' after 'section 401(k)(2))'.
(3) EFFECTIVE DATE.--This subsection shall apply to taxable years beginning after December 31, 1995.
(b) TREATMENT OF INDIAN TRIBAL GOVERNMENTS.--
(1) IN GENERAL.--In the case of any contract purchased in a plan year beginning before January 1, 1995, section 403(b) of the Internal Revenue Code of 1986 shall be applied as if any reference to an employer described in section 501(c)(3) of the Internal Revenue Code of 1986 which is exempt from tax under section 501 of such Code included a reference to an employer which is an Indian tribal government (as defined by section 7701(a)(40) of such Code), a subdivision of an Indian tribal government (determined in accordance with section 7871(d) of such Code), an agency or instrumentality of an Indian tribal government or subdivision thereof, or a corporation chartered under Federal, State, or tribal law which is owned in whole or in part by any of the foregoing.
(2) ROLLOVERS.--Solely for purposes of applying section 403(b)(8) of such Code to a contract to which paragraph (1) applies, a qualified cash or deferred arrangement under section 401(k) of such Code shall be treated as if it were a plan or contract described in clause (ii) of section 403(b)(8)(A) of such Code.
(c) ELECTIVE DEFERRALS.--
(1) IN GENERAL.--Subparagraph (E) of section 403(b)(1) is amended to read as follows:
'(E) in the case of a contract purchased under a salary reduction agreement, the contract meets the requirements of section 401(a)(30),'.
(2) EFFECTIVE DATE.--The amendment made by this subsection shall apply to years beginning after December 31, 1995, except a contract shall not be required to meet any change in any requirement by reason of such amendment before the 90th day after the date of the enactment of this Act.
(a) AMENDMENT TO INTERNAL REVENUE CODE.--Section 417(a) is amended by adding at the end the following new paragraph:
'(7) SPECIAL RULES RELATING TO TIME FOR WRITTEN EX-PLANATION.--Notwithstanding any other provision of this subsection--
'(A) EXPLANATION MAY BE PROVIDED AFTER ANNUITY STARTING DATE.--
'(i) IN GENERAL.--A plan may provide the written explanation described in paragraph (3)(A) after the annuity starting date. In any case to which this subparagraph applies, the applicable election period under paragraph (6) shall not end before the 30th day after the date on which such explanation is provided.
'(ii) REGULATORY AUTHORITY.--The Secretary may by regulations limit the application of clause (i), except that such regulations may not limit the period of time by which the annuity starting date precedes the provision of the written explanation other than by providing that the annuity starting date may not be earlier than termination of employment.
'(B) WAIVER OF 30-DAY PERIOD.--A plan may permit a participant to elect (with any applicable spousal consent) to waive any requirement that the written explanation be provided at least 30 days before the annuity starting date (or to waive the 30-day requirement under subparagraph (A)) if the distribution commences more than 7 days after such explanation is provided.'.
'(8) Notwithstanding any other provision of this subsection--
'(A)(i) A plan may provide the written explanation described in paragraph (3)(A) after the annuity starting date. In any case to which this subparagraph applies, the applicable election period under paragraph (7) shall not end before the 30th day after the date on which such explanation is provided.
'(ii) The Secretary may by regulations limit the application of clause (i), except that such regulations may not limit the period of time by which the annuity starting date precedes the provision of the written explanation other than by providing that the annuity starting date may not be earlier than termination of employment.
'(B) A plan may permit a participant to elect (with any applicable spousal consent) to waive any requirement that the written explanation be provided at least 30 days before the annuity starting date (or to waive the 30-day requirement under subparagraph (A)) if the distribution commences more than 7 days after such explanation is provided.'.
SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED BENEFIT PLAN AND DEFINED CONTRIBUTION PLAN FOR SAME EMPLOYEE; EXCESS DISTRIBUTIONS.
(a) IN GENERAL.--Section 415(e) is repealed.
(b) EXCESS DISTRIBUTIONS.--Section 4980A is amended by adding at the end the following new subsection:
'(g) LIMITATION ON APPLICATION.--This section shall not apply to distributions during years beginning after December 31, 1996, and before January 1, 2000, and such distributions shall be treated as made first from amounts not described in subsection (f).'.
(c) CONFORMING AMENDMENTS.--
(1) Paragraph (1) of section 415(a) is amended--
(A) by adding 'or' at the end of subparagraph (A),
(B) by striking ', or' at the end of subparagraph (B) and inserting a period, and
(C) by striking subparagraph (C).
(2) Subparagraph (B) of section 415(b)(5) is amended by striking 'and subsection (e)'.
(3) Paragraph (1) of section 415(f) is amended by striking 'subsections (b), (c), and (e)' and inserting 'subsections (b) and (c)'.
(4) Subsection (g) of section 415 is amended by striking 'subsections (e) and (f)' in the last sentence and inserting 'subsection (f)'.
(5) Clause (i) of section 415(k)(2)(A) is amended to read as follows:
(7) Section 416 is amended by striking subsection (h).
(d) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to limitation years beginning after December 31, 1999.
(2) EXCESS DISTRIBUTIONS.--The amendment made by subsection (b) shall apply to years beginning after December 31, 1996.
(a) IN GENERAL.--Section 4975(a) is amended by striking '5 percent' and inserting '10 percent'.
(b) EFFECTIVE DATE.--The amendment made by this section shall apply to prohibited transactions occurring after the date of the enactment of this Act.
SEC. 1454. TREATMENT OF LEASED EMPLOYEES.
(a) GENERAL RULE.--Subparagraph (C) of section 414(n)(2) (defining leased employee) is amended to read as follows:
SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO CERTAIN PENSION REPORTING REQUIREMENTS.
(a) PENALTIES.--
(1) STATEMENTS.--Paragraph (1) of section 6724(d) is amended by striking 'and' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ', and', and by inserting after subparagraph (B) the following new subparagraph:
'(C) any statement of the amount of payments to another person required to be made to the Secretary under--
'(i) section 408(i) (relating to reports with respect to individual retirement accounts or annuities), or
'(ii) section 6047(d) (relating to reports by employers, plan administrators, etc.).'.
'(W) section 408(i) (relating to reports with respect to individual retirement plans) to any person other than the Secretary with respect to the amount of payments made to such person, or
'(X) section 6047(d) (relating to reports by plan administrators) to any person other than the Secretary with respect to the amount of payments made to such person.'.
(1) SECTION 408.--Subsection (i) of section 408 (relating to individual retirement account reports) is amended by inserting 'aggregating $10 or more in any calendar year' after 'distributions'.
(2) SECTION 6047.--Paragraph (1) of section 6047(d) (relating to reports by employers, plan administrators, etc.) is amended by adding at the end the following new sentence: 'No return or report may be required under the preceding sentence with respect to distributions to any person during any year unless such distributions aggregate $10 or more.'.
(c) QUALIFYING ROLLOVER DISTRIBUTIONS.--Section 6652(i) is amended--
(1) by striking 'the $10' and inserting '$100', and
(2) by striking '$5,000' and inserting '$50,000'.
(d) CONFORMING AMENDMENTS.--
(1) Paragraph (1) of section 6047(f) is amended to read as follows:
'(1) For provisions relating to penalties for failures to file returns and reports required under this section, see sections 6652(e), 6721, and 6722.'.
(2) Subsection (e) of section 6652 is amended by adding at the end the following new sentence:
'This subsection shall not apply to any return or statement which is an information return described in section 6724(d)(1)(C)(ii) or a payee statement described in section 6724(d)(2)(X).'.
(3) Subsection (a) of section 6693 is amended by adding at the end the following new sentence:
'This subsection shall not apply to any report which is an information return described in section 6724(d)(1)(C)(i) or a payee statement described in section 6724(d)(2)(W).'.
(e) EFFECTIVE DATE.--The amendments made by this section shall apply to returns, reports, and other statements the due date for which (determined without regard to extensions) is after December 31, 1996.
SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUBJECT TO TAX ON NET EARNINGS FROM SELF-EMPLOYMENT.
(a) IN GENERAL.--Section 1402(a)(8) (defining net earnings from self-employment) is amended by inserting ', but shall not include in such net earnings from self-employment the rental value of any parsonage or any parsonage allowance (whether or not excludable under section 107) provided after the individual retires, or any other retirement benefit received by such individual from a church plan (as defined in section 414(e)) after the individual retires' before the semicolon at the end.
(b) EFFECTIVE DATE.--The amendments made by this section shall apply to years beginning before, on, or after December 31, 1994.
SEC. 1457. SAMPLE LANGUAGE FOR SPOUSAL CONSENT AND QUALIFIED DOMESTIC RELATIONS FORMS.
(a) DEVELOPMENT OF SAMPLE LANGUAGE.--Not later than January 1, 1997, the Secretary of the Treasury shall develop--
(1) sample language for inclusion in a form for the spousal consent required under section 417(a)(2) of the Internal Revenue Code of 1986 and section 205(c)(2) of the Employee Retirement Income Security Act of 1974 which--
(A) is written in a manner calculated to be understood by the average person, and
(B) discloses in plain form--
(i) whether the waiver to which the spouse consents is irrevocable, and
(ii) whether such waiver may be revoked by a qualified domestic relations order, and
(A) meets the requirements contained in such sections, and
(B) the provisions of which focus attention on the need to consider the treatment of any lump sum payment, qualified joint and survivor annuity, or qualified preretirement survivor annuity.
SEC. 1458. TREATMENT OF LENGTH OF SERVICE AWARDS TO VOLUNTEERS PERFORMING FIRE FIGHTING OR PREVENTION SERVICES, EMERGENCY MEDICAL SERVICES, OR AMBULANCE SERVICES.
(a) IN GENERAL.--Paragraph (11) of section 457(e) (relating to deferred compensation plans of State and local governments and tax-exempt organizations) is amended to read as follows:
'(11) CERTAIN PLANS EXCLUDED.--
'(A) IN GENERAL--The following plans shall be treated as not providing for the deferral of compensation:
'(i) Any bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death benefit plan.
'(ii) Any plan paying solely length of service awards to bona fide volunteers (or their beneficiaries) on account of qualified services performed by such volunteers.
'(B) SPECIAL RULES APPLICABLE TO LENGTH OF SERVICE AWARD PLANS.--
'(i) BONA FIDE VOLUNTEER.--An individual shall be treated as a bona fide volunteer for purposes of subparagraph (A)(ii) if the only compensation received by such individual for performing qualified services is in the form of--
'(I) reimbursement for (or a reasonable allowance for) reasonable expenses incurred in the performance of such services, or
'(II) reasonable benefits (including length of service awards), and nominal fees for such services, customarily paid by eligible employers in connection with the performance of such services by volunteers.
'(ii) LIMITATION ON ACCRUALS.--A plan shall not be treated as described in subparagraph (A)(ii) if the aggregate amount of length of service awards accruing with respect to any year of service for any bona fide volunteer exceeds $3,000.
'(C) QUALIFIED SERVICES.--For purposes of this paragraph, the term 'qualified services' means fire fighting and prevention services, emergency medical services, and ambulance services.'.
(1) Subsection (a)(5) of section 3121, as amended by section 1421, is amended by striking '(or)' at the end of subparagraph (G), by inserting 'or' at the end of subparagraph (H), and by adding at the end the following new subparagraph:
'(I) under a plan described in section 457(e)(11)(A)(ii) and maintained by an eligible employer (as defined in section 457(e)(1)).'.
(2) Section 209(a)(4) of the Social Security Act is amended by inserting '; or (K) under a plan described in section 457(e)(11)(A)(ii) of the Internal Revenue Code of 1986 and maintained by an eligible employer (as defined in section 457(e)(1) of such Code)' before the semicolon at the end thereof.
(c) EFFECTIVE DATE.--
(1) SUBSECTION (a).--The amendment made by subsection (a) shall apply to accruals of length of service awards after December 31, 1996.
(2) SUBSECTION (b).--The amendments made by subsection (b) shall apply to remuneration paid after December 31, 1996.
(a) CASH OR DEFERRED ARRANGEMENTS.--Paragraph (3) of section 401(k) (relating to application of participation and discrimination standards), as amended by section 1433(d)(1) of this Act, is amended by adding at the end the following new subparagraph:
SEC. 1460. CLARIFICATION OF APPLICATION OF ERISA TO INSURANCE COMPANY GENERAL ACCOUNTS.
(a) IN GENERAL.--Section 401 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1101) is amended by adding at the end the following new subsection:
'(c)(1)(A) Not later than June 30, 1997, the Secretary shall issue proposed regulations to provide guidance for the purpose of determining, in cases where an insurer issues 1 or more policies to or for the benefit of an employee benefit plan (and such policies are supported by assets of such insurer's general account), which assets held by the insurer (other than plan assets held in its separate accounts) constitute assets of the plan for purposes of this part and section 4975 of the Internal Revenue Code of 1986 and to provide guidance with respect to the application of this title to the general account assets of insurers.
'(C) The Secretary shall issue final regulations providing the guidance described in subparagraph (A) not later than December 31, 1997.
'(D) Such regulations shall only apply with respect to policies which are issued by an insurer on or before December 31, 1998, to or for the benefit of an employee benefit plan which is supported by assets of such insurer's general account. With respect to policies issued on or before December 31, 1998, such regulations shall take effect at the end of the 18-month period following the date on which such regulations become final.
'(2) The Secretary shall ensure that the regulations issued under paragraph (1)--
'(A) are administratively feasible, and
'(B) protect the interests and rights of the plan and of its participants and beneficiaries (including meeting the requirements of paragraph (3)).
'(3) The regulations prescribed by the Secretary pursuant to paragraph (1) shall require, in connection with any policy issued by an insurer to or for the benefit of an employee benefit plan to the extent that the policy is not a guaranteed benefit policy (as defined in subsection (b)(2)(B))--
'(A) that a plan fiduciary totally independent of the insurer authorize the purchase of such policy (unless such purchase is a transaction exempt under section 408(b)(5)),
'(B) that the insurer describe (in such form and manner as shall be prescribed in such regulations), in annual reports and in policies issued to the policyholder after the date on which such regulations are issued in final form pursuant to paragraph (1)(C)--
'(i) a description of the method by which any income and expenses of the insurer's general account are allocated to the policy during the term of the policy and upon the termination of the policy, and
'(ii) for each report, the actual return to the plan under the policy and such other financial information as the Secretary may deem appropriate for the period covered by each such annual report,
'(C) that the insurer disclose to the plan fiduciary the extent to which alternative arrangements supported by assets of separate accounts of the insurer (which generally hold plan assets) are available, whether there is a right under the policy to transfer funds to a separate account and the terms governing any such right, and the extent to which support by assets of the insurer's general account and support by assets of separate accounts of the insurer might pose differing risks to the plan, and
'(D) that the insurer manage those assets of the insurer which are assets of such insurer's general account (irrespective of whether any such assets are plan assets) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, taking into account all obligations supported by such enterprise.
'(4) Compliance by the insurer with all requirements of the regulations issued by the Secretary pursuant to paragraph (1) shall be deemed compliance by such insurer with sections 404, 406, and 407 with respect to those assets of the insurer's general account which support a policy described in paragraph (3).
'(5)(A) Subject to subparagraph (B), any regulations issued under paragraph (1) shall not take effect before the date on which such regulations become final.
'(B) No person shall be subject to liability under this part or section 4975 of the Internal Revenue Code of 1986 for conduct which occurred before the date which is 18 months following the date described in subparagraph (A) on the basis of a claim that the assets of an insurer (other than plan assets held in a separate account) constitute assets of the plan, except--
'(i) as otherwise provided by the Secretary in regulations intended to prevent avoidance of the regulations issued under paragraph (1), or
'(ii) as provided in an action brought by the Secretary pursuant to paragraph (2) or (5) of section 502(a) for a breach of fiduciary responsibilities which would also constitute a violation of Federal or State criminal law.
'(6) Nothing in this subsection shall preclude the application of any Federal criminal law.
'(7) For purposes of this subsection, the term 'policy' includes a contract.'.
(b) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendment made by this section shall take effect on January 1, 1975.
(2) CIVIL ACTIONS.--The amendment made by this section shall not apply to any civil action commenced before November 7, 1995.
(a) IN GENERAL.--Section 414(e) (defining church plan) is amended by adding at the end the following new paragraph:
'(5) SPECIAL RULES FOR CHAPLAINS AND SELF-EMPLOYED MINISTERS.--
'(A) CERTAIN MINISTERS MAY PARTICIPATE.--For purposes of this part--
'(i) IN GENERAL.--An employee of a church or a convention or association of churches shall include a duly ordained, commissioned, or licensed minister of a church who, in connection with the exercise of his or her ministry--
'(I) is a self-employed individual (within the meaning of section 401(c)(1)(B)), or
'(II) is employed by an organization other than an organization described in section 501(c)(3).
'(ii) TREATMENT AS EMPLOYER AND EMPLOYEE.--
'(I) SELF-EMPLOYED.--A minister described in clause (i)(I) shall be treated as his or her own employer which is an organization described in section 501(c)(3) and which is exempt from tax under section 501(a).
'(II) OTHERS.--A minister described in clause (i)(II) shall be treated as employed by an organization described in section 501(c)(3) and exempt from tax under section 501(a).
'(i) the minister's includible compensation under section 403(b)(3) shall be determined by reference to the minister's earned income (within the meaning of section 401(c)(2)) from such ministry rather than the amount of compensation which is received from an employer, and
'(ii) the years (and portions of years) in which such minister was a self-employed individual (within the meaning of section 401(c)(1)(B)) with respect to such ministry shall be included for purposes of section 403(b)(4).
'(C) EFFECT ON NON-DENOMINATIONAL PLANS.--If a duly ordained, commissioned, or licensed minister of a church in the exercise of his or her ministry participates in a church plan (within the meaning of this section) and in the exercise of such ministry is employed by an employer not eligible to participate in such church plan, then such employer may exclude such minister from being treated as an employee of such employer for purposes of applying sections 401(a)(3), 401(a)(4), and 401(a)(5), as in effect on September 1, 1974, and sections 401(a)(4), 401(a)(5), 401(a)(26), 401(k)(3), 401(m), 403(b)(1)(D) (including section 403(b)(12)), and 410 to any stock bonus, pension, profit-sharing, or annuity plan (including an annuity described in section 403(b) or a retirement income account described in section 403(b)(9)). The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purpose of, and prevent the abuse of, this subparagraph.
'(D) COMPENSATION TAKEN INTO ACCOUNT ONLY ONCE.--If any compensation is taken into account in determining the amount of any contributions made to, or benefits to be provided under, any church plan, such compensation shall not also be taken into account in determining the amount of any contributions made to, or benefits to be provided under, any other stock bonus, pension, profit-sharing, or annuity plan which is not a church plan.'.
'(10) CONTRIBUTIONS BY CERTAIN MINISTERS TO RETIREMENT INCOME ACCOUNTS.--In the case of contributions made by a minister described in section 414(e)(5) to a retirement income account described in section 403(b)(9) and not by a person other than such minister, such contributions--
'(A) shall be treated as made to a trust which is exempt from tax under section 501(a) and which is part of a plan which is described in section 401(a), and
'(B) shall be deductible under this subsection to the extent such contributions do not exceed the limit on elective deferrals under section 402(g), the exclusion allowance under section 403(b)(2), or the limit on annual additions under section 415.
For purposes of this paragraph, all plans in which the minister is a participant shall be treated as one plan.'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to years beginning after December 31, 1996.
SEC. 1462. DEFINITION OF HIGHLY COMPENSATED EMPLOYEE FOR PRE-ERISA RULES FOR CHURCH PLANS.
(a) IN GENERAL.--Section 414(q) (defining highly compensated employee), as amended by section 1431(c)(1)(A) of this Act, is amended by adding at the end the following new paragraph:
'(7) CERTAIN EMPLOYEES NOT CONSIDERED HIGHLY COMPENSATED AND EXCLUDED EMPLOYEES UNDER PRE-ERISA RULES FOR CHURCH PLANS.--In the case of a church plan (as defined in subsection (e)), no employee shall be considered an officer, a person whose principal duties consist of supervising the work of other employees, or a highly compensated employee for any year unless such employee is a highly compensated employee under paragraph (1) for such year.'.
(b) SAFEHARBOR AUTHORITY.--The Secretary of the Treasury may design nondiscrimination and coverage safe harbors for church plans.
(c) EFFECTIVE DATE.--The amendments made by subsection (a) shall apply to years beginning after December 31, 1996.
SEC. 1463. RULE RELATING TO INVESTMENT IN CONTRACT NOT TO APPLY TO FOREIGN MISSIONARIES.
(a) IN GENERAL.--The last sentence of section 72(f) is amended by inserting ', or to the extent such credits are attributable to services performed as a foreign missionary (within the meaning of section 403(b)(2)(D)(iii))' before the last period.
(b) EFFECTIVE DATE.--The amendment made by this section shall apply to taxable years beginning after December 31, 1996.
SEC. 1464. WAIVER OF EXCISE TAX ON FAILURE TO PAY LIQUIDITY SHORTFALL.
(a) IN GENERAL.--Section 4971(f) (relating to failure to pay liquidity shortfall) is amended by adding at the end the following new paragraph:
'(4) WAIVER BY SECRETARY.--If the taxpayer establishes to the satisfaction of the Secretary that--
'(A) the liquidity shortfall described in paragraph (1) was due to reasonable cause and not willful neglect, and
'(B) reasonable steps have been taken to remedy such liquidity shortfall,
the Secretary may waive all or part of the tax imposed by this subsection.'.
(b) EFFECTIVE DATE.--The amendment made by this section shall take effect as if included in the amendment made by clause (ii) of section 751(a)(9)(B) of the Retirement Protection Act of 1994 (108 Stat. 5020).
SEC. 1465. DATE FOR ADOPTION OF PLAN AMENDMENTS.
If any amendment made by this subtitle requires an amendment to any plan or annuity contract, such amendment shall not be required to be made before the first day of the first plan year beginning on or after January 1, 1998, if--
(2) such amendment applies retroactively to such period.
In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), this section shall be applied by substituting '2000' for '1998'.
SEC. 1501. REPEAL OF INCLUSION OF CERTAIN EARNINGS INVESTED IN EXCESS PASSIVE ASSETS.
(a) IN GENERAL.--
(1) REPEAL OF INCLUSION.--Paragraph (1) of section 951(a) (relating to amounts included in gross income of United States shareholders) is amended by striking subparagraph (C), by striking '; and' at the end of subparagraph (B) and inserting a period, and by adding 'and' at the end of subparagraph (A).
(2) REPEAL OF INCLUSION AMOUNT.--Section 956A (relating to earnings invested in excess passive assets) is repealed.
(b) CONFORMING AMENDMENTS.--
(1) Subparagraph (G) of section 904(d)(3), as amended by section 1703(i)(1), is amended by striking 'subparagraph (B) or (C) of section 951(a)(1)' and inserting 'section 951(a)(1)(B)'.
(2) Paragraph (1) of section 956(b) is amended to read as follows:
'(1) APPLICABLE EARNINGS.--For purposes of this section, the term 'applicable earnings' means, with respect to any controlled foreign corporation, the sum of--
'(A) the amount (not including a deficit) referred to in section 316(a)(1), and
'(B) the amount referred to in section 316(a)(2),
but reduced by distributions made during the taxable year and by earnings and profits described in section 959(c)(1).'.
(3) Paragraph (3) of section 956(b) is amended to read as follows:
'(3) SPECIAL RULE WHERE CORPORATION CEASES TO BE CONTROLLED FOREIGN CORPORATION.--If any foreign corporation ceases to be a controlled foreign corporation during any taxable year--
'(A) the determination of any United States shareholder's pro rata share shall be made on the basis of stock owned (within the meaning of section 958(a)) by such shareholder on the last day during the taxable year on which the foreign corporation is a controlled foreign corporation,
'(B) the average referred to in subsection (a)(1)(A) for such taxable year shall be determined by only taking into account quarters ending on or before such last day, and
'(C) in determining applicable earnings, the amount taken into account by reason of being described in paragraph (2) of section 316(a) shall be the portion of the amount so described which is allocable (on a pro rata basis) to the part of such year during which the corporation is a controlled foreign corporation.'.
(4) Subsection (a) of section 959 (relating to exclusion from gross income of previously taxed earnings and profits) is amended by adding 'or' at the end of paragraph (1), by striking 'or' at the end of paragraph (2), and by striking paragraph (3).
(5) Subsection (a) of section 959 is amended by striking 'paragraphs (2) and (3)' in the last sentence and inserting 'paragraph (2)'.
(6) Subsection (c) of section 959 is amended by adding at the end the following flush sentence:
'References in this subsection to section 951(a)(1)(C) and subsection (a)(3) shall be treated as references to such provisions as in effect on the day before the date of the enactment of the Small Business Job Protection Act of 1996.'.
(7) Paragraph (1) of section 959(f) is amended to read as follows:
'(1) IN GENERAL.--For purposes of this section, amounts that would be included under subparagraph (B) of section 951(a)(1) (determined without regard to this section) shall be treated as attributable first to earnings described in subsection (c)(2), and then to earnings described in subsection (c)(3).'.
(8) Paragraph (2) of section 959(f) is amended by striking 'subparagraphs (B) and (C) of section 951(a)(1)' and inserting 'section 951(a)(1)(B)'.
(9) Subsection (b) of section 989 is amended by striking 'subparagraph (B) or (C) of section 951(a)(1)' and inserting 'section 951(a)(1)(B)'.
(10) Paragraph (9) of section 1297(b) is amended by striking 'subparagraph (B) or (C) of section 951(a)(1)' and inserting 'section 951(a)(1)(B)'.
(11) Subsections (d)(3)(B) and (e)(2)(B)(ii) of section 1297 are each amended by striking 'or section 956A'.
(12) Subparagraph (G) of section 904(d)(3) is amended by striking 'subparagraph (B) or (C) of section 951(a)(1)' and inserting 'section 951(a)(1)(B)'.
(c) CLERICAL AMENDMENT.--The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by striking the item relating to section 956A.
(d) EFFECTIVE DATE.--The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 1996, and to taxable years of United States shareholders within which or with which such taxable years of foreign corporations end.
SEC. 1601. TERMINATION OF PUERTO RICO AND POSSESSION TAX CREDIT.
(a) IN GENERAL.--Section 936 is amended by adding at the end the following new subsection:
'(j) TERMINATION.--
'(1) IN GENERAL.--Except as otherwise provided in this subsection, this section shall not apply to any taxable year beginning after December 31, 1995.
'(2) TRANSITION RULES FOR ACTIVE BUSINESS INCOME CREDIT.--Except as provided in paragraph (3)--
'(A) ECONOMIC ACTIVITY CREDIT.--In the case of an existing credit claimant--
'(i) with respect to a possession other than Puerto Rico, and
'(ii) to which subsection (a)(4)(B) does not apply,
the credit determined under subsection (a)(1)(A) shall be allowed for taxable years beginning after December 31, 1995, and before January 1, 2002.
'(B) SPECIAL RULE FOR REDUCED CREDIT.--
'(i) IN GENERAL.--In the case of an existing credit claimant to which subsection (a)(4)(B) applies, the credit determined under subsection (a)(1)(A) shall be allowed for taxable years beginning after December 31, 1995, and before January 1, 1998.
'(ii) ELECTION IRREVOCABLE AFTER 1997.--An election under subsection (a)(4)(B)(iii) which is in effect for the taxpayer's last taxable year beginning before 1997 may not be revoked unless it is revoked for the taxpayer's first taxable year beginning in 1997 and all subsequent taxable years.
'(C) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO.--
'For economic activity credit for Puerto Rico, see section 30A.
'(3) ADDITIONAL RESTRICTED CREDIT.--
'(A) IN GENERAL.--In the case of an existing credit claimant--
'(i) the credit under subsection (a)(1)(A) shall be allowed for the period beginning with the first taxable year after the last taxable year to which subparagraph (A) or (B) of paragraph (2), whichever is appropriate, applied and ending with the last taxable year beginning before January 1, 2006, except that
'(ii) the aggregate amount of taxable income taken into account under subsection (a)(1)(A) for any such taxable year shall not exceed the adjusted base period income of such claimant.
'(B) COORDINATION WITH SUBSECTION (a)(4).--The amount of income described in subsection (a)(1)(A) which is taken into account in applying subsection (a)(4) shall be such income as reduced under this paragraph.
'(4) ADJUSTED BASE PERIOD INCOME.--For purposes of paragraph (3)--
'(A) IN GENERAL.--The term 'adjusted base period income' means the average of the inflation-adjusted possession incomes of the corporation for each base period year.
'(B) INFLATION-ADJUSTED POSSESSION INCOME.--For purposes of subparagraph (A), the inflation-adjusted possession income of any corporation for any base period year shall be an amount equal to the sum of--
'(i) the possession income of such corporation for such base period year, plus
'(ii) such possession income multiplied by the inflation adjustment percentage for such base period year.
'(C) INFLATION ADJUSTMENT PERCENTAGE.--For purposes of subparagraph (B), the inflation adjustment percentage for any base period year means the percentage (if any) by which--
'(i) the CPI for 1995, exceeds
'(ii) the CPI for the calendar year in which the base period year for which the determination is being made ends.
For purposes of the preceding sentence, the CPI for any calendar year is the CPI (as defined in section 1(f)(5)) for such year under section 1(f)(4).
'(D) INCREASE IN INFLATION ADJUSTMENT PERCENTAGE FOR GROWTH DURING BASE YEARS.--The inflation adjustment percentage (determined under subparagraph (C) without regard to this subparagraph) for each of the 5 taxable years referred to in paragraph (5)(A) shall be increased by--
'(i) 5 percentage points in the case of a taxable year ending during the 1-year period ending on October 13, 1995;
'(ii) 10.25 percentage points in the case of a taxable year ending during the 1-year period ending on October 13, 1994;
'(iii) 15.76 percentage points in the case of a taxable year ending during the 1-year period ending on October 13, 1993;
'(iv) 21.55 percentage points in the case of a taxable year ending during the 1-year period ending on October 13, 1992; and
'(v) 27.63 percentage points in the case of a taxable year ending during the 1-year period ending on October 13, 1991.
'(A) IN GENERAL.--The term 'base period year' means each of 3 taxable years which are among the 5 most recent taxable years of the corporation ending before October 14, 1995, determined by disregarding--
'(i) one taxable year for which the corporation had the largest inflation-adjusted possession income, and
'(ii) one taxable year for which the corporation had the smallest inflation-adjusted possession income.
'(B) CORPORATIONS NOT HAVING SIGNIFICANT POSSESSION INCOME THROUGHOUT 5-YEAR PERIOD.--
'(i) IN GENERAL.--If a corporation does not have significant possession income for each of the most recent 5 taxable years ending before October 14, 1995, then, in lieu of applying subparagraph (A), the term 'base period year' means only those taxable years (of such 5 taxable years) for which the corporation has significant possession income; except that, if such corporation has significant possession income for 4 of such 5 taxable years, the rule of subparagraph (A)(ii) shall apply.
'(ii) SPECIAL RULE.--If there is no year (of such 5 taxable years) for which a corporation has significant possession income--
'(I) the term 'base period year' means the first taxable year ending on or after October 14, 1995, but
'(II) the amount of possession income for such year which is taken into account under paragraph (4) shall be the amount which would be determined if such year were a short taxable year ending on September 30, 1995.
'(iii) SIGNIFICANT POSSESSION INCOME.--For purposes of this subparagraph, the term 'significant possession income' means possession income which exceeds 2 percent of the possession income of the taxpayer for the taxable year (of the period of 6 taxable years ending with the first taxable year ending on or after October 14, 1995) having the greatest possession income.
'(C) ELECTION TO USE ONE BASE PERIOD YEAR.--
'(i) IN GENERAL.--At the election of the taxpayer, the term 'base period year' means--
'(I) only the last taxable year of the corporation ending in calendar year 1992, or
'(II) a deemed taxable year which includes the first ten months of calendar year 1995.
'(ii) BASE PERIOD INCOME FOR 1995.--In determining the adjusted base period income of the corporation for the deemed taxable year under clause (i)(II), the possession income shall be annualized and shall be determined without regard to any extraordinary item.
'(iii) ELECTION.--An election under this subparagraph by any possession corporation may be made only for the corporation's first taxable year beginning after December 31, 1995, for which it is a possession corporation. The rules of subclauses (II) and (III) of subsection (a)(4)(B)(iii) shall apply to the election under this subparagraph.
'(D) ACQUISITIONS AND DISPOSITIONS.--Rules similar to the rules of subparagraphs (A) and (B) of section 41(f)(3) shall apply for purposes of this subsection.
'(6) POSSESSION INCOME.--For purposes of this subsection, the term 'possession income' means, with respect to any possession, the income referred to in subsection (a)(1)(A) determined with respect to that possession. In no event shall possession income be treated as being less than zero.
'(7) SHORT YEARS.--If the current year or a base period year is a short taxable year, the application of this subsection shall be made with such annualizations as the Secretary shall prescribe.
'(8) SPECIAL RULES FOR CERTAIN POSSESSIONS.--
'(A) IN GENERAL.--In the case of an existing credit claimant with respect to an applicable possession, this section (other than the preceding paragraphs of this subsection) shall apply to such claimant with respect to such applicable possession for taxable years beginning after December 31, 1995, and before January 1, 2006.
'(B) APPLICABLE POSSESSION.--For purposes of this paragraph, the term 'applicable possession' means Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands.
'(9) EXISTING CREDIT CLAIMANT.--For purposes of this subsection--
'(A) IN GENERAL.--The term 'existing credit claimant' means a corporation--
'(i)(I) which was actively conducting a trade or business in a possession on October 13, 1995, and
'(II) with respect to which an election under this section is in effect for the corporation's taxable year which includes October 13, 1995, or
'(ii) which acquired all of the assets of a trade or business of a corporation which--
'(I) satisfied the requirements of subclause (I) of clause (i) with respect to such trade or business, and
'(II) satisfied the requirements of subclause (II) of clause (i).
'(C) BINDING CONTRACT EXCEPTION.--If, on October 13, 1995, and at all times thereafter, there is in effect with respect to a corporation a binding contract for the acquisition of assets to be used in, or for the sale of assets to be produced from, a trade or business, the corporation shall be treated for purposes of this paragraph as actively conducting such trade or business on October 13, 1995. The preceding sentence shall not apply if such trade or business is not actively conducted before January 1, 1996.
'(10) SEPARATE APPLICATION TO EACH POSSESSION.--For purposes of determining--
'(A) whether a taxpayer is an existing credit claim-ant, and
'(B) the amount of the credit allowed under this section,
this subsection (and so much of this section as relates to this subsection) shall be applied separately with respect to each possession.'.
(b) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO.--
(1) IN GENERAL.--Subpart B of part IV of subchapter A of chapter 1 is amended by adding at the end the following new section:
'(a) ALLOWANCE OF CREDIT.--
'(1) IN GENERAL.--Except as otherwise provided in this section, if the conditions of both paragraph (1) and paragraph (2) of subsection (b) are satisfied with respect to a qualified domestic corporation, there shall be allowed as a credit against the tax imposed by this chapter an amount equal to the portion of the tax which is attributable to the taxable income, from sources without the United States, from--
'(A) the active conduct of a trade or business within Puerto Rico, or
'(B) the sale or exchange of substantially all of the assets used by the taxpayer in the active conduct of such trade or business.
In the case of any taxable year beginning after December 31, 2001, the aggregate amount of taxable income taken into account under the preceding sentence (and in applying subsection (d)) shall not exceed the adjusted base period income of such corporation, as determined in the same manner as under section 936(j).
'(2) QUALIFIED DOMESTIC CORPORATION.--For purposes of paragraph (1), the term 'qualified domestic corporation' means a domestic corporation--
'(A) which is an existing credit claimant with respect to Puerto Rico, and
'(B) with respect to which section 936(a)(4)(B) does not apply for the taxable year.
'(3) SEPARATE APPLICATION.--For purposes of deter-mining--
'(A) whether a taxpayer is an existing credit claimant with respect to Puerto Rico, and
'(B) the amount of the credit allowed under this section,
this section (and so much of section 936 as relates to this section) shall be applied separately with respect to Puerto Rico.
'(b) CONDITIONS WHICH MUST BE SATISFIED.--The conditions referred to in subsection (a) are--
'(1) 3-YEAR PERIOD.--If 80 percent or more of the gross income of the qualified domestic corporation for the 3-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession (determined without regard to section 904(f)).
'(2) TRADE OR BUSINESS.--If 75 percent or more of the gross income of the qualified domestic corporation for such period or such part thereof was derived from the active conduct of a trade or business within a possession.
'(c) CREDIT NOT ALLOWED AGAINST CERTAIN TAXES.--The credit provided by subsection (a) shall not be allowed against the tax imposed by--
'(1) section 59A (relating to environmental tax),
'(2) section 531 (relating to the tax on accumulated earnings),
'(3) section 541 (relating to personal holding company tax), or
'(4) section 1351 (relating to recoveries of foreign expropriation losses).
'(d) LIMITATIONS ON CREDIT FOR ACTIVE BUSINESS INCOME.--The amount of the credit determined under subsection (a) for any taxable year shall not exceed the sum of the following amounts:
'(1) 60 percent of the sum of--
'(A) the aggregate amount of the qualified domestic corporation's qualified possession wages for such taxable year, plus
'(B) the allocable employee fringe benefit expenses of the qualified domestic corporation for such taxable year.
'(2) The sum of--
'(A) 15 percent of the depreciation allowances for the taxable year with respect to short-life qualified tangible property,
'(B) 40 percent of the depreciation allowances for the taxable year with respect to medium-life qualified tangible property, and
'(C) 65 percent of the depreciation allowances for the taxable year with respect to long-life qualified tangible property.
'(3) If the qualified domestic corporation does not have an election to use the method described in section 936(h)(5)(C)(ii) (relating to profit split) in effect for the taxable year, the amount of the qualified possession income taxes for the taxable year allocable to nonsheltered income.
'(e) ADMINISTRATIVE PROVISIONS.--For purposes of this title--
'(1) the provisions of section 936 (including any applicable election thereunder) shall apply in the same manner as if the credit under this section were a credit under section 936(a)(1)(A) for a domestic corporation to which section 936(a)(4)(A) applies,
'(2) the credit under this section shall be treated in the same manner as the credit under section 936, and
'(3) a corporation to which this section applies shall be treated in the same manner as if it were a corporation electing the application of section 936.
'(f) DEFINITIONS.--For purposes of this section, any term used in this section which is also used in section 936 shall have the same meaning given such term by section 936.
'(g) APPLICATION OF SECTION.--This section shall apply to taxable years beginning after December 31, 1995, and before January 1, 2006.'.
(2) CONFORMING AMENDMENTS.--
(A) Paragraph (1) of section 55(c) is amended by striking 'and the section 936 credit allowable under section 27(b)' and inserting ', the section 936 credit allowable under section 27(b), and the Puerto Rican economic activity credit under section 30A'.
(B) Subclause (I) of section 56(g)(4)(C)(ii) is amended--
(i) by inserting '30A,' before '936', and
(ii) by striking 'and (i)' and inserting ', (i), and (j)'.
(C) Clause (iii) of section 56(g)(4)(C) is amended by adding at the end the following new subclause:
(E) The table of sections for subpart B of part IV of subchapter A of chapter 1 is amended by adding at the end the following new item:
(c) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1995.
(2) SPECIAL RULE FOR QUALIFIED POSSESSION SOURCE INVESTMENT INCOME.--The amendments made by this section shall not apply to qualified possession source investment income received or accrued before July 1, 1996, without regard to the taxable year in which received or accrued.
(3) SPECIAL TRANSITION RULE FOR PAYMENT OF ESTIMATED TAX INSTALLMENT.--In determining the amount of any installment due under section 6655 of the Internal Revenue Code of 1986 after the date of the enactment of this Act and before October 1, 1996, only 1/2 of any increase in tax (for the taxable year for which such installment is made) by reason of the amendments made by subsections (a) and (b) shall be taken into account. Any reduction in such installment by reason of the preceding sentence shall be recaptured by increasing the next required installment for such year by the amount of such reduction.
(a) IN GENERAL.--Section 133 (relating to interest on certain loans used to acquire employer securities) is hereby repealed.
(b) CONFORMING AMENDMENTS.--
(1) Subparagraph (B) of section 291(e)(1) is amended by striking clause (iv) and by redesignating clause (v) as clause (iv).
(2) Section 812 is amended by striking subsection (g).
(3) Paragraph (5) of section 852(b) is amended by striking subparagraph (C).
(4) Paragraph (2) of section 4978(b) is amended by striking subparagraph (A) and all that follows and inserting the following:
'(A) first from qualified securities to which section 1042 applied acquired during the 3-year period ending on the date of the disposition, beginning with the securities first so acquired, and
'(B) then from any other employer securities.
If subsection (d) applies to a disposition, the disposition shall be treated as made from employer securities in the opposite order of the preceding sentence.'.
(5)(A) Section 4978B (relating to tax on disposition of employer securities to which section 133 applied) is hereby repealed.
(B) The table of sections for chapter 43 is amended by striking the item relating to section 4978B.
(6) Subsection (e) of section 6047 is amended by striking paragraphs (1), (2), and (3) and inserting the following new paragraphs:
'(1) any employer maintaining, or the plan administrator (within the meaning of section 414(g)) of, an employee stock ownership plan which holds stock with respect to which section 404(k) applies to dividends paid on such stock, or
'(2) both such employer or plan administrator,'.
(7) Subsection (f) of section 7872 is amended by striking paragraph (12).
(8) The table of sections for part III of subchapter B of chapter 1 is amended by striking the item relating to section 133.
(c) EFFECTIVE DATE.--
(1) IN GENERAL.--The amendments made by this section shall apply to loans made after the date of the enactment of this Act.
(2) REFINANCINGS.--The amendments made by this section shall not apply to loans made after the date of the enactment of this Act to refinance securities acquisition loans (determined without regard to section 133(b)(1)(B) of the Internal Revenue Code of 1986, as in effect on the day before the date of the enactment of this Act) made on or before such date or to refinance loans described in this paragraph if--
(A) the refinancing loans meet the requirements of section 133 of such Code (as so in effect),
(B) immediately after the refinancing the principal amount of the loan resulting from the refinancing does not exceed the principal amount of the refinanced loan (immediately before the refinancing), and
(C) the term of such refinancing loan does not extend beyond the last day of the term of the original securities acquisition loan.
For purposes of this paragraph, the term 'securities acquisition loan' includes a loan from a corporation to an employee stock ownership plan described in section 133(b)(3) of such Code (as so in effect).
(3) EXCEPTION.--Any loan made pursuant to a binding written contract in effect before June 10, 1996, and at all times thereafter before such loan is made, shall be treated for purposes of paragraphs (1) and (2) as a loan made on or before the date of the enactment of this Act.
(a) GENERAL RULE.--Subsection (b) of section 512 (relating to modifications) is amended by adding at the end the following new paragraph:
'(17) TREATMENT OF CERTAIN AMOUNTS DERIVED FROM FOREIGN CORPORATIONS.--
'(A) IN GENERAL.--Notwithstanding paragraph (1), any amount included in gross income under section 951(a)(1)(A) shall be included as an item of gross income derived from an unrelated trade or business to the extent the amount so included is attributable to insurance income (as defined in section 953) which, if derived directly by the organization, would be treated as gross income from an unrelated trade or business. There shall be allowed all deductions directly connected with amounts included in gross income under the preceding sentence.
'(B) EXCEPTION.--
'(i) IN GENERAL.--Subparagraph (A) shall not apply to income attributable to a policy of insurance or reinsurance with respect to which the person (directly or indirectly) insured is--
'(I) such organization,
'(II) an affiliate of such organization which is exempt from tax under section 501(a), or
'(III) a director or officer of, or an individual who (directly or indirectly) performs services for, such organization or affiliate but only if the insurance covers primarily risks associated with the performance of services in connection with such organization or affiliate.
'(ii) AFFILIATE.--For purposes of this subparagraph--
'(I) IN GENERAL.--The determination as to whether an entity is an affiliate of an organization shall be made under rules similar to the rules of section 168(h)(4)(B).
'(II) SPECIAL RULE.--Two or more organizations (and any affiliates of such organizations) shall be treated as affiliates if such organizations are colleges or universities described in section 170(b)(1)(A)(ii) or organizations described in section 170(b)(1)(A)(iii) and participate in an insurance arrangement that provides for any profits from such arrangement to be returned to the policyholders in their capacity as such.
SEC. 1604. DEPRECIATION UNDER INCOME FORECAST METHOD.
(a) GENERAL RULE.--Section 167 (relating to depreciation) is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection:
'(g) DEPRECIATION UNDER INCOME FORECAST METHOD.--
'(1) IN GENERAL.--If the depreciation deduction allowable under this section to any taxpayer with respect to any property is determined under the income forecast method or any similar method--
'(A) the income from the property to be taken into account in determining the depreciation deduction under such method shall be equal to the amount of income earned in connection with the property before the close of the 10th taxable year following the taxable year in which the property was placed in service,
'(B) the adjusted basis of the property shall only include amounts with respect to which the requirements of section 461(h) are satisfied,
'(C) the depreciation deduction under such method for the 10th taxable year beginning after the taxable year in which the property was placed in service shall be equal to the adjusted basis of such property as of the beginning of such 10th taxable year, and
'(D) such taxpayer shall pay (or be entitled to receive) interest computed under the look-back method of paragraph (2) for any recomputation year.
'(2) LOOK-BACK METHOD.--The interest computed under the look-back method of this paragraph for any recomputation year shall be determined by--
'(A) first determining the depreciation deductions under this section with respect to such property which would have been allowable for prior taxable years if the determination of the amounts so allowable had been made on the basis of the sum of the following (instead of the estimated income from such property)--
'(i) the actual income earned in connection with such property for periods before the close of the recomputation year, and
'(ii) an estimate of the future income to be earned in connection with such property for periods after the recomputation year and before the close of the 10th taxable year following the taxable year in which the property was placed in service,
'(B) second, determining (solely for purposes of computing such interest) the overpayment or underpayment of tax for each such prior taxable year which would result solely from the application of subparagraph (A), and
'(C) then using the adjusted overpayment rate (as defined in section 460(b)(7)), compounded daily, on the overpayment or underpayment determined under subparagraph (B).
For purposes of the preceding sentence, any cost incurred after the property is placed in service (which is not treated as a separate property under paragraph (5)) shall be taken into account by discounting (using the Federal mid-term rate determined under section 1274(d) as of the time such cost is incurred) such cost to its value as of the date the property is placed in service. The taxpayer may elect with respect to any property to have the preceding sentence not apply to such property.
'(3) EXCEPTION FROM LOOK-BACK METHOD.--Paragraph (1)(D) shall not apply with respect to any property which had a cost basis of $100,000 or less.
'(4) RECOMPUTATION YEAR.--For purposes of this subsection, except as provided in regulations, the term 'recomputation year' means, with respect to any property, the 3d and the 10th taxable years beginning after the taxable year in which the property was placed in service, unless the actual income earned in connection with the property for the period before the close of such 3d or 10th taxable year is within 10 percent of the income earned in connection with the property for such period which was taken into account under paragraph (1)(A).
'(5) SPECIAL RULES.--
'(A) CERTAIN COSTS TREATED AS SEPARATE PROPERTY.--For purposes of this subsection, the following costs shall be treated as separate properties:
'(i) Any costs incurred with respect to any property after the 10th taxable year beginning after the taxable year in which the property was placed in service.
'(ii) Any costs incurred after the property is placed in service and before the close of such 10th taxable year if such costs are significant and give rise to a significant increase in the income from the property which was not included in the estimated income from the property.
'(B) SYNDICATION INCOME FROM TELEVISION SERIES.--In the case of property which is 1 or more episodes in a television series, income from syndicating such series shall not be required to be taken into account under this subsection before the earlier of--
'(i) the 4th taxable year beginning after the date the first episode in such series is placed in service, or
'(ii) the earliest taxable year in which the taxpayer has an arrangement relating to the future syndication of such series.
'(C) SPECIAL RULES FOR FINANCIAL EXPLOITATION OF CHARACTERS, ETC.--For purposes of this subsection, in the case of television and motion picture films, the income from the property shall include income from the exploitation of characters, designs, scripts, scores, and other incidental income associated with such films, but only to the extent that such income is earned in connection with the ultimate use of such items by, or the ultimate sale of merchandise to, persons who are not related persons (within the meaning of section 267(b)) to the taxpayer.
'(D) COLLECTION OF INTEREST.--For purposes of subtitle F (other than sections 6654 and 6655), any interest required to be paid by the taxpayer under paragraph (1) for any recomputation year shall be treated as an increase in the tax imposed by this chapter for such year.
'(E) DETERMINATIONS.--For purposes of paragraph (2), determinations of the amount of income earned in connection with any property shall be made in the same manner as for purposes of applying the income forecast method; except that any income from the disposition of such property shall be taken into account.
'(F) TREATMENT OF PASS-THRU ENTITIES.--Rules similar to the rules of section 460(b)(4) shall apply for purposes of this subsection.'
(1) IN GENERAL.--The amendment made by subsection (a) shall apply to property placed in service after September 13, 1995.
(2) BINDING CONTRACTS.--The amendment made by subsection (a) shall not apply to any property produced or acquired by the taxpayer pursuant to a written contract which was binding on September 13, 1995, and at all times thereafter before such production or acquisition.
(3) UNDERPAYMENTS OF INCOME TAX.--No addition to tax shall be made under section 6662 of such Code as a result of the application of subsection (d) of that section (relating to substantial understatements of income tax) with respect to any underpayment of income tax for any taxable year ending before such date of enactment, to the extent such underpayment was created or increased by the amendments made by subsection (a).
(a) IN GENERAL.--Paragraph (2) of section 104(a) (relating to compensation for injuries or sickness) is amended to read as follows:
'(2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness;'.
(b) EMOTIONAL DISTRESS AS SUCH TREATED AS NOT PHYSICAL INJURY OR PHYSICAL SICKNESS.--Section 104(a) is amended by striking the last sentence and inserting the following new sentence: 'For purposes of paragraph (2), emotional distress shall not be treated as a physical injury or physical sickness. The preceding sentence shall not apply to an amount of damages not in excess of the amount paid for medical care (described in subparagraph (A) or (B) of section 213(d)(1)) attributable to emotional distress.'.
(c) APPLICATION OF PRIOR LAW FOR STATES IN WHICH ONLY PUNITIVE DAMAGES MAY BE AWARDED IN WRONGFUL DEATH ACTIONS.--Section 104 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:
'(c) APPLICATION OF PRIOR LAW IN CERTAIN CASES.--The phrase '(other than punitive damages)' shall not apply to punitive damages awarded in a civil action--
'(1) which is a wrongful death action, and
'(2) with respect to which applicable State law (as in effect on September 13, 1995 and without regard to any modification after such date) provides, or has been construed to provide by a court of competent jurisdiction pursuant to a decision issued on or before September 13, 1995, that only punitive damages may be awarded in such an action.
This subsection shall cease to apply to any civil action filed on or after the first date on which the applicable State law ceases to provide (or is no longer construed to provide) the treatment described in paragraph (2).'.
(d) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to amounts received after the date of the enactment of this Act, in taxable years ending after such date.
(2) EXCEPTION.--The amendments made by this section shall not apply to any amount received under a written binding agreement, court decree, or mediation award in effect on (or issued on or before) September 13, 1995.
(a) IN GENERAL.--Section 6427 (relating to fuels not used for taxable purposes) is amended by striking subsection (g).
(b) CONFORMING AMENDMENTS.--
(1) Paragraph (3) of section 34(a) is amended to read as follows:
'(3) under section 6427 with respect to fuels used for nontaxable purposes or resold during the taxable year (determined without regard to section 6427(k)).'.
(2) Paragraphs (1) and (2)(A) of section 6427(i) are each amended--
(A) by striking '(g),', and
(B) by striking '(or a qualified diesel powered highway vehicle purchased)' each place it appears.
SEC. 1607. EXTENSION AND PHASEDOWN OF LUXURY PASSENGER AUTOMOBILE TAX.
(a) EXTENSION.--Subsection (f) of section 4001 is amended by striking '1999' and inserting '2002'.
(b) PHASEDOWN.--Section 4001 is amended by redesignating subsection (f) (as amended by subsection (a) of this section) as subsection (g) and by inserting after subsection (e) the following new subsection:
'(f) PHASEDOWN.--For sales occurring in calendar years after 1995 and before 2003, subsection (a) shall be applied by substituting for '10 percent' the percentage determined in accordance with the following table:
'If the calendar The percentage is:
year is:
1996 9 percent
1997 8 percent
1998 7 percent
1999 6 percent
2000 5 percent
2001 4 percent
2002 3 percent .'.
SEC. 1608. TERMINATION OF FUTURE TAX-EXEMPT BOND FINANCING FOR LOCAL FURNISHERS OF ELECTRICITY AND GAS.
(a) IN GENERAL.--Section 142(f) (relating to local furnishing of electric energy or gas) is amended by adding at the end the following new paragraphs:
'(3) TERMINATION OF FUTURE FINANCING.--For purposes of this section, no bond may be issued as part of an issue described in subsection (a)(8) with respect to a facility for the local furnishing of electric energy or gas on or after the date of the enactment of this paragraph unless--
'(A) the facility will--
'(i) be used by a person who is engaged in the local furnishing of that energy source on January 1, 1997, and
'(ii) be used to provide service within the area served by such person on January 1, 1997, (or within a county or city any portion of which is within such area), or
'(B) the facility will be used by a successor in interest to such person for the same use and within the same service area as described in subparagraph (A).
'(4) ELECTION TO TERMINATE TAX-EXEMPT BOND FINANCING BY CERTAIN FURNISHERS.--
'(A) IN GENERAL.--In the case of a facility financed with bonds issued before the date of the enactment of this paragraph which would cease to be tax-exempt by reason of the failure to meet the local furnishing requirement of subsection (a)(8) as a result of a service area expansion, such bonds shall not cease to be tax-exempt bonds (and section 150(b)(4) shall not apply) if the person engaged in such local furnishing by such facility makes an election described in subparagraph (B).
'(B) ELECTION.--An election is described in this subparagraph if it is an election made in such manner as the Secretary prescribes, and such person (or its predecessor in interest) agrees that--
'(i) such election is made with respect to all facilities for the local furnishing of electric energy or gas, or both, by such person,
'(ii) no bond exempt from tax under section 103 and described in subsection (a)(8) may be issued on or after the date of the enactment of this paragraph with respect to all such facilities of such person,
'(iii) any expansion of the service area--
'(I) is not financed with the proceeds of any exempt facility bond described in subsection (a)(8), and
'(II) is not treated as a nonqualifying use under the rules of paragraph (2), and
'(iv) all outstanding bonds used to finance the facilities for such person are redeemed not later than 6 months after the later of--
'(I) the earliest date on which such bonds may be redeemed, or
'(II) the date of the election.
SEC. 1609. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND EXCISE TAXES.
(a) FUEL TAX.--
(1) Subparagraph (A) of section 4091(b)(3) is amended to read as follows:
'(A) The rate of tax specified in paragraph (1) shall be 4.3 cents per gallon--
'(i) after December 31, 1995, and before the date which is 7 calendar days after the date of the enactment of the Small Business Job Protection Act of 1996, and
'(ii) after December 31, 1996.'.
(A) by adding at the end the following new paragraph:
'(3) AVIATION GASOLINE.--After December 31, 1996, the rate of tax specified in subsection (a)(2)(A)(i) on aviation gasoline shall be 4.3 cents per gallon.', and
(B) by inserting '(other than the tax on aviation gasoline)' after 'subsection (a)(2)(A)'.
(3) Section 4041(c)(5) is amended by inserting ', and during the period beginning on the date which is 7 calendar days after the date of the enactment of the Small Business Job Protection Act of 1996 and ending on December 31, 1996' after 'December 31, 1995'.
(b) TICKET TAXES.--Sections 4261(g) and 4271(d) are each amended by striking 'January 1, 1996' and inserting 'January 1, 1996, and to transportation beginning on or after the date which is 7 calendar days after the date of the enactment of the Small Business Job Protection Act of 1996 and before January 1, 1997'.
(c) TRANSFERS TO AIRPORT AND AIRWAY TRUST FUND.--
(1) Subsection (b) of section 9502 is amended by striking 'January 1, 1996' each place it appears and inserting 'January 1, 1997'.
(2) Paragraph (3) of section 9502(f) is amended to read as follows:
'(3) TERMINATION.--Notwithstanding the preceding provisions of this subsection, the Airport and Airway Trust Fund financing rate shall be zero with respect to--
'(A) taxes imposed after December 31, 1995, and before the date which is 7 calendar days after the date of the enactment of the Small Business Job Protection Act of 1996, and
'(B) taxes imposed after December 31, 1996.'.
(3) Subsection (d) of section 9502 is amended by adding at the end the following new paragraph:
'(5) TRANSFERS FROM AIRPORT AND AIRWAY TRUST FUND ON ACCOUNT OF REFUNDS OF TAXES ON TRANSPORTATION BY AIR.--The Secretary of the Treasury shall pay from time to time from the Airport and Airway Trust Fund into the general fund of the Treasury amounts equivalent to the amounts paid after December 31, 1995, under section 6402 (relating to authority to make credits or refunds) or section 6415 (relating to credits or refunds to persons who collected certain taxes) in respect of taxes under sections 4261 and 4271.'.
(d) EXCISE TAX EXEMPTION FOR CERTAIN EMERGENCY MEDICAL TRANSPORTATION BY AIR AMBULANCE.--Subsection (f) of section 4261 (relating to imposition of tax on transportation by air) is amended to read as follows:
'(f) EXEMPTION FOR AIR AMBULANCES PROVIDING CERTAIN EMERGENCY MEDICAL TRANSPORTATION.--No tax shall be imposed under this section or section 4271 on any air transportation for the purpose of providing emergency medical services--
'(1) by helicopter, or
'(2) by a fixed-wing aircraft equipped for and exclusively dedicated to acute care emergency medical services.'.
(e) EXEMPTION FOR CERTAIN HELICOPTER USES.--Subsection (e) of section 4261 is amended by adding at the end the following new sentence: 'In the case of helicopter transportation described in paragraph (1), this subsection shall be applied by treating each flight segment as a distinct flight.'.
(f) FLIGHT-BY-FLIGHT DETERMINATION OF AVAILABILITY FOR HIRE FOR AFFILIATED GROUPS.--Section 4282 is amended by redesignating subsection (b) as subsection (c) and by inserting after subsection (a) the following new subsection:
'(b) AVAILABILITY FOR HIRE.--For purposes of subsection (a), the determination of whether an aircraft is available for hire by persons who are not members of an affiliated group shall be made on a flight-by-flight basis.'
(g) CONSOLIDATION OF TAXES ON AVIATION GASOLINE.--
(1) IN GENERAL.--Subparagraph (A) of section 4081(a)(2) (relating to imposition of tax on gasoline and diesel fuel) is amended by redesignating clause (ii) as clause (iii) and by striking clause (i) and inserting the following:
'(ii) in the case of aviation gasoline, 19.3 cents per gallon, and'.
'(2) AVIATION GASOLINE.--On and after January 1, 1997, the rate specified in subsection (a)(2)(A)(ii) shall be 4.3 cents per gallon.'
(3) REPEAL OF RETAIL LEVEL TAX.--
(A) Subsection (c) of section 4041 is amended by striking paragraphs (2) and (3) and by redesignating paragraphs (4) and (5) as paragraphs (2) and (3), respectively.
(B) Paragraph (3) of section 4041(c), as redesignated by paragraph (1), is amended by striking 'paragraphs (1) and (2)' and inserting 'paragraph (1)'.
(4) CONFORMING AMENDMENTS.--
(A) Paragraph (1) of section 4041(k) is amended by adding 'and' at the end of subparagraph (A), by striking ', and' at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C).
(B) Paragraph (1) of section 4081(d) is amended by striking 'each rate of tax specified in subsection (a)(2)(A)' and inserting 'the rates of tax specified in clauses (i) and (iii) of subsection (a)(2)(A)'.
(C) Sections 6421(f)(2)(A) and 9502(f)(1)(A) are each amended by striking 'section 4041(c)(4)' and inserting 'section 4041(c)(2)'.
(D) Paragraph (2) of section 9502(b) is amended by striking '14 cents' and inserting '15 cents'.
(1) IMPOSITION OF TAX.--In the case of aviation fuel on which tax was imposed under section 4091 of the Internal Revenue Code of 1986 before the tax-increase date described in paragraph (3)(A)(i) and which is held on such date by any person, there is hereby imposed a floor stocks tax of 17.5 cents per gallon.
(2) LIABILITY FOR TAX AND METHOD OF PAYMENT.--
(A) LIABILITY FOR TAX.--A person holding aviation fuel on a tax-increase date to which the tax imposed by paragraph (1) applies shall be liable for such tax.
(B) METHOD OF PAYMENT.--The tax imposed by paragraph (1) shall be paid in such manner as the Secretary shall prescribe.
(C) TIME FOR PAYMENT.--The tax imposed by paragraph (1) with respect to any tax-increase date shall be paid on or before the first day of the 7th month beginning after such tax-increase date.
(3) DEFINITIONS.--For purposes of this subsection--
(A) TAX INCREASE DATE.--The term 'tax-increase date' means the date which is 7 calendar days after the date of the enactment of this Act.
(B) AVIATION FUEL.--The term 'aviation fuel' has the meaning given such term by section 4093 of such Code.
(C) HELD BY A PERSON.--Aviation fuel shall be considered as 'held by a person' if title thereto has passed to such person (whether or not delivery to the person has been made).
(D) SECRETARY.--The term 'Secretary' means the Secretary of the Treasury or his delegate.
(4) EXCEPTION FOR EXEMPT USES.--The tax imposed by paragraph (1) shall not apply to aviation fuel held by any person on any tax-increase date exclusively for any use for which a credit or refund of the entire tax imposed by section 4091 of such Code is allowable for aviation fuel purchased on or after such tax-increase date for such use.
(5) EXCEPTION FOR CERTAIN AMOUNTS OF FUEL.--
(A) IN GENERAL.--No tax shall be imposed by paragraph (1) on aviation fuel held on any tax-increase date by any person if the aggregate amount of aviation fuel held by such person on such date does not exceed 2,000 gallons. The preceding sentence shall apply only if such person submits to the Secretary (at the time and in the manner required by the Secretary) such information as the Secretary shall require for purposes of this paragraph.
(B) EXEMPT FUEL.--For purposes of subparagraph (A), there shall not be taken into account fuel held by any person which is exempt from the tax imposed by paragraph (1) by reason of paragraph (4).
(C) CONTROLLED GROUPS.--For purposes of this paragraph--
(i) CORPORATIONS.--
(I) IN GENERAL.--All persons treated as a controlled group shall be treated as 1 person.
(II) CONTROLLED GROUP.--The term 'controlled group' has the meaning given to such term by subsection (a) of section 1563 of such Code; except that for such purposes the phrase 'more than 50 percent' shall be substituted for the phrase 'at least 80 percent' each place it appears in such subsection.
(ii) NONINCORPORATED PERSONS UNDER COMMON CONTROL.--Under regulations prescribed by the Secretary, principles similar to the principles of clause (i) shall apply to a group of persons under common control where 1 or more of such persons is not a corporation.
(i) EFFECTIVE DATE.--The amendments made by this section shall take effect on the 7th calendar day after the date of the enactment of this Act, except that the amendments made by subsection (b) shall not apply to any amount paid before such date.
SEC. 1610. BASIS ADJUSTMENT TO PROPERTY HELD BY CORPORATION WHERE STOCK IN CORPORATION IS REPLACEMENT PROPERTY UNDER INVOLUNTARY CONVERSION RULES.
(a) IN GENERAL.--Subsection (b) of section 1033 is amended to read as follows:
'(b) BASIS OF PROPERTY ACQUIRED THROUGH INVOLUNTARY CONVERSION.--
'(1) CONVERSIONS DESCRIBED IN SUBSECTION (a)(1).--If the property was acquired as the result of a compulsory or involuntary conversion described in subsection (a)(1), the basis shall be the same as in the case of the property so converted--
'(A) decreased in the amount of any money received by the taxpayer which was not expended in accordance with the provisions of law (applicable to the year in which such conversion was made) determining the taxable status of the gain or loss upon such conversion, and
'(B) increased in the amount of gain or decreased in the amount of loss to the taxpayer recognized upon such conversion under the law applicable to the year in which such conversion was made.
'(2) CONVERSIONS DESCRIBED IN SUBSECTION (a)(2).--In the case of property purchased by the taxpayer in a transaction described in subsection (a)(2) which resulted in the nonrecognition of any part of the gain realized as the result of a compulsory or involuntary conversion, the basis shall be the cost of such property decreased in the amount of the gain not so recognized; and if the property purchased consists of more than 1 piece of property, the basis determined under this sentence shall be allocated to the purchased properties in proportion to their respective costs.
'(3) PROPERTY HELD BY CORPORATION THE STOCK OF WHICH IS REPLACEMENT PROPERTY.--
'(A) IN GENERAL.--If the basis of stock in a corporation is decreased under paragraph (2), an amount equal to such decrease shall also be applied to reduce the basis of property held by the corporation at the time the taxpayer acquired control (as defined in subsection (a)(2)(E)) of such corporation.
'(B) LIMITATION.--Subparagraph (A) shall not apply to the extent that it would (but for this subparagraph) require a reduction in the aggregate adjusted bases of the property of the corporation below the taxpayer's adjusted basis of the stock in the corporation (determined immediately after such basis is decreased under paragraph (2)).
'(C) ALLOCATION OF BASIS REDUCTION.--The decrease required under subparagraph (A) shall be allocated--
'(i) first to property which is similar or related in service or use to the converted property,
'(ii) second to depreciable property (as defined in section 1017(b)(3)(B)) not described in clause (i), and
'(iii) then to other property.
'(D) SPECIAL RULES.--
'(i) REDUCTION NOT TO EXCEED ADJUSTED BASIS OF PROPERTY.--No reduction in the basis of any property under this paragraph shall exceed the adjusted basis of such property (determined without regard to such reduction).
'(ii) ALLOCATION OF REDUCTION AMONG PROPERTIES.--If more than 1 property is described in a clause of subparagraph (C), the reduction under this paragraph shall be allocated among such property in proportion to the adjusted bases of such property (as so determined).'.
SEC. 1611. TREATMENT OF CERTAIN INSURANCE CONTRACTS ON RETIRED LIVES.
(a) GENERAL RULE.--
(1) Paragraph (2) of section 817(d) (defining variable contract) is amended by striking 'or' at the end of subparagraph (A), by striking 'and' at the end of subparagraph (B) and inserting 'or', and by inserting after subparagraph (B) the following new subparagraph:
'(C) provides for funding of insurance on retired lives as described in section 807(c)(6), and'.
(2) Paragraph (3) of section 817(d) is amended by striking 'or' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ', or', and by inserting after subparagraph (B) the following new subparagraph:
'(C) in the case of funds held under a contract described in paragraph (2)(C), the amounts paid in, or the amounts paid out, reflect the investment return and the market value of the segregated asset account.'.
SEC. 1612. TREATMENT OF MODIFIED GUARANTEED CONTRACTS.
(a) GENERAL RULE.--Subpart E of part I of subchapter L of chapter 1 (relating to definitions and special rules) is amended by inserting after section 817 the following new section:
'SEC. 817A. SPECIAL RULES FOR MODIFIED GUARANTEED CONTRACTS.
'(a) COMPUTATION OF RESERVES.--In the case of a modified guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not apply.
'(b) SEGREGATED ASSETS UNDER MODIFIED GUARANTEED CONTRACTS MARKED TO MARKET.--
'(1) IN GENERAL.--In the case of any life insurance company, for purposes of this subtitle--
'(A) Any gain or loss with respect to a segregated asset shall be treated as ordinary income or loss, as the case may be.
'(B) If any segregated asset is held by such company as of the close of any taxable year--
'(i) such company shall recognize gain or loss as if such asset were sold for its fair market value on the last business day of such taxable year, and
'(ii) any such gain or loss shall be taken into account for such taxable year.
'(2) SEGREGATED ASSET.--For purposes of paragraph (1), the term 'segregated asset' means any asset held as part of a segregated account referred to in subsection (d)(1) under a modified guaranteed contract.
'(c) SPECIAL RULE IN COMPUTING LIFE INSURANCE RESERVES.--For purposes of applying section 816(b)(1)(A) to any modified guaranteed contract, an assumed rate of interest shall include a rate of interest determined, from time to time, with reference to a market rate of interest.
'(d) MODIFIED GUARANTEED CONTRACT DEFINED.--For purposes of this section, the term 'modified guaranteed contract' means a contract not described in section 817--
'(1) all or part of the amounts received under which are allocated to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company and is valued from time to time with reference to market values,
'(2) which--
'(A) provides for the payment of annuities,
'(B) is a life insurance contract, or
'(C) is a pension plan contract which is not a life, accident, or health, property, casualty, or liability contract,
'(3) for which reserves are valued at market for annual statement purposes, and
'(4) which provides for a net surrender value or a policyholder's fund (as defined in section 807(e)(1)).
If only a portion of a contract is not described in section 817, such portion shall be treated for purposes of this section as a separate contract.
'(e) REGULATIONS.--The Secretary may prescribe regulations--
'(1) to provide for the treatment of market value adjustments under sections 72, 7702, 7702A, and 807(e)(1)(B),
'(2) to determine the interest rates applicable under sections 807(c)(3), 807(d)(2)(B), and 812 with respect to a modified guaranteed contract annually, in a manner appropriate for modified guaranteed contracts and, to the extent appropriate for such a contract, to modify or waive the applicability of section 811(d),
'(3) to provide rules to limit ordinary gain or loss treatment to assets constituting reserves for modified guaranteed contracts (and not other assets) of the company,
'(4) to provide appropriate treatment of transfers of assets to and from the segregated account, and
'(5) as may be necessary or appropriate to carry out the purposes of this section.'.
(b) CLERICAL AMENDMENT.--The table of sections for subpart E of part I of subchapter L of chapter 1 is amended by inserting after the item relating to section 817 the following new item:
'Sec. 817A. Special rules for modified guaranteed contracts.'.
(c) EFFECTIVE DATE.--
(1) IN GENERAL.--The amendments made by this section shall apply to taxable years beginning after December 31, 1995.
(2) TREATMENT OF NET ADJUSTMENTS.--Except as provided in paragraph (3), in the case of any taxpayer required by the amendments made by this section to change its calculation of reserves to take into account market value adjustments and to mark segregated assets to market for any taxable year--
(A) such changes shall be treated as a change in method of accounting initiated by the taxpayer,
(B) such changes shall be treated as made with the consent of the Secretary, and
(C) the adjustments required by reason of section 481 of the Internal Revenue Code of 1986, shall be taken into account as ordinary income by the taxpayer for the taxpayer's first taxable year beginning after December 31, 1995.
(3) LIMITATION ON LOSS RECOGNITION AND ON DEDUCTION FOR RESERVE INCREASES.--
(A) LIMITATION ON LOSS RECOGNITION.--
(i) IN GENERAL.--The aggregate loss recognized by reason of the application of section 481 of the Internal Revenue Code of 1986 with respect to section 817A(b) of such Code (as added by this section) for the first taxable year of the taxpayer beginning after December 31, 1995, shall not exceed the amount included in the taxpayer's gross income for such year by reason of the excess (if any) of--
(I) the amount of life insurance reserves as of the close of the prior taxable year, over
(II) the amount of such reserves as of the beginning of such first taxable year,
to the extent such excess is attributable to subsection (a) of such section 817A. Notwithstanding the preceding sentence, the adjusted basis of each segregated asset shall be determined as if all such losses were recognized.
(ii) DISALLOWED LOSS ALLOWED OVER PERIOD.--The amount of the loss which is not allowed under clause (i) shall be allowed ratably over the period of 7 taxable years beginning with the taxpayer's first taxable year beginning after December 31, 1995.
(B) LIMITATION ON DEDUCTION FOR INCREASE IN RESERVES.--
(i) IN GENERAL.--The deduction allowed for the first taxable year of the taxpayer beginning after December 31, 1995, by reason of the application of section 481 of such Code with respect to section 817A(a) of such Code (as added by this section) shall not exceed the aggregate built-in gain recognized by reason of the application of such section 481 with respect to section 817A(b) of such Code (as added by this section) for such first taxable year.
(ii) DISALLOWED DEDUCTION ALLOWED OVER PERIOD.--The amount of the deduction which is disallowed under clause (i) shall be allowed ratably over the period of 7 taxable years beginning with the taxpayer's first taxable year beginning after December 31, 1995.
(iii) BUILT-IN GAIN.--For purposes of this subparagraph, the built-in gain on an asset is the amount equal to the excess of--
(I) the fair market value of the asset as of the beginning of the first taxable year of the taxpayer beginning after December 31, 1995, over
(II) the adjusted basis of such asset as of such time.
(a) TREATMENT OF CONTRIBUTIONS IN AID OF CONSTRUCTION.--
(1) IN GENERAL.--Section 118 (relating to contributions to the capital of a corporation) is amended--
(A) by redesignating subsection (c) as subsection (e), and
(B) by inserting after subsection (b) the following new subsections:
'(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 from any person (whether or not a shareholder) by a regulated public utility which provides water or sewerage disposal services if--
'(A) such amount is a contribution in aid of construction,
'(B) in the case of contribution of property other than water or sewerage disposal facilities, such amount meets the requirements of the expenditure rule of paragraph (2), and
'(C) such amount (or any property acquired or constructed with such amount) is not included in the taxpayer's rate base for ratemaking purposes.
'(2) EXPENDITURE RULE.--An amount meets the requirements of this paragraph if--
'(A) an amount equal to such amount is expended for the acquisition or construction of tangible property described in section 1231(b)--
'(i) which is the property for which the contribution was made or is of the same type as such property, and
'(ii) which is used predominantly in the trade or business of furnishing water or sewerage disposal services,
'(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, the expenditures to which contributions are allocated, and the year in which the contributions and expenditures are received and made.
'(3) DEFINITIONS.--For purposes of this subsection--
'(A) CONTRIBUTION IN AID OF CONSTRUCTION.--The term 'contribution in aid of construction' shall be defined by regulations prescribed by the Secretary, except that such term shall not include amounts paid as service charges for starting or stopping services.
'(B) PREDOMINANTLY.--The term 'predominantly' means 80 percent or more.
'(C) REGULATED PUBLIC UTILITY.--The term 'regulated public utility' has the meaning given such term by section 7701(a)(33), except that such term shall not include any utility which is not required to provide water or sewerage disposal services to members of the general public in its service area.
'(4) 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 expenditure which constitutes a contribution in aid of construction to which this subsection applies. The adjusted basis of any property acquired with contributions in aid of construction to which this subsection applies shall be zero.
'(d) STATUTE OF LIMITATIONS.--If the taxpayer for any taxable year treats an amount as a contribution to the capital of the taxpayer described in subsection (c), then--
'(1) the statutory period for the assessment of any deficiency attributable to any part of such amount shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may prescribe) of--
'(A) the amount of the expenditure referred to in subparagraph (A) of subsection (c)(2),
'(B) the taxpayer's intention not to make the expenditures referred to in such subparagraph, or
'(C) a failure to make such expenditure within the period described in subparagraph (B) of subsection (c)(2), and
'(2) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.'.
(2) CONFORMING AMENDMENT.--Section 118(b) is amended by inserting 'except as provided in subsection (c),' before 'the term'.
(3) EFFECTIVE DATE.--The amendments made by this subsection shall apply to amounts received after June 12, 1996.
(b) RECOVERY METHOD AND PERIOD FOR WATER UTILITY PROPERTY.--
(1) REQUIREMENT TO USE STRAIGHT LINE METHOD.--Section 168(b)(3) is amended by adding at the end the following new subparagraph:
'(F) Water utility property described in subsection (e)(5).'.
(2) 25-YEAR RECOVERY PERIOD.--The table contained in section 168(c)(1) is amended by inserting the following item after the item relating to 20-year property:
'Water utility property 25 years'.
(3) WATER UTILITY PROPERTY.--
(A) IN GENERAL.--Section 168(e) is amended by adding at the end the following new paragraph:
'(5) WATER UTILITY PROPERTY.--The term 'water utility property' means property--
'(A) which is an integral part of the gathering, treatment, or commercial distribution of water, and which, without regard to this paragraph, would be 20-year property, and
'(B) any municipal sewer.'.
(B) CONFORMING AMENDMENTS.--Section 168 is amended--
(i) by striking subparagraph (F) of subsection (e)(3), and
(ii) by striking the item relating to subparagraph (F) in the table in subsection (g)(3).
(5) EFFECTIVE DATE.--The amendments made by this subsection shall apply to property placed in service after June 12, 1996, other than property placed in service pursuant to a binding contract in effect before June 10, 1996, and at all times thereafter before the property is placed in service.
(a) IN GENERAL.--Subsection (d) of section 150 (relating to definitions and special rules) is amended by adding at the end the following new paragraph:
'(3) ELECTION TO CEASE STATUS AS QUALIFIED SCHOLARSHIP FUNDING CORPORATION.--
'(A) IN GENERAL.--Any qualified scholarship funding bond, and qualified student loan bond, outstanding on the date of the issuer's election under this paragraph (and any bond (or series of bonds) issued to refund such a bond) shall not fail to be a tax-exempt bond solely because the issuer ceases to be described in subparagraphs (A) and (B) of paragraph (2) if the issuer meets the requirements of subparagraphs (B) and (C) of this paragraph.
'(B) ASSETS AND LIABILITIES OF ISSUER TRANSFERRED TO TAXABLE SUBSIDIARY.--The requirements of this subparagraph are met by an issuer if--
'(i) all of the student loan notes of the issuer and other assets pledged to secure the repayment of qualified scholarship funding bond indebtedness of the issuer are transferred to another corporation within a reasonable period after the election is made under this paragraph;
'(ii) such transferee corporation assumes or otherwise provides for the payment of all of the qualified scholarship funding bond indebtedness of the issuer within a reasonable period after the election is made under this paragraph;
'(iii) to the extent permitted by law, such transferee corporation assumes all of the responsibilities, and succeeds to all of the rights, of the issuer under the issuer's agreements with the Secretary of Education in respect of student loans;
'(iv) immediately after such transfer, the issuer, together with any other issuer which has made an election under this paragraph in respect of such transferee, hold all of the senior stock in such transferee corporation; and
'(v) such transferee corporation is not exempt from tax under this chapter.
'(C) ISSUER TO OPERATE AS INDEPENDENT ORGANIZATION DESCRIBED IN SECTION 501(C)(3).--The requirements of this subparagraph are met by an issuer if, within a reasonable period after the transfer referred to in subparagraph (B)--
'(i) the issuer is described in section 501(c)(3) and exempt from tax under section 501(a);
'(ii) the issuer no longer is described in subparagraphs (A) and (B) of paragraph (2); and
'(iii) at least 80 percent of the members of the board of directors of the issuer are independent members.
'(D) SENIOR STOCK.--For purposes of this paragraph, the term 'senior stock' means stock--
'(i) which participates pro rata and fully in the equity value of the corporation with all other common stock of the corporation but which has the right to payment of liquidation proceeds prior to payment of liquidation proceeds in respect of other common stock of the corporation;
'(ii) which has a fixed right upon liquidation and upon redemption to an amount equal to the greater of--
'(I) the fair market value of such stock on the date of liquidation or redemption (whichever is applicable); or
'(II) the fair market value of all assets transferred in exchange for such stock and reduced by the amount of all liabilities of the corporation which has made an election under this paragraph assumed by the transferee corporation in such transfer;
'(iii) the holder of which has the right to require the transferee corporation to redeem on a date that is not later than 10 years after the date on which an election under this paragraph was made and pursuant to such election such stock was issued; and
'(iv) in respect of which, during the time such stock is outstanding, there is not outstanding any equity interest in the corporation having any liquidation, redemption or dividend rights in the corporation which are superior to those of such stock.
'(E) INDEPENDENT MEMBER.--The term 'independent member' means a member of the board of directors of the issuer who (except for services as a member of such board) receives no compensation directly or indirectly--
'(i) for services performed in connection with such transferee corporation, or
'(ii) for services as a member of the board of directors or as an officer of such transferee corporation.
For purposes of clause (ii), the term 'officer' includes any individual having powers or responsibilities similar to those of officers.
'(F) COORDINATION WITH CERTAIN PRIVATE FOUNDATION TAXES.--For purposes of sections 4942 (relating to the excise tax on a failure to distribute income) and 4943 (relating to the excise tax on excess business holdings), the transferee corporation referred to in subparagraph (B) shall be treated as a functionally related business (within the meaning of section 4942(j)(4)) with respect to the issuer during the period commencing with the date on which an election is made under this paragraph and ending on the date that is the earlier of--
'(i) the last day of the last taxable year for which more than 50 percent of the gross income of such transferee corporation is derived from, or more than 50 percent of the assets (by value) of such transferee corporation consists of, student loan notes incurred under the Higher Education Act of 1965; or
'(ii) the last day of the taxable year of the issuer during which occurs the date which is 10 years after the date on which the election under this paragraph is made.
'(G) ELECTION.--An election under this paragraph may be revoked only with the consent of the Secretary.'.
SEC. 1615. CERTAIN TAX BENEFITS DENIED TO INDIVIDUALS FAILING TO PROVIDE TAXPAYER IDENTIFICATION NUMBERS.
(a) PERSONAL EXEMPTION.--
(1) IN GENERAL.--Section 151 (relating to allowance of deductions for personal exemptions) is amended by adding at the end the following new subsection:
'(e) IDENTIFYING INFORMATION REQUIRED.--No exemption shall be allowed under this section with respect to any individual unless the TIN of such individual is included on the return claiming the exemption.'.
(2) CONFORMING AMENDMENTS.--
(A) Subsection (e) of section 6109 is repealed.
(B) Section 6724(d)(3) is amended by adding 'and' at the end of subparagraph (C), by striking subparagraph (D), and by redesignating subparagraph (E) as subparagraph (D).
'(10) IDENTIFYING INFORMATION REQUIRED WITH RESPECT TO QUALIFYING INDIVIDUALS.--No credit shall be allowed under this section with respect to any qualifying individual unless the TIN of such individual is included on the return claiming the credit.'.
(c) EXTENSION OF PROCEDURES APPLICABLE TO MATHEMATICAL OR CLERICAL ERRORS.--Section 6213(g)(2) (relating to the definition of mathematical or clerical errors), as amended by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, is amended by striking 'and' at the end of subparagraph (F), by striking the period at the end of subparagraph (G) and inserting ', and', and by inserting at the end the following new subparagraph:
(1) IN GENERAL.--The amendments made by this section shall apply with respect to returns the due date for which (without regard to extensions) is on or after the 30th day after the date of the enactment of this Act.
(2) SPECIAL RULE FOR 1995 AND 1996.--In the case of returns for taxable years beginning in 1995 or 1996, a taxpayer shall not be required by the amendments made by this section to provide a taxpayer identification number for a child who is born after October 31, 1995, in the case of a taxable year beginning in 1995 or November 30, 1996, in the case of a taxable year beginning in 1996.
(a) IN GENERAL.--Section 593 (relating to reserves for losses on loans) is amended by adding at the end the following new subsections:
'(f) TERMINATION OF RESERVE METHOD.--Subsections (a), (b), (c), and (d) shall not apply to any taxable year beginning after December 31, 1995.
'(g) 6-YEAR SPREAD OF ADJUSTMENTS.--
'(1) IN GENERAL.--In the case of any taxpayer who is required by reason of subsection (f) to change its method of computing reserves for bad debts--
'(A) such change shall be treated as a change in a method of accounting,
'(B) such change shall be treated as initiated by the taxpayer and as having been made with the consent of the Secretary, and
'(C) the net amount of the adjustments required to be taken into account by the taxpayer under section 481(a)--
'(i) shall be determined by taking into account only applicable excess reserves, and
'(ii) as so determined, shall be taken into account ratably over the 6-taxable year period beginning with the first taxable year beginning after December 31, 1995.
'(A) IN GENERAL.--For purposes of paragraph (1), the term 'applicable excess reserves' means the excess (if any) of--
'(i) the balance of the reserves described in subsection (c)(1) (other than the supplemental reserve) as of the close of the taxpayer's last taxable year beginning before January 1, 1996, over
'(ii) the lesser of--
'(I) the balance of such reserves as of the close of the taxpayer's last taxable year beginning before January 1, 1988, or
'(II) the balance of the reserves described in subclause (I), reduced in the same manner as under section 585(b)(2)(B)(ii) on the basis of the taxable years described in clause (i) and this clause.
'(i) the balance taken into account under subparagraph (A)(ii) shall not be less than the amount which would be the balance of such reserves as of the close of its last taxable year beginning before such date if the additions to such reserves for all taxable years had been determined under section 585(b)(2)(A), and
'(ii) the opening balance of the reserve for bad debts as of the beginning of such first taxable year shall be the balance taken into account under subparagraph (A)(ii) (determined after the application of clause (i) of this subparagraph).
'(3) RECAPTURE OF PRE-1988 RESERVES WHERE TAXPAYER CEASES TO BE BANK.--If, during any taxable year beginning after December 31, 1995, a taxpayer to which paragraph (1) applied is not a bank (as defined in section 581), paragraph (1) shall apply to the reserves described in paragraph (2)(A)(ii) and the supplemental reserve; except that such reserves shall be taken into account ratably over the 6-taxable year period beginning with such taxable year.
'(4) SUSPENSION OF RECAPTURE IF RESIDENTIAL LOAN REQUIREMENT MET.--
'(A) IN GENERAL.--In the case of a bank which meets the residential loan requirement of subparagraph (B) for the first taxable year beginning after December 31, 1995, or for the following taxable year--
'(i) no adjustment shall be taken into account under paragraph (1) for such taxable year, and
'(ii) such taxable year shall be disregarded in determining--
'(I) whether any other taxable year is a taxable year for which an adjustment is required to be taken into account under paragraph (1), and
'(II) the amount of such adjustment.
'(C) RESIDENTIAL LOAN.--For purposes of this paragraph, the term 'residential loan' means any loan described in clause (v) of section 7701(a)(19)(C) but only if such loan is incurred in acquiring, constructing, or improving the property described in such clause.
'(D) BASE AMOUNT.--For purposes of subparagraph (B), the base amount is the average of the principal amounts of the residential loans made by the taxpayer during the 6 most recent taxable years beginning on or before December 31, 1995. At the election of the taxpayer who made such loans during each of such 6 taxable years, the preceding sentence shall be applied without regard to the taxable year in which such principal amount was the highest and the taxable year in such principal amount was the lowest. Such an election may be made only for the first taxable year beginning after such date, and, if made for such taxable year, shall apply to the succeeding taxable year unless revoked with the consent of the Secretary.
'(E) CONTROLLED GROUPS.--In the case of a taxpayer which is a member of any controlled group of corporations described in section 1563(a)(1), subparagraph (B) shall be applied with respect to such group.
'(5) CONTINUED APPLICATION OF FRESH START UNDER SECTION 585 TRANSITIONAL RULES.--In the case of a taxpayer to which paragraph (1) applied and which was not a large bank (as defined in section 585(c)(2)) for its first taxable year beginning after December 31, 1995:
'(A) IN GENERAL.--For purposes of determining the net amount of adjustments referred to in section 585(c)(3)(A)(iii), there shall be taken into account only the excess (if any) of the reserve for bad debts as of the close of the last taxable year before the disqualification year over the balance taken into account by such taxpayer under paragraph (2)(A)(ii) of this subsection.
'(B) TREATMENT UNDER ELECTIVE CUT-OFF METHOD.--For purposes of applying section 585(c)(4)--
'(i) the balance of the reserve taken into account under subparagraph (B) thereof shall be reduced by the balance taken into account by such taxpayer under paragraph (2)(A)(ii) of this subsection, and
'(ii) no amount shall be includible in gross income by reason of such reduction.
'(7) CONVERSIONS TO CREDIT UNIONS.--In the case of a taxpayer to which paragraph (1) applied which becomes a credit union described in section 501(c) and exempt from taxation under section 501(a)--
'(A) any amount required to be included in the gross income of the credit union by reason of this subsection shall be treated as derived from an unrelated trade or business (as defined in section 513), and
'(B) for purposes of paragraph (3), the credit union shall not be treated as if it were a bank.
'(8) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary to carry out this subsection and subsection (e), including regulations providing for the application of such subsections in the case of acquisitions, mergers, spin-offs, and other reorganizations.'.
(b) CONFORMING AMENDMENTS.--
(1) Subsection (d) of section 50 is amended by adding at the end the following new sentence:
'Paragraphs (1)(A), (2)(A), and (4) of the section 46(e) referred to in paragraph (1) of this subsection shall not apply to any taxable year beginning after December 31, 1995.'
(2) Subsection (e) of section 52 is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively.
(3) Subsection (a) of section 57 is amended by striking paragraph (4).
(4) Section 246 is amended by striking subsection (f).
(5) Clause (i) of section 291(e)(1)(B) is amended by striking 'or to which section 593 applies'.
(6) Subparagraph (A) of section 585(a)(2) is amended by striking 'other than an organization to which section 593 applies'.
(7)(A) The material preceding subparagraph (A) of section 593(e)(1) is amended by striking 'by a domestic building and loan association or an institution that is treated as a mutual savings bank under section 591(b)' and inserting 'by a taxpayer having a balance described in subsection (g)(2)(A)(ii)'.
(B) Subparagraph (B) of section 593(e)(1) is amended to read as follows:
'(B) then out of the balance taken into account under subsection (g)(2)(A)(ii) (properly adjusted for amounts charged against such reserves for taxable years beginning after December 31, 1987),'.
(C) The second sentence of section 593(e)(1) is amended by striking 'the association or an institution that is treated as a mutual savings bank under section 591(b)' and inserting 'a taxpayer having a balance described in subsection (g)(2)(A)(ii)'.
(D) The third sentence of section 593(e)(1) is amended by striking 'an association' and inserting 'a taxpayer having a balance described in subsection (g)(2)(A)(ii)'.
(E) Paragraph (1) of section 593(e) is amended by adding at the end the following new sentence: 'This paragraph shall not apply to any distribution of all of the stock of a bank (as defined in section 581) to another corporation if, immediately after the distribution, such bank and such other corporation are members of the same affiliated group (as defined in section 1504) and the provisions of section 5(e) of the Federal Deposit Insurance Act (as in effect on December 31, 1995) or similar provisions are in effect.'.
(8) Section 595 is hereby repealed.
(9) Section 596 is hereby repealed.
(10) Subsection (a) of section 860E is amended--
(A) by striking 'Except as provided in paragraph (2), the' in paragraph (1) and inserting 'The',
(B) by striking paragraphs (2) and (4) and redesignating paragraphs (3), (5), and (6) as paragraphs (2), (3), and (4), respectively,
(C) by striking in paragraph (2) (as so redesignated) all that follows 'subsection' and inserting a period, and
(D) by striking the last sentence of paragraph (4) (as so redesignated).
(11) Paragraph (3) of section 992(d) is amended by striking 'or 593'.
(12) Section 1038 is amended by striking subsection (f).
(13) Clause (ii) of section 1042(c)(4)(B) is amended by striking 'or 593'.
(14) Subsection (c) of section 1277 is amended by striking 'or to which section 593 applies'.
(15) Subparagraph (B) of section 1361(b)(2) is amended by striking 'or to which section 593 applies'.
(16) The table of sections for part II of subchapter H of chapter 1 is amended by striking the items relating to sections 595 and 596.
(c) EFFECTIVE DATES.--
(1) IN GENERAL.--Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1995.
(2) SUBSECTION (b)(7)(B).--The amendments made by subsection (b)(7)(B) shall not apply to any distribution with respect to preferred stock if--
(A) such stock is outstanding at all times after October 31, 1995, and before the distribution, and
(B) such distribution is made before the date which is 1 year after the date of the enactment of this Act (or, in the case of stock which may be redeemed, if later, the date which is 30 days after the earliest date that such stock may be redeemed).
(3) SUBSECTION (b)(8).--The amendment made by subsection (b)(8) shall apply to property acquired in taxable years beginning after December 31, 1995.
(4) SUBSECTION (b)(10).--The amendments made by subsection (b)(10) shall not apply to any residual interest held by a taxpayer if such interest has been held by such taxpayer at all times after October 31, 1995.
(a) IN GENERAL.--Paragraph (1) of section 136(c) (defining energy conservation measure) is amended by striking 'energy demand--' and all that follows and inserting 'energy demand with respect to a dwelling unit.'.
(b) CONFORMING AMENDMENTS.--
(1) Subsection (a) of section 136 is amended to read as follows:
'(a) EXCLUSION.--Gross income shall not include the value of any subsidy provided (directly or indirectly) by a public utility to a customer for the purchase or installation of any energy conservation measure.'.
(2) Paragraph (2) of section 136(c) is amended--
(A) by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively, and
(B) by striking 'AND SPECIAL RULES' in the paragraph heading.
SEC. 1621. FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS.
(a) IN GENERAL.--Subchapter M of chapter 1 is amended by adding at the end the following new part:
'PART V--FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS
'Sec. 860H. Taxation of a FASIT; other general rules.
'Sec. 860I. Gain recognition on contributions to a FASIT and in other cases.
'Sec. 860J. Non-FASIT losses not to offset certain FASIT inclusions.
'Sec. 860K. Treatment of transfers of high-yield interests to disqualified holders.
'Sec. 860L. Definitions and other special rules.
'SEC. 860H. TAXATION OF A FASIT; OTHER GENERAL RULES.
'(a) TAXATION OF FASIT.--A FASIT as such shall not be subject to taxation under this subtitle (and shall not be treated as a trust, partnership, corporation, or taxable mortgage pool).
'(b) TAXATION OF HOLDER OF OWNERSHIP INTEREST.--In determining the taxable income of the holder of the ownership interest in a FASIT--
'(1) all assets, liabilities, and items of income, gain, deduction, loss, and credit of a FASIT shall be treated as assets, liabilities, and such items (as the case may be) of such holder,
'(2) the constant yield method (including the rules of section 1272(a)(6)) shall be applied under an accrual method of accounting in determining all interest, acquisition discount, original issue discount, and market discount and all premium deductions or adjustments with respect to each debt instrument of the FASIT,
'(3) there shall not be taken into account any item of income, gain, or deduction allocable to a prohibited transaction, and
'(4) interest accrued by the FASIT which is exempt from tax imposed by this subtitle shall, when taken into account by such holder, be treated as ordinary income.
'(c) TREATMENT OF REGULAR INTERESTS.--For purposes of this title--
'(1) a regular interest in a FASIT, if not otherwise a debt instrument, shall be treated as a debt instrument,
'(2) section 163(e)(5) shall not apply to such an interest, and
'(3) amounts includible in gross income with respect to such an interest shall be determined under an accrual method of accounting.
'(a) TREATMENT OF PROPERTY ACQUIRED BY FASIT.--
'(1) PROPERTY ACQUIRED FROM HOLDER OF OWNERSHIP INTEREST OR RELATED PERSON.--If property is sold or contributed to a FASIT by the holder of the ownership interest in such FASIT (or by a related person) gain (if any) shall be recognized to such holder (or person) in an amount equal to the excess (if any) of such property's value under subsection (d) on the date of such sale or contribution over its adjusted basis on such date.
'(2) PROPERTY ACQUIRED OTHER THAN FROM HOLDER OF OWNERSHIP INTEREST OR RELATED PERSON.--Property which is acquired by a FASIT other than in a transaction to which paragraph (1) applies shall be treated--
'(A) as having been acquired by the holder of the ownership interest in the FASIT for an amount equal to the FASIT's cost of acquiring such property, and
'(B) as having been sold by such holder to the FASIT at its value under subsection (d) on such date.
'(1) gain shall be recognized to such holder (or person) in the same manner as if such holder (or person) had sold such property at its value under subsection (d) on the earliest date such property supports such an interest, and
'(2) such property shall be treated as held by such FASIT for purposes of this part.
'(c) DEFERRAL OF GAIN RECOGNITION.--The Secretary may prescribe regulations which--
'(1) provide that gain otherwise recognized under subsection (a) or (b) shall not be recognized before the earliest date on which such property supports any regular interest in such FASIT or any indebtedness of the holder of the ownership interest (or of any person related to such holder), and
'(2) provide such adjustments to the other provisions of this part to the extent appropriate in the context of the treatment provided under paragraph (1).
'(d) VALUATION.--For purposes of this section--
'(1) IN GENERAL.--The value of any property under this subsection shall be--
'(A) in the case of a debt instrument which is not traded on an established securities market, the sum of the present values of the reasonably expected payments under such instrument determined (in the manner provided by regulations prescribed by the Secretary)--
'(i) as of the date of the event resulting in the gain recognition under this section, and
'(ii) by using a discount rate equal to 120 percent of the applicable Federal rate (as defined in section 1274(d)), or such other discount rate specified in such regulations, compounded semiannually, and
'(B) in the case of any other property, its fair market value.
'(2) SPECIAL RULE FOR REVOLVING LOAN ACCOUNTS.--For purposes of paragraph (1)--
'(A) each extension of credit (other than the accrual of interest) on a revolving loan account shall be treated as a separate debt instrument, and
'(B) payments on such extensions of credit having substantially the same terms shall be applied to such extensions beginning with the earliest such extension.
'(1) NONRECOGNITION RULES NOT TO APPLY.--Gain required to be recognized under this section shall be recognized notwithstanding any other provision of this subtitle.
'(2) BASIS ADJUSTMENTS.--The basis of any property on which gain is recognized under this section shall be increased by the amount of gain so recognized.
'(a) IN GENERAL.--The taxable income of the holder of the ownership interest or any high-yield interest in a FASIT for any taxable year shall in no event be less than the sum of--
'(1) such holder's taxable income determined solely with respect to such interests (including gains and losses from sales and exchanges of such interests), and
'(2) the excess inclusion (if any) under section 860E(a)(1) for such taxable year.
'(b) COORDINATION WITH SECTION 172.--Any increase in the taxable income of any holder of the ownership interest or a high-yield interest in a FASIT for any taxable year by reason of subsection (a) shall be disregarded--
'(1) in determining under section 172 the amount of any net operating loss for such taxable year, and
'(2) in determining taxable income for such taxable year for purposes of the second sentence of section 172(b)(2).
'(c) COORDINATION WITH MINIMUM TAX.--For purposes of part VI of subchapter A of this chapter--
'(1) the reference in section 55(b)(2) to taxable income shall be treated as a reference to taxable income determined without regard to this section,
'(2) the alternative minimum taxable income of any holder of the ownership interest or a high-yield interest in a FASIT for any taxable year shall in no event be less than such holder's taxable income determined solely with respect to such interests, and
'(3) any increase in taxable income under this section shall be disregarded for purposes of computing the alternative tax net operating loss deduction.
'(d) AFFILIATED GROUPS.--All members of an affiliated group filing a consolidated return shall be treated as one taxpayer for purposes of this section.
'SEC. 860K. TREATMENT OF TRANSFERS OF HIGH-YIELD INTERESTS TO DISQUALIFIED HOLDERS.
'(a) GENERAL RULE.--In the case of any high-yield interest which is held by a disqualified holder--
'(1) the gross income of such holder shall not include any income (other than gain) attributable to such interest, and
'(2) amounts not includible in the gross income of such holder by reason of paragraph (1) shall be included (at the time otherwise includible under paragraph (1)) in the gross income of the most recent holder of such interest which is not a disqualified holder.
'(b) EXCEPTIONS.--Rules similar to the rules of paragraphs (4) and (7) of section 860E(e) shall apply to the tax imposed by reason of the inclusion in gross income under subsection (a).
'(c) DISQUALIFIED HOLDER.--For purposes of this section, the term 'disqualified holder' means any holder other than--
'(1) an eligible corporation (as defined in section 860L(a)(2)), or
'(2) a FASIT.
'(d) TREATMENT OF INTERESTS HELD BY SECURITIES DEALERS.--
'(1) IN GENERAL.--Subsection (a) shall not apply to any high-yield interest held by a disqualified holder if such holder is a dealer in securities who acquired such interest exclusively for sale to customers in the ordinary course of business (and not for investment).
'(2) CHANGE IN DEALER STATUS.--
'(A) IN GENERAL.--In the case of a dealer in securities which is not an eligible corporation (as defined in section 860L(a)(2)), if--
'(i) such dealer ceases to be a dealer in securities, or
'(ii) such dealer commences holding the high-yield interest for investment,
there is hereby imposed (in addition to other taxes) an excise tax equal to the product of the highest rate of tax specified in section 11(b)(1) and the income of such dealer attributable to such interest for periods after the date of such cessation or commencement.
'(B) HOLDING FOR 31 DAYS OR LESS.--For purposes of subparagraph (A)(ii), a dealer shall not be treated as holding an interest for investment before the thirty-second day after the date such dealer acquired such interest unless such interest is so held as part of a plan to avoid the purposes of this paragraph.
'(C) ADMINISTRATIVE PROVISIONS.--The deficiency procedures of subtitle F shall apply to the tax imposed by this paragraph.
'(1) IN GENERAL.--If a pass-thru entity (as defined in section 860E(e)(6)) issues a debt or equity interest--
'(A) which is supported by any regular interest in a FASIT, and
'(B) which has an original yield to maturity which is greater than each of--
'(i) the sum determined under clauses (i) and (ii) of section 163(i)(1)(B) with respect to such debt or equity interest, and
'(ii) the yield to maturity to such entity on such regular interest (determined as of the date such entity acquired such interest),
'(2) EXCEPTION.--Paragraph (1) shall not apply to arrangements not having as a principal purpose the avoidance of the purposes of this subsection.
'(a) FASIT.--
'(1) IN GENERAL.--For purposes of this title, the terms 'financial asset securitization investment trust' and 'FASIT' mean any entity--
'(A) for which an election to be treated as a FASIT applies for the taxable year,
'(B) all of the interests in which are regular interests or the ownership interest,
'(C) which has only one ownership interest and such ownership interest is held directly by an eligible corporation,
'(D) as of the close of the third month beginning after the day of its formation and at all times thereafter, substantially all of the assets of which (including assets treated as held by the entity under section 860I(b)(2)) consist of permitted assets, and
'(E) which is not described in section 851(a).
A rule similar to the rule of the last sentence of section 860D(a) shall apply for purposes of this paragraph.
'(2) ELIGIBLE CORPORATION.--For purposes of paragraph (1)(C), the term 'eligible corporation' means any domestic C corporation other than--
'(A) a corporation which is exempt from, or is not subject to, tax under this chapter,
'(B) an entity described in section 851(a) or 856(a),
'(C) a REMIC, and
'(D) an organization to which part I of subchapter T applies.
'(3) ELECTION.--An entity (otherwise meeting the requirements of paragraph (1)) may elect to be treated as a FASIT. Except as provided in paragraph (5), such an election shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
'(4) TERMINATION.--If any entity ceases to be a FASIT at any time during the taxable year, such entity shall not be treated as a FASIT after the date of such cessation.
'(5) INADVERTENT TERMINATIONS, ETC.--Rules similar to the rules of section 860D(b)(2)(B) shall apply to inadvertent failures to qualify or remain qualified as a FASIT.
'(6) PERMITTED ASSETS NOT TREATED AS INTEREST IN FASIT.--Except as provided in regulations prescribed by the Secretary, any asset which is a permitted asset at the time acquired by a FASIT shall not be treated at any time as an interest in such FASIT.
'(b) INTERESTS IN FASIT.--For purposes of this part--
'(1) REGULAR INTEREST.--
'(A) IN GENERAL.--The term 'regular interest' means any interest which is issued by a FASIT after the startup date with fixed terms and which is designated as a regular interest if--
'(i) such interest unconditionally entitles the holder to receive a specified principal amount (or other similar amount),
'(ii) interest payments (or other similar amounts), if any, with respect to such interest are determined based on a fixed rate, or, except as otherwise provided by the Secretary, at a variable rate permitted under section 860G(a)(1)(B)(i),
'(iii) such interest does not have a stated maturity (including options to renew) greater than 30 years (or such longer period as may be permitted by regulations),
'(iv) the issue price of such interest does not exceed 125 percent of its stated principal amount, and
'(v) the yield to maturity on such interest is less than the sum determined under section 163(i)(1)(B) with respect to such interest.
An interest shall not fail to meet the requirements of clause (i) merely because the timing (but not the amount) of the principal payments (or other similar amounts) may be contingent on the extent that payments on debt instruments held by the FASIT are made in advance of anticipated payments and on the amount of income from permitted assets.
'(B) HIGH-YIELD INTERESTS.--
'(i) IN GENERAL.--The term 'regular interest' includes any high-yield interest.
'(ii) HIGH-YIELD INTEREST.--The term 'high-yield interest' means any interest which would be described in subparagraph (A) but for--
'(I) failing to meet the requirements of one or more of clauses (i), (iv), or (v) thereof, or
'(II) failing to meet the requirement of clause (ii) thereof but only if interest payments (or other similar amounts), if any, with respect to such interest consist of a specified portion of the interest payments on permitted assets and such portion does not vary during the period such interest is outstanding.
'(c) PERMITTED ASSETS.--For purposes of this part--
'(1) IN GENERAL.--The term 'permitted asset' means--
'(A) cash or cash equivalents,
'(B) any debt instrument (as defined in section 1275(a)(1)) under which interest payments (or other similar amounts), if any, at or before maturity meet the requirements applicable under clause (i) or (ii) of section 860G(a)(1)(B),
'(C) foreclosure property,
'(D) any asset--
'(i) which is an interest rate or foreign currency notional principal contract, letter of credit, insurance, guarantee against payment defaults, or other similar instrument permitted by the Secretary, and
'(ii) which is reasonably required to guarantee or hedge against the FASIT's risks associated with being the obligor on interests issued by the FASIT,
'(E) contract rights to acquire debt instruments described in subparagraph (B) or assets described in subparagraph (D),
'(F) any regular interest in another FASIT, and
'(G) any regular interest in a REMIC.
'(2) DEBT ISSUED BY HOLDER OF OWNERSHIP INTEREST NOT PERMITTED ASSET.--The term 'permitted asset' shall not include any debt instrument issued by the holder of the ownership interest in the FASIT or by any person related to such holder or any direct or indirect interest in such a debt instrument. The preceding sentence shall not apply to cash equivalents and to any other investment specified in regulations prescribed by the Secretary.
'(3) FORECLOSURE PROPERTY.--
'(A) IN GENERAL.--The term 'foreclosure property' means property--
'(i) which would be foreclosure property under section 856(e) (determined without regard to paragraph (5) thereof) if such property were real property acquired by a real estate investment trust, and
'(ii) which is acquired in connection with the default or imminent default of a debt instrument held by the FASIT unless the security interest in such property was created for the principal purpose of permitting the FASIT to invest in such property.
Solely for purposes of subsection (a)(1), the determination of whether any property is foreclosure property shall be made without regard to section 856(e)(4).
'(B) AUTHORITY TO REDUCE GRACE PERIOD.--In the case of property other than real property and other than personal property incident to real property, the Secretary may by regulation reduce for purposes of subparagraph (A) the periods otherwise applicable under paragraphs (2) and (3) of section 856(e).
'(1) IN GENERAL.--The term 'startup day' means the date designated in the election under subsection (a)(3) as the startup day of the FASIT. Such day shall be the beginning of the first taxable year of the FASIT.
'(2) TREATMENT OF PROPERTY HELD ON STARTUP DAY.--All property held (or treated as held under section 860I(c)(2)) by an entity as of the startup day shall be treated as contributed to such entity on such day by the holder of the ownership interest in such entity.
'(e) TAX ON PROHIBITED TRANSACTIONS.--
'(1) IN GENERAL.--There is hereby imposed for each taxable year of a FASIT a tax equal to 100 percent of the net income derived from prohibited transactions. Such tax shall be paid by the holder of the ownership interest in the FASIT.
'(2) PROHIBITED TRANSACTIONS.--For purposes of this part, the term 'prohibited transaction' means--
'(A) the receipt of any income derived from any asset that is not a permitted asset,
'(B) except as provided in paragraph (3), the disposition of any permitted asset,
'(C) the receipt of any income derived from any loan originated by the FASIT, and
'(D) the receipt of any income representing a fee or other compensation for services (other than any fee received as compensation for a waiver, amendment, or consent under permitted assets (other than foreclosure property) held by the FASIT).
'(3) EXCEPTION FOR INCOME FROM CERTAIN DISPOSITIONS.--
'(A) IN GENERAL.--Paragraph (2)(B) shall not apply to a disposition which would not be a prohibited transaction (as defined in section 860F(a)(2)) by reason of--
'(i) clause (ii), (iii), or (iv) of section 860F(a)(2)(A), or
'(ii) section 860F(a)(5), if the FASIT were treated as a REMIC and debt instruments described in subsection (c)(1)(B) were treated as qualified mortgages.
'(B) SUBSTITUTION OF DEBT INSTRUMENTS; REDUCTION OF OVER-COLLATERALIZATION.--Paragraph (2)(B) shall not apply to--
'(i) the substitution of a debt instrument described in subsection (c)(1)(B) for another debt instrument which is a permitted asset, or
'(ii) the distribution of a debt instrument contributed by the holder of the ownership interest to such holder in order to reduce over-collateralization of the FASIT,
but only if a principal purpose of acquiring the debt instrument which is disposed of was not the recognition of gain (or the reduction of a loss) as a result of an increase in the market value of the debt instrument after its acquisition by the FASIT.
'(C) LIQUIDATION OF CLASS OF REGULAR INTERESTS.--Paragraph (2)(B) shall not apply to the complete liquidation of any class of regular interests.
'(4) NET INCOME.--For purposes of this subsection, net income shall be determined in accordance with section 860F(a)(3).
'(f) COORDINATION WITH OTHER PROVISIONS.--
'(1) WASH SALES RULES.--Rules similar to the rules of section 860F(d) shall apply to the ownership interest in a FASIT.
'(2) SECTION 475.--Except as provided by the Secretary by regulations, if any security which is sold or contributed to a FASIT by the holder of the ownership interest in such FASIT was required to be marked-to-market under section 475 by such holder, section 475 shall continue to apply to such security; except that in applying section 475 while such security is held by the FASIT, the fair market value of such security for purposes of section 475 shall not be less than its value under section 860I(d).
'(g) RELATED PERSON.--For purposes of this part, a person (hereinafter in this subsection referred to as the 'related person') is related to any person if--
'(1) the related person bears a relationship to such person specified in section 267(b) or section 707(b)(1), or
'(2) the related person and such person are engaged in trades or businesses under common control (within the meaning of subsections (a) and (b) of section 52).
For purposes of paragraph (1), in applying section 267(b) or 707(b)(1), '20 percent' shall be substituted for '50 percent'.
'(h) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part, including regulations to prevent the abuse of the purposes of this part through transactions which are not primarily related to securitization of debt instruments by a FASIT.'.
(b) TECHNICAL AMENDMENTS.--
(1) Paragraph (2) of section 26(b) is amended by striking 'and' at the end of subparagraph (M), by striking the period at the end of subparagraph (N) and inserting ', and', and by adding at the end the following new subparagraph:
'(O) section 860K (relating to treatment of transfers of high-yield interests to disqualified holders).'.
(2) Paragraph (6) of section 56(g) is amended by striking 'or REMIC' and inserting 'REMIC, or FASIT'.
(3) Clause (ii) of section 382(l)(4)(B) is amended by striking 'or a REMIC to which part IV of subchapter M applies' and inserting 'a REMIC to which part IV of subchapter M applies, or a FASIT to which part V of subchapter M applies'.
(4) Paragraph (1) of section 582(c) is amended by inserting ', and any regular interest in a FASIT,' after 'REMIC'.
(5) Subparagraph (E) of section 856(c)(6) is amended by adding at the end the following new sentence: 'The principles of the preceding provisions of this subparagraph shall apply to regular interests in a FASIT.'.
(6) Paragraph (3) of section 860G(a) 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 regular interest in a FASIT which is transferred to, or purchased by, the REMIC as described in clauses (i) and (ii) of subparagraph (A) but only if 95 percent or more of the value of the assets of such FASIT is at all times attributable to obligations described in subparagraph (A) (without regard to such clauses).'.
(7) Subparagraph (C) of section 1202(e)(4) is amended by striking 'or REMIC' and inserting 'REMIC, or FASIT'.
(8) Clause (xi) of section 7701(a)(19)(C) is amended to read as follows:
'(xi) any regular or residual interest in a REMIC, and any regular interest in a FASIT, but only in the proportion which the assets of such REMIC or FASIT consist of property described in any of the preceding clauses of this subparagraph; except that if 95 percent or more of the assets of such REMIC or FASIT are assets described in clauses (i) through (x), the entire interest in the REMIC or FASIT shall qualify.'.
(9) Subparagraph (A) of section 7701(i)(2) is amended by inserting 'or a FASIT' after 'a REMIC'.
(c) CLERICAL AMENDMENT.--The table of parts for subchapter M of chapter 1 is amended by adding at the end the following new item:
'Part V. Financial asset securitization investment trusts.'.
(d) EFFECTIVE DATE.--The amendments made by this section shall take effect on September 1, 1997.
(e) TREATMENT OF EXISTING SECURITIZATION ENTITIES.--
(1) IN GENERAL.--In the case of the holder of the ownership interest in a pre-effective date FASIT--
(A) gain shall not be recognized under section 860L(d)(2) of the Internal Revenue Code of 1986 on property deemed contributed to the FASIT, and
(B) gain shall not be recognized under section 860I of such Code on property contributed to such FASIT,
until such property (or portion thereof) ceases to be properly allocable to a pre-FASIT interest.
(2) ALLOCATION OF PROPERTY TO PRE-FASIT INTEREST.--For purposes of paragraph (1), property shall be allocated to a pre-FASIT interest in such manner as the Secretary of the Treasury may prescribe, except that all property in a FASIT shall be treated as properly allocable to pre-FASIT interests if the fair market value of all such property does not exceed 107 percent of the aggregate principal amount of all outstanding pre-FASIT interests.
(3) DEFINITIONS.--For purposes of this subsection--
(A) PRE-EFFECTIVE DATE FASIT.--The term 'pre-effective date FASIT' means any FASIT if the entity (with respect to which the election under section 860L(a)(3) of such Code was made) is in existence on August 31, 1997.
(B) PRE-FASIT INTEREST.--The term 'pre-FASIT interest' means any interest in the entity referred to in subparagraph (A) which was issued before the startup day (other than any interest held by the holder of the ownership interest in the FASIT).
SEC. 1701. COORDINATION WITH OTHER SUBTITLES.
For purposes of applying the amendments made by any subtitle of this title other than this subtitle, the provisions of this subtitle shall be treated as having been enacted immediately before the provisions of such other subtitles.
SEC. 1702. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT OF 1990.
(a) AMENDMENTS RELATED TO SUBTITLE A.--
(1) Subparagraph (B) of section 59(j)(3) is amended by striking 'section 1(i)(3)(B)' and inserting 'section 1(g)(3)(B)'.
(2) Clause (i) of section 151(d)(3)(C) is amended by striking 'joint of a return' and inserting 'joint return'.
(b) AMENDMENTS RELATED TO SUBTITLE B.--
(1) Paragraph (1) of section 11212(e) of the Revenue Reconciliation Act of 1990 is amended by striking 'Paragraph (1) of section 6724(d)' and inserting 'Subparagraph (B) of section 6724(d)(1)'.
(2)(A) Subparagraph (B) of section 4093(c)(2), as in effect before the amendments made by the Revenue Reconciliation Act of 1993, is amended by inserting before the period 'unless such fuel is sold for exclusive use by a State or any political subdivision thereof'.
(B) Paragraph (4) of section 6427(l), as in effect before the amendments made by the Revenue Reconciliation Act of 1993, is amended by inserting before the period 'unless such fuel was used by a State or any political subdivision thereof'.
(3) Paragraph (1) of section 6416(b) is amended by striking 'chapter 32 or by section 4051' and inserting 'chapter 31 or 32'.
(4) Section 7012 is amended--
(A) by striking 'production or importation of gasoline' in paragraph (3) and inserting 'taxes on gasoline and diesel fuel', and
(B) by striking paragraph (4) and redesignating paragraphs (5) and (6) as paragraphs (4) and (5), respectively.
(5) Subsection (c) of section 5041 is amended by striking paragraph (6) and by inserting the following new paragraphs:
'(6) CREDIT FOR TRANSFEREE IN BOND.--If--
'(A) wine produced by any person would be eligible for any credit under paragraph (1) if removed by such person during the calendar year,
'(B) wine produced by such person is removed during such calendar year by any other person (hereafter in this paragraph referred to as the 'transferee') to whom such wine was transferred in bond and who is liable for the tax imposed by this section with respect to such wine, and
'(C) such producer holds title to such wine at the time of its removal and provides to the transferee such information as is necessary to properly determine the transferee's credit under this paragraph,
then, the transferee (and not the producer) shall be allowed the credit under paragraph (1) which would be allowed to the producer if the wine removed by the transferee had been removed by the producer on that date.
'(7) REGULATIONS.--The Secretary may prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations--
'(A) to prevent the credit provided in this subsection from benefiting any person who produces more than 250,000 wine gallons of wine during a calendar year, and
'(B) to assure proper reduction of such credit for persons producing more than 150,000 wine gallons of wine during a calendar year.'.
(6) Paragraph (3) of section 5061(b) is amended to read as follows:
'(3) section 5041(f),'.
(7) Section 5354 is amended by inserting '(taking into account the appropriate amount of credit with respect to such wine under section 5041(c))' after 'any one time'.
(c) AMENDMENTS RELATED TO SUBTITLE C.--
(1) Paragraph (4) of section 56(g) is amended by redesignating subparagraphs (I) and (J) as subparagraphs (H) and (I), respectively.
(2) Subparagraph (B) of section 6724(d)(1) is amended--
(A) by striking 'or' at the end of clause (xii), and
(B) by striking the period at the end of clause (xiii) and inserting ', or'.
(3) Subsection (g) of section 6302 is amended by inserting ', 22,' after 'chapters 21'.
(4) The earnings and profits of any insurance company to which section 11305(c)(3) of the Revenue Reconciliation Act of 1990 applies shall be determined without regard to any deduction allowed under such section; except that, for purposes of applying sections 56 and 902, and subpart F of part III of subchapter N of chapter 1 of the Internal Revenue Code of 1986, such deduction shall be taken into account.
(5) Subparagraph (D) of section 6038A(e)(4) is amended--
(A) by striking 'any transaction to which the summons relates' and inserting 'any affected taxable year', and
(B) by adding at the end thereof the following new sentence: 'For purposes of this subparagraph, the term 'affected taxable year' means any taxable year if the determination of the amount of tax imposed for such taxable year is affected by the treatment of the transaction to which the summons relates.'.
(6) Subparagraph (A) of section 6621(c)(2) is amended by adding at the end thereof the following new flush sentence:
'The preceding sentence shall be applied without regard to any such letter or notice which is withdrawn by the Secretary.'.
(7) Clause (i) of section 6621(c)(2)(B) is amended by striking 'this subtitle' and inserting 'this title'.
(d) AMENDMENTS RELATED TO SUBTITLE D.--
(1) Notwithstanding section 11402(c) of the Revenue Reconciliation Act of 1990, the amendment made by section 11402(b)(1) of such Act shall apply to taxable years ending after December 31, 1989.
(2) Clause (ii) of section 143(m)(4)(C) is amended--
(A) by striking 'any month of the 10-year period' and inserting 'any year of the 4-year period',
(B) by striking 'succeeding months' and inserting 'succeeding years', and
(C) by striking 'over the remainder of such period (or, if lesser, 5 years)' and inserting 'to zero over the succeeding 5 years'.
(1)(A) Clause (ii) of section 56(d)(1)(B) is amended to read as follows:
(B) For purposes of applying sections 56(g)(1) and 56(g)(3) of the Internal Revenue Code of 1986 with respect to taxable years beginning in 1991 and 1992, the reference in such sections to the alternative tax net operating loss deduction shall be treated as including a reference to the deduction under section 56(h) of such Code as in effect before the amendments made by section 1915 of the Energy Policy Act of 1992.
(2) Clause (i) of section 613A(c)(3)(A) is amended by striking 'the table contained in'.
(3) Section 6501 is amended--
(A) by striking subsection (m) (relating to deficiency attributable to election under section 44B) and by redesignating subsections (n) and (o) as subsections (m) and (n), respectively, and
(B) by striking 'section 40(f) or 51(j)' in subsection (m) (as redesignated by subparagraph (A)) and inserting 'section 40(f), 43, or 51(j)'.
(4) Subparagraph (C) of section 38(c)(2) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) is amended by inserting before the period at the end of the first sentence the following: 'and without regard to the deduction under section 56(h)'.
(5) The amendment made by section 1913(b)(2)(C)(i) of the Energy Policy Act of 1992 shall apply to taxable years beginning after December 31, 1990.
(f) AMENDMENTS RELATED TO SUBTITLE F.--
(1)(A) Section 2701(a)(3) is amended by adding at the end thereof the following new subparagraph:
'(C) VALUATION OF QUALIFIED PAYMENTS WHERE NO LIQUIDATION, ETC. RIGHTS.--In the case of an applicable retained interest which is described in subparagraph (B)(i) but not subparagraph (B)(ii), the value of the distribution right shall be determined without regard to this section.'.
(B) Section 2701(a)(3)(B) is amended by inserting 'CERTAIN' before 'QUALIFIED' in the heading thereof.
(C) Sections 2701 (d)(1) and (d)(4) are each amended by striking 'subsection (a)(3)(B)' and inserting 'subsection (a)(3)(B) or (C)'.
(2) Clause (i) of section 2701(a)(4)(B) is amended by inserting '(or, to the extent provided in regulations, the rights as to either income or capital)' after 'income and capital'.
(3)(A) Section 2701(b)(2) is amended by adding at the end thereof the following new subparagraph:
'(C) APPLICABLE FAMILY MEMBER.--For purposes of this subsection, the term 'applicable family member' includes any lineal descendant of any parent of the transferor or the transferor's spouse.'.
(B) Section 2701(e)(3) is amended--
(i) by striking subparagraph (B), and
(ii) by striking so much of paragraph (3) as precedes 'shall be treated as holding' and inserting:
(C) Section 2704(c)(3) is amended by striking 'section 2701(e)(3)(A)' and inserting 'section 2701(e)(3)'.
(4) Clause (i) of section 2701(c)(1)(B) is amended to read as follows:
(B) The first sentence of section 2701(c)(3)(C)(ii) is amended to read as follows:
'A transferor or applicable family member holding any distribution right which (without regard to this subparagraph) is not a qualified payment may elect to treat such right as a qualified payment, to be paid in the amounts and at the times specified in such election.'.
(C) The time for making an election under the second sentence of section 2701(c)(3)(C)(i) of the Internal Revenue Code of 1986 (as amended by subparagraph (A)) shall not expire before the due date (including extensions) for filing the transferor's return of the tax imposed by section 2501 of such Code for the first calendar year ending after the date of enactment.
(6) Section 2701(d)(3)(A)(iii) is amended by striking 'the period ending on the date of'.
(7) Subclause (I) of section 2701(d)(3)(B)(ii) is amended by inserting 'or the exclusion under section 2503(b),' after 'section 2523,'.
(8) Section 2701(e)(5) is amended--
(A) by striking 'such contribution to capital or such redemption, recapitalization, or other change' in subparagraph (A) and inserting 'such transaction', and
(B) by striking 'the transfer' in subparagraph (B) and inserting 'such transaction'.
(9) Section 2701(d)(4) is amended by adding at the end thereof the following new subparagraph:
'(C) TRANSFER TO TRANSFERORS.--In the case of a taxable event described in paragraph (3)(A)(ii) involving a transfer of an applicable retained interest from an applicable family member to a transferor, this subsection shall continue to apply to the transferor during any period the transferor holds such interest.'.
(10) Section 2701(e)(6) is amended by inserting 'or to reflect the application of subsection (d)' before the period at the end thereof.
(11)(A) Section 2702(a)(3)(A) is amended--
(ii) by striking 'or' at the end of clause (i),
(iii) by striking the period at the end of clause (ii) and inserting ', or', and
(iv) by adding at the end thereof the following new clause:
'(iii) to the extent that regulations provide that such transfer is not inconsistent with the purposes of this section.'.
(B)(i) Section 2702(a)(3) is amended by striking 'incomplete transfer' each place it appears and inserting 'incomplete gift'.
(ii) The heading for section 2702(a)(3)(B) is amended by striking 'INCOMPLETE TRANSFER' and inserting 'INCOMPLETE GIFT'.
(1)(A) Subsection (a) of section 1248 is amended--
(ii) by adding at the end thereof the following new sentence: 'For purposes of this section, a United States person shall be treated as having sold or exchanged any stock if, under any provision of this subtitle, such person is treated as realizing gain from the sale or exchange of such stock.'.
(B) Paragraph (1) of section 1248(e) is amended by striking ', or receives a distribution from a domestic corporation which, under section 302 or 331, is treated as an exchange of stock'.
(C) Subparagraph (B) of section 1248(f)(1) is amended by striking 'or 361(c)(1)' and inserting '355(c)(1), or 361(c)(1)'.
(D) Paragraph (1) of section 1248(i) is amended to read as follows:
'(1) IN GENERAL.--If any shareholder of a 10-percent corporate shareholder of a foreign corporation exchanges stock of the 10-percent corporate shareholder for stock of the foreign corporation, such 10-percent corporate shareholder shall recognize gain in the same manner as if the stock of the foreign corporation received in such exchange had been--
'(A) issued to the 10-percent corporate share-holder, and
'(B) then distributed by the 10-percent corporate shareholder to such shareholder in redemption or liquidation (whichever is appropriate).
The amount of gain recognized by such 10-percent corporate shareholder under the preceding sentence shall not exceed the amount treated as a dividend under this section.'.
(2) Section 897 is amended by striking subsection (f).
(3) Paragraph (13) of section 4975(d) is amended by striking 'section 408(b)' and inserting 'section 408(b)(12)'.
(4) Clause (iii) of section 56(g)(4)(D) is amended by inserting ', but only with respect to taxable years beginning after December 31, 1989' before the period at the end thereof.
(5)(A) Paragraph (11) of section 11701(a) of the Revenue Reconciliation Act of 1990 (and the amendment made by such paragraph) are hereby repealed, and section 7108(r)(2) of the Revenue Reconciliation Act of 1989 shall be applied as if such paragraph (and amendment) had never been enacted.
(B) Subparagraph (A) shall not apply to any building if the owner of such building establishes to the satisfaction of the Secretary of the Treasury or his delegate that such owner reasonably relied on the amendment made by such paragraph (11).
(1)(A) Clause (vi) of section 168(e)(3)(B) is amended by striking 'or' at the end of subclause (I), by striking the period at the end of subclause (II) and inserting ', or', and by adding at the end thereof the following new subclause:
'Nothing in any provision of law shall be construed to treat property as not being described in clause (vi)(I) (or the corresponding provisions of prior law) by reason of being public utility property (within the meaning of section 48(a)(3)).'.
(C) Subparagraph (K) of section 168(g)(4) is amended by striking 'section 48(a)(3)(A)(iii)' and inserting 'section 48(l)(3)(A)(ix) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)'.
(2) Clause (ii) of section 172(b)(1)(E) is amended by striking 'subsection (m)' and inserting 'subsection (h)'.
(3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II), and 832(b)(5)(D)(ii)(II) are each amended by striking '243(b)(5)' and inserting '243(b)(2)'.
(4) Subparagraph (A) of section 243(b)(3) is amended by inserting 'of' after 'In the case'.
(5) The subsection heading for subsection (a) of section 280F is amended by striking 'Investment Tax Credit and'.
(6) Clause (i) of section 1504(c)(2)(B) is amended by inserting 'section' before '243(b)(2)'.
(7) Paragraph (3) of section 341(f) is amended by striking '351, 361, 371(a), or 374(a)' and inserting '351, or 361'.
(8) Paragraph (2) of section 243(b) is amended to read as follows:
'(2) AFFILIATED GROUP.--For purposes of this subsection:
'(A) IN GENERAL.--The term 'affiliated group' has the meaning given such term by section 1504(a), except that for such purposes sections 1504(b)(2), 1504(b)(4), and 1504(c) shall not apply.
'(B) GROUP MUST BE CONSISTENT IN FOREIGN TAX TREATMENT.--The requirements of paragraph (1)(A) shall not be treated as being met with respect to any dividend received by a corporation if, for any taxable year which includes the day on which such dividend is received--
'(i) 1 or more members of the affiliated group referred to in paragraph (1)(A) choose to any extent to take the benefits of section 901, and
'(ii) 1 or more other members of such group claim to any extent a deduction for taxes otherwise creditable under section 901.'.
(10) Paragraph (1) of section 179(d) is amended by striking 'in a trade or business' and inserting 'a trade or business'.
(11) Subparagraph (E) of section 50(a)(2) is amended by striking 'section 48(a)(5)(A)' and inserting 'section 48(a)(5)'.
(12) The amendment made by section 11801(c)(9)(G)(ii) of the Revenue Reconciliation Act of 1990 shall be applied as if it struck 'Section 422A(c)(2)' and inserted 'Section 422(c)(2)'.
(13) Subparagraph (B) of section 424(c)(3) is amended by striking 'a qualified stock option, an incentive stock option, an option granted under an employee stock purchase plan, or a restricted stock option' and inserting 'an incentive stock option or an option granted under an employee stock purchase plan'.
(14) Subparagraph (E) of section 1367(a)(2) is amended by striking 'section 613A(c)(13)(B)' and inserting 'section 613A(c)(11)(B)'.
(15) Subparagraph (B) of section 460(e)(6) is amended by striking 'section 167(k)' and inserting 'section 168(e)(2)(A)(ii)'.
(16) Subparagraph (C) of section 172(h)(4) is amended by striking 'subsection (b)(1)(M)' and inserting 'subsection (b)(1)(E)'.
(17) Section 6503 is amended--
(A) by redesignating the subsection relating to extension in case of certain summonses as subsection (j), and
(B) by redesignating the subsection relating to cross references as subsection (k).
(18) Paragraph (4) of section 1250(e) is hereby repealed.
(19) Paragraph (1) of section 179(d) is amended by adding at the end the following new sentence: 'Such term shall not include any property described in section 50(b) and shall not include air conditioning or heating units.'.
(i) EFFECTIVE DATE.--Except as otherwise expressly provided, any amendment made by this section shall take effect as if included in the provision of the Revenue Reconciliation Act of 1990 to which such amendment relates.
SEC. 1703. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT OF 1993.
(a) AMENDMENT RELATED TO SECTION 13114.--Paragraph (2) of section 1044(c) is amended to read as follows:
'(2) PURCHASE.--The taxpayer shall be considered to have purchased any property if, but for subsection (d), the unadjusted basis of such property would be its cost within the meaning of section 1012.'.
(b) AMENDMENTS RELATED TO SECTION 13142.--
(1) Subparagraph (B) of section 13142(b)(6) of the Revenue Reconciliation Act of 1993 is amended to read as follows:
'(B) FULL-TIME STUDENTS, WAIVER AUTHORITY, AND PROHIBITED DISCRIMINATION.--The amendments made by paragraphs (2), (3), and (4) shall take effect on the date of the enactment of this Act.'.
(2) Subparagraph (C) of section 13142(b)(6) of such Act is amended by striking 'paragraph (2)' and inserting 'paragraph (5)'.
(c) AMENDMENT RELATED TO SECTION 13161.--
(1) IN GENERAL.--Subsection (e) of section 4001 (relating to inflation adjustment) is amended to read as follows:
'(e) INFLATION ADJUSTMENT.--
'(1) IN GENERAL.--The $30,000 amount in subsection (a) and section 4003(a) shall be increased by an amount equal to--
'(A) $30,000, multiplied by
'(B) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which the vehicle is sold, determined by substituting 'calendar year 1990' for 'calendar year 1992' in subparagraph (B) thereof.
'(2) ROUNDING.--If any amount as adjusted under paragraph (1) is not a multiple of $2,000, such amount shall be rounded to the next lowest multiple of $2,000.'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall take effect on the date of the enactment of this Act.
(d) AMENDMENT RELATED TO SECTION 13201.--Clause (ii) of section 135(b)(2)(B) is amended by inserting before the period at the end thereof the following: ', determined by substituting 'calendar year 1989' for 'calendar year 1992' in subparagraph (B) thereof'.
(e) AMENDMENTS RELATED TO SECTION 13203.--Subsection (a) of section 59 is amended--
(1) by striking 'the amount determined under section 55(b)(1)(A)' in paragraph (1)(A) and (2)(A)(i) and inserting 'the pre-credit tentative minimum tax',
(2) by striking 'specified in section 55(b)(1)(A)' in paragraph (1)(C) and inserting 'specified in subparagraph (A)(i) or (B)(i) of section 55(b)(1) (whichever applies)',
(3) by striking 'which would be determined under section 55(b)(1)(A)' in paragraph (2)(A)(ii) and inserting 'which would be the pre-credit tentative minimum tax', and
(4) by adding at the end thereof the following new paragraph:
'(3) PRE-CREDIT TENTATIVE MINIMUM TAX.--For purposes of this subsection, the term 'pre-credit tentative minimum tax' means--
'(A) in the case of a taxpayer other than a corporation, the amount determined under the first sentence of section 55(b)(1)(A)(i), or
'(B) in the case of a corporation, the amount determined under section 55(b)(1)(B)(i).'.
(g) AMENDMENTS RELATED TO SECTION 13222.--
(1) Subparagraph (B) of section 6033(e)(1) is amended by adding at the end thereof the following new clause:
(h) AMENDMENT RELATED TO SECTION 13225.--Paragraph (3) of section 6655(g) is amended by striking all that follows '3rd month' in the sentence following subparagraph (C) and inserting ', subsection (e)(2)(A) shall be applied by substituting '2 months' for '3 months' in clause (i)(I), the election under clause (i) of subsection (e)(2)(C) may be made separately for each installment, and clause (ii) of subsection (e)(2)(C) shall not apply.'.
(i) AMENDMENTS RELATED TO SECTION 13231.--
(1) Subparagraph (G) of section 904(d)(3) is amended by striking 'section 951(a)(1)(B)' and inserting 'subparagraph (B) or (C) of section 951(a)(1)'.
(2) Paragraph (1) of section 956A(b) is amended to read as follows: '(1) the amount (not including a deficit) referred to in section 316(a)(1) to the extent such amount was accumulated in prior taxable years beginning after September 30, 1993, and'.
(3) Subsection (f) of section 956A is amended by inserting before the period at the end thereof: 'and regulations coordinating the provisions of subsections (c)(3)(A) and (d)'.
(4) Subsection (b) of section 958 is amended by striking '956(b)(2)' each place it appears and inserting '956(c)(2)'.
(5)(A) Subparagraph (A) of section 1297(d)(2) is amended by striking 'The adjusted basis of any asset' and inserting 'The amount taken into account under section 1296(a)(2) with respect to any asset'.
(B) The paragraph heading of paragraph (2) of section 1297(d) is amended to read as follows:
'(2) AMOUNT TAKEN INTO ACCOUNT.--'.
(6) Subsection (e) of section 1297 is amended by inserting 'For purposes of this part--' after the subsection heading.
(j) AMENDMENT RELATED TO SECTION 13241.--Subparagraph (B) of section 40(e)(1) is amended to read as follows:
(l) AMENDMENT RELATED TO SECTION 13261.--Clause (iii) of section 13261(g)(2)(A) of the Revenue Reconciliation Act of 1993 is amended by striking 'by the taxpayer' and inserting 'by the taxpayer or a related person'.
(m) AMENDMENT RELATED TO SECTION 13301.--Subparagraph (B) of section 1397B(d)(5) is amended by striking 'preceding'.
(n) CLERICAL AMENDMENTS.--
(1) Subsection (d) of section 39 is amended--
(A) by striking '45' in the heading of paragraph (5) and inserting '45A', and
(B) by striking '45' in the heading of paragraph (6) and inserting '45B'.
(2) Subparagraph (A) of section 108(d)(9) is amended by striking 'paragraph (3)(B)' and inserting 'paragraph (3)(C)'.
(3) Subparagraph (C) of section 143(d)(2) is amended by striking the period at the end thereof and inserting a comma.
(4) Clause (ii) of section 163(j)(6)(E) is amended by striking 'which is a' and inserting 'which is'.
(5) Subparagraph (A) of section 1017(b)(4) is amended by striking 'subsection (b)(2)(D)' and inserting 'subsection (b)(2)(E)'.
(6) So much of section 1245(a)(3) as precedes subparagraph (A) thereof is amended to read as follows:
'(3) SECTION 1245 PROPERTY.--For purposes of this section, the term 'section 1245 property' means any property which is or has been property of a character subject to the allowance for depreciation provided in section 167 and is either--'.
(7) Paragraph (2) of section 1394(e) is amended--
(A) by striking '(i)' and inserting '(A)', and
(B) by striking '(ii)' and inserting '(B)'.
(8) Subsection (m) of section 6501 (as redesignated by section 1602) is amended by striking 'or 51(j)' and inserting '45B, or 51(j)'.
(9)(A) The section 6714 added by section 13242(b)(1) of the Revenue Reconciliation Act of 1993 is hereby redesignated as section 6715.
(B) The table of sections for part I of subchapter B of chapter 68 is amended by striking '6714' in the item added by such section 13242(b)(2) of such Act and inserting '6715'.
(10) Paragraph (2) of section 9502(b) is amended by inserting 'and before' after '1982,'.
(11) Subsection (a)(3) of section 13206 of the Revenue Reconciliation Act of 1993 is amended by striking 'this section' and inserting 'this subsection'.
(12) Paragraph (1) of section 13215(c) of the Revenue Reconciliation Act of 1993 is amended by striking 'Public Law 92-21' and inserting 'Public Law 98-21'.
(13) Paragraph (2) of section 13311(e) of the Revenue Reconciliation Act of 1993 is amended by striking 'section 1393(a)(3)' and inserting 'section 1393(a)(2)'.
(14) Subparagraph (B) of section 117(d)(2) is amended by striking 'section 132(f)' and inserting 'section 132(h)'.
(o) EFFECTIVE DATE.--Any amendment made by this section shall take effect as if included in the provision of the Revenue Reconciliation Act of 1993 to which such amendment relates.
SEC. 1704. MISCELLANEOUS PROVISIONS.
(a) APPLICATION OF AMENDMENTS MADE BY TITLE XII OF OMNIBUS BUDGET RECONCILIATION ACT OF 1990.--Except as otherwise expressly provided, whenever in title XII of the Omnibus Budget Reconciliation Act of 1990 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.
(b) TREATMENT OF CERTAIN AMOUNTS UNDER HEDGE BOND RULES.--
(1) IN GENERAL.--Clause (iii) of section 149(g)(3)(B) is amended to read as follows:
(c) TREATMENT OF CERTAIN DISTRIBUTIONS UNDER SECTION 1445.--
(1) IN GENERAL.--Paragraph (3) of section 1445(e) is amended by adding at the end thereof the following new sentence: 'Rules similar to the rules of the preceding provisions of this paragraph shall apply in the case of any distribution to which section 301 applies and which is not made out of the earnings and profits of such a domestic corporation.'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to distributions after the date of the enactment of this Act.
(d) TREATMENT OF CERTAIN CREDITS UNDER SECTION 469.--
(1) IN GENERAL.--Subparagraph (B) of section 469(c)(3) is amended by adding at the end thereof the following new sentence: 'If the preceding sentence applies to the net income from any property for any taxable year, any credits allowable under subpart B (other than section 27(a)) or D of part IV of subchapter A for such taxable year which are attributable to such property shall be treated as credits not from a passive activity to the extent the amount of such credits does not exceed the regular tax liability of the taxpayer for the taxable year which is allocable to such net income.'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to taxable years beginning after December 31, 1986.
(e) TREATMENT OF DISPOSITIONS UNDER PASSIVE LOSS RULES.--
(1) IN GENERAL.--Subparagraph (A) of section 469(g)(1) is amended to read as follows:
'(A) IN GENERAL.--If all gain or loss realized on such disposition is recognized, the excess of--
'(i) any loss from such activity for such taxable year (determined after the application of subsection (b)), over
'(ii) any net income or gain for such taxable year from all other passive activities (determined after the application of subsection (b)),
shall be treated as a loss which is not from a passive activity.'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to taxable years beginning after December 31, 1986.
(f) MISCELLANEOUS AMENDMENTS TO FOREIGN PROVISIONS.--
(1) COORDINATION OF UNIFIED ESTATE TAX CREDIT WITH TREATIES.--Subparagraph (A) of section 2102(c)(3) is amended by adding at the end thereof the following new sentence: '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.'.
(2) TREATMENT OF CERTAIN INTEREST PAID TO RELATED PERSON.--
(A) Subparagraph (B) of section 163(j)(1) is amended by inserting before the period at the end thereof the following: '(and clause (ii) of paragraph (2)(A) shall not apply for purposes of applying this subsection to the amount so treated)'.
(B) Subsection (j) of section 163 is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph:
'(7) COORDINATION WITH PASSIVE LOSS RULES, ETC.--This subsection shall be applied before sections 465 and 469.'.
(C) The amendments made by this paragraph shall apply as if included in the amendments made by section 7210(a) of the Revenue Reconciliation Act of 1989.
(3) TREATMENT OF INTEREST ALLOCABLE TO EFFECTIVELY CONNECTED INCOME.--
(A) IN GENERAL.--
(i) Subparagraph (B) of section 884(f)(1) is amended by striking 'to the extent' and all that follows down through 'subparagraph (A)' and inserting 'to the extent that the allocable interest exceeds the interest described in subparagraph (A)'.
(ii) The second sentence of section 884(f)(1) is amended by striking 'reasonably expected' and all that follows down through the period at the end thereof and inserting 'reasonably expected to be allocable interest.'.
(iii) Paragraph (2) of section 884(f) is amended to read as follows:
(B) EFFECTIVE DATE.--The amendments made by subparagraph (A) shall take effect as if included in the amendments made by section 1241(a) of the Tax Reform Act of 1986.
(4) CLARIFICATION OF SOURCE RULE.--
(A) IN GENERAL.--Paragraph (2) of section 865(b) is amended by striking '863(b)' and inserting '863'.
(B) EFFECTIVE DATE.--The amendment made by subparagraph (A) shall take effect as if included in the amendments made by section 1211 of the Tax Reform Act of 1986.
(5) REPEAL OF OBSOLETE PROVISIONS.--
(A) Paragraph (1) of section 6038(a) is amended by striking ', and' at the end of subparagraph (E) and inserting a period, and by striking subparagraph (F).
(B) Subsection (b) of section 6038A is amended by adding 'and' at the end of paragraph (2), by striking ', and' at the end of paragraph (3) and inserting a period, and by striking paragraph (4).
(1) IN GENERAL.--
(A) Subclause (V) of section 4980B(f)(2)(B)(i) is amended to read as follows:
'(v) MEDICARE ENTITLEMENT FOLLOWED BY QUALIFYING EVENT.--In the case of a qualifying event described in section 603(2) that occurs less than 18 months after the date the covered employee became entitled to benefits under title XVIII of the Social Security Act, the period of coverage for qualified beneficiaries other than the covered employee shall not terminate under this subparagraph before the close of the 36-month period beginning on the date the covered employee became so entitled.'.
(C) Clause (iv) of section 2202(2)(A) of the Public Health Service Act is amended to read as follows:
'(iv) MEDICARE ENTITLEMENT FOLLOWED BY QUALIFYING EVENT.--In the case of a qualifying event described in section 2203(2) that occurs less than 18 months after the date the covered employee became entitled to benefits under title XVIII of the Social Security Act, the period of coverage for qualified beneficiaries other than the covered employee shall not terminate under this subparagraph before the close of the 36-month period beginning on the date the covered employee became so entitled.'.
(h) TREATMENT OF CERTAIN REMIC INCLUSIONS.--
(1) IN GENERAL.--Subsection (a) of section 860E is amended by adding at the end thereof the following new paragraph:
'(6) COORDINATION WITH MINIMUM TAX.--For purposes of part VI of subchapter A of this chapter--
'(A) the reference in section 55(b)(2) to taxable income shall be treated as a reference to taxable income determined without regard to this subsection,
'(B) the alternative minimum taxable income of any holder of a residual interest in a REMIC for any taxable year shall in no event be less than the excess inclusion for such taxable year, and
'(C) any excess inclusion shall be disregarded for purposes of computing the alternative tax net operating loss deduction.
The preceding sentence shall not apply to any organization to which section 593 applies, except to the extent provided in regulations prescribed by the Secretary under paragraph (2).'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall take effect as if included in the amendments made by section 671 of the Tax Reform Act of 1986 unless the taxpayer elects to apply such amendment only to taxable years beginning after the date of the enactment of this Act.
(i) EXEMPTION FROM HARBOR MAINTENANCE TAX FOR CERTAIN PASSENGERS.--
(1) IN GENERAL.--Subparagraph (D) of section 4462(b)(1) (relating to special rule for Alaska, Hawaii, and possessions) is amended by inserting before the period the following: ', or passengers transported on United States flag vessels operating solely within the State waters of Alaska or Hawaii and adjacent international waters'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall take effect as if included in the amendments made by section 1402(a) of the Harbor Maintenance Revenue Act of 1986.
(j) AMENDMENTS RELATED TO REVENUE PROVISIONS OF ENERGY POLICY ACT OF 1992.--
(1) Effective with respect to taxable years beginning after December 31, 1990, subclause (II) of section 53(d)(1)(B)(iv) is amended to read as follows:
(3) Subparagraph (E) of section 6724(d)(3) is amended by striking 'section 6109(f)' and inserting 'section 6109(h)'.
(4)(A) Subsection (d) of section 30 is amended--
(ii) by adding at the end thereof the following new paragraph:
(B) Subsection (m) of section 6501 (as redesignated by section 1602) is amended by striking 'section 40(f)' and inserting 'sections 30(d)(4), 40(f)'.
(5) Subclause (III) of section 501(c)(21)(D)(ii) is amended by striking 'section 101(6)' and inserting 'section 101(7)' and by striking '1752(6)' and inserting '1752(7)'.
(6) Paragraph (1) of section 1917(b) of the Energy Policy Act of 1992 shall be applied as if 'at a rate' appeared instead of 'at the rate' in the material proposed to be stricken.
(7) Paragraph (2) of section 1921(b) of the Energy Policy Act of 1992 shall be applied as if a comma appeared after '(2)' in the material proposed to be stricken.
(8) Subsection (a) of section 1937 of the Energy Policy Act of 1992 shall be applied as if 'Subpart B' appeared instead of 'Subpart C'.
(k) TREATMENT OF QUALIFIED FOOTBALL COACHES PLAN.--
(1) IN GENERAL.--For purposes of the Internal Revenue Code of 1986, a qualified football coaches plan--
(A) shall be treated as a multiemployer collectively bargained plan, and
(B) notwithstanding section 401(k)(4)(B) of such Code, may include a qualified cash and deferred arrangement under section 401(k) of such Code.
(2) QUALIFIED FOOTBALL COACHES PLAN.--For purposes of this subsection, the term 'qualified football coaches plan' means any defined contribution plan which is established and maintained by an organization--
(A) which is described in section 501(c) of such Code,
(B) the membership of which consists entirely of individuals who primarily coach football as full-time employees of 4-year colleges or universities described in section 170(b)(1)(A)(ii) of such Code, and
(C) which was in existence on September 18, 1986.
(3) EFFECTIVE DATE.--This subsection shall apply to years beginning after December 22, 1987.
(l) DETERMINATION OF UNRECOVERED INVESTMENT IN ANNUITY CONTRACT.--
(1) IN GENERAL.--Subparagraph (A) of section 72(b)(4) is amended by inserting '(determined without regard to subsection (c)(2))' after 'contract'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall take effect as if included in the amendments made by section 1122(c) of the Tax Reform Act of 1986.
(m) MODIFICATIONS TO ELECTION TO INCLUDE CHILD'S INCOME ON PARENT'S RETURN.--
(1) ELIGIBILITY FOR ELECTION.--Clause (ii) of section 1(g)(7)(A) (relating to election to include certain unearned income of child on parent's return) is amended to read as follows:
(A) by striking '$1,000' in clause (i) and inserting 'twice the amount described in paragraph (4)(A)(ii)(I)', and
(B) by amending subclause (II) of clause (ii) to read as follows:
(4) EFFECTIVE DATE.--The amendments made by this subsection shall apply to taxable years beginning after December 31, 1995.
(n) TREATMENT OF CERTAIN VETERANS' REEMPLOYMENT RIGHTS.--
(1) IN GENERAL.--Section 414 is amended by adding at the end the following new subsection:
'(u) SPECIAL RULES RELATING TO VETERANS' REEMPLOYMENT RIGHTS UNDER USERRA.--
'(1) TREATMENT OF CERTAIN CONTRIBUTIONS MADE PURSUANT TO VETERANS' REEMPLOYMENT RIGHTS.--If any contribution is made by an employer or an employee under an individual account plan with respect to an employee, or by an employee to a defined benefit plan that provides for employee contributions, and such contribution is required by reason of such employee's rights under chapter 43 of title 38, United States Code, resulting from qualified military service, then--
'(A) such contribution shall not be subject to any otherwise applicable limitation contained in section 402(g), 402(h), 403(b), 404(a), 404(h), 408, 415, or 457, and shall not be taken into account in applying such limitations to other contributions or benefits under such plan or any other plan, with respect to the year in which the contribution is made,
'(B) such contribution shall be subject to the limitations referred to in subparagraph (A) with respect to the year to which the contribution relates (in accordance with rules prescribed by the Secretary), and
'(C) such plan shall not be treated as failing to meet the requirements of section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k)(3), 408(k)(6), 408(p), 410(b), or 416 by reason of the making of (or the right to make) such contribution.
For purposes of the preceding sentence, any elective deferral or employee contribution made under paragraph (2) shall be treated as required by reason of the employee's rights under such chapter 43.
'(2) REEMPLOYMENT RIGHTS UNDER USERRA WITH RESPECT TO ELECTIVE DEFERRALS.--
'(A) IN GENERAL.--For purposes of this subchapter and section 457, if an employee is entitled to the benefits of chapter 43 of title 38, United States Code, with respect to any plan which provides for elective deferrals, the employer sponsoring the plan shall be treated as meeting the requirements of such chapter 43 with respect to such elective deferrals only if such employer--
'(i) permits such employee to make additional elective deferrals under such plan (in the amount determined under subparagraph (B) or such lesser amount as is elected by the employee) during the period which begins on the date of the reemployment of such employee with such employer and has the same length as the lesser of--
'(I) the product of 3 and the period of qualified military service which resulted in such rights, and
'(II) 5 years, and
'(ii) makes a matching contribution with respect to any additional elective deferral made pursuant to clause (i) which would have been required had such deferral actually been made during the period of such qualified military service.
'(B) AMOUNT OF MAKEUP REQUIRED.--The amount determined under this subparagraph with respect to any plan is the maximum amount of the elective deferrals that the individual would have been permitted to make under the plan in accordance with the limitations referred to in paragraph (1)(A) during the period of qualified military service if the individual had continued to be employed by the employer during such period and received compensation as determined under paragraph (7). Proper adjustment shall be made to the amount determined under the preceding sentence for any elective deferrals actually made during the period of such qualified military service.
'(C) ELECTIVE DEFERRAL.--For purposes of this paragraph, the term 'elective deferral' has the meaning given such term by section 402(g)(3); except that such term shall include any deferral of compensation under an eligible deferred compensation plan (as defined in section 457(b)).
'(D) AFTER-TAX EMPLOYEE CONTRIBUTIONS.--References in subparagraphs (A) and (B) to elective deferrals shall be treated as including references to employee contributions.
'(3) CERTAIN RETROACTIVE ADJUSTMENTS NOT REQUIRED.--For purposes of this subchapter and subchapter E, no provision of chapter 43 of title 38, United States Code, shall be construed as requiring--
'(A) any crediting of earnings to an employee with respect to any contribution before such contribution is actually made, or
'(B) any allocation of any forfeiture with respect to the period of qualified military service.
'(4) LOAN REPAYMENT SUSPENSIONS PERMITTED.--If any plan suspends the obligation to repay any loan made to an employee from such plan for any part of any period during which such employee is performing service in the uniformed services (as defined in chapter 43 of title 38, United States Code), whether or not qualified military service, such suspension shall not be taken into account for purposes of section 72(p), 401(a), or 4975(d)(1).
'(5) QUALIFIED MILITARY SERVICE.--For purposes of this subsection, the term 'qualified military service' means any service in the uniformed services (as defined in chapter 43 of title 38, United States Code) by any individual if such individual is entitled to reemployment rights under such chapter with respect to such service.
'(6) INDIVIDUAL ACCOUNT PLAN.--For purposes of this subsection, the term 'individual account plan' means any defined contribution plan (including any tax-sheltered annuity plan under section 403(b), any simplified employee pension under section 408(k), any qualified salary reduction arrangement under section 408(p), and any eligible deferred compensation plan (as defined in section 457(b)).
'(7) COMPENSATION.--For purposes of sections 403(b)(3), 415(c)(3), and 457(e)(5), an employee who is in qualified military service shall be treated as receiving compensation from the employer during such period of qualified military service equal to--
'(A) the compensation the employee would have received during such period if the employee were not in qualified military service, determined based on the rate of pay the employee would have received from the employer but for absence during the period of qualified military service, or
'(B) if the compensation the employee would have received during such period was not reasonably certain, the employee's average compensation from the employer during the 12-month period immediately preceding the qualified military service (or, if shorter, the period of employment immediately preceding the qualified military service).
'(8) USERRA REQUIREMENTS FOR QUALIFIED RETIREMENT PLANS.--For purposes of this subchapter and section 457, an employer sponsoring a retirement plan shall be treated as meeting the requirements of chapter 43 of title 38, United States Code, only if each of the following requirements is met:
'(A) An individual reemployed under such chapter is treated with respect to such plan as not having incurred a break in service with the employer maintaining the plan by reason of such individual's period of qualified military service.
'(B) Each period of qualified military service served by an individual is, upon reemployment under such chapter, deemed with respect to such plan to constitute service with the employer maintaining the plan for the purpose of determining the nonforfeitability of the individual's accrued benefits under such plan and for the purpose of determining the accrual of benefits under such plan.
'(C) An individual reemployed under such chapter is entitled to accrued benefits that are contingent on the making of, or derived from, employee contributions or elective deferrals only to the extent the individual makes payment to the plan with respect to such contributions or deferrals. No such payment may exceed the amount the individual would have been permitted or required to contribute had the individual remained continuously employed by the employer throughout the period of qualified military service. Any payment to such plan shall be made during the period beginning with the date of reemployment and whose duration is 3 times the period of the qualified military service (but not greater than 5 years).
'(9) PLANS NOT SUBJECT TO TITLE 38.--This subsection shall not apply to any retirement plan to which chapter 43 of title 38, United States Code, does not apply.
'(10) REFERENCES.--For purposes of this section, any reference to chapter 43 of title 38, United States Code, shall be treated as a reference to such chapter as in effect on December 12, 1994 (without regard to any subsequent amendment).'.
(2) AMENDMENT TO ERISA.--Section 408(b)(1) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1148(b)) is amended by adding at the end the following new sentence: 'A loan made by a plan shall not fail to meet the requirements of the preceding sentence by reason of a loan repayment suspension described under section 414(u)(4) of the Internal Revenue Code of 1986.'.
(3) EFFECTIVE DATE.--The amendments made by this subsection shall be effective as of December 12, 1994.
(o) REPORTING OF REAL ESTATE TRANSACTIONS.--
(1) IN GENERAL.--Paragraph (3) of section 6045(e) (relating to prohibition of separate charge for filing return) is amended by adding at the end the following new sentence: 'Nothing in this paragraph shall be construed to prohibit the real estate reporting person from taking into account its cost of complying with such requirement in establishing its charge (other than a separate charge for complying with such requirement) to any customer for performing services in the case of a real estate transaction.'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall take effect as if included in section 1015(e)(2)(A) of the Technical and Miscellaneous Revenue Act of 1988.
(p) CLARIFICATION OF DENIAL OF DEDUCTION FOR STOCK REDEMPTION EXPENSES.--
(1) IN GENERAL.--Paragraph (1) of section 162(k) is amended by striking 'the redemption of its stock' and inserting 'the reacquisition of its stock or of the stock of any related person (as defined in section 465(b)(3)(C))'.
(2) CERTAIN DEDUCTIONS PERMITTED.--Subparagraph (A) of section 162(k)(2) is amended by striking 'or' at the end of clause (i), by redesignating clause (ii) as clause (iii), and by inserting after clause (i) the following new clause:
(4) EFFECTIVE DATE.--
(A) IN GENERAL.--Except as provided in subparagraph (B), the amendments made by this subsection shall apply to amounts paid or incurred after September 13, 1995, in taxable years ending after such date.
(B) PARAGRAPH (2).--The amendment made by paragraph (2) shall take effect as if included in the amendment made by section 613 of the Tax Reform Act of 1986.
(1) IN GENERAL.--Paragraph (1) of section 404(j) is amended by striking '(10)' and inserting '(9)'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall take effect as if included in the amendments made by section 713(d)(4)(A) of the Deficit Reduction Act of 1984.
(r) PASSIVE INCOME NOT TO INCLUDE FSC INCOME, ETC.--
(1) IN GENERAL.--Paragraph (2) of section 1296(b) is amended by striking 'or' at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting ', or', and by inserting after subparagraph (C) the following new subparagraph:
'(D) which is foreign trade income of an FSC or export trade income of an export trade corporation (as defined in section 971).'.
(2) EFFECTIVE DATE.--The amendments made by paragraph (1) shall take effect as if included in the amendments made by section 1235 of the Tax Reform Act of 1986.
(s) TECHNICAL CORRECTION OF INTERMEDIATE SANCTIONS PROVISIONS.--
(1) Subparagraph (C) of section 6652(c)(1) is amended by striking '$10' and inserting '$20', and by striking '$5,000' and inserting '$10,000'.
(2) Subparagraph (D) of section 6652(c)(1) is amended by striking '$10' and inserting '$20'.
(t) MISCELLANEOUS CLERICAL AMENDMENTS.--
(1) Subclause (II) of section 56(g)(4)(C)(ii) is amended by striking 'of the subclause' and inserting 'of subclause'.
(2) Paragraph (2) of section 72(m) is amended by inserting 'and' at the end of subparagraph (A), by striking subparagraph (B), and by redesignating subparagraph (C) as subparagraph (B).
(3) Paragraph (2) of section 86(b) is amended by striking 'adusted' and inserting 'adjusted'.
(4)(A) The heading for section 112 is amended by striking 'combat pay' and inserting 'combat zone compensation'.
(B) The item relating to section 112 in the table of sections for part III of subchapter B of chapter 1 is amended by striking 'combat pay' and inserting 'combat zone compensation'.
(C) Paragraph (1) of section 3401(a) is amended by striking 'combat pay' and inserting 'combat zone compensation'.
(5) Clause (i) of section 172(h)(3)(B) is amended by striking the comma at the end thereof and inserting a period.
(6) Clause (ii) of section 543(a)(2)(B) is amended by striking 'section 563(c)' and inserting 'section 563(d)'.
(7) Paragraph (1) of section 958(a) is amended by striking 'sections 955(b)(1)(A) and (B), 955(c)(2)(A)(ii), and 960(a)(1)' and inserting 'section 960(a)(1)'.
(8) Subsection (g) of section 642 is amended by striking 'under 2621(a)(2)' and inserting 'under section 2621(a)(2)'.
(9) Section 1463 is amended by striking 'this subsection' and inserting 'this section'.
(10) Subsection (k) of section 3306 is amended by inserting a period at the end thereof.
(11) The item relating to section 4472 in the table of sections for subchapter B of chapter 36 is amended by striking 'and special rules'.
(12) Paragraph (3) of section 5134(c) is amended by striking 'section 6662(a)' and inserting 'section 6665(a)'.
(13) Paragraph (2) of section 5206(f) is amended by striking 'section 5(e)' and inserting 'section 105(e)'.
(14) Paragraph (1) of section 6050B(c) is amended by striking 'section 85(c)' and inserting 'section 85(b)'.
(15) Subsection (k) of section 6166 is amended by striking paragraph (6).
(16) Subsection (e) of section 6214 is amended to read as follows:
'(e) CROSS REFERENCE.--
'For provision giving Tax Court jurisdiction to order a refund of an overpayment and to award sanctions, see section 6512(b)(2).'.
(17) The section heading for section 6043 is amended by striking the semicolon and inserting a comma.
(18) The item relating to section 6043 in the table of sections for subpart B of part III of subchapter A of chapter 61 is amended by striking the semicolon and inserting a comma.
(19) The table of sections for part I of subchapter A of chapter 68 is amended by striking the item relating to section 6662.
(20)(A) Section 7232 is amended--
(ii) by striking 'lubricating oil,' in the text.
(B) The table of sections for part II of subchapter A of chapter 75 is amended by striking 'lubricating oil,' in the item relating to section 7232.
(21) Paragraph (1) of section 6701(a) of the Omnibus Budget Reconciliation Act of 1989 is amended by striking 'subclause (IV)' and inserting 'subclause (V)'.
(22) Clause (ii) of section 7304(a)(2)(D) of such Act is amended by striking 'subsection (c)(2)' and inserting 'subsection (c)'.
(23) Paragraph (1) of section 7646(b) of such Act is amended by striking 'section 6050H(b)(1)' and inserting 'section 6050H(b)(2)'.
(24) Paragraph (10) of section 7721(c) of such Act is amended by striking 'section 6662(b)(2)(C)(ii)' and inserting 'section 6661(b)(2)(C)(ii)'.
(25) Subparagraph (A) of section 7811(i)(3) of such Act is amended by inserting 'the first place it appears' before 'in clause (i)'.
(26) Paragraph (10) of section 7841(d) of such Act is amended by striking 'section 381(a)' and inserting 'section 381(c)'.
(27) Paragraph (2) of section 7861(c) of such Act is amended by inserting 'the second place it appears' before 'and inserting'.
(28) Paragraph (1) of section 460(b) is amended by striking 'the look-back method of paragraph (3)' and inserting 'the look-back method of paragraph (2)'.
(29) Subparagraph (C) of section 50(a)(2) is amended by striking 'subsection (c)(4)' and inserting 'subsection (d)(5)'.
(30) Subparagraph (B) of section 172(h)(4) is amended by striking the material following the heading and preceding clause (i) and inserting 'For purposes of subsection (b)(2)--'.
(31) Subparagraph (A) of section 355(d)(7) is amended by inserting 'section' before '267(b)'.
(32) Subparagraph (C) of section 420(e)(1) is amended by striking 'mean' and inserting 'means'.
(33) Paragraph (4) of section 537(b) is amended by striking 'section 172(i)' and inserting 'section 172(f)'.
(34) Subparagraph (B) of section 613(e)(1) is amended by striking the comma at the end thereof and inserting a period.
(35) Paragraph (4) of section 856(a) is amended by striking 'section 582(c)(5)' and inserting 'section 582(c)(2)'.
(36) Sections 904(f)(2)(B)(i) and 907(c)(4)(B)(iii) are each amended by inserting '(as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)' after 'section 172(h)'.
(37) Subsection (b) of section 936 is amended by striking 'subparagraphs (D)(ii)(I)' and inserting 'subparagraphs (D)(ii)'.
(38) Subsection (c) of section 2104 is amended by striking 'subparagraph (A), (C), or (D) of section 861(a)(1)' and inserting 'section 861(a)(1)(A)'.
(39) Subparagraph (A) of section 280A(c)(1) is amended to read as follows:
'(A) as the principal place of business for any trade or business of the taxpayer,'.
(40) Section 6038 is amended by redesignating the subsection relating to cross references as subsection (f).
(41) Clause (iv) of section 6103(e)(1)(A) is amended by striking all that follows 'provisions of' and inserting 'section 1(g) or 59(j);'.
(42) The subsection (f) of section 6109 of the Internal Revenue Code of 1986 which was added by section 2201(d) of Public Law 101-624 is redesignated as subsection (g).
(43) Subsection (b) of section 7454 is amended by striking 'section 4955(e)(2)' and inserting 'section 4955(f)(2)'.
(44) Subsection (d) of section 11231 of the Revenue Reconciliation Act of 1990 shall be applied as if 'comma' appeared instead of 'period' and as if the paragraph (9) proposed to be added ended with a comma.
(45) Paragraph (1) of section 11303(b) of the Revenue Reconciliation Act of 1990 shall be applied as if 'paragraph' appeared instead of 'subparagraph' in the material proposed to be stricken.
(46) Subsection (f) of section 11701 of the Revenue Reconciliation Act of 1990 is amended by inserting '(relating to definitions)' after 'section 6038(e)'.
(47) Subsection (i) of section 11701 of the Revenue Reconciliation Act of 1990 shall be applied as if 'subsection' appeared instead of 'section' in the material proposed to be stricken.
(48) Subparagraph (B) of section 11801(c)(2) of the Revenue Reconciliation Act of 1990 shall be applied as if 'section 56(g)' appeared instead of 'section 59(g)'.
(49) Subparagraph (C) of section 11801(c)(8) of the Revenue Reconciliation Act of 1990 shall be applied as if 'reorganizations' appeared instead of 'reorganization' in the material proposed to be stricken.
(50) Subparagraph (H) of section 11801(c)(9) of the Revenue Reconciliation Act of 1990 shall be applied as if 'section 1042(c)(1)(B)' appeared instead of 'section 1042(c)(2)(B)'.
(51) Subparagraph (F) of section 11801(c)(12) of the Revenue Reconciliation Act of 1990 shall be applied as if 'and (3)' appeared instead of 'and (E)'.
(52) Subparagraph (A) of section 11801(c)(22) of the Revenue Reconciliation Act of 1990 shall be applied as if 'chapters 21' appeared instead of 'chapter 21' in the material proposed to be stricken.
(53) Paragraph (3) of section 11812(b) of the Revenue Reconciliation Act of 1990 shall be applied by not executing the amendment therein to the heading of section 42(d)(5)(B).
(54) Clause (i) of section 11813(b)(9)(A) of the Revenue Reconciliation Act of 1990 shall be applied as if a comma appeared after '(3)(A)(ix)' in the material proposed to be stricken.
(55) Subparagraph (F) of section 11813(b)(13) of the Revenue Reconciliation Act of 1990 shall be applied as if 'tax' appeared after 'investment' in the material proposed to be stricken.
(56) Paragraph (19) of section 11813(b) of the Revenue Reconciliation Act of 1990 shall be applied as if 'Paragraph (20) of section 1016(a), as redesignated by section 11801,' appeared instead of 'Paragraph (21) of section 1016(a)'.
(57) Paragraph (5) section 8002(a) of the Surface Transportation Revenue Act of 1991 shall be applied as if '4481(e)' appeared instead of '4481(c)'.
(58) Section 7872 is amended--
(A) by striking 'foregone' each place it appears in subsections (a) and (e)(2) and inserting 'forgone', and
(B) by striking 'FOREGONE' in the heading for subsection (e) and the heading for paragraph (2) of subsection (e) and inserting 'FORGONE'.
(59) Paragraph (7) of section 7611(h) is amended by striking 'approporiate' and inserting 'appropriate'.
(60) The heading of paragraph (3) of section 419A(c) is amended by striking 'SEVERENCE' and inserting 'SEVERANCE'.
(61) Clause (ii) of section 807(d)(3)(B) is amended by striking 'Commissoners' and inserting 'Commissioners'.
(62) Subparagraph (B) of section 1274A(c)(1) is amended by striking 'instument' and inserting 'instrument'.
(63) Subparagraph (B) of section 724(d)(3) by striking 'Subparagaph' and inserting 'Subparagraph'.
(64) The last sentence of paragraph (2) of section 42(c) is amended by striking 'of 1988'.
(65) Paragraph (1) of section 9707(d) is amended by striking 'diligence,' and inserting 'diligence'.
(66) Subsection (c) of section 4977 is amended by striking 'section 132(i)(2)' and inserting 'section 132(h)'.
(67) The last sentence of section 401(a)(20) is amended by striking 'section 211' and inserting 'section 521'.
(68) Subparagraph (A) of section 402(g)(3) is amended by striking 'subsection (a)(8)' and inserting 'subsection (e)(3)'.
(69) The last sentence of section 403(b)(10) is amended by striking 'an direct' and inserting 'a direct'.
(70) Subparagraph (A) of section 4973(b)(1) is amended by striking 'sections 402(c)' and inserting 'section 402(c)'.
(71) Paragraph (12) of section 3405(e) is amended by striking '(b)(3)' and inserting '(b)(2)'.
(72) Paragraph (41) of section 521(b) of the Unemployment Compensation Amendments of 1992 shall be applied as if 'section' appeared instead of 'sections' in the material proposed to be stricken.
(73) Paragraph (27) of section 521(b) of the Unemployment Compensation Amendments of 1992 shall be applied as if 'Section 691(c)(5)' appeared instead of 'Section 691(c)'.
(74) Paragraph (5) of section 860F(a) is amended by striking 'paragraph (1)' and inserting 'paragraph (2)'.
(75) Paragraph (1) of section 415(k) is amended by adding 'or' at the end of subparagraph (C), by striking subparagraphs (D) and (E), and by redesignating subparagraph (F) as subparagraph (D).
(76) Paragraph (2) of section 404(a) is amended by striking '(18),'.
(77) Clause (ii) of section 72(p)(4)(A) is amended to read as follows:
(79) Subsection (a) of section 164 is amended by striking the paragraphs relating to the generation-skipping tax and the environmental tax imposed by section 59A and by inserting after paragraph (3) the following new paragraphs:
'(4) The GST tax imposed on income distributions.
'(5) The environmental tax imposed by section 59A.'.
(80) Subclause (I) of section 936(a)(4)(A)(ii) is amended by striking 'deprecation' and inserting 'depreciation'.
SEC. 1801. EXEMPTION FROM DIESEL FUEL DYEING REQUIREMENTS WITH RESPECT TO CERTAIN STATES.
(a) IN GENERAL.--Section 4082 (relating to exemptions for diesel fuel) is amended by redesignating subsections (c) and (d) as subsections (d) and (e), respectively, and by inserting after subsection (b) the following new subsection:
'(c) EXCEPTION TO DYEING REQUIREMENTS.--Paragraph (2) of subsection (a) shall not apply with respect to any diesel fuel--
'(1) removed, entered, or sold in a State for ultimate sale or use in an area of such State during the period such area is exempted from the fuel dyeing requirements under subsection (i) of section 211 of the Clean Air Act (as in effect on the date of the enactment of this subsection) by the Administrator of the Environmental Protection Agency under paragraph (4) of such subsection (i) (as so in effect), and
'(2) the use of which is certified pursuant to regulations issued by the Secretary.'.
(b) EFFECTIVE DATE.--The amendments made by this section shall apply with respect to fuel removed, entered, or sold on or after the first day of the first calendar quarter beginning after the date of the enactment of this Act.
SEC. 1802. TREATMENT OF CERTAIN UNIVERSITY ACCOUNTS.
(a) IN GENERAL.--For purposes of subsection (s) of section 3121 of the Internal Revenue Code of 1986 (relating to concurrent employment by 2 or more employers)--
(1) the following entities shall be deemed to be related corporations that concurrently employ the same individual:
(A) a State university which employs health professionals as faculty members at a medical school, and
(B) an agency account of a State university which is described in subparagraph (A) and from which there is distributed to such faculty members payments forming a part of the compensation that the State, or such State university, as the case may be, agrees to pay to such faculty members, but only if--
(i) such agency account is authorized by State law and receives the funds for such payments from a faculty practice plan described in section 501(c)(3) of such Code and exempt from tax under section 501(a) of such Code,
(ii) such payments are distributed by such agency account to such faculty members who render patient care at such medical school, and
(iii) such faculty members comprise at least 30 percent of the membership of such faculty practice plan, and
(b) EFFECTIVE DATE.--The provisions of subsection (a) shall apply to remuneration paid after December 31, 1996.
SEC. 1803. MODIFICATIONS TO EXCISE TAX ON OZONE-DEPLETING CHEMICALS.
(a) RECYCLED HALON.--
(1) IN GENERAL.--Section 4682(d)(1) (relating to recycling) is amended by inserting ', or on any recycled halon imported from any country which is a signatory to the Montreal Protocol on Substances that Deplete the Ozone Layer' before the period at the end.
(2) CERTIFICATION SYSTEM.--The Secretary of the Treasury, after consultation with the Administrator of the Environmental Protection Agency, shall develop a certification system to ensure compliance with the recycling requirement for imported halon under section 4682(d)(1) of the Internal Revenue Code of 1986, as amended by paragraph (1).
(b) CHEMICALS USED AS PROPELLANTS IN METERED-DOSE INHALERS TAX-EXEMPT.--Paragraph (4) of section 4682(g) (relating to phase-in of tax on certain substances) is amended to read as follows:
'(4) CHEMICALS USED AS PROPELLANTS IN METERED-DOSE INHALERS.--
'(A) TAX-EXEMPT.--
'(i) IN GENERAL.--No tax shall be imposed by section 4681 on--
'(I) any use of any substance as a propellant in metered-dose inhalers, or
'(II) any qualified sale by the manufacturer, producer, or importer of any substance.
'(ii) QUALIFIED SALE.--For purposes of clause (i), the term 'qualified sale' means any sale by the manufacturer, producer, or importer of any substance--
'(I) for use by the purchaser as a propellant in metered-dose inhalers, or
'(II) for resale by the purchaser to a 2d purchaser for such use by the 2d purchaser.
'(B) OVERPAYMENTS.--If any substance on which tax was paid under this subchapter is used by any person as a propellant in metered-dose inhalers, credit or refund without interest shall be allowed to such person in an amount equal to the tax so paid. Amounts payable under the preceding sentence with respect to uses during the taxable year shall be treated as described in section 34(a) for such year unless claim thereof has been timely filed under this subparagraph.'.
(1) RECYCLED HALON.--
(A) IN GENERAL.--Except as provided in subparagraph (B), the amendment made by subsection (a)(1) shall take effect on January 1, 1997.
(B) HALON-1211.--In the case of Halon-1211, the amendment made by subsection (a)(1) shall take effect on January 1, 1998.
(2) METERED-DOSE INHALERS.--The amendment made by subsection (b) shall take effect on the 7th day after the date of the enactment of this Act.
Sections 142(f)(3) (as added by section 1608) and 147(d) of the Internal Revenue Code of 1986 shall not apply in determining whether any private activity bond issued after the date of the enactment of this Act and used to finance the acquisition of the Snettisham hydroelectric project from the Alaska Power Administration is a qualified bond for purposes of such Code.
SEC. 1805. NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS BY COMMON TRUST FUNDS TO REGULATED INVESTMENT COMPANIES.
(a) GENERAL RULE.--Section 584 (relating to common trust funds) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection:
'(h) NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS TO REGULATED INVESTMENT COMPANIES.--
'(1) IN GENERAL.--If--
'(A) a common trust fund transfers substantially all of its assets to one or more regulated investment companies in exchange solely for stock in the company or companies to which such assets are so transferred, and
'(B) such stock is distributed by such common trust fund to participants in such common trust fund in exchange solely for their interests in such common trust fund,
no gain or loss shall be recognized by such common trust fund by reason of such transfer or distribution, and no gain or loss shall be recognized by any participant in such common trust fund by reason of such exchange.
'(2) BASIS RULES.--
'(A) REGULATED INVESTMENT COMPANY.--The basis of any asset received by a regulated investment company in a transfer referred to in paragraph (1)(A) shall be the same as it would be in the hands of the common trust fund.
'(B) PARTICIPANTS.--The basis of the stock which is received in an exchange referred to in paragraph (1)(B) shall be the same as that of the property exchanged. If stock in more than one regulated investment company is received in such exchange, the basis determined under the preceding sentence shall be allocated among the stock in each such company on the basis of respective fair market values.
'(3) TREATMENT OF ASSUMPTIONS OF LIABILITY.--
'(A) IN GENERAL.--In determining whether the transfer referred to in paragraph (1)(A) is in exchange solely for stock in one or more regulated investment companies, the assumption by any such company of a liability of the common trust fund, and the fact that any property transferred by the common trust fund is subject to a liability, shall be disregarded.
'(B) SPECIAL RULE WHERE ASSUMED LIABILITIES EXCEED BASIS.--
'(i) IN GENERAL.--If, in any transfer referred to in paragraph (1)(A), the assumed liabilities exceed the aggregate adjusted bases (in the hands of the common trust fund) of the assets transferred to the regulated investment company or companies--
'(I) notwithstanding paragraph (1), gain shall be recognized to the common trust fund on such transfer in an amount equal to such excess,
'(II) the basis of the assets received by the regulated investment company or companies in such transfer shall be increased by the amount so recognized, and
'(III) any adjustment to the basis of a participant's interest in the common trust fund as a result of the gain so recognized shall be treated as occurring immediately before the exchange referred to in paragraph (1)(B).
If the transfer referred to in paragraph (1)(A) is to two or more regulated investment companies, the basis increase under subclause (II) shall be allocated among such companies on the basis of the respective fair market values of the assets received by each of such companies.
'(ii) ASSUMED LIABILITIES.--For purposes of clause (i), the term 'assumed liabilities' means the aggregate of--
'(I) any liability of the common trust fund assumed by any regulated investment company in connection with the transfer referred to in paragraph (1)(A), and
'(II) any liability to which property so transferred is subject.
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to transfers after December 31, 1995.
SEC. 1806. QUALIFIED STATE TUITION PROGRAMS.
(a) IN GENERAL.--Subchapter F of chapter 1 (relating to exempt organizations) is amended by adding at the end the following new part:
'PART VIII--QUALIFIED STATE TUITION PROGRAMS
'Sec. 529. Qualified State tuition programs.
'SEC. 529. QUALIFIED STATE TUITION PROGRAMS.
'(a) GENERAL RULE.--A qualified State tuition program shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, such program shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations).
'(b) QUALIFIED STATE TUITION PROGRAM.--For purposes of this section--
'(1) IN GENERAL.--The term 'qualified State tuition program' means a program established and maintained by a State or agency or instrumentality thereof--
'(A) under which a person--
'(i) may purchase tuition credits or certificates on behalf of a designated beneficiary which entitle the beneficiary to the waiver or payment of qualified higher education expenses of the beneficiary, or
'(ii) may make contributions to an account which is established for the purpose of meeting the qualified higher education expenses of the designated beneficiary of the account, and
'(B) which meets the other requirements of this subsection.
'(2) CASH CONTRIBUTIONS.--A program shall not be treated as a qualified State tuition program unless it provides that purchases or contributions may only be made in cash.
'(3) REFUNDS.--A program shall not be treated as a qualified State tuition program unless it imposes a more than de minimis penalty on any refund of earnings from the account which are not--
'(A) used for qualified higher education expenses of the designated beneficiary,
'(B) made on account of the death or disability of the designated beneficiary, or
'(C) made on account of a scholarship (or allowance or payment described in section 135(d)(1)(B) or (C)) received by the designated beneficiary to the extent the amount of the refund does not exceed the amount of the scholarship, allowance, or payment.
'(4) SEPARATE ACCOUNTING.--A program shall not be treated as a qualified State tuition program unless it provides separate accounting for each designated beneficiary.
'(5) NO INVESTMENT DIRECTION.--A program shall not be treated as a qualified State tuition program unless it provides that any contributor to, or designated beneficiary under, such program may not direct the investment of any contributions to the program (or any earnings thereon).
'(6) NO PLEDGING OF INTEREST AS SECURITY.--A program shall not be treated as a qualified State tuition program if it allows any interest in the program or any portion thereof to be used as security for a loan.
'(7) PROHIBITION ON EXCESS CONTRIBUTIONS.--A program shall not be treated as a qualified State tuition program unless it provides adequate safeguards to prevent contributions on behalf of a designated beneficiary in excess of those necessary to provide for the qualified higher education expenses of the beneficiary.
'(c) TAX TREATMENT OF DESIGNATED BENEFICIARIES AND CONTRIBUTORS.--
'(1) IN GENERAL.--Except as otherwise provided in this subsection, no amount shall be includible in gross income of--
'(A) a designated beneficiary under a qualified State tuition program, or
'(B) a contributor to such program on behalf of a designated beneficiary,
with respect to any distribution or earnings under such program.
'(2) CONTRIBUTIONS.--In no event shall a contribution to a qualified State tuition program on behalf of a designated beneficiary be treated as a taxable gift for purposes of chapter 12.
'(3) DISTRIBUTIONS.--
'(A) IN GENERAL.--Any distribution under a qualified State tuition program shall be includible in the gross income of the distributee in the manner as provided under section 72 to the extent not excluded from gross income under any other provision of this chapter.
'(B) IN-KIND DISTRIBUTIONS.--Any benefit furnished to a designated beneficiary under a qualified State tuition program shall be treated as a distribution to the beneficiary.
'(C) CHANGE IN BENEFICIARIES.--
'(i) ROLLOVERS.--Subparagraph (A) shall not apply to that portion of any distribution which, within 60 days of such distribution, is transferred to the credit of another designated beneficiary under a qualified State tuition program who is a member of the family of the designated beneficiary with respect to which the distribution was made.
'(ii) CHANGE IN DESIGNATED BENEFICIARIES.--Any change in the designated beneficiary of an interest in a qualified State tuition program shall not be treated as a distribution for purposes of subparagraph (A) if the new beneficiary is a member of the family of the old beneficiary.
'(D) OPERATING RULES.--For purposes of applying section 72--
'(i) to the extent provided by the Secretary, all qualified State tuition programs of which an individual is a designated beneficiary shall be treated as one program,
'(ii) all distributions during a taxable year shall be treated as one distribution, and
'(iii) the value of the contract, income on the contract, and investment in the contract shall be computed as of the close of the calendar year in which the taxable year begins.
'(5) SPECIAL RULE FOR APPLYING SECTION 2503(e).--For purposes of section 2503(e), the waiver (or payment to an educational institution) of qualified higher education expenses of a designated beneficiary under a qualified State tuition program shall be treated as a qualified transfer.
'(d) REPORTING REQUIREMENTS.--
'(1) IN GENERAL.--If there is a distribution to any individual with respect to an interest in a qualified State tuition program during any calendar year, each officer or employee having control of the qualified State tuition program or their designee shall make such reports as the Secretary may require regarding such distribution to the Secretary and to the designated beneficiary or the individual to whom the distribution was made. Any such report shall include such information as the Secretary may prescribe.
'(2) TIMING OF REPORTS.--Any report required by this subsection--
'(A) shall be filed at such time and in such matter as the Secretary prescribes, and
'(B) shall be furnished to individuals not later than January 31 of the calendar year following the calendar year to which such report relates.
'(1) DESIGNATED BENEFICIARY.--The term 'designated beneficiary' means--
'(A) the individual designated at the commencement of participation in the qualified State tuition program as the beneficiary of amounts paid (or to be paid) to the program,
'(B) in the case of a change in beneficiaries described in subsection (c)(2)(C), the individual who is the new beneficiary, and
'(C) in the case of an interest in a qualified State tuition program purchased by a State or local government or an organization described in section 501(c)(3) and exempt from taxation under section 501(a) as part of a scholarship program operated by such government or organization, the individual receiving such interest as a scholarship.
'(2) MEMBER OF FAMILY.--The term 'member of the family' has the same meaning given such term as section 2032A(e)(2).
'(3) QUALIFIED HIGHER EDUCATION EXPENSES.--The term 'qualified higher education expenses' means tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution (as defined in section 135(c)(3)).
'(4) APPLICATION OF SECTION 514.--An interest in a qualified State tuition program shall not be treated as debt for purposes of section 514.'.
(b) CONFORMING AMENDMENTS.--
(1) Section 135(d)(1) is amended by striking 'or' at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting ', or', and by adding at the end the following new subparagraph:
'(D) a payment, waiver, or reimbursement of qualified higher education expenses under a qualified State tuition program (within the meaning of section 529(b)).'.
(2) The table of parts for subchapter F of chapter 1 is amended by adding at the end the following new item:
(c) EFFECTIVE DATES.--
(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) TRANSITION RULE.--If--
(A) a State or agency or instrumentality thereof maintains, on the date of the enactment of this Act, a program under which persons may purchase tuition credits or certificates on behalf of, or make contributions for education expenses of, a designated beneficiary, and
(B) such program meets the requirements of a qualified State tuition program before the later of--
(i) the date which is 1 year after such date of enactment, or
(ii) the first day of the first calendar quarter after the close of the first regular session of the State legislature that begins after such date of enactment, the amendments made by this section shall apply to contributions (and earnings allocable thereto) made before the date such program meets the requirements of such amendments without regard to whether any requirements of such amendments are met with respect to such contributions and earnings.
(a) IN GENERAL.--Subpart A of part IV of subchapter A of chapter 1 (relating to nonrefundable personal credits) is amended by inserting after section 22 the following new section:
'SEC. 23. ADOPTION EXPENSES.
'(a) ALLOWANCE OF CREDIT.--
'(1) IN GENERAL.--In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter the amount of the qualified adoption expenses paid or incurred by the taxpayer.
'(2) YEAR CREDIT ALLOWED.--The credit under paragraph (1) with respect to any expense shall be allowed--
'(A) for the taxable year following the taxable year during which such expense is paid or incurred, or
'(B) in the case of an expense which is paid or incurred during the taxable year in which the adoption becomes final, for such taxable year.
'(1) DOLLAR LIMITATION.--The aggregate amount of qualified adoption expenses which may be taken into account under subsection (a) for all taxable years with respect to the adoption of a child by the taxpayer shall not exceed $5,000 ($6,000, in the case of a child with special needs).
'(2) INCOME LIMITATION.--
'(A) IN GENERAL.--The amount allowable as a credit under subsection (a) for any taxable year shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so allowable (determined without regard to this paragraph but with regard to paragraph (1)) as--
'(i) the amount (if any) by which the taxpayer's adjusted gross income exceeds $75,000, bears to
'(ii) $40,000.
'(B) DETERMINATION OF ADJUSTED GROSS INCOME.--For purposes of subparagraph (A), adjusted gross income shall be determined--
'(i) without regard to sections 911, 931, and 933, and
'(ii) after the application of sections 86, 135, 137, 219, and 469.
'(A) IN GENERAL.--No credit shall be allowed under subsection (a) for any expense for which a deduction or credit is allowed under any other provision of this chapter.
'(B) GRANTS.--No credit shall be allowed under subsection (a) for any expense to the extent that funds for such expense are received under any Federal, State, or local program.
'(d) DEFINITIONS.--For purposes of this section--
'(1) QUALIFIED ADOPTION EXPENSES.--The term 'qualified adoption expenses' means reasonable and necessary adoption fees, court costs, attorney fees, and other expenses--
'(A) which are directly related to, and the principal purpose of which is for, the legal adoption of an eligible child by the taxpayer,
'(B) which are not incurred in violation of State or Federal law or in carrying out any surrogate parenting arrangement,
'(C) which are not expenses in connection with the adoption by an individual of a child who is the child of such individual's spouse, and
'(D) which are not reimbursed under an employer program or otherwise.
'(2) ELIGIBLE CHILD.--The term 'eligible child' means any individual--
'(A) who--
'(i) has not attained age 18, or
'(ii) is physically or mentally incapable of caring for himself, and
'(B) in the case of qualified adoption expenses paid or incurred after December 31, 2001, who is a child with special needs.
'(3) CHILD WITH SPECIAL NEEDS.--The term 'child with special needs' means any child if--
'(A) a State has determined that the child cannot or should not be returned to the home of his parents,
'(B) such State has determined that there exists with respect to the child a specific factor or condition (such as his ethnic background, age, or membership in a minority or sibling group, or the presence of factors such as medical conditions or physical, mental, or emotional handicaps) because of which it is reasonable to conclude that such child cannot be placed with adoptive parents without providing adoption assistance, and
'(C) such child is a citizen or resident of the United States (as defined in section 217(h)(3)).
'(1) subsection (a) shall not apply to any qualified adoption expense with respect to such adoption unless such adoption becomes final, and
'(2) any such expense which is paid or incurred before the taxable year in which such adoption becomes final shall be taken into account under this section as if such expense were paid or incurred during such year.
'(f) FILING REQUIREMENTS.--
'(1) MARRIED COUPLES MUST FILE JOINT RETURNS.--Rules similar to the rules of paragraphs (2), (3), and (4) of section 21(e) shall apply for purposes of this section.
'(2) TAXPAYER MUST INCLUDE TIN.--
'(A) IN GENERAL.--No credit shall be allowed under this section with respect to any eligible child unless the taxpayer includes (if known) the name, age, and TIN of such child on the return of tax for the taxable year.
'(B) OTHER METHODS.--The Secretary may, in lieu of the information referred to in subparagraph (A), require other information meeting the purposes of subparagraph (A), including identification of an agent assisting with the adoption.
'(h) REGULATIONS.--The Secretary shall prescribe such regulations as may be appropriate to carry out this section and section 137, including regulations which treat unmarried individuals who pay or incur qualified adoption expenses with respect to the same child as 1 taxpayer for purposes of applying the dollar limitation in subsection (b)(1) of this section and in section 137(b)(1).'.
(b) EXCLUSION OF AMOUNTS RECEIVED UNDER EMPLOYER'S ADOPTION ASSISTANCE PROGRAMS.--Part III of subchapter B of chapter 1 (relating to items specifically excluded from gross income) is amended by redesignating section 137 as section 138 and by inserting after section 136 the following new section:
'SEC. 137. ADOPTION ASSISTANCE PROGRAMS.
'(a) IN GENERAL.--Gross income of an employee does not include amounts paid or expenses incurred by the employer for qualified adoption expenses in connection with the adoption of a child by an employee if such amounts are furnished pursuant to an adoption assistance program.
'(b) LIMITATIONS.--
'(1) DOLLAR LIMITATION.--The aggregate amount excludable from gross income under subsection (a) for all taxable years with respect to the adoption of a child by the taxpayer shall not exceed $5,000 ($6,000, in the case of a child with special needs).
'(2) INCOME LIMITATION.--The amount excludable from gross income under subsection (a) for any taxable year shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so excludable (determined without regard to this paragraph but with regard to paragraph (1)) as--
'(A) the amount (if any) by which the taxpayer's adjusted gross income exceeds $75,000, bears to
'(B) $40,000.
'(3) DETERMINATION OF ADJUSTED GROSS INCOME.--For purposes of paragraph (2), adjusted gross income shall be determined--
'(A) without regard to this section and sections 911, 931, and 933, and
'(B) after the application of sections 86, 135, 219, and 469.
'(1) under which the employer provides such employees with adoption assistance, and
'(2) which meets requirements similar to the requirements of paragraphs (2), (3), (5), and (6) of section 127(b).
An adoption reimbursement program operated under section 1052 of title 10, United States Code (relating to armed forces) or section 514 of title 14, United States Code (relating to members of the Coast Guard) shall be treated as an adoption assistance program for purposes of this section.
'(d) QUALIFIED ADOPTION EXPENSES.--For purposes of this section, the term 'qualified adoption expenses' has the meaning given such term by section 23(d) (determined without regard to reimbursements under this section).
'(e) CERTAIN RULES TO APPLY.--Rules similar to the rules of subsections (e), (f), and (g) of section 23 shall apply for purposes of this section.
'(f) TERMINATION.--This section shall not apply to amounts paid or expenses incurred after December 31, 2001.'.
(c) CONFORMING AMENDMENTS.--
(1) Subparagraph (C) of section 25(e)(1) is amended by inserting 'and section 23' after 'this section'.
(2) Sections 86(b)(2)(A) and 135(c)(4)(A) are each amended by inserting '137,' before '911'.
(3) Clause (i) of section 219(g)(3)(A) is amended by inserting ', 137,' before 'and 911'.
(4) Clause (ii) of section 469(i)(3)(E) is amended to read as follows:
'(26) to the extent provided in sections 23(g) and 137(e).'.
(6) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 22 the following new item:
'Sec. 138. Cross reference to other Acts.'.
(d) STUDY AND REPORT.--The Secretary of the Treasury shall study the effect on adoptions of the tax credit and gross income exclusion established by the amendments made by this section and shall submit a report regarding the study to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives not later than January 1, 2000.
(e) EFFECTIVE DATE.--The amendments made by this section shall apply to taxable years beginning after December 31, 1996.
SEC. 1808. REMOVAL OF BARRIERS TO INTERETHNIC ADOPTION.
(a) STATE PLAN REQUIREMENTS.--Section 471(a) of the Social Security Act (42 U.S.C 671(a)) is amended--
(1) by striking 'and' at the end of paragraph (16);
(2) by striking the period at the end of paragraph (17) and inserting '; and'; and
(3) by adding at the end the following:
'(18) not later than January 1, 1997, provides that neither the State nor any other entity in the State that receives funds from the Federal Government and is involved in adoption or foster care placements may--
'(A) deny to any person the opportunity to become an adoptive or a foster parent, on the basis of the race, color, or national origin of the person, or of the child, involved; or
'(B) delay or deny the placement of a child for adoption or into foster care, on the basis of the race, color, or national origin of the adoptive or foster parent, or the child, involved.'.
'(d)(1) If, during any quarter of a fiscal year, a State's program operated under this part is found, as a result of a review conducted under section 1123A, or otherwise, to have violated section 471(a)(18) with respect to a person or to have failed to implement a corrective action plan within a period of time not to exceed 6 months with respect to such violation, then, notwithstanding subsection (a) of this section and any regulations promulgated under section 1123A(b)(3), the Secretary shall reduce the amount otherwise payable to the State under this part, for that fiscal year quarter and for any subsequent quarter of such fiscal year, until the State program is found, as a result of a subsequent review under section 1123A, to have implemented a corrective action plan with respect to such violation, by--
'(B) 3 percent of such otherwise payable amount, in the case of the 2nd such finding for the fiscal year with respect to the State; or
'(C) 5 percent of such otherwise payable amount, in the case of the 3rd or subsequent such finding for the fiscal year with respect to the State.
In imposing the penalties described in this paragraph, the Secretary shall not reduce any fiscal year payment to a State by more than 5 percent.
'(2) Any other entity which is in a State that receives funds under this part and which violates section 471(a)(18) during a fiscal year quarter with respect to any person shall remit to the Secretary all funds that were paid by the State to the entity during the quarter from such funds.
'(3)(A) Any individual who is aggrieved by a violation of section 471(a)(18) by a State or other entity may bring an action seeking relief from the State or other entity in any United States district court.
'(B) An action under this paragraph may not be brought more than 2 years after the date the alleged violation occurred.
'(4) This subsection shall not be construed to affect the application of the Indian Child Welfare Act of 1978.'.
(c) CIVIL RIGHTS.--
(1) PROHIBITED CONDUCT.--A person or government that is involved in adoption or foster care placements may not--
(A) deny to any individual the opportunity to become an adoptive or a foster parent, on the basis of the race, color, or national origin of the individual, or of the child, involved; or
(B) delay or deny the placement of a child for adoption or into foster care, on the basis of the race, color, or national origin of the adoptive or foster parent, or the child, involved.
(2) ENFORCEMENT.--Noncompliance with paragraph (1) is deemed a violation of title VI of the Civil Rights Act of 1964.
(3) NO EFFECT ON THE INDIAN CHILD WELFARE ACT OF 1978.--This subsection shall not be construed to affect the application of the Indian Child Welfare Act of 1978.
(d) CONFORMING AMENDMENT.--Section 553 of the Howard M. Metzenbaum Multiethnic Placement Act of 1994 (42 U.S.C. 5115a) is repealed.
SEC. 1809. 6-MONTH DELAY OF ELECTRONIC FUND TRANSFER REQUIREMENT.
Notwithstanding any other provision of law, the increase in the applicable required percentages for fiscal year 1997 in clauses (i)(IV) and (ii)(IV) of section 6302(h)(2)(C) of the Internal Revenue Code of 1986 shall not take effect before July 1, 1997.
SEC. 1901. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS.
(a) IN GENERAL.--Section 6048 (relating to returns as to certain foreign trusts) is amended to read as follows:
'SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN TRUSTS.
'(a) NOTICE OF CERTAIN EVENTS.--
'(1) GENERAL RULE.--On or before the 90th day (or such later day as the Secretary may prescribe) after any reportable event, the responsible party shall provide written notice of such event to the Secretary in accordance with paragraph (2).
'(2) CONTENTS OF NOTICE.--The notice required by paragraph (1) shall contain such information as the Secretary may prescribe, including--
'(A) the amount of money or other property (if any) transferred to the trust in connection with the reportable event, and
'(B) the identity of the trust and of each trustee and beneficiary (or class of beneficiaries) of the trust.
'(3) REPORTABLE EVENT.--For purposes of this subsection--
'(A) IN GENERAL.--The term 'reportable event' means--
'(i) the creation of any foreign trust by a United States person,
'(ii) the transfer of any money or property (directly or indirectly) to a foreign trust by a United States person, including a transfer by reason of death, and
'(iii) the death of a citizen or resident of the United States if--
'(I) the decedent was treated as the owner of any portion of a foreign trust under the rules of subpart E of part I of subchapter J of chapter 1, or
'(II) any portion of a foreign trust was included in the gross estate of the decedent.
'(i) FAIR MARKET VALUE SALES.--Subparagraph (A)(ii) shall not apply to any transfer of property to a trust in exchange for consideration of at least the fair market value of the transferred property. For purposes of the preceding sentence, consideration other than cash shall be taken into account at its fair market value and the rules of section 679(a)(3) shall apply.
'(ii) DEFERRED COMPENSATION AND CHARITABLE TRUSTS.--Subparagraph (A) shall not apply with respect to a trust which is--
'(I) described in section 402(b), 404(a)(4), or 404A, or
'(II) determined by the Secretary to be described in section 501(c)(3).
'(A) the grantor in the case of the creation of an inter vivos trust,
'(B) the transferor in the case of a reportable event described in paragraph (3)(A)(ii) other than a transfer by reason of death, and
'(C) the executor of the decedent's estate in any other case.
'(1) IN GENERAL.--If, at any time during any taxable year of a United States person, such person is treated as the owner of any portion of a foreign trust under the rules of subpart E of part I of subchapter J of chapter 1, such person shall be responsible to ensure that--
'(A) such trust makes a return for such year which sets forth a full and complete accounting of all trust activities and operations for the year, the name of the United States agent for such trust, and such other information as the Secretary may prescribe, and
'(B) such trust furnishes such information as the Secretary may prescribe to each United States person (i) who is treated as the owner of any portion of such trust or (ii) who receives (directly or indirectly) any distribution from the trust.
'(2) TRUSTS NOT HAVING UNITED STATES AGENT.--
'(A) IN GENERAL.--If the rules of this paragraph apply to any foreign trust, the determination of amounts required to be taken into account with respect to such trust by a United States person under the rules of subpart E of part I of subchapter J of chapter 1 shall be determined by the Secretary.
'(B) UNITED STATES AGENT REQUIRED.--The rules of this paragraph shall apply to any foreign trust to which paragraph (1) applies unless such trust agrees (in such manner, subject to such conditions, and at such time as the Secretary shall prescribe) to authorize a United States person to act as such trust's limited agent solely for purposes of applying sections 7602, 7603, and 7604 with respect to--
'(i) any request by the Secretary to examine records or produce testimony related to the proper treatment of amounts required to be taken into account under the rules referred to in subparagraph (A), or
'(ii) any summons by the Secretary for such records or testimony.
The appearance of persons or production of records by reason of a United States person being such an agent shall not subject such persons or records to legal process for any purpose other than determining the correct treatment under this title of the amounts required to be taken into account under the rules referred to in subparagraph (A). A foreign trust which appoints an agent described in this subparagraph shall not be considered to have an office or a permanent establishment in the United States, or to be engaged in a trade or business in the United States, solely because of the activities of such agent pursuant to this subsection.
'(C) OTHER RULES TO APPLY.--Rules similar to the rules of paragraphs (2) and (4) of section 6038A(e) shall apply for purposes of this paragraph.
'(1) IN GENERAL.--If any United States person receives (directly or indirectly) during any taxable year of such person any distribution from a foreign trust, such person shall make a return with respect to such trust for such year which includes--
'(A) the name of such trust,
'(B) the aggregate amount of the distributions so received from such trust during such taxable year, and
'(C) such other information as the Secretary may prescribe.
'(2) INCLUSION IN INCOME IF RECORDS NOT PROVIDED.--
'(A) IN GENERAL.--If adequate records are not provided to the Secretary to determine the proper treatment of any distribution from a foreign trust, such distribution shall be treated as an accumulation distribution includible in the gross income of the distributee under chapter 1. To the extent provided in regulations, the preceding sentence shall not apply if the foreign trust elects to be subject to rules similar to the rules of subsection (b)(2)(B).
'(B) APPLICATION OF ACCUMULATION DISTRIBUTION RULES.--For purposes of applying section 668 in a case to which subparagraph (A) applies, the applicable number of years for purposes of section 668(a) shall be 1/2 of the number of years the trust has been in existence.
'(1) DETERMINATION OF WHETHER UNITED STATES PERSON MAKES TRANSFER OR RECEIVES DISTRIBUTION.--For purposes of this section, in determining whether a United States person makes a transfer to, or receives a distribution from, a foreign trust, the fact that a portion of such trust is treated as owned by another person under the rules of subpart E of part I of subchapter J of chapter 1 shall be disregarded.
'(2) DOMESTIC TRUSTS WITH FOREIGN ACTIVITIES.--To the extent provided in regulations, a trust which is a United States person shall be treated as a foreign trust for purposes of this section and section 6677 if such trust has substantial activities, or holds substantial property, outside the United States.
'(3) TIME AND MANNER OF FILING INFORMATION.--Any notice or return required under this section shall be made at such time and in such manner as the Secretary shall prescribe.
'(4) MODIFICATION OF RETURN REQUIREMENTS.--he Secretary is authorized to suspend or modify any requirement of this section if the Secretary determines that the United States has no significant tax interest in obtaining the required information.'.
(b) INCREASED PENALTIES.--Section 6677 (relating to failure to file information returns with respect to certain foreign trusts) is amended to read as follows:
'SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN FOREIGN TRUSTS.
'(a) CIVIL PENALTY.--In addition to any criminal penalty provided by law, if any notice or return required to be filed by section 6048--
'(1) is not filed on or before the time provided in such section, or
'(2) does not include all the information required pursuant to such section or includes incorrect information,
the person required to file such notice or return shall pay a penalty equal to 35 percent of the gross reportable amount. If any failure described in the preceding sentence continues for more than 90 days after the day on which the Secretary mails notice of such failure to the person required to pay such penalty, such person shall pay a penalty (in addition to the amount determined under the preceding sentence) of $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of such 90-day period. In no event shall the penalty under this subsection with respect to any failure exceed the gross reportable amount.
'(b) SPECIAL RULES FOR RETURNS UNDER SECTION 6048(b).--In the case of a return required under section 6048(b)--
'(1) the United States person referred to in such section shall be liable for the penalty imposed by subsection (a), and
'(2) subsection (a) shall be applied by substituting '5 percent' for '35 percent'.
'(c) GROSS REPORTABLE AMOUNT.--For purposes of subsection (a), the term 'gross reportable amount' means--
'(1) the gross value of the property involved in the event (determined as of the date of the event) in the case of a failure relating to section 6048(a),
'(2) the gross value of the portion of the trust's assets at the close of the year treated as owned by the United States person in the case of a failure relating to section 6048(b)(1), and
'(3) the gross amount of the distributions in the case of a failure relating to section 6048(c).
'(d) REASONABLE CAUSE EXCEPTION.--No penalty shall be imposed by this section on any failure which is shown to be due to reasonable cause and not due to willful neglect. The fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the required information is not reasonable cause.
'(e) DEFICIENCY PROCEDURES NOT TO APPLY.--Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a).'.
(c) CONFORMING AMENDMENTS.--
(1) Paragraph (2) of section 6724(d) is amended by striking 'or' at the end of subparagraph (S), by striking the period at the end of subparagraph (T) and inserting ', or', and by inserting after subparagraph (T) the following new subparagraph:
'(U) section 6048(b)(1)(B) (relating to foreign trust reporting requirements).'.
(2) The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by striking the item relating to section 6048 and inserting the following new item:
(d) EFFECTIVE DATES.--
(1) REPORTABLE EVENTS.--To the extent related to subsection (a) of section 6048 of the Internal Revenue Code of 1986, as amended by this section, the amendments made by this section shall apply to reportable events (as defined in such section 6048) occurring after the date of the enactment of this Act.
(2) GRANTOR TRUST REPORTING.--To the extent related to subsection (b) of such section 6048, the amendments made by this section shall apply to taxable years of United States persons beginning after December 31, 1995.
(3) REPORTING BY UNITED STATES BENEFICIARIES.--To the extent related to subsection (c) of such section 6048, the amendments made by this section shall apply to distributions received after the date of the enactment of this Act.
(a) IN GENERAL.--Section 1494 is amended by adding at the end the following new subsection:
'(c) PENALTY.--In the case of any failure to file a return required by the Secretary with respect to any transfer described in section 1491, the person required to file such return shall be liable for the penalties provided in section 6677 in the same manner as if such failure were a failure to file a notice under section 6048(a).'.
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to transfers after the date of the enactment of this Act.
SEC. 1903. MODIFICATIONS OF RULES RELATING TO FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES BENEFICIARIES.
(a) TREATMENT OF TRUST OBLIGATIONS, ETC.--
(1) Paragraph (2) of section 679(a) is amended by striking subparagraph (B) and inserting the following:
'(B) TRANSFERS AT FAIR MARKET VALUE.--To any transfer of property to a trust in exchange for consideration of at least the fair market value of the transferred property. For purposes of the preceding sentence, consideration other than cash shall be taken into account at its fair market value.'.
(2) Subsection (a) of section 679 (relating to foreign trusts having one or more United States beneficiaries) is amended by adding at the end the following new paragraph:
'(3) CERTAIN OBLIGATIONS NOT TAKEN INTO ACCOUNT UNDER FAIR MARKET VALUE EXCEPTION.--
'(A) IN GENERAL.--In determining whether paragraph (2)(B) applies to any transfer by a person described in clause (ii) or (iii) of subparagraph (C), there shall not be taken into account--
'(i) except as provided in regulations, any obligation of a person described in subparagraph (C), and
'(ii) to the extent provided in regulations, any obligation which is guaranteed by a person described in subparagraph (C).
'(B) TREATMENT OF PRINCIPAL PAYMENTS ON OBLIGATION.--Principal payments by the trust on any obligation referred to in subparagraph (A) shall be taken into account on and after the date of the payment in determining the portion of the trust attributable to the property transferred.
'(C) PERSONS DESCRIBED.--The persons described in this subparagraph are--
'(i) the trust,
'(ii) any grantor or beneficiary of the trust, and
'(iii) any person who is related (within the meaning of section 643(i)(2)(B)) to any grantor or beneficiary of the trust.'.
(c) OTHER MODIFICATIONS.--Subsection (a) of section 679 is amended by adding at the end the following new paragraphs:
'(4) SPECIAL RULES APPLICABLE TO FOREIGN GRANTOR WHO LATER BECOMES A UNITED STATES PERSON.--
'(A) IN GENERAL.--If a nonresident alien individual has a residency starting date within 5 years after directly or indirectly transferring property to a foreign trust, this section and section 6048 shall be applied as if such individual transferred to such trust on the residency starting date an amount equal to the portion of such trust attributable to the property transferred by such individual to such trust in such transfer.
'(B) TREATMENT OF UNDISTRIBUTED INCOME.--For purposes of this section, undistributed net income for periods before such individual's residency starting date shall be taken into account in determining the portion of the trust which is attributable to property transferred by such individual to such trust but shall not otherwise be taken into account.
'(C) RESIDENCY STARTING DATE.--For purposes of this paragraph, an individual's residency starting date is the residency starting date determined under section 7701(b)(2)(A).
'(5) OUTBOUND TRUST MIGRATIONS.--If--
'(A) an individual who is a citizen or resident of the United States transferred property to a trust which was not a foreign trust, and
'(B) such trust becomes a foreign trust while such individual is alive,
then this section and section 6048 shall be applied as if such individual transferred to such trust on the date such trust becomes a foreign trust an amount equal to the portion of such trust attributable to the property previously transferred by such individual to such trust. A rule similar to the rule of paragraph (4)(B) shall apply for purposes of this paragraph.'.
(d) MODIFICATIONS RELATING TO WHETHER TRUST HAS UNITED STATES BENEFICIARIES.--Subsection (c) of section 679 is amended by adding at the end the following new paragraph:
'(3) CERTAIN UNITED STATES BENEFICIARIES DISREGARDED.--A beneficiary shall not be treated as a United States person in applying this section with respect to any transfer of property to foreign trust if such beneficiary first became a United States person more than 5 years after the date of such transfer.'.
(e) TECHNICAL AMENDMENT.--Subparagraph (A) of section 679(c)(2) is amended to read as follows:
'(d) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.'.
(g) EFFECTIVE DATE.--The amendments made by this section shall apply to transfers of property after February 6, 1995.
SEC. 1904. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS UNDER GRANTOR TRUST RULES.
(a) GENERAL RULE.--
(1) Subsection (f) of section 672 (relating to special rule where grantor is foreign person) is amended to read as follows:
'(f) SUBPART NOT TO RESULT IN FOREIGN OWNERSHIP.--
'(1) IN GENERAL.--Notwithstanding any other provision of this subpart, this subpart shall apply only to the extent such application results in an amount (if any) being currently taken into account (directly or through 1 or more entities) under this chapter in computing the income of a citizen or resident of the United States or a domestic corporation.
'(2) EXCEPTIONS.--
'(A) CERTAIN REVOCABLE AND IRREVOCABLE TRUSTS.--Paragraph (1) shall not apply to any portion of a trust if--
'(i) the power to revest absolutely in the grantor title to the trust property to which such portion is attributable is exercisable solely by the grantor without the approval or consent of any other person or with the consent of a related or subordinate party who is subservient to the grantor, or
'(ii) the only amounts distributable from such portion (whether income or corpus) during the lifetime of the grantor are amounts distributable to the grantor or the spouse of the grantor.
'(B) COMPENSATORY TRUSTS.--Except as provided in regulations, paragraph (1) shall not apply to any portion of a trust distributions from which are taxable as compensation for services rendered.
'(3) SPECIAL RULES.--Except as otherwise provided in regulations prescribed by the Secretary--
'(A) a controlled foreign corporation (as defined in section 957) shall be treated as a domestic corporation for purposes of paragraph (1), and
'(B) paragraph (1) shall not apply for purposes of applying section 1296.
'(4) RECHARACTERIZATION OF PURPORTED GIFTS.--In the case of any transfer directly or indirectly from a partnership or foreign corporation which the transferee treats as a gift or bequest, the Secretary may recharacterize such transfer in such circumstances as the Secretary determines to be appropriate to prevent the avoidance of the purposes of this subsection.
'(5) SPECIAL RULE WHERE GRANTOR IS FOREIGN PERSON.--If--
'(A) but for this subsection, a foreign person would be treated as the owner of any portion of a trust, and
'(B) such trust has a beneficiary who is a United States person,
such beneficiary shall be treated as the grantor of such portion to the extent such beneficiary has made (directly or indirectly) transfers of property (other than in a sale for full and adequate consideration) to such foreign person. For purposes of the preceding sentence, any gift shall not be taken into account to the extent such gift would be excluded from taxable gifts under section 2503(b).
'(6) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations providing that paragraph (1) shall not apply in appropriate cases.'.
(2) The last sentence of subsection (c) of section 672 is amended by inserting 'subsection (f) and' before 'sections 674'.
(b) CREDIT FOR CERTAIN TAXES.--
(1) Paragraph (2) of section 665(d) is amended by adding at the end the following new sentence: 'Under rules or regulations prescribed by the Secretary, in the case of any foreign trust of which the settlor or another person would be treated as owner of any portion of the trust under subpart E but for section 672(f), the term 'taxes imposed on the trust' includes the allocable amount of any income, war profits, and excess profits taxes imposed by any foreign country or possession of the United States on the settlor or such other person in respect of trust income.'.
(2) Paragraph (5) of section 901(b) is amended by adding at the end the following new sentence: 'Under rules or regulations prescribed by the Secretary, in the case of any foreign trust of which the settlor or another person would be treated as owner of any portion of the trust under subpart E but for section 672(f), the allocable amount of any income, war profits, and excess profits taxes imposed by any foreign country or possession of the United States on the settlor or such other person in respect of trust income.'.
(c) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS THROUGH NOMINEES.--
(1) Section 643 is amended by adding at the end the following new subsection:
'(h) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS THROUGH NOMINEES.--For purposes of this part, any amount paid to a United States person which is derived directly or indirectly from a foreign trust of which the payor is not the grantor shall be deemed in the year of payment to have been directly paid by the foreign trust to such United States person.'.
(2) Section 665 is amended by striking subsection (c).
(d) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as provided by paragraph (2), the amendments made by this section shall take effect on the date of the enactment of this Act.
(2) EXCEPTION FOR CERTAIN TRUSTS.--The amendments made by this section shall not apply to any trust--
(A) which is treated as owned by the grantor under section 676 or 677 (other than subsection (a)(3) thereof) of the Internal Revenue Code of 1986, and
(B) which is in existence on September 19, 1995.
The preceding sentence shall not apply to the portion of any such trust attributable to any transfer to such trust after September 19, 1995.
(e) TRANSITIONAL RULE.--If--
(1) by reason of the amendments made by this section, any person other than a United States person ceases to be treated as the owner of a portion of a domestic trust, and
(2) before January 1, 1997, such trust becomes a foreign trust, or the assets of such trust are transferred to a foreign trust,
no tax shall be imposed by section 1491 of the Internal Revenue Code of 1986 by reason of such trust becoming a foreign trust or the assets of such trust being transferred to a foreign trust.
SEC. 1905. INFORMATION REPORTING REGARDING FOREIGN GIFTS.
(a) IN GENERAL.--Subpart A of part III of subchapter A of chapter 61 is amended by inserting after section 6039E the following new section:
'SEC. 6039F. NOTICE OF LARGE GIFTS RECEIVED FROM FOREIGN PERSONS.
'(a) IN GENERAL.--If the value of the aggregate foreign gifts received by a United States person (other than an organization described in section 501(c) and exempt from tax under section 501(a)) during any taxable year exceeds $10,000, such United States person shall furnish (at such time and in such manner as the Secretary shall prescribe) such information as the Secretary may prescribe regarding each foreign gift received during such year.
'(b) FOREIGN GIFT.--For purposes of this section, the term 'foreign gift' means any amount received from a person other than a United States person which the recipient treats as a gift or bequest. Such term shall not include any qualified transfer (within the meaning of section 2503(e)(2)) or any distribution properly disclosed in a return under section 6048(c).
'(c) PENALTY FOR FAILURE TO FILE INFORMATION.--
'(1) IN GENERAL.--If a United States person fails to furnish the information required by subsection (a) with respect to any foreign gift within the time prescribed therefor (including extensions)--
'(A) the tax consequences of the receipt of such gift shall be determined by the Secretary, and
'(B) such United States person shall pay (upon notice and demand by the Secretary and in the same manner as tax) an amount equal to 5 percent of the amount of such foreign gift for each month for which the failure continues (not to exceed 25 percent of such amount in the aggregate).
'(2) REASONABLE CAUSE EXCEPTION.--Paragraph (1) shall not apply to any failure to report a foreign gift if the United States person shows that the failure is due to reasonable cause and not due to willful neglect.
'(d) COST-OF-LIVING ADJUSTMENT.--In the case of any taxable year beginning after December 31, 1996, the $10,000 amount under subsection (a) shall be increased by an amount equal to the product of such amount and the cost-of-living adjustment for such taxable year under section 1(f)(3), except that subparagraph (B) thereof shall be applied by substituting '1995' for '1992'.
'(e) 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 such subpart is amended by inserting after the item relating to section 6039E the following new item:
'Sec. 6039F. Notice of large gifts received from foreign persons.'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to amounts received after the date of the enactment of this Act in taxable years ending after such date.
SEC. 1906. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS WHICH ARE NOT GRANTOR TRUSTS.
(a) MODIFICATION OF INTEREST CHARGE ON ACCUMULATION DISTRIBUTIONS.--Subsection (a) of section 668 (relating to interest charge on accumulation distributions from foreign trusts) is amended to read as follows:
'(a) GENERAL RULE.--For purposes of the tax determined under section 667(a)--
'(1) INTEREST DETERMINED USING UNDERPAYMENT RATES.--The interest charge determined under this section with respect to any distribution is the amount of interest which would be determined on the partial tax computed under section 667(b) for the period described in paragraph (2) using the rates and the method under section 6621 applicable to underpayments of tax.
'(2) PERIOD.--For purposes of paragraph (1), the period described in this paragraph is the period which begins on the date which is the applicable number of years before the date of the distribution and which ends on the date of the distribution.
'(3) APPLICABLE NUMBER OF YEARS.--For purposes of paragraph (2)--
'(A) IN GENERAL.--The applicable number of years with respect to a distribution is the number determined by dividing--
'(i) the sum of the products described in subparagraph (B) with respect to each undistributed income year, by
'(ii) the aggregate undistributed net income.
The quotient determined under the preceding sentence shall be rounded under procedures prescribed by the Secretary.
'(B) PRODUCT DESCRIBED.--For purposes of sub-paragraph (A), the product described in this subparagraph with respect to any undistributed income year is the product of--
'(i) the undistributed net income for such year, and
'(ii) the sum of the number of taxable years between such year and the taxable year of the distribution (counting in each case the undistributed income year but not counting the taxable year of the distribution).
'(5) DETERMINATION OF UNDISTRIBUTED NET INCOME.--Notwithstanding section 666, for purposes of this subsection, an accumulation distribution from the trust shall be treated as reducing proportionately the undistributed net income for undistributed income years.
'(6) PERIODS BEFORE 1996.--Interest for the portion of the period described in paragraph (2) which occurs before January 1, 1996, shall be determined--
'(A) by using an interest rate of 6 percent, and
'(B) without compounding until January 1, 1996.'.
'(7) ABUSIVE TRANSACTIONS.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part, including regulations to prevent avoidance of such purposes.'.
(c) TREATMENT OF LOANS FROM TRUSTS.--
(1) IN GENERAL.--Section 643 (relating to definitions applicable to subparts A, B, C, and D) is amended by adding at the end the following new subsection:
'(i) LOANS FROM FOREIGN TRUSTS.--For purposes of subparts B, C, and D--
'(1) GENERAL RULE.--Except as provided in regulations, if a foreign trust makes a loan of cash or marketable securities directly or indirectly to--
'(A) any grantor or beneficiary of such trust who is a United States person, or
'(B) any United States person not described in subparagraph (A) who is related to such grantor or beneficiary,
the amount of such loan shall be treated as a distribution by such trust to such grantor or beneficiary (as the case may be).
'(2) DEFINITIONS AND SPECIAL RULES.--For purposes of this subsection--
'(A) CASH.--The term 'cash' includes foreign currencies and cash equivalents.
'(B) RELATED PERSON.--
'(i) IN GENERAL.--A person is related to another person if the relationship between such persons would result in a disallowance of losses under section 267 or 707(b). In applying section 267 for purposes of the preceding sentence, section 267(c)(4) shall be applied as if the family of an individual includes the spouses of the members of the family.
'(ii) ALLOCATION.--If any person described in paragraph (1)(B) is related to more than one person, the grantor or beneficiary to whom the treatment under this subsection applies shall be determined under regulations prescribed by the Secretary.
'(C) EXCLUSION OF TAX-EXEMPTS.--The term 'United States person' does not include any entity exempt from tax under this chapter.
'(D) TRUST NOT TREATED AS SIMPLE TRUST.--Any trust which is treated under this subsection as making a distribution shall be treated as not described in section 651.
'(3) SUBSEQUENT TRANSACTIONS REGARDING LOAN PRINCIPAL.--If any loan is taken into account under paragraph (1), any subsequent transaction between the trust and the original borrower regarding the principal of the loan (by way of complete or partial repayment, satisfaction, cancellation, discharge, or otherwise) shall be disregarded for purposes of this title.'.
(2) TECHNICAL AMENDMENT.--Paragraph (8) of section 7872(f) is amended by inserting ', 643(i),' before 'or 1274' each place it appears.
(d) EFFECTIVE DATES.--
(1) INTEREST CHARGE.--The amendment made by subsection (a) shall apply to distributions after the date of the enactment of this Act.
(2) ABUSIVE TRANSACTIONS.--The amendment made by subsection (b) shall take effect on the date of the enactment of this Act.
(3) LOANS FROM TRUSTS.--The amendment made by subsection (c) shall apply to loans of cash or marketable securities made after September 19, 1995.
(a) TREATMENT AS UNITED STATES PERSON.--
(1) IN GENERAL.--Paragraph (30) of section 7701(a) is amended by striking 'and' at the end of subparagraph (C) and by striking subparagraph (D) and by inserting the following new subparagraphs:
'(D) any estate (other than a foreign estate, within the meaning of paragraph (31)), and
'(E) any trust if--
'(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and
'(ii) one or more United States fiduciaries have the authority to control all substantial decisions of the trust.'.
'(31) FOREIGN ESTATE OR TRUST.--
'(A) FOREIGN ESTATE.--The term 'foreign estate' means an estate the income of which, from sources without the United States which is not effectively connected with the conduct of a trade or business within the United States, is not includible in gross income under subtitle A.
'(B) FOREIGN TRUST.--The term 'foreign trust' means any trust other than a trust described in subparagraph (E) of paragraph (30).'.
(3) EFFECTIVE DATE.--The amendments made by this subsection shall apply--
(A) to taxable years beginning after December 31, 1996, or
(B) at the election of the trustee of a trust, to taxable years ending after the date of the enactment of this Act.
Such an election, once made, shall be irrevocable.
(b) DOMESTIC TRUSTS WHICH BECOME FOREIGN TRUSTS.--
(1) IN GENERAL.--Section 1491 (relating to imposition of tax on transfers to avoid income tax) is amended by adding at the end the following new flush sentence:
'If a trust which is not a foreign trust becomes a foreign trust, such trust shall be treated for purposes of this section as having transferred, immediately before becoming a foreign trust, all of its assets to a foreign trust.'.
(2) EFFECTIVE DATE.--The amendment made by this subsection shall take effect on the date of the enactment of this Act.
SEC. 1951. SHORT TITLE.
This subtitle may be cited as the 'GSP Renewal Act of 1996'.
SEC. 1952. GENERALIZED SYSTEM OF PREFERENCES.
(a) IN GENERAL.--Title V of the Trade Act of 1974 is amended to read as follows:
'TITLE V--GENERALIZED SYSTEM OF PREFERENCES
'SEC. 501. AUTHORITY TO EXTEND PREFERENCES.
'The President may provide duty-free treatment for any eligible article from any beneficiary developing country in accordance with the provisions of this title. In taking any such action, the President shall have due regard for--
'(2) the extent to which other major developed countries are undertaking a comparable effort to assist developing countries by granting generalized preferences with respect to imports of products of such countries;
'(3) the anticipated impact of such action on United States producers of like or directly competitive products; and
'(4) the extent of the beneficiary developing country's competitiveness with respect to eligible articles.
'(a) AUTHORITY TO DESIGNATE COUNTRIES.--
'(1) BENEFICIARY DEVELOPING COUNTRIES.--The President is authorized to designate countries as beneficiary developing countries for purposes of this title.
'(2) LEAST-DEVELOPED BENEFICIARY DEVELOPING COUNTRIES.--The President is authorized to designate any beneficiary developing country as a least-developed beneficiary developing country for purposes of this title, based on the considerations in section 501 and subsection (c) of this section.
'(b) COUNTRIES INELIGIBLE FOR DESIGNATION.--
'(1) SPECIFIC COUNTRIES.--The following countries may not be designated as beneficiary developing countries for purposes of this title:
'(A) Australia.
'(B) Canada.
'(C) European Union member states.
'(D) Iceland.
'(E) Japan.
'(F) Monaco.
'(G) New Zealand.
'(H) Norway.
'(I) Switzerland.
'(2) OTHER BASES FOR INELIGIBILITY.--The President shall not designate any country a beneficiary developing country under this title if any of the following applies:
'(A) Such country is a Communist country, unless--
'(i) the products of such country receive nondiscriminatory treatment,
'(ii) such country is a WTO Member (as such term is defined in section 2(10) of the Uruguay Round Agreements Act) (19 U.S.C. 3501(10)) and a member of the International Monetary Fund, and
'(iii) such country is not dominated or controlled by international communism.
'(B) Such country is a party to an arrangement of countries and participates in any action pursuant to such arrangement, the effect of which is--
'(i) to withhold supplies of vital commodity resources from international trade or to raise the price of such commodities to an unreasonable level, and
'(ii) to cause serious disruption of the world economy.
'(C) Such country affords preferential treatment to the products of a developed country, other than the United States, which has, or is likely to have, a significant adverse effect on United States commerce.
'(D)(i) Such country--
'(II) has taken steps to repudiate or nullify an existing contract or agreement with a United States citizen or a corporation, partnership, or association which is 50 percent or more beneficially owned by United States citizens, the effect of which is to nationalize, expropriate, or otherwise seize ownership or control of property, including patents, trademarks, or copyrights, so owned, or
'(III) has imposed or enforced taxes or other exactions, restrictive maintenance or operational conditions, or other measures with respect to property, including patents, trademarks, or copyrights, so owned, the effect of which is to nationalize, expropriate, or otherwise seize ownership or control of such property, unless clause (ii) applies.
'(ii) This clause applies if the President determines that--
'(I) prompt, adequate, and effective compensation has been or is being made to the citizen, corporation, partnership, or association referred to in clause (i),
'(II) good faith negotiations to provide prompt, adequate, and effective compensation under the applicable provisions of international law are in progress, or the country described in clause (i) is otherwise taking steps to discharge its obligations under international law with respect to such citizen, corporation, partnership, or association, or
'(III) a dispute involving such citizen, corporation, partnership, or association over compensation for such a seizure has been submitted to arbitration under the provisions of the Convention for the Settlement of Investment Disputes, or in another mutually agreed upon forum,
and the President promptly furnishes a copy of such determination to the Senate and House of Representatives.
'(E) Such country fails to act in good faith in recognizing as binding or in enforcing arbitral awards in favor of United States citizens or a corporation, partnership, or association which is 50 percent or more beneficially owned by United States citizens, which have been made by arbitrators appointed for each case or by permanent arbitral bodies to which the parties involved have submitted their dispute.
'(F) Such country aids or abets, by granting sanctuary from prosecution to, any individual or group which has committed an act of international terrorism.
'(G) Such country has not taken or is not taking steps to afford internationally recognized worker rights to workers in the country (including any designated zone in that country).
Subparagraphs (D), (E), (F), and (G) shall not prevent the designation of any country as a beneficiary developing country under this title if the President determines that such designation will be in the national economic interest of the United States and reports such determination to the Congress with the reasons therefor.
'(c) FACTORS AFFECTING COUNTRY DESIGNATION.--In determining whether to designate any country as a beneficiary developing country under this title, the President shall take into account--
'(1) an expression by such country of its desire to be so designated;
'(2) the level of economic development of such country, including its per capita gross national product, the living standards of its inhabitants, and any other economic factors which the President deems appropriate;
'(3) whether or not other major developed countries are extending generalized preferential tariff treatment to such country;
'(4) the extent to which such country has assured the United States that it will provide equitable and reasonable access to the markets and basic commodity resources of such country and the extent to which such country has assured the United States that it will refrain from engaging in unreasonable export practices;
'(5) the extent to which such country is providing adequate and effective protection of intellectual property rights;
'(6) the extent to which such country has taken action to--
'(A) reduce trade distorting investment practices and policies (including export performance requirements); and
'(B) reduce or eliminate barriers to trade in services; and
'(7) whether or not such country has taken or is taking steps to afford to workers in that country (including any designated zone in that country) internationally recognized worker rights.
'(d) WITHDRAWAL, SUSPENSION, OR LIMITATION OF COUNTRY DESIGNATION.--
'(1) IN GENERAL.--The President may withdraw, suspend, or limit the application of the duty-free treatment accorded under this title with respect to any country. In taking any action under this subsection, the President shall consider the factors set forth in section 501 and subsection (c) of this section.
'(2) CHANGED CIRCUMSTANCES.--The President shall, after complying with the requirements of subsection (f)(2), withdraw or suspend the designation of any country as a beneficiary developing country if, after such designation, the President determines that as the result of changed circumstances such country would be barred from designation as a beneficiary developing country under subsection (b)(2). Such country shall cease to be a beneficiary developing country on the day on which the President issues an Executive order or Presidential proclamation revoking the designation of such country under this title.
'(3) ADVICE TO CONGRESS.--The President shall, as necessary, advise the Congress on the application of section 501 and subsection (c) of this section, and the actions the President has taken to withdraw, to suspend, or to limit the application of duty-free treatment with respect to any country which has failed to adequately take the actions described in subsection (c).
'(e) MANDATORY GRADUATION OF BENEFICIARY DEVELOPING COUNTRIES.--If the President determines that a beneficiary developing country has become a 'high income' country, as defined by the official statistics of the International Bank for Reconstruction and Development, then the President shall terminate the designation of such country as a beneficiary developing country for purposes of this title, effective on January 1 of the second year following the year in which such determination is made.
'(f) CONGRESSIONAL NOTIFICATION.--
'(1) NOTIFICATION OF DESIGNATION.--
'(A) IN GENERAL.--Before the President designates any country as a beneficiary developing country under this title, the President shall notify the Congress of the President's intention to make such designation, together with the considerations entering into such decision.
'(B) DESIGNATION AS LEAST-DEVELOPED BENEFICIARY DEVELOPING COUNTRY.--At least 60 days before the President designates any country as a least-developed beneficiary developing country, the President shall notify the Congress of the President's intention to make such designation.
'(2) NOTIFICATION OF TERMINATION.--If the President has designated any country as a beneficiary developing country under this title, the President shall not terminate such designation unless, at least 60 days before such termination, the President has notified the Congress and has notified such country of the President's intention to terminate such designation, together with the considerations entering into such decision.
'(a) ELIGIBLE ARTICLES.--
'(1) DESIGNATION.--
'(A) IN GENERAL.--Except as provided in subsection (b), the President is authorized to designate articles as eligible articles from all beneficiary developing countries for purposes of this title by Executive order or Presidential proclamation after receiving the advice of the International Trade Commission in accordance with subsection (e).
'(B) LEAST-DEVELOPED BENEFICIARY DEVELOPING COUNTRIES.--Except for articles described in subparagraphs (A), (B), and (E) of subsection (b)(1) and articles described in paragraphs (2) and (3) of subsection (b), the President may, in carrying out section 502(d)(1) and subsection (c)(1) of this section, designate articles as eligible articles only for countries designated as least-developed beneficiary developing countries under section 502(a)(2) if, after receiving the advice of the International Trade Commission in accordance with subsection (e) of this section, the President determines that such articles are not import-sensitive in the context of imports from least-developed beneficiary developing countries.
'(C) THREE-YEAR RULE.--If, after receiving the advice of the International Trade Commission under subsection (e), an article has been formally considered for designation as an eligible article under this title and denied such designation, such article may not be reconsidered for such designation for a period of 3 years after such denial.
'(2) RULE OF ORIGIN.--
'(A) GENERAL RULE.--The duty-free treatment provided under this title shall apply to any eligible article which is the growth, product, or manufacture of a beneficiary developing country if--
'(i) that article is imported directly from a beneficiary developing country into the customs territory of the United States; and
'(ii) the sum of--
'(I) the cost or value of the materials produced in the beneficiary developing country or any two or more such countries that are members of the same association of countries and are treated as one country under section 507(2), plus
'(II) the direct costs of processing operations performed in such beneficiary developing country or such member countries, is not less than 35 percent of the appraised value of such article at the time it is entered.
'(i) simple combining or packaging operations, or
'(ii) mere dilution with water or mere dilution with another substance that does not materially alter the characteristics of the article.
'(A) must be wholly the growth, product, or manufacture of a beneficiary developing country, or
'(B) must be a new or different article of commerce which has been grown, produced, or manufactured in the beneficiary developing country.
'(1) IMPORT SENSITIVE ARTICLES.--The President may not designate any article as an eligible article under subsection (a) if such article is within one of the following categories of import-sensitive articles:
'(A) Textile and apparel articles which were not eligible articles for purposes of this title on January 1, 1994, as this title was in effect on such date.
'(B) Watches, except those watches entered after June 30, 1989, that the President specifically determines, after public notice and comment, will not cause material injury to watch or watch band, strap, or bracelet manufacturing and assembly operations in the United States or the United States insular possessions.
'(C) Import-sensitive electronic articles.
'(D) Import-sensitive steel articles.
'(E) Footwear, handbags, luggage, flat goods, work gloves, and leather wearing apparel which were not eligible articles for purposes of this title on January 1, 1995, as this title was in effect on such date.
'(F) Import-sensitive semimanufactured and manufactured glass products.
'(G) Any other articles which the President determines to be import-sensitive in the context of the Generalized System of Preferences.
'(2) ARTICLES AGAINST WHICH OTHER ACTIONS TAKEN.--An article shall not be an eligible article for purposes of this title for any period during which such article is the subject of any action proclaimed pursuant to section 203 of this Act (19 U.S.C. 2253) or section 232 or 351 of the Trade Expansion Act of 1962 (19 U.S.C. 1862, 1981).
'(3) AGRICULTURAL PRODUCTS.--No quantity of an agricultural product subject to a tariff-rate quota that exceeds the in-quota quantity shall be eligible for duty-free treatment under this title.
'(c) WITHDRAWAL, SUSPENSION, OR LIMITATION OF DUTY-FREE TREATMENT; COMPETITIVE NEED LIMITATION.--
'(1) IN GENERAL.--The President may withdraw, suspend, or limit the application of the duty-free treatment accorded under this title with respect to any article, except that no rate of duty may be established with respect to any article pursuant to this subsection other than the rate which would apply but for this title. In taking any action under this subsection, the President shall consider the factors set forth in sections 501 and 502(c).
'(2) COMPETITIVE NEED LIMITATION.--
'(A) BASIS FOR WITHDRAWAL OF DUTY-FREE TREATMENT.--
'(i) IN GENERAL.--Except as provided in clause (ii) and subject to subsection (d), whenever the President determines that a beneficiary developing country has exported (directly or indirectly) to the United States during any calendar year beginning after December 31, 1995--
'(I) a quantity of an eligible article having an appraised value in excess of the applicable amount for the calendar year, or
'(II) a quantity of an eligible article equal to or exceeding 50 percent of the appraised value of the total imports of that article into the United States during any calendar year,
the President shall, not later than July 1 of the next calendar year, terminate the duty-free treatment for that article from that beneficiary developing country.
'(ii) ANNUAL ADJUSTMENT OF APPLICABLE AMOUNT.--For purposes of applying clause (i), the applicable amount is--
'(I) for 1996, $75,000,000, and
'(II) for each calendar year thereafter, an amount equal to the applicable amount in effect for the preceding calendar year plus $5,000,000.
'(C) REDESIGNATIONS.--A country which is no longer treated as a beneficiary developing country with respect to an eligible article by reason of subparagraph (A) may, subject to the considerations set forth in sections 501 and 502, be redesignated a beneficiary developing country with respect to such article if imports of such article from such country did not exceed the limitations in subparagraph (A) during the preceding calendar year.
'(D) LEAST-DEVELOPED BENEFICIARY DEVELOPING COUNTRIES.--Subparagraph (A) shall not apply to any least-developed beneficiary developing country.
'(E) ARTICLES NOT PRODUCED IN THE UNITED STATES EXCLUDED.--Subparagraph (A)(i)(II) shall not apply with respect to any eligible article if a like or directly competitive article was not produced in the United States on January 1, 1995.
'(F) DE MINIMIS WAIVERS.--
'(i) IN GENERAL.--The President may disregard subparagraph (A)(i)(II) with respect to any eligible article from any beneficiary developing country if the aggregate appraised value of the imports of such article into the United States during the preceding calendar year does not exceed the applicable amount for such preceding calendar year.
'(ii) APPLICABLE AMOUNT.--For purposes of applying clause (i), the applicable amount is--
'(I) for calendar year 1996, $13,000,000, and
'(II) for each calendar year thereafter, an amount equal to the applicable amount in effect for the preceding calendar year plus $500,000.
'(1) IN GENERAL.--The President may waive the application of subsection (c)(2) with respect to any eligible article of any beneficiary developing country if, before July 1 of the calendar year beginning after the calendar year for which a determination described in subsection (c)(2)(A) was made with respect to such eligible article, the President--
'(A) receives the advice of the International Trade Commission under section 332 of the Tariff Act of 1930 on whether any industry in the United States is likely to be adversely affected by such waiver,
'(B) determines, based on the considerations described in sections 501 and 502(c) and the advice described in subparagraph (A), that such waiver is in the national economic interest of the United States, and
'(C) publishes the determination described in subparagraph (B) in the Federal Register.
'(2) CONSIDERATIONS BY THE PRESIDENT.--In making any determination under paragraph (1), the President shall give great weight to--
'(A) the extent to which the beneficiary developing country has assured the United States that such country will provide equitable and reasonable access to the markets and basic commodity resources of such country, and
'(B) the extent to which such country provides adequate and effective protection of intellectual property rights.
'(3) OTHER BASES FOR WAIVER.--The President may waive the application of subsection (c)(2) if, before July 1 of the calendar year beginning after the calendar year for which a determination described in subsection (c)(2) was made with respect to a beneficiary developing country, the President determines that--
'(A) there has been a historical preferential trade relationship between the United States and such country,
'(B) there is a treaty or trade agreement in force covering economic relations between such country and the United States, and
'(C) such country does not discriminate against, or impose unjustifiable or unreasonable barriers to, United States commerce,
and the President publishes that determination in the Federal Register.
'(4) LIMITATIONS ON WAIVERS.--
'(A) IN GENERAL.--The President may not exercise the waiver authority under this subsection with respect to a quantity of an eligible article entered during any calendar year beginning after 1995, the aggregate appraised value of which equals or exceeds 30 percent of the aggregate appraised value of all articles that entered duty-free under this title during the preceding calendar year.
'(B) OTHER WAIVER LIMITS.--The President may not exercise the waiver authority provided under this subsection with respect to a quantity of an eligible article entered during any calendar year beginning after 1995, the aggregate appraised value of which exceeds 15 percent of the aggregate appraised value of all articles that have entered duty-free under this title during the preceding calendar year from those beneficiary developing countries which for the preceding calendar year--
'(i) had a per capita gross national product (calculated on the basis of the best available information, including that of the International Bank for Reconstruction and Development) of $5,000 or more; or
'(ii) had exported (either directly or indirectly) to the United States a quantity of articles that was duty-free under this title that had an aggregate appraised value of more than 10 percent of the aggregate appraised value of all articles that entered duty-free under this title during that year.
'(C) CALCULATION OF LIMITATIONS.--There shall be counted against the limitations imposed under subparagraphs (A) and (B) for any calendar year only that value of any eligible article of any country that--
'(i) entered duty-free under this title during such calendar year; and
'(ii) is in excess of the value of that article that would have been so entered during such calendar year if the limitations under subsection (c)(2)(A) applied.
'(e) INTERNATIONAL TRADE COMMISSION ADVICE.--Before designating articles as eligible articles under subsection (a)(1), the President shall publish and furnish the International Trade Commission with lists of articles which may be considered for designation as eligible articles for purposes of this title. The provisions of sections 131, 132, 133, and 134 shall be complied with as though action under section 501 and this section were action under section 123 to carry out a trade agreement entered into under section 123.
'(f) SPECIAL RULE CONCERNING PUERTO RICO.--No action under this title may affect any tariff duty imposed by the Legislature of Puerto Rico pursuant to section 319 of the Tariff Act of 1930 on coffee imported into Puerto Rico.
'SEC. 504. REVIEW AND REPORT TO CONGRESS.
'The President shall submit an annual report to the Congress on the status of internationally recognized worker rights within each beneficiary developing country.
'SEC. 505. DATE OF TERMINATION.
'No duty-free treatment provided under this title shall remain in effect after May 31, 1997.
'SEC. 506. AGRICULTURAL EXPORTS OF BENEFICIARY DEVELOPING COUNTRIES.
'The appropriate agencies of the United States shall assist beneficiary developing countries to develop and implement measures designed to assure that the agricultural sectors of their economies are not directed to export markets to the detriment of the production of foodstuffs for their citizenry.
'SEC. 507. DEFINITIONS.
'For purposes of this title:
'(2) COUNTRY.--The term 'country' means any foreign country or territory, including any overseas dependent territory or possession of a foreign country, or the Trust Territory of the Pacific Islands. In the case of an association of countries which is a free trade area or customs union, or which is contributing to comprehensive regional economic integration among its members through appropriate means, including, but not limited to, the reduction of duties, the President may by Executive order or Presidential proclamation provide that all members of such association other than members which are barred from designation under section 502(b) shall be treated as one country for purposes of this title.
'(3) ENTERED.--The term 'entered' means entered, or withdrawn from warehouse for consumption, in the customs territory of the United States.
'(4) INTERNATIONALLY RECOGNIZED WORKER RIGHTS.--The term 'internationally recognized worker rights' includes--
'(A) the right of association;
'(B) the right to organize and bargain collectively;
'(C) a prohibition on the use of any form of forced or compulsory labor;
'(D) a minimum age for the employment of children; and
'(E) acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.
'(5) LEAST-DEVELOPED BENEFICIARY DEVELOPING COUNTRY.--The term 'least-developed beneficiary developing country' means a beneficiary developing country that is designated as a least-developed beneficiary developing country under section 502(a)(2).'.
(b) TABLE OF CONTENTS.--The items relating to title V in the table of contents of the Trade Act of 1974 are amended to read as follows:
'TITLE V--GENERALIZED SYSTEM OF PREFERENCES
'Sec. 501. Authority to extend preferences.
'Sec. 502. Designation of beneficiary developing countries.
'Sec. 503. Designation of eligible articles.
'Sec. 504. Review and reports to Congress.
'Sec. 505. Date of termination.
'Sec. 506. Agricultural exports of beneficiary developing countries.
'Sec. 507. Definitions.'.
SEC. 1953. EFFECTIVE DATE.
(a) IN GENERAL.--The amendments made by this subtitle apply to articles entered on or after October 1, 1996.
(b) RETROACTIVE APPLICATION.--
(1) GENERAL RULE.--Notwithstanding section 514 of the Tariff Act of 1930 or any other provision of law and subject to subsection (c)--
(A) any article that was entered--
(i) after July 31, 1995, and
(ii) before January 1, 1996, and
to which duty-free treatment under title V of the Trade Act of 1974 would have applied if the entry had been made on July 31, 1995, shall be liquidated or reliquidated as free of duty, and the Secretary of the Treasury shall refund any duty paid with respect to such entry, and
(B) any article that was entered--
(i) after December 31, 1995, and
(ii) before October 1, 1996, and
to which duty-free treatment under title V of the Trade Act of 1974 (as amended by this subtitle) would have applied if the entry had been made on or after October 1, 1996, shall be liquidated or reliquidated as free of duty, and the Secretary of the Treasury shall refund any duty paid with respect to such entry.
(2) LIMITATION ON REFUNDS.--No refund shall be made pursuant to this subsection before October 1, 1996.
(3) ENTRY.--As used in this subsection, the term 'entry' includes a withdrawal from warehouse for consumption.
(c) REQUESTS.--Liquidation or reliquidation may be made under subsection (b) with respect to an entry only if a request therefor is filed with the Customs Service, within 180 days after the date of the enactment of this Act, that contains sufficient information to enable the Customs Service--
(1) to locate the entry; or
(2) to reconstruct the entry if it cannot be located.
(a) TRADE LAWS.--
(1) Section 1211(b) of the Omnibus Trade and Competitiveness Act of 1988 (19 U.S.C. 3011(b)) is amended--
(A) in paragraph (1), by striking '(19 U.S.C. 2463(a), 2464(c)(3))' and inserting '(as in effect on July 31, 1995)'; and
(B) in paragraph (2), by striking '(19 U.S.C. 2464(c)(1))' and inserting the following: '(as in effect on July 31, 1995)'.
(2) Section 203(c)(7) of the Andean Trade Preference Act (19 U.S.C. 3202(c)(7)) is amended by striking '502(a)(4)' and inserting '507(4)'.
(3) Section 212(b)(7) of the Caribbean Basin Economic Recovery Act (19 U.S.C. 2702(b)(7)) is amended by striking '502(a)(4)' and inserting '507(4)'.
(4) General note 3(a)(iv)(C) of the Harmonized Tariff Schedule of the United States is amended by striking 'sections 503(b) and 504(c)' and inserting 'subsections (a), (c), and (d) of section 503'.
(5) Section 201(a)(2) of the North American Free Trade Agreement Implementation Act (19 U.S.C. 3331(a)(2)) is amended by striking '502(a)(2) of the Trade Act of 1974 (19 U.S.C. 2462(a)(2))' and inserting '502(f)(2) of the Trade Act of 1974'.
(6) Section 131 of the Uruguay Round Agreements Act (19 U.S.C. 3551) is amended in subsections (a) and (b)(1) by striking '502(a)(4)' and inserting '507(4)'.
(b) OTHER LAWS.--
(1) Section 871(f)(2)(B) of the Internal Revenue Code of 1986 is amended by striking 'within the meaning of section 502' and inserting 'under title V'.
(2) Section 2202(8) of the Export Enhancement Act of 1988 (15 U.S.C. 4711(8)) is amended by striking '502(a)(4)' and inserting '507(4)'.
(3) Section 231A(a) of the Foreign Assistance Act of 1961 (22 U.S.C. 2191a(a)) is amended--
(A) in paragraph (1) by striking '502(a)(4) of the Trade Act of 1974 (19 U.S.C. 2462(a)(4))' and inserting '507(4) of the Trade Act of 1974';
(B) in paragraph (2) by striking '505(c) of the Trade Act of 1974 (19 U.S.C. 2465(c))' and inserting '504 of the Trade Act of 1974'; and
(C) in paragraph (4) by striking '502(a)(4)' and inserting '507(4)'.
(4) Section 1621(a)(1) of the International Financial Institutions Act (22 U.S.C. 262p-4p(a)(1)) is amended by striking '502(a)(4)' and inserting '507(4)'.
(5) Section 103B of the Agricultural Act of 1949 (7 U.S.C. 1444-2) is amended in subsections (a)(5)(F)(v) and (n)(1)(C) by striking '503(d) of the Trade Act of 1974 (19 U.S.C. 2463(d))' and inserting '503(b)(3) of the Trade Act of 1974'.
Speaker of the House of Representatives. Vice President of the United States and President of the Senate.
- Jurisdictions
- LanguageEnglish
