[104th Congress Public Law 188]
[From the U.S. Government Printing Office]
<DOC>
[DOCID: f:publ188.104]
[[Page 110 STAT. 1755]]
Public Law 104-188
104th Congress
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. <<NOTE: Aug. 20,
1996 - [H.R. 3448]>>
Be it enacted by the Senate and House of Representatives of the
United States of America <<NOTE: Small Business Job Protection Act of
1996.>> in Congress assembled,
SECTION 1. SHORT TITLE; <<NOTE: 26 USC 1 note.>> 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.
TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS
Sec. 1101. Amendment of 1986 Code.
Sec. 1102. Underpayments of estimated tax.
Subtitle A--Expensing; Etc.
Sec. 1111. Increase in expense treatment for small businesses.
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. 1122. Special rules relating to determination whether individuals
are employees for purposes of employment taxes.
Sec. 1123. Treatment of housing provided to employees by academic health
centers.
Subtitle B--Extension of Certain Expiring Provisions
Sec. 1201. Work opportunity tax credit.
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.
Subtitle C--Provisions Relating to S Corporations
Sec. 1301. S corporations permitted to have 75 shareholders.
Sec. 1302. Electing small business trusts.
[[Page 110 STAT. 1756]]
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. 1314. S corporations eligible for rules applicable to real property
subdivided for sale by noncorporate taxpayers.
Sec. 1315. Financial institutions.
Sec. 1316. Certain exempt organizations allowed to be shareholders.
Sec. 1317. Effective date.
Subtitle D--Pension Simplification
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
subchapter a--simple savings plans
Sec. 1421. Establishment of savings incentive match plans for employees
of small employers.
Sec. 1422. Extension of simple plan to 401(k) arrangements.
subchapter b--other provisions
Sec. 1426. Tax-exempt organizations eligible under section 401(k).
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. 1447. Treatment of deferred compensation plans of State and local
governments and tax-exempt organizations.
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. 1452. Repeal of limitation in case of defined benefit plan and
defined contribution plan for same employee;
excess distributions.
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.
[[Page 110 STAT. 1757]]
Sec. 1458. Treatment of length of service awards to volunteers
performing fire fighting or prevention services,
emergency medical services, or ambulance services.
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.
Subtitle E--Foreign Simplification
Sec. 1501. Repeal of inclusion of certain earnings invested in excess
passive assets.
Subtitle F--Revenue Offsets
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. 1605. Repeal of exclusion for punitive damages and for damages not
attributable to physical injuries or sickness.
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. 1610. Basis adjustment to property held by corporation where stock
in corporation is replacement property under
involuntary conversion rules.
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.
Subtitle G--Technical Corrections
Sec. 1701. Coordination with other subtitles.
Sec. 1702. Amendments related to Revenue Reconciliation Act of 1990.
Sec. 1703. Amendments related to Revenue Reconciliation Act of 1993.
Sec. 1704. Miscellaneous provisions.
Subtitle H--Other Provisions
Sec. 1801. Exemption from diesel fuel dyeing requirements with respect
to certain States.
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. 1805. Nonrecognition treatment for certain transfers by common
trust funds to regulated investment companies.
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.
Subtitle I--Foreign Trust Tax Compliance
Sec. 1901. Improved information reporting on foreign trusts.
[[Page 110 STAT. 1758]]
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.
Subtitle J--Generalized System of Preferences
Sec. 1951. Short title.
Sec. 1952. Generalized System of Preferences.
Sec. 1953. Effective date.
Sec. 1954. Conforming amendments.
TITLE II--PAYMENT OF WAGES
Sec. 2101. Short title.
Sec. 2102. Proper compensation for use of employer vehicles.
Sec. 2103. Effective date.
Sec. 2104. Minimum wage increase.
Sec. 2105. Fair Labor Standards Act Amendments.
TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS
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 <<NOTE: 26 USC 6654 note.>> 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.
Subtitle A--Expensing; Etc.
SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.
(a) General <<NOTE: 26 USC 179.>> 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:
``If the taxable year The applicable
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.''.
(b) Effective Date.--The <<NOTE: 26 USC 179 note.>> amendment made
by subsection (a) shall apply to taxable years beginning after December
31, 1996.
[[Page 110 STAT. 1759]]
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 <<NOTE: 26 USC 38 note.>> (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 <<NOTE: 26 USC 45B note.>> 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 <<NOTE: 26 USC 45B note.>> date.--The
amendment made by paragraph (1) shall apply to tips received for
services performed after December 31, 1996.
SEC. 1113. TREATMENT OF STORAGE OF PRODUCT SAMPLES.
(a) In General.--Paragraph (2) of section 280A(c) is amended by
striking ``inventory'' and inserting ``inventory or product samples''.
(b) Effective <<NOTE: 26 USC 280A note.>> 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
[[Page 110 STAT. 1760]]
``(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.
An organization shall not cease to qualify as a qualified
charitable risk pool solely by reason of the failure of any of
its members to continue to be an organization described in
subsection (c)(3) if, within a reasonable period of time after
such pool is notified as required under subparagraph (C)(ii),
such pool takes such action as may be reasonably necessary to
remove such member from such pool.
``(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.''.
(b) Effective <<NOTE: 26 USC 501 note.>> Date.--The amendment made
by subsection (a) shall apply to taxable years beginning after the date
of the enactment of this Act.
[[Page 110 STAT. 1761]]
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 <<NOTE: 26 USC 512 note.>> 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
[[Page 110 STAT. 1762]]
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.
SEC. 1116. CLARIFICATION OF EMPLOYMENT TAX STATUS OF CERTAIN
FISHERMEN.
(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:
``For purposes of paragraph (20), the operating crew of a boat shall be
treated as normally made up of fewer than 10 individuals if the average
size of the operating crew on trips made during the preceding 4 calendar
quarters consisted of fewer than 10 indi-
viduals.''.
(B) Certain cash remuneration permitted.--
Subparagraph (A) of section 3121(b)(20) is amended to
read as follows:
``(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 <<NOTE: 42 USC 410.>>
Security Act is amended by adding at the end the
following new sentence:
``For purposes of paragraph (20), the operating crew of a boat shall be
treated as normally made up of fewer than 10 individuals if the average
size of the operating crew on trips made during the preceding 4 calendar
quarters consisted of fewer than 10 indi-
viduals.''.
(B) Certain cash remuneration permitted.--
Subparagraph (A) of section 210(a)(20) of such Act is
amended to read as follows:
``(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,''.
(3) Effective <<NOTE: 26 USC 3121 note.>> Dates.--
[[Page 110 STAT. 1763]]
(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.
(b) Information Reporting.--
(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:
``SEC. 6050R. RETURNS RELATING TO CERTAIN PURCHASES OF FISH.
``(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.
``(c) Statement To Be Furnished With Respect to Whom Information Is
Required.--Every person required to make a return under subsection (a)
shall furnish to each person whose name is required to be set forth in
such return a written statement showing--
``(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.''.
[[Page 110 STAT. 1764]]
(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:
``Sec. 6050R. Returns relating to certain purchases of fish.''.
(3) Effective <<NOTE: 26 USC 6050R note.>> date.--The
amendments made by this subsection shall apply to payments made
after December 31, 1997.
SEC. 1117. MODIFICATIONS OF TAX-EXEMPT BOND RULES FOR FIRST-TIME
FARMERS.
(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:
``(G) Acquisition from related person.--For purposes
of this paragraph and section 144(a), the acquisition by
a first-time farmer of land or personal property from a
related person (within the meaning of section 144(a)(3))
shall not be treated as an acquisition from a related
person, if--
``(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.''.
(b) Substantial Farmland Amount Doubled.--Clause (i) of section
147(c)(2)(E) (defining substantial farmland) is amended by striking ``15
percent'' and inserting ``30 percent''.
(c) Effective Date.--The <<NOTE: 26 USC 147 note.>> 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:
``(iii) is engaged in the trade or business of
the delivering or distribution of newspapers or
shopping news (including any services directly
related to such trade or business),''.
(b) Effective <<NOTE: 26 USC 3508 note.>> Date.--The amendments
made by this section shall apply to services performed after December
31, 1995.
[[Page 110 STAT. 1765]]
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 <<NOTE: 26 USC 1033 note.>> 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.
SEC. 1120. CLASS LIFE FOR GAS STATION CONVENIENCE STORES AND
SIMILAR STRUCTURES.
(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:
``(iii) any section 1250 property which is a
retail motor fuels outlet (whether or not food or
other convenience items are sold at the
outlet).''.
(b) Conforming Amendment.--Subparagraph (B) of section 168(g)(3) is
amended by inserting after the item relating to subparagraph (E)(ii) in
the table contained therein the following new item:
``(E)(iii) . . . . . . . . . . . . . . . . . 20''.
(c) Effective <<NOTE: 26 USC 168 note.>> Date.--The amendments made
by this section shall apply to property which is placed in service on or
after the date of the enactment of this Act and to which section 168 of
the Internal Revenue Code of 1986 applies after the amendment made by
section 201 of the Tax Reform Act of 1986. A taxpayer
[[Page 110 STAT. 1766]]
may elect (in such form and manner as the Secretary of the Treasury may
prescribe) to have such amendments apply with respect to any property
placed in service before such date and to which such section so applies.
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.''.
(b) Effective Date.--Subparagraph <<NOTE: 26 USC 168 note.>> (B) of
section 168(i)(8) of the Internal Revenue Code of 1986, as added by the
amendment made by subsection (a), shall apply to improvements disposed
of or abandoned after June 12, 1996.
SEC. 1122. SPECIAL RULES RELATING TO DETERMINATION WHETHER
INDIVIDUALS ARE EMPLOYEES FOR PURPOSES
OF EMPLOYMENT TAXES.
(a) In <<NOTE: 26 USC 3401 note.>> 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--
[[Page 110 STAT. 1767]]
``(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.
``(3) Availability of safe harbors.--Nothing in this section
shall be construed to provide that subsection (a) only applies
where the individual involved is otherwise an employee of the
taxpayer.
``(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 <<NOTE: 26 USC 3401 note.>> 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
treat
[[Page 110 STAT. 1768]]
ment of the burden of proof with respect to disputes
involving periods before January 1, 1997.
SEC. 1123. TREATMENT OF HOUSING PROVIDED TO EMPLOYEES BY ACADEMIC
HEALTH CENTERS.
(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.''.
(b) Effective <<NOTE: 26 USC 119 note.>> Date.--The amendment made
by this section shall apply to taxable years beginning after December
31, 1995.
Subtitle B--Extension of Certain Expiring Provisions
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 assist
[[Page 110 STAT. 1769]]
ance 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.--
[[Page 110 STAT. 1770]]
``(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.
``(7) Qualified summer youth employee.--
``(A) In general.--The term `qualified summer youth
employee' means any individual--
``(i) who performs services for the employer
between May 1 and September 15,
``(ii) who is certified by the designated
local agency as having attained age 16 but not 18
on the hiring date (or if later, on May 1 of the
calendar year involved),
``(iii) who has not been an employee of the
employer during any period prior to the 90-day
period described in subparagraph (B)(i), and
``(iv) who is certified by the designated
local agency as having his principal place of
abode within an empowerment zone or enterprise
community.
``(B) Special rules for determining amount of
credit.--For purposes of applying this subpart to wages
paid or incurred to any qualified summer youth
employee--
``(i) subsection (b)(2) shall be applied by
substituting `any 90-day period between May 1 and
September 15' for `the 1-year period beginning
with the day the individual begins work for the
employer', and
``(ii) subsection (b)(3) shall be applied by
substituting `$3,000' for `$6,000'.
The preceding sentence shall not apply to an individual
who, with respect to the same employer, is certified as
a member of another targeted group after such individual
has been a qualified summer youth employee.
``(C) Youth must continue to reside in zone.--
Paragraph (5)(B) shall apply for purposes of
subparagraph (A)(iv).
[[Page 110 STAT. 1771]]
``(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.
``(B) Participation <<NOTE: Contracts.>>
information.--Notwithstanding any other provision of
law, the Secretary of the Treasury and the Secretary of
Agriculture shall enter into an agreement to provide
information to designated local agencies with respect to
participation in the food stamp program.
``(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.
For purposes of this paragraph, the term `pre-screening
notice' means a document (in such form as the Secretary
shall prescribe) which contains information provided by
the individual on the basis of which the employer
believes that the individual is a member of a targeted
group.
``(B) Incorrect certifications.--If--
``(i) an individual has been certified by a
designated local agency as a member of a targeted
group, and
``(ii) such certification is incorrect because
it was based on false information provided by such
individual,
the certification shall be revoked and wages paid by the
employer after the date on which notice of revocation is
[[Page 110 STAT. 1772]]
received by the employer shall not be treated as
qualified wages.
``(C) Explanation of denial of request.--If a
designated local agency denies a request for
certification of membership in a targeted group, such
agency shall provide to the person making such request a
written explanation of the reasons for such denial.''.
(c) Minimum Employment Period.--Paragraph (3) of section 51(i)
(relating to certain individuals ineligible) is amended to read as
follows:
``(3) Individuals not meeting minimum employment period.--No
wages shall be taken into account under subsection (a) with
respect to any individual unless such individual either--
``(A) is employed by the employer at least 180 days
(20 days in the case of a qualified summer youth
employee), or
``(B) has completed at least 400 hours (120 hours in
the case of a qualified summer youth employee) of
services performed for the employer.''.
(d) Termination.--Paragraph (4) of section 51(c) (relating to wages
defined) is amended to read as follows:
``(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.''.
(e) Redesignation of Credit.--
(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 <<NOTE: 26 USC 38 note.>> 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
[[Page 110 STAT. 1773]]
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 <<NOTE: 26 USC 127 note.>> 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.
SEC. 1203. FUTA EXEMPTION FOR ALIEN AGRICULTURAL WORKERS.
(a) In General.--Subparagraph (B) of section 3306(c)(1) (defining
employment) is amended by striking ``before January 1, 1995,''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to services performed after December 31, 1994.
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:
[[Page 110 STAT. 1774]]
``(i) Taxpayers to which subparagraph
applies.--The fixed-base percentage shall be
determined under this subparagraph if--
``(I) the first taxable year in
which a taxpayer had both gross receipts
and qualified research expenses begins
after December 31, 1983, or
``(II) there are fewer than 3
taxable years beginning after December
31, 1983, and before January 1, 1989, in
which the taxpayer had both gross
receipts and qualified research
expenses.''.
(c) Election of Alternative Incremental Credit.--Subsection (c) of
section 41 is amended by redesignating paragraphs (4) and (5) as
paragraphs (5) and (6), respectively, and by inserting after paragraph
(3) the following new paragraph:
``(4) Election of alternative incremental credit.--
``(A) In general.--At the election of the taxpayer,
the credit determined under subsection (a)(1) shall be
equal to the sum of--
``(i) 1.65 percent of so much of the qualified
research expenses for the taxable year as exceeds
1 percent of the average described in subsection
(c)(1)(B) but does not exceed 1.5 percent of such
average,
``(ii) 2.2 percent of so much of such expenses
as exceeds 1.5 percent of such average but does
not exceed 2 percent of such average, and
``(iii) 2.75 percent of so much of such
expenses as exceeds 2 percent of such average.
``(B) Election.--An election under this paragraph
may be made only for the first taxable year of the
taxpayer beginning after June 30, 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.''.
(d) Increased Credit for Contract Research Expenses With Respect to
Certain Research Consortia.--Paragraph (3) of section 41(b) is amended
by adding at the end the following new subparagraph:
``(C) Amounts paid to certain research
consortia.--
``(i) In general.--Subparagraph (A) shall be
applied by substituting `75 percent' for `65
percent' with respect to amounts paid or incurred
by the taxpayer to a qualified research consortium
for qualified research 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.''.
[[Page 110 STAT. 1775]]
(e) Conforming Amendment.--Subparagraph (D) of section 28(b)(1) is
amended by inserting ``, and before July 1, 1996, and periods after May
31, 1997'' after ``June 30, 1995''.
(f) Effective <<NOTE: 26 USC 41 note.>> 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.
SEC. 1205. ORPHAN DRUG TAX CREDIT.
(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:
``Sec. 45C. Clinical testing expenses for certain drugs for rare
diseases or conditions.''.
(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''
[[Page 110 STAT. 1776]]
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)''.
(e) Effective Date.--The <<NOTE: 26 USC 29 note.>> amendments made
by this section shall apply to amounts paid or incurred in taxable years
ending after June 30, 1996.
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:
``(D) Termination.--This paragraph shall not apply
to contributions made--
``(i) after December 31, 1994, and before July
1, 1996, or
``(ii) after May 31, 1997.''.
(b) Effective <<NOTE: 26 USC 170 note.>> Date.--The amendment made
by this section shall apply to contributions made after June 30, 1996.
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 <<NOTE: 26 USC 29 note.>> 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:
``(i) no tax shall be imposed by subsection
(a) or (d)(1) during the period beginning on the
date which
[[Page 110 STAT. 1777]]
is 7 days after the date of the enactment of the
Small Business Job Protection Act of 1996 and
ending on December 31, 1997,''.
Subtitle C--Provisions Relating to S Corporations
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:
``(v) An electing small business trust.''.
(b) Current Beneficiaries Treated as Shareholders.--Subparagraph (B)
of section 1361(c)(2) is amended by adding at the end the following new
clause:
``(v) In the case of a trust described in
clause (v) of subparagraph (A), each potential
current beneficiary of such trust shall be treated
as a shareholder; except that, if for any period
there is no potential current beneficiary of such
trust, such trust shall be treated as the
shareholder during such period.''.
(c) Electing Small Business Trust Defined.--Section 1361 (defining S
corporation) is amended by adding at the end the following new
subsection:
``(e) Electing Small Business Trust Defined.--
``(1) Electing small business trust.--For purposes of this
section--
``(A) In general.--Except as provided in
subparagraph (B), the term `electing small business
trust' means any trust if--
``(i) such trust does not have as a
beneficiary any person other than (I) an
individual, (II) an estate, or (III) an
organization described in paragraph (2), (3), (4),
or (5) of section 170(c) which holds a contingent
interest and is not a potential current
beneficiary,
``(ii) no interest in such trust was acquired
by purchase, and
``(iii) an election under this subsection
applies to such trust.
``(B) Certain trusts not eligible.--The term
`electing small business trust' shall not include--
``(i) any qualified subchapter S trust (as
defined in subsection (d)(3)) if an election under
subsection (d)(2) applies to any corporation the
stock of which is held by such trust, and
``(ii) any trust exempt from tax under this
subtitle.
``(C) Purchase.--For purposes of subparagraph (A),
the term `purchase' means any acquisition if the basis
of the property acquired is determined under section
1012.
``(2) Potential current beneficiary.--For purposes of this
section, the term `potential current beneficiary' means,
[[Page 110 STAT. 1778]]
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,
[[Page 110 STAT. 1779]]
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--
(1) by striking ``60-day period'' each place it appears in
clauses (ii) and (iii) and inserting ``2-year period'', and
(2) by striking the last sentence in clause (ii).
SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD SAFE
HARBOR DEBT.
Clause (iii) of section 1361(c)(5)(B) (defining straight debt) is
amended by striking ``or a trust described in paragraph (2)'' and
inserting ``a trust described in paragraph (2), or a person which is
actively and regularly engaged in the business of lending money''.
SEC. 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,
[[Page 110 STAT. 1780]]
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 <<NOTE: 26 USC 1362 note.>> 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:
``(2) Election to terminate year.--
``(A) In general.--Under regulations prescribed by
the Secretary, if any shareholder terminates the
shareholder's interest in the corporation during the
taxable year and all affected shareholders and the
corporation agree to the application of this paragraph,
paragraph (1) shall be applied to the affected
shareholders as if the taxable year consisted of 2
taxable years the first of which ends on the date of the
termination.
``(B) Affected shareholders.--For purposes of
subparagraph (A), the term `affected shareholders' means
the shareholder whose interest is terminated and all
shareholders to whom such shareholder has transferred
shares during the taxable year. If such shareholder has
transferred shares to the corporation, the term
`affected shareholders' shall include all persons who
are shareholders during the taxable year.''.
SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION PERIOD.
(a) In General.--Paragraph (1) of section 1377(b) (relating to post-
termination transition period) is amended by striking ``and'' at the end
of subparagraph (A), by redesignating subparagraph (B) as subparagraph
(C), and by inserting after subparagraph (A) the following new
subparagraph:
``(B) the 120-day period beginning on the date of
any determination pursuant to an audit of the taxpayer
which follows the termination of the corporation's
election and which adjusts a subchapter S item of
income, loss, or deduction of the corporation arising
during the S period (as defined in section 1368(e)(2)),
and''.
(b) Determination Defined.--Paragraph (2) of section 1377(b) is
amended by striking subparagraphs (A) and (B), by redesignating
subparagraph (C) as subparagraph (B), and by inserting before
subparagraph (B) (as so redesignated) the following new subparagraph:
[[Page 110 STAT. 1781]]
``(A) a determination as defined in section 1313(a),
or''.
(c) Repeal of Special Audit Provisions for Sub-
chapter S Items.--
(1) General rule.--Subchapter <<NOTE: 26 USC 6241 et seq.>>
D of chapter 63 (relating to tax treatment of subchapter S
items) is hereby repealed.
(2) Consistent treatment required.--Section 6037 (relating
to return of S corporation) is amended by adding at the end the
following new subsection:
``(c) Shareholder's Return Must Be Consistent With Corporate Return
or Secretary Notified of Inconsistency.--
``(1) In general.--A shareholder of an S corporation shall,
on such shareholder's return, treat a subchapter S item in a
manner which is consistent with the treatment of such item on
the corporate return.
``(2) Notification of inconsistent treatment.--
``(A) In general.--In the case of any subchapter S
item, if--
``(i)(I) the corporation has filed a return
but the shareholder's treatment on his return is
(or may be) inconsistent with the treatment of the
item on the corporate return, or
``(II) the corporation has not filed a return,
and
``(ii) the shareholder files with the
Secretary a statement identifying the
inconsistency,
paragraph (1) shall not apply to such item.
``(B) Shareholder receiving incorrect information.--
A shareholder shall be treated as having complied with
clause (ii) of subparagraph (A) with respect to a
subchapter S item if the shareholder--
``(i) demonstrates to the satisfaction of the
Secretary that the treatment of the subchapter S
item on the shareholder's return is consistent
with the treatment of the item on the schedule
furnished to the shareholder by the corporation,
and
``(ii) elects to have this paragraph apply
with respect to that item.
``(3) Effect of failure to notify.--In any case--
``(A) described in subparagraph (A)(i)(I) of
paragraph (2), and
``(B) in which the shareholder does not comply with
subparagraph (A)(ii) of paragraph (2),
any adjustment required to make the treatment of the items by
such shareholder consistent with the treatment of the items on
the corporate return shall be treated as arising out of
mathematical or clerical errors and assessed according to
section 6213(b)(1). Paragraph (2) of section 6213(b) shall not
apply to any assessment referred to in the preceding sentence.
``(4) Subchapter s item.--For purposes of this subsection,
the term `subchapter S item' means any item of an S corporation
to the extent that regulations prescribed by the Secretary
provide that, for purposes of this subtitle, such item is more
appropriately determined at the corporation level than at the
shareholder level.
[[Page 110 STAT. 1782]]
``(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 sub-
section (g).
(B) Subsection (b) of section 6233 is amended to
read as follows:
``(b) Similar Rules in Certain Cases.--If a partnership return is
filed for any taxable year but it is determined that there is no entity
for such taxable year, to the extent provided in regulations, rules
similar to the rules of subsection (a) shall apply.''.
(C) The table of subchapters for chapter 63 is
amended by striking the item relating to subchapter D.
SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUBSIDIARIES.
(a) In General.--Paragraph (2) of section 1361(b) (defining
ineligible corporation) is amended by striking subparagraph (A) and by
redesignating subparagraphs (B), (C), (D), and (E) as subparagraphs (A),
(B), (C), and (D), respectively.
(b) Treatment of Certain Wholly Owned S Corporation Subsidiaries.--
Section 1361(b) (defining small business corporation) is amended by
adding at the end the following new paragraph:
``(3) Treatment of certain wholly owned subsidiaries.--
``(A) In general.--For purposes of this title--
``(i) a corporation which is a qualified
subchapter S subsidiary shall not be treated as a
separate corporation, and
``(ii) all assets, liabilities, and items of
income, deduction, and credit of a qualified
subchapter S subsidiary shall be treated as
assets, liabilities, and such items (as the case
may be) of the S corporation.
``(B) Qualified subchapter s subsidiary.--For
purposes of this paragraph, the term `qualified
subchapter S subsidiary' means any domestic corporation
which is not an ineligible corporation (as defined in
paragraph (2)), if--
``(i) 100 percent of the stock of such
corporation is held by the S corporation, and
``(ii) the S corporation elects to treat such
corporation as a qualified subchapter S
subsidiary.
``(C) Treatment of terminations of qualified
subchapter s subsidiary status.--For purposes of this
title, if any corporation which was a qualified
subchapter S subsidiary ceases to meet the requirements
of subparagraph (B), such corporation shall be treated
as a new corporation acquiring all of its assets (and
assuming all of its liabilities) immediately before such
cessation from the S corporation in exchange for its
stock.
``(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--
[[Page 110 STAT. 1783]]
``(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.''.
(c) Certain Dividends Not Treated as Passive Investment Income.--
Paragraph (3) of section 1362(d) is amended by adding at the end the
following new subparagraph:
``(F) Treatment of certain dividends.--If an S
corporation holds stock in a C corporation meeting the
requirements of section 1504(a)(2), the term `passive
investment income' shall not include dividends from such
C corporation to the extent such dividends are
attributable to the earnings and profits of such C
corporation derived from the active conduct of a trade
or business.''.
(d) Conforming Amendments.--
(1) Subsection (c) of section 1361 is amended by striking
paragraph (6).
(2) Subsection (b) of section 1504 (defining includible
corporation) is amended by adding at the end the following new
paragraph:
``(8) An S corporation.''.
SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.
(a) Adjustments for Distributions Taken Into Account Before
Losses.--
(1) Subparagraph (A) of section 1366(d)(1) (relating to
losses and deductions cannot exceed shareholder's basis in stock
and debt) is amended by striking ``paragraph (1)'' and inserting
``paragraphs (1) and (2)(A)''.
(2) Subsection (d) of section 1368 (relating to certain
adjustments taken into account) is amended by adding at the end
the following new 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:
``(C) Net loss for year disregarded.--
``(i) In general.--In applying this section to
distributions made during any taxable year, the amount
in the accumulated adjustments account as of the close
of such taxable year shall be determined without regard
to any net negative adjustment for such taxable year.
``(ii) Net negative adjustment.--For purposes of
clause (i), the term `net negative adjustment' means,
with respect to any taxable year, the excess (if any)
of--
``(I) the reductions in the account for the
taxable year (other than for distributions), over
``(II) the increases in such account for such
taxable year.''.
(c) Conforming Amendments.--Subparagraph (A) of section 1368(e)(1)
is amended--
[[Page 110 STAT. 1784]]
(1) by striking ``as provided in subparagraph (B)'' and
inserting ``as otherwise provided in this paragraph'', and
(2) by striking ``section 1367(b)(2)(A)'' and inserting
``section 1367(a)(2)''.
SEC. 1310. TREATMENT OF S CORPORATIONS UNDER SUBCHAPTER C.
Subsection (a) of section 1371 (relating to application of
subchapter C rules) is amended to read as follows:
``(a) Application of Subchapter C Rules.--Except as otherwise
provided in this title, and except to the extent inconsistent with this
subchapter, subchapter C shall apply to an S corporation and its
shareholders.''.
SEC. 1311. ELIMINATION <<NOTE: 26 USC 1361 note.>> 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)''.
SEC. 1312. CARRYOVER OF DISALLOWED LOSSES AND DEDUCTIONS UNDER AT-
RISK RULES ALLOWED.
Paragraph (3) of section 1366(d) (relating to carryover of
disallowed losses and deductions to post-termination transition period)
is amended by adding at the end the following new subparagraph:
[[Page 110 STAT. 1785]]
``(D) At-risk limitations.--To the extent that any
increase in adjusted basis described in subparagraph (B)
would have increased the shareholder's amount at risk
under section 465 if such increase had occurred on the
day preceding the commencement of the post-termination
transition period, rules similar to the rules described
in subparagraphs (A) through (C) shall apply to any
losses disallowed by reason of section 465(a).''.
SEC. 1313. ADJUSTMENTS TO BASIS OF INHERITED S STOCK TO REFLECT
CERTAIN ITEMS OF INCOME.
(a) In General.--Subsection (b) of section 1367 (relating to
adjustments to basis of stock of shareholders, etc.) is amended by
adding at the end the following new paragraph:
``(4) Adjustments in case of inherited stock.--
``(A) In general.--If any person acquires stock in
an S corporation by reason of the death of a decedent or
by bequest, devise, or inheritance, section 691 shall be
applied with respect to any item of income of the S
corporation in the same manner as if the decedent had
held directly his pro rata share of such item.
``(B) Adjustments to basis.--The basis determined
under section 1014 of any stock in an S corporation
shall be reduced by the portion of the value of the
stock which is attributable to items constituting income
in respect of the decedent.''.
(b) Effective <<NOTE: 26 USC 1367 note.>> Date.--The amendment made
by subsection (a) shall apply in the case of decedents dying after the
date of the enactment of this Act.
SEC. 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) a financial institution which uses the reserve
method of accounting for bad debts described in section
585,''.
SEC. 1316. CERTAIN EXEMPT ORGANIZATIONS ALLOWED TO BE
SHAREHOLDERS.
(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
organiza
[[Page 110 STAT. 1786]]
tion 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,
shall be taken into account in computing the unrelated business
taxable income of such organization.
``(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''.
[[Page 110 STAT. 1787]]
(f) Effective <<NOTE: 26 USC 170 note.>> Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 1317. EFFECTIVE DATE.
(a) In <<NOTE: 26 USC 641 note.>> 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 <<NOTE: 26 USC 1362 note.>> 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.
Subtitle D--Pension Simplification
CHAPTER 1--SIMPLIFIED DISTRIBUTION RULES
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)).
[[Page 110 STAT. 1788]]
``(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.''.
(2) Section 402(c) (relating to rules applicable to
rollovers from exempt trusts) is amended by striking paragraph
(10).
(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.
[[Page 110 STAT. 1789]]
(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:
``(ii) Lump-sum distribution.--For purposes of
this subparagraph, the term `lump-sum
distribution' has the meaning given such term by
section 402(e)(4)(D) (without regard to subclauses
(I), (II), (III), and (IV) of clause (i)
thereof).''.
(7) Section 406(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.
(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 <<NOTE: 26 USC 402 note.>> 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).
SEC. 1402. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES' DEATH
BENEFITS.
(a) In General.--Subsection (b) of section 101 is hereby repealed.
(b) Conforming Amendments.--
(1) Subsection (c) of section 101 is amended by striking
``subsection (a) or (b)'' and inserting ``subsection (a)''.
[[Page 110 STAT. 1790]]
(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 <<NOTE: 26 USC 101 note.>> 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.--
``If the age of the
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.
``(C) Adjustment for refund feature not
applicable.--For purposes of this paragraph, investment
in the contract shall be determined under subsection
(c)(1) without regard to subsection (c)(2).
``(D) Special rule where lump sum paid in connection
with commencement of annuity payments.--If, in
connection with the commencement of annuity payments
under any qualified employer retirement plan, the
taxpayer receives a lump-sum payment--
[[Page 110 STAT. 1791]]
``(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 <<NOTE: 26 USC 72 note.>> 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:
``(C) Required beginning date.--For purposes of this
paragraph--
``(i) In general.--The term `required
beginning date' means April 1 of the calendar year
following the later of--
``(I) the calendar year in which the
employee attains age 70\1/2\, or
``(II) the calendar year in which
the employee retires.
``(ii) Exception.--Subclause (II) of clause
(i) shall not apply--
``(I) except as provided in section
409(d), in the case of an employee who
is a 5-percent owner (as defined in
section 416) with respect to the plan
year ending in the calendar year in
which the employee attains age 70\1/2\,
or
``(II) for purposes of section 408
(a)(6) or (b)(3).
``(iii) Actuarial adjustment.--In the case of
an employee to whom clause (i)(II) applies who
retires in a calendar year after the calendar year
in which the employee attains age 70\1/2\, the
employee's accrued benefit shall be actuarially
increased to take into account the period after
age 70\1/2\ in which the employee was not
receiving any benefits under the plan.
[[Page 110 STAT. 1792]]
``(iv) Exception for governmental and church
plans.--Clauses (ii) and (iii) shall not apply in
the case of a governmental plan or church plan.
For purposes of this clause, the term `church
plan' means a plan maintained by a church for
church employees, and the term `church' means any
church (as defined in section 3121(w)(3)(A)) or
qualified church-controlled organization (as
defined in section 3121(w)(3)(B)).''.
(b) Effective <<NOTE: 26 USC 401 note.>> Date.--The amendment made
by subsection (a) shall apply to years beginning after December 31,
1996.
CHAPTER 2--INCREASED ACCESS TO RETIREMENT PLANS
Subchapter A--Simple Savings Plans
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.--
[[Page 110 STAT. 1793]]
``(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
[[Page 110 STAT. 1794]]
contribution was at
3 percent of compensation for such prior year.
``(D) Arrangement may be only plan of employer.--
``(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
[[Page 110 STAT. 1795]]
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''.
(2) Deductibility of employer contributions.--Section 404
(relating to deductions for contributions of an employer to
pension, etc. plans) is amended by adding at the end the
following new subsection:
``(m) Special Rules for Simple Retirement Accounts.--
[[Page 110 STAT. 1796]]
``(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:
``(k) Treatment of Simple Retirement Accounts.--Rules similar to the
rules of paragraphs (1) and (3) of subsection (h) shall apply to
contributions and distributions with respect to a simple retirement
account under section 408(p).''.
(B) Section 408(d)(3) is amended by adding at the
end the following new subparagraph:
``(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:
``(c) Penalties Relating to Simple Retirement Accounts.--
``(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--
[[Page 110 STAT. 1797]]
``(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:
[[Page 110 STAT. 1798]]
``(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 <<NOTE: 26 USC 409.>> 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)).''.
(c) Repeal of Salary Reduction Simplified Employee Pensions.--
Section 408(k)(6) is amended by adding at the end the following new
subparagraph:
``(H) Termination.--This paragraph shall not apply
to years beginning after December 31, 1996. The
preceding sentence shall not apply to a simplified
employee pension
[[Page 110 STAT. 1799]]
if the terms of such pension, as in effect on December
31, 1996, provide that an employee may make the election
described in subparagraph (A).''.
(d) Modifications of ERISA.--
(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.''.
[[Page 110 STAT. 1800]]
(e) Effective <<NOTE: 26 USC 72 note.>> 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
[[Page 110 STAT. 1801]]
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.''.
(b) Alternative Methods of Satisfying Section 401(m)
Nondiscrimination Tests.--Section 401(m) (relating to nondiscrimination
test for matching contributions and employee contributions) is amended
by redesignating paragraph (10) as paragraph (11) and by adding after
paragraph (9) the following new paragraph:
``(10) Alternative method of satisfying tests.--A 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).''.
(c) Effective <<NOTE: 26 USC 401 note.>> Date.--The amendments made
by this section shall apply to plan years beginning after December 31,
1996.
Subchapter B--Other Provisions
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:
``(B) Eligibility of state and local governments and
tax-exempt organizations.--
``(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
[[Page 110 STAT. 1802]]
part by any of the foregoing may include a
qualified cash or deferred arrangement as part of
a plan maintained by the employer.''.
(b) Effective <<NOTE: 26 USC 401 note.>> Date.--The amendment made
by this section shall apply to plan years beginning after December 31,
1996, but shall not apply to any cash or deferred arrangement to which
clause (i) of section 1116(f)(2)(B) of the Tax Reform Act of 1986
applies.
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.
``(2) Individuals to whom paragraph (1) applies.--Paragraph
(1) shall apply to any individual if--
``(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.''.
(b) Conforming Amendments.--
(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 <<NOTE: 26 USC 219 note.>> Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1996.
CHAPTER 3--NONDISCRIMINATION PROVISIONS
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
[[Page 110 STAT. 1803]]
``(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.
The Secretary shall adjust the $80,000 amount under subparagraph
(B) at the same time and in the same manner as under section
415(d), except that the base period shall be the calendar
quarter ending September 30, 1996.''.
(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 <<NOTE: 26 USC 414 note.>> (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 <<NOTE: 26 USC 414 note.>> 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.
SEC. 1432. MODIFICATION OF ADDITIONAL PARTICIPATION REQUIREMENTS.
(a) General Rule.--Section 401(a)(26)(A) (relating to additional
participation requirements) is amended to read as follows:
``(A) In general.--In the case of a trust which is a
part of a defined benefit plan, such trust shall not
constitute a qualified trust under this subsection
unless on
[[Page 110 STAT. 1804]]
each day of the plan year such trust benefits at least
the lesser of--
``(i) 50 employees of the employer, or
``(ii) the greater of--
``(I) 40 percent of all employees of
the employer, or
``(II) 2 employees (or if there is
only 1 employee, such employee).''.
(b) Separate Line of Business Test.--Section 401(a)(26)(G) (relating
to separate line of business) is amended by striking ``paragraph (7)''
and inserting ``paragraph (2)(A) or (7)''.
(c) Effective <<NOTE: 26 USC 401 note.>> 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--
[[Page 110 STAT. 1805]]
``(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).
``(C) Nonelective contributions.--The requirements
of this subparagraph are met if, under the arrangement,
the employer is required, without regard to whether the
employee makes an elective contribution or employee
contribution, to make a contribution to a defined
contribution plan on behalf of each employee who is not
a highly compensated employee and who is eligible to
participate in the arrangement in an amount equal to at
least 3 percent of the employee's compensation.
``(D) Notice requirement.--An arrangement meets the
requirements of this paragraph if, under the
arrangement, each employee eligible to participate is,
within a reasonable period before any year, given
written notice of the employee's rights and obligations
under the arrangement which--
``(i) is sufficiently accurate and
comprehensive to apprise the employee of such
rights and obligations, and
``(ii) is written in a manner calculated to be
understood by the average employee eligible to
participate.
``(E) Other requirements.--
``(i) Withdrawal and vesting restrictions.--An
arrangement shall not be treated as meeting the
requirements of subparagraph (B) or (C) 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.''.
(b) Alternative Methods of Satisfying Section 401(m)
Nondiscrimination Tests.--Section 401(m) (relating to nondiscrimination
test for matching contributions and employee contributions), as amended
by section 1422(b), is amended by redesignating paragraph (11) as
paragraph (12) and by adding after paragraph (10) the following new
paragraph:
[[Page 110 STAT. 1806]]
``(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.''.
(c) Year for Computing Nonhighly Compensated Employee Percentage.--
(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.''.
(d) Special Rule for Determining Average Deferral Percentage for
First Plan Year, Etc.--
(1) Paragraph (3) of section 401(k) is amended by adding at
the end the following new subparagraph:
``(E) For purposes of this paragraph, in the case of
the first plan year of any plan (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--
[[Page 110 STAT. 1807]]
``(i) 3 percent, or
``(ii) if the employer makes an election under
this subclause, the actual deferral percentage of
nonhighly compensated employees determined for
such first plan year.''.
(2) Paragraph (3) of section 401(m) is amended by adding at
the end the following: ``Rules similar to the rules of
subsection (k)(3)(E) shall apply for purposes of this
subsection.''.
(e) Distribution of Excess Contributions 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 <<NOTE: 26 USC 401 note.>> 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.
SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION 415 PURPOSES.
(a) General Rule.--Section 415(c)(3) (defining participant's
compensation) is amended by adding at the end the following new
subparagraph:
``(D) Certain deferrals included.--The term
`participant's compensation' shall include--
``(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.''.
(b) Conforming Amendments.--
(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 <<NOTE: 26 USC 414 note.>> Date.--The amendments made
by this section shall apply to years beginning after December 31, 1997.
[[Page 110 STAT. 1808]]
CHAPTER 4--MISCELLANEOUS PROVISIONS
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 <<NOTE: 26 USC 401 note.>> 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 <<NOTE: 26 USC 411 note.>> 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:
``(C) Special rule for certain distributions.--A
rural cooperative plan which includes a qualified cash
or deferred arrangement shall not be treated as
violating the requirements of section 401(a) or of
paragraph (2) merely by reason of a hardship
distribution or a distribution to a participant after
attainment of age 59\1/2\. For purposes of this section,
the term `hardship distribution' means a distribution
described in paragraph (2)(B)(i)(IV) (without
[[Page 110 STAT. 1809]]
regard to the limitation of its application to profit-
sharing or stock bonus plans).''.
(b) Public Utility Districts.--Clause (i) of section 401(k)(7)(B)
(defining rural cooperative) is amended to read as follows:
``(i) any organization which--
``(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),''.
(c) Effective <<NOTE: 26 USC 401 note.>> Dates.--
(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.
SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER
SECTION 415.
(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
[[Page 110 STAT. 1810]]
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).''.
(c) Exemption for Survivor and Disability Benefits.--Paragraph (2)
of section 415(b) is amended by adding at the end the following new
subparagraph:
``(I) Exemption for survivor and disability benefits
provided under governmental plans.--Subparagraph (C) of
this paragraph and paragraph (5) shall not apply to--
``(i) income received from a governmental plan
(as defined in section 414(d)) as a pension,
annuity, or similar allowance as the result of the
recipient becoming disabled by reason of personal
injuries or sickness, or
``(ii) amounts received from a governmental
plan by the beneficiaries, survivors, or the
estate of an employee as the result of the death
of the employee.''.
(d) Revocation of Grandfather Election.--
(1) In general.--Subparagraph (C) of section 415(b)(10) is
amended by adding at the end the following new clause:
``(ii) Revocation of election.--An election
under clause (i) may be revoked not later than the
last day of the third plan year beginning after
the date
of the enactment of this clause. The revocation
shall
[[Page 110 STAT. 1811]]
apply to all plan years to which the election
applied and to all subsequent plan years. Any
amount paid by a plan in a taxable year ending
after the revocation shall be includible in income
in such taxable year under the rules of this
chapter in effect for such taxable year, except
that, for purposes of applying the limitations
imposed by this section, any portion of such
amount which is attributable to any taxable year
during which the election was in effect shall be
treated as received in such taxable year.''.
(2) Conforming amendment.--Subparagraph (C) of section
415(b)(10) is amended by striking ``This'' and inserting:
``(i) In general.--This''.
(e) Effective <<NOTE: 26 USC 415 note.>> Date.--
(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.
SEC. 1445. UNIFORM RETIREMENT AGE.
(a) Discrimination Testing.--Paragraph (5) of section 401(a)
(relating to special rules relating to nondiscrimination requirements)
is amended by adding at the end the following new subparagraph:
``(F) Social security retirement age.--For purposes
of testing for discrimination under paragraph (4)--
``(i) the social security retirement age (as
defined in section 415(b)(8)) shall be treated as
a uniform retirement age, and
``(ii) subsidized early retirement benefits
and joint and survivor annuities shall not be
treated as being unavailable to employees on the
same terms merely because such benefits or
annuities are based in whole or in part on an
employee's social security retirement age (as so
defined).''.
(b) Effective <<NOTE: 26 USC 401 note.>> Date.--The amendment made
by this section shall apply to years beginning after December 31, 1996.
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 <<NOTE: 26 USC 415 note.>> Date.--The amendment made
by this section shall apply to years beginning after December 31, 1996.
[[Page 110 STAT. 1812]]
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.
A plan shall not be treated as failing to meet the
distribution requirements of subsection (d) by reason of
a distribution to which this subparagraph applies.
``(B) Election to defer commencement of
distributions.--The total amount payable to a
participant under the plan shall not be treated as made
available merely because the participant may elect to
defer commencement of distributions under the plan if--
``(i) such election is made after amounts may
be available under the plan in accordance with
subsection (d)(1)(A) and before commencement of
such distributions, and
``(ii) the participant may make only 1 such
election.''.
(b) Cost-of-Living Adjustment of Maximum Deferral Amount.--
Subsection (e) of section 457, as amended by section 1444(b)(2)
(relating to governmental plans), is amended by adding at the end the
following new paragraph:
``(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 <<NOTE: 26 USC 457 note.>> 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:
[[Page 110 STAT. 1813]]
``(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 <<NOTE: 26 USC 457 note.>> 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.
SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM BENEFITS UNDER
SECTION 415 LIMITATIONS.
(a) In <<NOTE: 26 USC 411 note.>> General.--Subparagraph (A) of
section 767(d)(3) of the Uruguay Round Agreements Act is amended to read
as follows:
``(A) Exception.--A plan that was adopted and in
effect before December 8, 1994, shall not be required to
apply the amendments made by subsection (b) with respect
to benefits accrued before the earlier of--
``(i) the later of the date a plan amendment
applying 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).''.
[[Page 110 STAT. 1814]]
(b) Modification of Certain Assumptions for Adjusting Benefits of
Defined Benefit Plans for Early Retirees.--Subparagraph (E) of section
415(b)(2) (relating to limitation on certain assumptions) is amended--
(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 <<NOTE: 26 USC 415 note.>> 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 <<NOTE: 26 USC 411 note.>> 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 <<NOTE: 26 USC 403 note.>> 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 corpora
[[Page 110 STAT. 1815]]
tion 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 <<NOTE: 26 USC 403 note.>> 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.
SEC. 1451. SPECIAL RULES RELATING TO JOINT AND SURVIVOR ANNUITY
EXPLANATIONS.
(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.''.
(b) Amendment to ERISA.--Section 205(c) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1055(c)) is amended by adding at
the end the following new paragraph:
``(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
[[Page 110 STAT. 1816]]
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.''.
(c) Effective <<NOTE: 26 USC 417 note.>> Date.--The amendments made
by this section shall apply to plan years beginning after December 31,
1996.
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:
``(i) any contribution made directly by an
employee under such an arrangement shall not be
treated as an annual addition for purposes of
subsection (c), and''.
(6) Clause (ii) of section 415(k)(2)(A) is amended by
striking ``subsections (c) and (e)'' and inserting ``subsection
(c)''.
(7) Section 416 is amended by striking subsection (h).
(d) Effective <<NOTE: 26 USC 415 note.>> 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.
[[Page 110 STAT. 1817]]
(2) Excess distributions.--The amendment made by subsection
(b) shall apply to years beginning after December 31, 1996.
SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.
(a) In General.--Section 4975(a) is amended by striking ``5
percent'' and inserting ``10 percent''.
(b) Effective <<NOTE: 26 USC 4975 note.>> 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:
``(C) such services are performed under primary
direction or control by the recipient.''.
(b) Effective <<NOTE: 26 USC 414 note.>> Date.--The amendment made
by subsection (a) shall apply to years beginning after December 31,
1996, but shall not apply to any relationship determined under an
Internal Revenue Service ruling issued before the date of the enactment
of this Act pursuant to section 414(n)(2)(C) of the Internal Revenue
Code of 1986 (as in effect on the day before such date) not to involve a
leased employee.
SEC. 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.).''.
(2) Reports.--Paragraph (2) of section 6724(d) is amended by
striking ``or'' at the end of subparagraph (U), by striking the
period at the end of subparagraph (V) and inserting a comma, and
by inserting after subparagraph (V) the following new
subparagraphs:
``(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.''.
(b) Modification of Reportable Designated Distributions.--
(1) Section 408.--Subsection (i) of section 408 (relating to
individual retirement account reports) is amended by inserting
``aggregating $10 or more in any calendar year'' after
``distributions''.
[[Page 110 STAT. 1818]]
(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 <<NOTE: 26 USC 408 note.>> 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 <<NOTE: 26 USC 1402 note.>> Date.--The amendments
made by this section shall apply to years beginning before, on, or after
December 31, 1994.
SEC. 1457. SAMPLE <<NOTE: 26 USC 414 note.>> 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
[[Page 110 STAT. 1819]]
(ii) whether such waiver may be revoked by a
qualified domestic relations order, and
(2) sample language for inclusion in a form for a qualified
domestic relations order described in section 414(p)(1)(A) of
such Code and section 206(d)(3)(B)(i) of such Act which--
(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.
(b) Publicity.--The Secretary of the Treasury shall include
publicity for the sample language developed under subsection (a) in the
pension outreach efforts undertaken by the Secretary.
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.''.
(b) Exemption From Social Security Taxes.--
[[Page 110 STAT. 1820]]
(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 <<NOTE: 42 USC 409.>> 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 <<NOTE: 26 USC 457 note.>> (a).--The
amendment made by subsection (a) shall apply to accruals of
length of service awards after December 31, 1996.
(2) Subsection <<NOTE: 26 USC 3121 note.>> (b).--The
amendments made by subsection (b) shall apply to remuneration
paid after December 31, 1996.
SEC. 1459. ALTERNATIVE NONDISCRIMINATION RULES FOR CERTAIN PLANS
THAT PROVIDE FOR EARLY PARTICIPATION.
(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:
``(F) Special rule for early participation.--If an
employer elects to apply section 410(b)(4)(B) in
determining whether a cash or deferred arrangement meets
the requirements of subparagraph (A)(i), the employer
may, in determining whether the arrangement meets the
requirements of subparagraph (A)(ii), exclude from
consideration all eligible employees (other than highly
compensated employees) who have not met the minimum age
and service requirements of section 410(a)(1)(A).''.
(b) Matching Contributions.--Paragraph (5) of section 401(m)
(relating to employees taken into consideration) is amended by adding at
the end the following new subparagraph:
``(C) Special rule for early participation.--If an
employer elects to apply section 410(b)(4)(B) in
determining whether a plan meets the requirements of
section 410(b), the employer may, in determining whether
the plan meets the requirements of paragraph (2),
exclude from consideration all eligible employees (other
than highly compensated employees) who have not met the
minimum age and service requirements of section
410(a)(1)(A).''.
(c) Effective <<NOTE: 26 USC 401 note.>> Date.--The amendments made
by this section shall apply to plan years beginning after December 31,
1998.
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 <<NOTE: Proposed regulations.>> 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
[[Page 110 STAT. 1821]]
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.
``(B) The proposed regulations under subparagraph (A) shall be
subject to public notice and comment until September 30, 1997.
``(C) The <<NOTE: Regulations.>> 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
[[Page 110 STAT. 1822]]
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.
The Secretary shall bring a cause of action described in clause (ii) if
a participant, beneficiary, or fiduciary demonstrates to the
satisfaction of the Secretary that a breach described in clause (ii) has
occurred.
``(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 <<NOTE: 29 USC 1101 note.>> 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.
SEC. 1461. SPECIAL RULES FOR CHAPLAINS AND SELF-EMPLOYED
MINISTERS.
(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
[[Page 110 STAT. 1823]]
``(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).
``(B) Special rules for applying section 403(b) to
self-employed ministers.--In the case of a minister
described in subparagraph (A)(i)(I)--
``(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 <<NOTE: Regulations.>> 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.''.
(b) Contributions by Certain Ministers to Retirement Income
Accounts.--Section 404(a) (relating to deduction for contributions of an
employer to an employees' trust or annuity plan and compensation under a
deferred-payment plan) is amended by adding at the end the following new
paragraph:
[[Page 110 STAT. 1824]]
``(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 <<NOTE: 26 USC 404 note.>> 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 <<NOTE: 26 USC 414 note.>> Authority.--The Secretary
of the Treasury may design nondiscrimination and coverage safe harbors
for church plans.
(c) Effective <<NOTE: 26 USC 414 note.>> 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 <<NOTE: 26 USC 72 note.>> 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,
[[Page 110 STAT. 1825]]
the Secretary may waive all or part of the tax imposed by this
subsection.''.
(b) Effective <<NOTE: 26 USC 4971 note.>> 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 <<NOTE: 26 USC 401 note.>> 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--
(1) during the period after such amendment takes effect and
before such first plan year, the plan or contract is operated in
accordance with the requirements of such amendment, and
(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''.
Subtitle E--Foreign Simplification
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 share
[[Page 110 STAT. 1826]]
holder 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 <<NOTE: 26 USC 904 note.>> 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.
[[Page 110 STAT. 1827]]
Subtitle F--Revenue Offsets
PART I--GENERAL PROVISIONS
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)--
[[Page 110 STAT. 1828]]
``(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.
``(5) Base period year.--For purposes of this subsection--
``(A) In general.--The term `base period year' means
each of 3 taxable years which are among the 5 most
recent taxable years of the corporation ending before
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
[[Page 110 STAT. 1829]]
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
[[Page 110 STAT. 1830]]
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 busi-
ness, and
``(II) satisfied the requirements of
subclause (II) of clause (i).
``(B) New lines of business prohibited.--If, after
October 13, 1995, a corporation which would (but for
this subparagraph) be an existing credit claimant adds a
substantial new line of business (other than in an
acquisition described in subparagraph (A)(ii)), such
corporation shall cease to be treated as an existing
credit claimant as of the close of the taxable year
ending before the date of such addition.
``(C) 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.--
[[Page 110 STAT. 1831]]
(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:
``SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.
``(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),
[[Page 110 STAT. 1832]]
``(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)''.
[[Page 110 STAT. 1833]]
(C) Clause (iii) of section 56(g)(4)(C) is amended
by adding at the end the following new subclause:
``(VI) Application to section 30a
corporations.--References in this clause
to section 936 shall be treated as
including references to section 30A.''.
(D) Subsection (b) of section 59 is amended by
striking ``section 936,'' and all that follows and
inserting ``section 30A or 936, alternative minimum
taxable income shall not include any income with respect
to which a credit is determined under section 30A or
936.''.
(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:
``Sec. 30A. Puerto Rican economic activity credit.''.
(F)(i) The heading for subpart B of part IV of
subchapter A of chapter 1 is amended to read as follows:
``Subpart B--Other Credits''.
(ii) The table of subparts for part IV of subchapter
A of chapter 1 is amended by striking the item relating
to subpart B and inserting the following new item:
``Subpart B. Other credits.''.
(c) Effective <<NOTE: 26 USC 30A note.>> 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.
SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON LOANS USED TO
ACQUIRE EMPLOYER SECURITIES.
(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).
[[Page 110 STAT. 1834]]
(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 <<NOTE: 26 USC 133 note.>> 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
[[Page 110 STAT. 1835]]
for purposes of paragraphs (1) and (2) as a loan made on or
before the date of the enactment of this Act.
SEC. 1603. CERTAIN AMOUNTS DERIVED FROM FOREIGN CORPORATIONS
TREATED AS UNRELATED BUSINESS TAXABLE
INCOME.
(a) General Rule.--Subsection (b) of section 512 (relating to
modifications) is amended by adding at the end 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.
``(C) Regulations.--The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this paragraph, including
regulations for the application of this paragraph in the
case of income paid through 1 or more entities or
between 2 or more chains of entities.''.
[[Page 110 STAT. 1836]]
(b) Effective <<NOTE: 26 USC 512 note.>> Date.--The amendment made
by this section shall apply to amounts included in gross income in any
taxable year beginning after December 31, 1995.
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
[[Page 110 STAT. 1837]]
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)
[[Page 110 STAT. 1838]]
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.''
(b) Effective <<NOTE: 26 USC 167 note.>> Date.--
(1) In general.--The amendment made by subsection (a) shall
apply to property placed in service after September 13, 1995.
(2) Binding contracts.--The amendment made by subsection (a)
shall not apply to any property produced or acquired by the
taxpayer pursuant to a written contract which was binding on
September 13, 1995, and at all times thereafter before such
production or acquisition.
(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).
SEC. 1605. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES AND FOR
DAMAGES NOT ATTRIBUTABLE TO PHYSICAL
INJURIES OR SICKNESS.
(a) In General.--Paragraph (2) of section 104(a) (relating to
compensation for injuries or sickness) is amended to read as follows:
``(2) the amount of any damages (other than punitive
damages) received (whether by suit or agreement and whether as
lump sums or as periodic payments) on account of personal
physical injuries or physical sickness;''.
(b) Emotional Distress as Such Treated as Not Physical Injury or
Physical Sickness.--Section 104(a) is amended by striking the last
sentence and inserting the following new sentence: ``For purposes of
paragraph (2), emotional distress shall not be treated as a physical
injury or physical sickness. The preceding sentence shall not apply to
an amount of damages not in excess of the amount paid for medical care
(described in subparagraph (A) or (B) of section 213(d)(1)) attributable
to emotional distress.''.
(c) 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
[[Page 110 STAT. 1839]]
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 <<NOTE: 26 USC 104 note.>> 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.
SEC. 1606. REPEAL OF DIESEL FUEL TAX REBATE TO PURCHASERS OF
DIESEL-POWERED AUTOMOBILES AND LIGHT
TRUCKS.
(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.
(c) Effective <<NOTE: 26 USC 34 note.>> Date.--The amendments made
by this section shall apply to vehicles purchased after the date of the
enactment of this Act.
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 year is: The percentage is:
1996..................................................9 percent
1997..................................................8 percent
1998..................................................7 percent
1999..................................................6 percent
2000..................................................5 percent
2001..................................................4 percent
2002................................................3 percent .''.
[[Page 110 STAT. 1840]]
(c) Effective <<NOTE: 26 USC 4001 note.>> Date.--The amendments
made by this section shall apply with respect to sales occurring after
the date which is 7 days after the date of the enactment of this Act.
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--
[[Page 110 STAT. 1841]]
``(I) the earliest date on which
such bonds may be redeemed, or
``(II) the date of the election.
``(C) Related persons.--For purposes of this
paragraph, the term `person' includes a group of related
persons (within the meaning of section 144(a)(3)) which
includes such person.''.
(b) No <<NOTE: 26 USC 142 note.>> Inference With Respect To
Outstanding Bonds.--The use of the term ``person'' in section 142(f)(3)
of the Internal Revenue Code of 1986, as added by subsection (a), shall
not be construed to affect the tax-exempt status of interest on any
bonds issued before the date of the enactment of this Act.
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.''.
(2) Section 4081(d) is amended--
(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.''.
[[Page 110 STAT. 1842]]
(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:
``(i) in the case of gasoline other than
aviation gasoline, 18.3 cents per gallon,
``(ii) in the case of aviation gasoline, 19.3
cents per gallon, and''.
(2) Termination.--Subsection (d) of section 4081 is
amended by redesignating paragraph (2) as paragraph (3) and by
inserting after paragraph (1) the following new paragraph:
``(2) Aviation gasoline.--On and after January 1, 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.
[[Page 110 STAT. 1843]]
(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''.
(h) Floor <<NOTE: 26 USC 4091 note.>> Stocks Taxes on Aviation
Fuel.--
(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
[[Page 110 STAT. 1844]]
held by such person on such date does not exceed 2,000
gallons. The preceding sentence shall apply only if such
person submits to the Secretary (at the time and in the
manner required by the Secretary) such information as
the Secretary shall require for purposes of this
paragraph.
(B) Exempt fuel.--For purposes of subparagraph (A),
there shall not be taken into account fuel held by any
person which is exempt from the tax imposed by paragraph
(1) by reason of paragraph (4).
(C) Controlled groups.--For purposes of this
paragraph--
(i) Corporations.--
(I) In general.--All persons treated
as a controlled group shall be treated
as 1 person.
(II) Controlled group.--The term
``controlled group'' has the meaning
given to such term by subsection (a) of
section 1563 of such Code; except that
for such purposes the phrase ``more than
50 percent'' shall be substituted for
the phrase ``at least 80 percent'' each
place it appears in such subsection.
(ii) Nonincorporated persons under common
control.--Under regulations prescribed by the
Secretary, principles similar to the principles of
clause (i) shall apply to a group of persons under
common control where 1 or more of such persons is
not a corporation.
(6) Other law applicable.--All provisions of law, including
penalties, applicable with respect to the taxes imposed by
section 4091 of such Code shall, insofar as applicable and not
inconsistent with the provisions of this subsection, apply with
respect to the floor stock taxes imposed by paragraph (1) to the
same extent as if such taxes were imposed by such section 4091.
(i) Effective <<NOTE: 26 USC 4041 note.>> 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
[[Page 110 STAT. 1845]]
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).''.
(b) Effective <<NOTE: 26 USC 1033 note.>> Date.--The amendment made
by this section shall apply to involuntary conversions occurring after
the date of the enactment of this Act.
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
[[Page 110 STAT. 1846]]
inserting ``or'', and by inserting after subparagraph (B) the
following new subparagraph:
``(C) provides for funding of insurance on retired
lives as described in section 807(c)(6), and''.
(2) Paragraph (3) of section 817(d) is amended by striking
``or'' at the end of subparagraph (A), by striking the period at
the end of subparagraph (B) and inserting ``, or'', and by
inserting after subparagraph (B) the following new subparagraph:
``(C) in the case of funds held under a contract
described in paragraph (2)(C), the amounts paid in, or
the amounts paid out, reflect the investment return and
the market value of the segregated asset account.''.
(b) Effective <<NOTE: 26 USC 817 note.>> Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1995.
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.
Proper adjustment shall be made in the amount of any
gain or loss subsequently realized for gain or loss
taken into account under the preceding sentence. The
Secretary may provide by regulations for the application
of this subparagraph at times other than the times
provided in this subparagraph.
``(2) Segregated asset.--For purposes of paragraph (1), the
term `segregated asset' means any asset held as part of a
segregated account referred to in subsection (d)(1) under a
modified guaranteed contract.
``(c) Special Rule in Computing Life Insurance Reserves.--For
purposes of applying section 816(b)(1)(A) to any modified guaranteed
contract, an assumed rate of interest shall include a rate of interest
determined, from time to time, with reference to a market rate of
interest.
``(d) Modified Guaranteed Contract Defined.--For purposes of this
section, the term `modified guaranteed contract' means a contract not
described in section 817--
[[Page 110 STAT. 1847]]
``(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 <<NOTE: 26 USC 817A note.>> 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.--
[[Page 110 STAT. 1848]]
(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.
SEC. 1613. TREATMENT OF CONTRIBUTIONS IN AID OF CONSTRUCTION.
(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:
[[Page 110 STAT. 1849]]
``(c) Special Rules for Water and Sewerage Disposal
Utilities.--
``(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 con-
struction,
``(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
contribu-
tion 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.
[[Page 110 STAT. 1850]]
``(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 <<NOTE: 26 USC 118 note.>> 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).
(4) Alternative system.--Clause (iv) of section 168(g)(2)(C)
is amended by inserting ``or water utility property'' after
``tunnel bore''.
(5) Effective <<NOTE: 26 USC 168 note.>> 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
[[Page 110 STAT. 1851]]
a binding contract in effect before June 10, 1996, and at all
times thereafter before the property is placed in service.
SEC. 1614. ELECTION TO CEASE STATUS AS QUALIFIED SCHOLARSHIP
FUNDING CORPORATION.
(a) In General.--Subsection (d) of section 150 (relating to
definitions and special rules) is amended by adding at the end 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.
[[Page 110 STAT. 1852]]
``(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
[[Page 110 STAT. 1853]]
``(ii) the last day of the taxable year of the
issuer during which occurs the date which is 10
years after the date on which the election under
this paragraph is made.
``(G) Election.--An election under this paragraph
may be revoked only with the consent of the
Secretary.''.
(b) Effective <<NOTE: 26 USC 150 note.>> Date.--The amendment made
by this section shall take effect on the date of the enactment of this
Act.
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).
(b) Dependent Care Credit.--Subsection (e) of section 21 (relating
to expenses for household and dependent care services necessary for
gainful employment) is amended by adding at the end the following new
paragraph:
``(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:
``(H) an omission of a correct TIN required under
section 21 (relating to expenses for household and
dependent care services necessary for gainful
employment) or section 151 (relating to allowance of
deductions for personal exemptions).''.
(d) Effective <<NOTE: 26 USC 21 note.>> Date.--
(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
[[Page 110 STAT. 1854]]
beginning in 1995 or November 30, 1996, in the case of a taxable
year beginning in 1996.
SEC. 1616. REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT SAVINGS
ASSOCIATIONS.
(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.
``(2) Applicable excess reserves.--
``(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.
``(B) Special rule for thrifts which become small
banks.--In the case of a bank (as defined in section
581) which was not a large bank (as defined in section
585(c)(2)) for its first taxable year beginning after
December 31, 1995--
``(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
[[Page 110 STAT. 1855]]
``(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).
The preceding sentence shall not apply for purposes of
paragraphs (5) and (6) or subsection (e)(1).
``(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.
``(B) Residential loan requirement.--A taxpayer
meets the residential loan requirement of this
subparagraph for any taxable year if the principal
amount of the residential loans made by the taxpayer
during such year is not less than the base amount for
such year.
``(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.
[[Page 110 STAT. 1856]]
``(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.
``(6) Suspended reserve included as section 381(c) items.--
The balance taken into account by a taxpayer under paragraph
(2)(A)(ii) of this subsection and the supplemental reserve shall
be treated as items described in section 381(c).
``(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''.
[[Page 110 STAT. 1857]]
(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 <<NOTE: 26 USC 593 note.>> 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.
[[Page 110 STAT. 1858]]
(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.
SEC. 1617. EXCLUSION FOR ENERGY CONSERVATION SUBSIDIES LIMITED TO
SUBSIDIES WITH RESPECT TO DWELLING
UNITS.
(a) In General.--Paragraph (1) of section 136(c) (defining energy
conservation measure) is amended by striking ``energy demand--'' and all
that follows and inserting ``energy demand with respect to a dwelling
unit.''.
(b) Conforming Amendments.--
(1) Subsection (a) of section 136 is amended to read as
follows:
``(a) Exclusion.--Gross income shall not include the value of any
subsidy provided (directly or indirectly) by a public utility to a
customer for the purchase or installation of any energy conservation
measure.''.
(2) Paragraph (2) of section 136(c) is amended--
(A) by striking subparagraph (A) and by
redesignating subparagraphs (B) and (C) as subparagraphs
(A) and (B), respectively, and
(B) by striking ``and special rules'' in the
paragraph heading.
(c) Effective <<NOTE: 26 USC 136 note.>> Date.--The amendments made
by this section shall apply to amounts received after December 31, 1996,
unless received pursuant to a written binding contract in effect on
September 13, 1995, and at all times thereafter.
PART II--FINANCIAL ASSET SECURITIZATION INVESTMENTS
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.
[[Page 110 STAT. 1859]]
``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.
``SEC. 860I. GAIN RECOGNITION ON CONTRIBUTIONS TO A FASIT AND IN
OTHER CASES.
``(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.
``(b) Gain Recognition on Property Outside FASIT Which Supports
Regular Interests.--If property held by the holder of the ownership
interest in a FASIT (or by any person related to such holder) supports
any regular interest in such FASIT--
[[Page 110 STAT. 1860]]
``(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.
``(e) Special Rules.--
``(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.
``SEC. 860J. NON-FASIT LOSSES NOT TO OFFSET CERTAIN FASIT
INCLUSIONS.
``(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
[[Page 110 STAT. 1861]]
``(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--
[[Page 110 STAT. 1862]]
``(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.
``(e) Treatment of High-Yield Interests in Pass-Thru
Entities.--
``(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),
there is hereby imposed on the pass-thru entity a tax (in
addition to other taxes) equal to the product of the highest
rate of tax specified in section 11(b)(1) and the income of the
holder of such debt or equity interest which is properly
attributable to such regular interest. For
purposes <<NOTE: Regulations.>> of the preceding sentence, the
yield to maturity of any equity interest shall be determined
under regulations prescribed by the Secretary.
``(2) Exception.--Paragraph (1) shall not apply to
arrangements not having as a principal purpose the avoidance of
the purposes of this subsection.
``SEC. 860L. DEFINITIONS AND OTHER SPECIAL RULES.
``(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, substan
[[Page 110 STAT. 1863]]
tially 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
[[Page 110 STAT. 1864]]
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.
``(2) Ownership interest.--The term `ownership interest'
means the interest issued by a FASIT after the startup day which
is designated as an ownership interest and which is not a
regular interest.
``(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--
[[Page 110 STAT. 1865]]
``(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).
``(d) Startup Day.--For purposes of this part--
``(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.
[[Page 110 STAT. 1866]]
``(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
con-
tributed 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).''.
[[Page 110 STAT. 1867]]
(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 <<NOTE: 26 USC 26 note.>> Date.--The amendments made
by this section shall take effect on September 1, 1997.
(e) Treatment <<NOTE: 26 USC 860I note.>> 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
[[Page 110 STAT. 1868]]
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).
Subtitle G--Technical Corrections
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 <<NOTE: 26 USC 1 note.>> 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 <<NOTE: 26 USC 6724.>> 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--
[[Page 110 STAT. 1869]]
``(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 in-
serting ``, 22,'' after ``chapters 21''.
(4) The earnings <<NOTE: 26 USC 832 note.>> 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 pur-
poses 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
[[Page 110 STAT. 1870]]
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 <<NOTE: 26 USC 41 note.>> 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''.
(e) Amendments Related to Subtitle E.--
(1)(A) Clause (ii) of section 56(d)(1)(B) is amended to read
as follows:
``(ii) appropriate adjustments in the
application of section 172(b)(2) shall be made to
take into account the limitation of subparagraph
(A).''.
(B) For purposes <<NOTE: 26 USC 56 note.>> 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 <<NOTE: 26 USC 53 note.>> 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:
[[Page 110 STAT. 1871]]
``(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:
``(3) Attribution of indirect holdings and transfers.--An
individual''.
(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:
``(i) a right to distributions with respect to
any interest which is junior to the rights of the
transferred interest,''.
(5)(A) Clause (i) of section 2701(c)(3)(C) is amended to
read as follows:
``(i) In general.--Payments under any interest
held by a transferor which (without regard to this
subparagraph) are qualified payments shall be
treated as qualified payments unless the
transferor elects not to treat such payments as
qualified payments. Payments described in the
preceding sentence which are held by an applicable
family member shall be treated as qualified
payments only if such member elects to treat such
payments as qualified payments.''.
(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 <<NOTE: 26 USC 2701 note.>> 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''.
[[Page 110 STAT. 1872]]
(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--
(i) by striking ``to the extent'' and inserting
``if'' in clause (i),
(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''.
(g) Amendments Related to Subtitle G.--
(1)(A) Subsection (a) of section 1248 is amended--
(i) by striking ``, or if a United States person
receives a distribution from a foreign corporation
which, under section 302 or 331, is treated as an
exchange of stock'' in paragraph (1), and
(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:
[[Page 110 STAT. 1873]]
``(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 <<NOTE: 26 USC 42 note.>> (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).
(h) Amendments Related to Subtitle H.--
(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:
``(III) is described in 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).''.
(B) Subparagraph (B) of section 168(e)(3) (relating to
5-year property) is amended by adding at the end the following
flush sentence:
``Nothing in any provision of law shall be construed to
treat property as not being described in clause (vi)(I)
(or the corresponding provisions of prior law) by reason
of being public utility property (within the meaning of
section 48(a)(3)).''.
(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''.
[[Page 110 STAT. 1874]]
(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.''.
(9) The amendment <<NOTE: 26 USC 861.>> made by section
11813(b)(17) of the Revenue Reconciliation Act of 1990 shall be
applied as if the material stricken by such amendment included
the closing parenthesis after ``section 48(a)(5)''.
(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 <<NOTE: 26 USC 56.>> 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
[[Page 110 STAT. 1875]]
include any property described in section 50(b) and shall not
include air conditioning or heating units.''.
``(i) Effective <<NOTE: 26 USC 38 note.>> 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) <<NOTE: 26 USC 1044.>> 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 <<NOTE: 26 USC 42 note.>> 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 <<NOTE: 26 USC 4001.>>
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 <<NOTE: 26 USC 4001 note.>> 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 <<NOTE: 26 USC 135.>> 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 <<NOTE: 26 USC 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)'',
[[Page 110 STAT. 1876]]
(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).''.
(f) Amendment Related to Section 13221.--Sections 1201(a) and
1561(a) are each amended by striking ``last sentence'' each place it
appears and inserting ``last 2 sentences''.
(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:
``(iii) Coordination with section 527(f).--
This subsection shall not apply to any amount on
which tax is imposed by reason of section
527(f).''.
(2) Clause (i) of section 6033(e)(1)(B) is amended by
striking ``this subtitle'' and inserting ``section 501''.
(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:
[[Page 110 STAT. 1877]]
``(B) for any period before January 1, 2001, during
which the rates of tax under section 4081(a)(2)(A) are
4.3 cents per gallon.''.
(k) Amendment Related to Section 13242.--Paragraph (4) of section
6427(f) is amended by striking ``1995'' and inserting ``1999''.
(l) Amendment Related to Section 13261.--Clause (iii) of section
13261(g)(2)(A) of the Revenue Reconciliation <<NOTE: 26 USC 197 note.>>
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 <<NOTE: 26 USC 1258 note.>>
amended by striking ``this section'' and inserting ``this
subsection''.
(12) Paragraph (1) of section 13215(c) of the Revenue
Reconciliation Act of 1993 is <<NOTE: 42 USC 401 note.>>
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 <<NOTE: 26 USC 38 note.>> amended
by striking ``section 1393(a)(3)'' and inserting ``section
1393(a)(2)''.
[[Page 110 STAT. 1878]]
(14) Subparagraph (B) of section 117(d)(2) is amended by
striking ``section 132(f)'' and inserting ``section 132(h)''.
(o) Effective <<NOTE: 26 USC 39 note.>> 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 <<NOTE: 26 USC 401, 420, 4980.>> 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:
``(iii) Amounts held pending reinvestment or
redemption.--Amounts held for not more than 30
days pending reinvestment or bond redemption shall
be treated as invested in bonds described in
clause (i).''.
(2) Effective <<NOTE: 26 USC 149 note.>> date.--The
amendment made by paragraph (1) shall take effect as if included
in the amendments made by section 7651 of the Omnibus Budget
Reconciliation Act of 1989.
(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 <<NOTE: 26 USC 1445 note.>> 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 <<NOTE: 26 USC 469 note.>> 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--
[[Page 110 STAT. 1879]]
``(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 <<NOTE: 26 USC 469 note.>> 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 <<NOTE: 26 USC 163 note.>> 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:
``(2) Allocable interest.--For purposes of this subsection,
the term `allocable interest' means any interest which is
allocable to income which is effectively connected (or treated
as effectively connected) with the conduct of a trade or
business in the United States.''.
(B) Effective <<NOTE: 26 USC 884 note.>> date.--The
amendments made by subparagraph (A) shall take effect as
if included in the
[[Page 110 STAT. 1880]]
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 <<NOTE: 26 USC 865 note.>> 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).
(g) Clarification of Treatment of Medicare Entitlement Under COBRA
Provisions.--
(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 paragraph
(3)(B) 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
clause before the close of the 36-month
period beginning on the date the covered
employee became so entitled.''.
(B) Clause (v) of section 602(2)(A) of the Employee
Retirement Income Security Act of 1974 <<NOTE: 29 USC
1162.>> 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 <<NOTE: 42 USC
300bb-2.>> 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
[[Page 110 STAT. 1881]]
of the 36-month period beginning on the date the
covered employee became so entitled.''.
(2) Effective <<NOTE: 26 USC 4980B note.>> date.--The
amendments made by this subsection shall apply to plan years
beginning after December 31, 1989.
(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 <<NOTE: 26 USC 860E note.>> 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 <<NOTE: 26 USC 4462 note.>> 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:
``(II) the adjusted net minimum tax
for any taxable year is the amount of
the net minimum tax for such year
increased in the manner provided in
clause (iii).''.
(2) Subsection (g) of section 179A is redesignated as
subsection (f).
(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--
[[Page 110 STAT. 1882]]
(i) by inserting ``(determined without regard to
subsection (b)(3))'' before the period at the end of
paragraph (1) thereof, and
(ii) by adding at the end thereof the following new
paragraph:
``(4) Election to not take credit.--No credit shall be
allowed under subsection (a) for any vehicle if the taxpayer
elects to not have this section apply to such vehicle.''.
(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 <<NOTE: 26 USC 468A.>> (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 <<NOTE: 26 USC 142.>> (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 <<NOTE: 26 USC 737.>> (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 <<NOTE: 26 USC 401 note.>> 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 <<NOTE: 26 USC 72 note.>> 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:
[[Page 110 STAT. 1883]]
``(ii) such gross income is more than the
amount described in paragraph (4)(A)(ii)(I) and
less than 10 times the amount so described,''.
(2) Computation of tax.--Subparagraph (B) of section 1(g)(7)
(relating to income included on parent's return) is amended--
(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:
``(II) for each such child, 15
percent of the lesser of the amount
described in paragraph (4)(A)(ii)(I) or
the excess of the gross income of such
child over the amount so described,
and''.
(3) Minimum tax.--Subparagraph (B) of section 59(j)(1) is
amended by striking ``$1,000'' and inserting ``twice the amount
in effect for the taxable year under section 63(c)(5)(A)''.
(4) Effective <<NOTE: 26 USC 1 note.>> 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.--
[[Page 110 STAT. 1884]]
``(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
[[Page 110 STAT. 1885]]
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
[[Page 110 STAT. 1886]]
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 <<NOTE: 29 USC 1108.>> 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 <<NOTE: 26 USC 414 note.>> 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 <<NOTE: 26 USC 6045 note.>> 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:
``(ii) deduction for amounts which are
properly allocable to indebtedness and amortized
over the term of such indebtedness, or''.
(3) Clerical amendment.--The subsection heading for
subsection (k) of section 162 is amended by striking
``Redemption'' and inserting ``Reacquisition''.
(4) Effective <<NOTE: 26 USC 162 note.>> date.--
(A) In general.--Except as provided in subparagraph
(B), the amendments made by this subsection shall apply
[[Page 110 STAT. 1887]]
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.
(q) Clerical Amendment to Section 404.--
(1) In general.--Paragraph (1) of section 404(j) is amended
by striking ``(10)'' and inserting ``(9)''.
(2) Effective <<NOTE: 26 USC 404 note.>> 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 <<NOTE: 26 USC 1296 note.>> 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 subpara-
graph (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''.
[[Page 110 STAT. 1888]]
(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--
(i) by striking ``lubricating oil,'' in the
heading, and
(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 <<NOTE: 26 USC 4980B.>> is amended
by striking ``subclause (IV)'' and inserting ``subclause (V)''.
(22) Clause <<NOTE: 26 USC 4979A.>> (ii) of section
7304(a)(2)(D) of such Act is amended by striking ``subsection
(c)(2)'' and inserting ``subsection (c)''.
(23) Paragraph <<NOTE: 26 USC 6050H.>> (1) of section
7646(b) of such Act is amended by striking ``section
6050H(b)(1)'' and inserting ``section 6050H(b)(2)''.
(24) Paragraph <<NOTE: 26 USC 461.>> (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 <<NOTE: 26 USC 954.>> (A) of section
7811(i)(3) of such Act is amended by inserting ``the first place
it appears'' before ``in clause (i)''.
(26) Paragraph <<NOTE: 26 USC 381.>> (10) of section
7841(d) of such Act is
amended by striking ``section 381(a)'' and inserting ``section
381(c)''.
(27) Paragraph <<NOTE: 26 USC 401 note.>> (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)''.
[[Page 110 STAT. 1889]]
(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 <<NOTE: 26 USC 9507 note.>> (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 <<NOTE: 26 USC 832.>> (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 <<NOTE: 26 USC 6038.>> is
amended by inserting ``(relating to definitions)'' after
``section 6038(e)''.
(47) Subsection <<NOTE: 26 USC 1253.>> (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 <<NOTE: 26 USC 56.>> (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)''.
[[Page 110 STAT. 1890]]
(49) Subparagraph <<NOTE: 26 USC 247.>> (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 <<NOTE: 26 USC 1042.>> (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 <<NOTE: 26 USC 593.>> (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 <<NOTE: 26 USC 6302.>> (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 <<NOTE: 26 USC 42.>> (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 <<NOTE: 26 USC 168.>> (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 <<NOTE: 26 USC prec. 261.>> (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 <<NOTE: 26 USC 1016.>> (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 <<NOTE: 26 USC 4481.>> (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''.
[[Page 110 STAT. 1891]]
(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 <<NOTE: 26 USC 4973.>> (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 <<NOTE: 26 USC 691.>> (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:
``(ii) Special rule.--The term `qualified
employer plan' shall include any plan which was
(or was determined to be) a qualified employer
plan or a government plan.''.
(78) Sections 461(i)(3)(C) and 1274(b)(3)(B)(i) are each
amended by striking ``section 6662(d)(2)(C)(ii)'' and inserting
``section 6662(d)(2)(C)(iii)''.
(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''.
Subtitle H--Other Provisions
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
[[Page 110 STAT. 1892]]
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 <<NOTE: 26 USC 4082 note.>> 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 <<NOTE: 26 USC 3121 note.>> 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
(2) remuneration which is disbursed by such agency account
to any such faculty member of the medical school described in
paragraph (1)(A) shall be deemed to have been actually disbursed
by the State, or such State university, as the case may be, as a
common paymaster and not to have been actually disbursed by such
agency account.
(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 <<NOTE: 26 USC 4682 note.>> 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).
[[Page 110 STAT. 1893]]
(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.
The preceding sentence shall apply only if the
manufacturer, producer, and importer, and the 1st
and 2d purchasers (if any) meet such registration
requirements as may be prescribed by the
Secretary.
``(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.''.
(c) Effective <<NOTE: 26 USC 4682 note.>> Dates.--
(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.
SEC. 1804. TAX-EXEMPT <<NOTE: 26 USC 142 note.>> BONDS FOR SALE
OF ALASKA POWER ADMINISTRATION FACILITY.
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.
[[Page 110 STAT. 1894]]
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
[[Page 110 STAT. 1895]]
``(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 aggre-
gate 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.
``(4) Common trust fund must meet diversification rules.--
This subsection shall not apply to any common trust fund which
would not meet the requirements of section 368(a)(2)(F)(ii) if
it were a corporation. For purposes of the preceding sentence,
Government securities shall not be treated as securities of an
issuer in applying the 25-percent and 50-percent test and such
securities shall not be excluded for purposes of determining
total assets under clause (iv) of section 368(a)(2)(F).''.
(b) Effective <<NOTE: 26 USC 584 note.>> 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
[[Page 110 STAT. 1896]]
``(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
[[Page 110 STAT. 1897]]
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.
``(4) Estate tax inclusion.--The value of any interest in
any qualified State tuition program which is attributable to
contributions made by an individual to such program on behalf of
any designated beneficiary shall be includible in the gross
estate of the contributor for purposes of chapter 11.
``(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 indi-
vidual 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
[[Page 110 STAT. 1898]]
``(B) shall be furnished to individuals not later
than January 31 of the calendar year following the
calendar year to which such report relates.
``(e) Other Definitions and Special Rules.--For purposes of this
section--
``(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:
``Part VIII. Qualified State tuition programs.''.
(c) Effective <<NOTE: 26 USC 529 note.>> 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
[[Page 110 STAT. 1899]]
(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.
For purposes of subparagraph (B)(ii), if a State has a 2-year
legislative session, each year of such session shall be deemed
to be a separate regular session of the State legislature.
SEC. 1807. ADOPTION ASSISTANCE.
(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.
``(b) Limitations.--
``(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
para-
graph (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.
``(3) Denial of double benefit.--
``(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.
[[Page 110 STAT. 1900]]
``(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.
``(c) Carryforwards of Unused Credit.--If the credit allowable under
subsection (a) for any taxable year exceeds the limitation imposed by
section 26(a) for such taxable year reduced by the sum of the credits
allowable under this subpart (other than this section), such excess
shall be carried to the succeeding taxable year and added to the credit
allowable under subsection (a) for such taxable year. No credit may be
carried forward under this subsection to any taxable year following the
fifth taxable year after the taxable year in which the credit arose. For
purposes of the preceding sentence, credits shall be treated as used on
a first-in first-out basis.
``(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)).
``(e) Special Rules for Foreign Adoptions.--In the case of an
adoption of a child who is not a citizen or resident of the United
States (as defined in section 217(h)(3))--
[[Page 110 STAT. 1901]]
``(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.
``(g) Basis Adjustments.--For purposes of this subtitle, if a credit
is allowed under this section for any expenditure with respect to any
property, the increase in the basis of such property which would (but
for this subsection) result from such expenditure shall be reduced by
the amount of the credit so allowed.
``(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--
[[Page 110 STAT. 1902]]
``(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.
``(c) Adoption Assistance Program.--For purposes of this section, an
adoption assistance program is a separate written plan of an employer
for the exclusive benefit of such employer's
employees--
``(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:
``(ii) the amounts excludable from gross
income under sections 135 and 137,''.
(5) Subsection (a) of section 1016 is amended by striking
``and'' at the end of paragraph (24), by striking the period at
the end of paragraph (25) and inserting ``, and'', and by adding
at the end the following new paragraph:
``(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. 23. Adoption expenses.''.
(7) The table of sections for part III of subchapter B of
chapter 1 is amended by striking the item relating to section
137 and inserting the following:
``Sec. 137. Adoption assistance programs.
``Sec. 138. Cross reference to other Acts.''.
[[Page 110 STAT. 1903]]
(d) Study and Report.--The Secretary <<NOTE: 26 USC 23 note.>> 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.''.
(b) Enforcement.--Section 474 of such Act (42 U.S.C. 674) is amended
by adding at the end the following:
``(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--
``(A) 2 percent of such otherwise payable amount, in the
case of the 1st such finding for the fiscal year with respect to
the State;
``(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
[[Page 110 STAT. 1904]]
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 <<NOTE: 42 USC 1996b.>> 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 <<NOTE: 26 USC 6302 note.>> 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.
Subtitle I--Foreign Trust Tax Compliance
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--
[[Page 110 STAT. 1905]]
``(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.
``(B) Exceptions.--
``(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).
``(4) Responsible party.--For purposes of this subsection,
the term `responsible party' means--
``(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.
``(b) United States Grantor of Foreign Trust.--
``(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
[[Page 110 STAT. 1906]]
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.
``(c) Reporting by United States Beneficiaries of Foreign Trusts.--
``(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
[[Page 110 STAT. 1907]]
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.
``(d) Special Rules.--
``(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.--The 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
[[Page 110 STAT. 1908]]
``(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:
``Sec. 6048. Information with respect to certain foreign trusts.''.
(3) The table of sections for part I of subchapter B of
chapter 68 is amended by striking the item relating to section
6677 and inserting the following new item:
``Sec. 6677. Failure to file information with respect to certain foreign
trusts.''.
(d) Effective <<NOTE: 26 USC 6048 note.>> 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.
[[Page 110 STAT. 1909]]
SEC. 1902. COMPARABLE PENALTIES FOR FAILURE TO FILE RETURN
RELATING TO TRANSFERS TO FOREIGN
ENTITIES.
(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 <<NOTE: 26 USC 1494 note.>> 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.''.
(b) Exemption of Transfers to Charitable Trusts.--Subsection (a) of
section 679 is amended by striking ``section 404(a)(4) or 404A'' and
inserting ``section 6048(a)(3)(B)(ii)''.
(c) Other Modifications.--Subsection (a) of section 679 is amended
by adding at the end the following new paragraphs:
[[Page 110 STAT. 1910]]
``(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:
``(A) in the case of a foreign corporation, such
corporation is a controlled foreign corporation (as
defined in section 957(a)),''.
(f) Regulations.--Section 679 is amended by adding at the end the
following new subsection:
``(d) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(g) Effective <<NOTE: 26 USC 679 note.>> 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.--
[[Page 110 STAT. 1911]]
(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
[[Page 110 STAT. 1912]]
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 <<NOTE: 26 USC 643 note.>> 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 <<NOTE: 26 USC 1491 note.>> 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,
[[Page 110 STAT. 1913]]
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 <<NOTE: 26 USC 6039F note.>> 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.
[[Page 110 STAT. 1914]]
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).
``(4) Undistributed income year.--For purposes of this
subsection, the term `undistributed income year' means any prior
taxable year of the trust for which there is undistributed net
income, other than a taxable year during all of which the
beneficiary receiving the distribution was not a citizen or
resident of the United States.
``(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--
[[Page 110 STAT. 1915]]
``(A) by using an interest rate of 6 percent, and
``(B) without compounding until January 1, 1996.''.
(b) Abusive Transactions.--Section 643(a) is amended by inserting
after paragraph (6) the following new paragraph:
``(7) Abusive transactions.--The Secretary shall prescribe
such regulations as may be necessary or appropriate to carry out
the purposes of this part, including regulations to prevent
avoidance of such purposes.''.
(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.''.
[[Page 110 STAT. 1916]]
(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 <<NOTE: 26 USC 668 note.>> charge.--The
amendment made by subsection (a) shall apply to distributions
after the date of the enactment of this Act.
(2) Abusive <<NOTE: 26 USC 643 note.>> transactions.--The
amendment made by subsection (b) shall take effect on the date
of the enactment of this Act.
(3) Loans <<NOTE: 26 USC 643 note.>> from trusts.--The
amendment made by subsection (c) shall apply to loans of cash or
marketable securities made after September 19, 1995.
SEC. 1907. RESIDENCE OF TRUSTS, ETC.
(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.''.
(2) Conforming amendment.--Paragraph (31) of section 7701(a)
is amended to read as follows:
``(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 <<NOTE: 26 USC 7701 note.>> 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.''.
[[Page 110 STAT. 1917]]
(2) Effective <<NOTE: 26 USC 1491 note.>> date.--The
amendment made by this
subsection shall take effect on the date of the enactment of
this Act.
Subtitle J--Generalized <<NOTE: GSP Renewal Act of 1996.>> System of
Preferences
SEC. 1951. SHORT <<NOTE: 19 USC 2101 note.>> 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 <<NOTE: 19 USC 2461.>> 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--
``(1) the effect such action will have on furthering the
economic development of developing countries through the
expansion of their exports;
``(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.
``SEC. 502. DESIGNATION <<NOTE: 19 USC 2462.>> OF BENEFICIARY
DEVELOPING COUNTRIES.
``(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.
[[Page 110 STAT. 1918]]
``(H) Norway.
``(I) Switzerland.
``(2) Other bases for ineligibility.--The
President <<NOTE: 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--
``(I) has nationalized, expropriated, or
otherwise seized ownership or control of property,
including
patents, trademarks, or copyrights, owned by a
United States citizen or by a corporation,
partnership, or association which is 50 percent or
more beneficially owned by United States citizens,
``(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 other
[[Page 110 STAT. 1919]]
wise 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
[[Page 110 STAT. 1920]]
``(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 <<NOTE: 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
[[Page 110 STAT. 1921]]
of the President's intention to terminate such designation,
together with the considerations entering into such decision.
``SEC. 503. DESIGNATION <<NOTE: 19 USC 2463.>> OF ELIGIBLE ARTICLES.
``(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.
``(B) Exclusions.--An article shall not be treated
as the growth, product, or manufacture of a beneficiary
developing country by virtue of having merely
undergone--
``(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.
[[Page 110 STAT. 1922]]
``(3) Regulations.--The Secretary of the Treasury, after
consulting with the United States Trade Representative, shall
prescribe such regulations as may be necessary to carry out
paragraph (2), including, but not limited to, regulations
providing that, in order to be eligible for duty-free treatment
under this title, an 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.
``(b) Articles That May Not Be Designated As Eligible Articles.--
``(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).
[[Page 110 STAT. 1923]]
``(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.
``(B) Country defined.--For purposes of this
paragraph, the term `country' does not include an
association of countries which is treated as one country
under section 507(2), but does include a country which
is a member of any such association.
``(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--
[[Page 110 STAT. 1924]]
``(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.
``(d) Waiver of Competitive Need Limitation.--
``(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 sub
[[Page 110 STAT. 1925]]
section 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.
``(5) Effective period of waiver.--Any waiver granted under
this subsection shall remain in effect until the President
determines that such waiver is no longer warranted due to
changed circumstances.
``(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. <<NOTE: 19 USC 2464.>> REVIEW AND REPORT TO CONGRESS.
``The President <<NOTE: 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 <<NOTE: 19 USC 2465.>> OF TERMINATION.
``No duty-free treatment provided under this title shall remain in
effect after May 31, 1997.
``SEC. 506. AGRICULTURAL <<NOTE: 19 USC 2466.>> EXPORTS OF BENEFICIARY
DEVELOPING COUNTRIES.
``The appropriate agencies of the United States shall assist
beneficiary developing countries to develop and implement meas
[[Page 110 STAT. 1926]]
ures 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 <<NOTE: 19 USC 2467.>> .
``For purposes of this title:
``(1) Beneficiary developing country.--The term `beneficiary
developing country' means any country with respect to which
there is in effect an Executive order or Presidential
proclamation by the President designating such country as a
beneficiary developing country 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 child-
ren; 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 <<NOTE: 19 USC 2461 note.>> DATE.
(a) In General.--The amendments made by this subtitle apply to
articles entered on or after October 1, 1996.
(b) Retroactive Application.--
[[Page 110 STAT. 1927]]
(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.
SEC. 1954. CONFORMING AMENDMENTS.
(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''.
[[Page 110 STAT. 1928]]
(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''.
SEC. 2101. SHORT <<NOTE: Employee Commuting Flexibility Act of 1996. 29
USC 251 note.>> TITLE.
This section and sections 2102 and 2103 may be cited as the
``Employee Commuting Flexibility Act of 1996''.
SEC. 2102. PROPER COMPENSATION FOR USE OF EMPLOYER VEHICLES.
Section 4(a) of the Portal-to-Portal Act of 1947 (29 U.S.C. 254(a))
is amended by adding at the end the following: ``For purposes of this
subsection, the use of an employer's vehicle for travel by an employee
and activities performed by an employee which are incidental to the use
of such vehicle for commuting shall not be considered part of the
employee's principal activities if the use of such vehicle for travel is
within the normal commuting area for the employer's business or
establishment and the use of the employer's vehicle is subject to an
agreement on the part of the employer and the employee or representative
of such employee.''.
SEC. 2103. EFFECTIVE <<NOTE: 29 USC 254 note.>> DATE.
The amendment made by section 2101 shall take effect
on the date of the enactment of this Act and shall apply in determining
the application of section 4 of the Portal-to-Portal Act of 1947 to an
employee in any civil action brought before such date of enactment but
pending on such date.
SEC. 2104. MINIMUM <<NOTE: Minimum Wage Increase Act of 1996. 29 USC 201
note.>> WAGE INCREASE.
(a) Short Title.--This section may be cited as the ``Minimum Wage
Increase Act of 1996''.
(b) Amendment.--Paragraph (1) of section 6(a) of the Fair Labor
Standards Act of 1938 (29 U.S.C. 206(a)) is amended to read as follows:
[[Page 110 STAT. 1929]]
``(1) except as otherwise provided in this section, not less
than $4.25 an hour during the period ending on September 30,
1996, not less than $4.75 an hour during the year beginning on
October 1, 1996, and not less than $5.15 an hour beginning
September 1, 1997;''.
(c) Conforming Amendment.--Section 6 of such Act (29 U.S.C. 206) is
amended by striking subsection (c).
SEC. 2105. FAIR LABOR STANDARDS ACT AMENDMENTS.
(a) Computer Professionals.--Section 13(a) of the Fair Labor
Standards Act of 1938 (29 U.S.C. 213(a)) is amended by striking the
period at the end of paragraph (16) and inserting ``; or'' and by adding
after that paragraph the following:
``(17) any employee who is a computer systems analyst,
computer programmer, software engineer, or other similarly
skilled worker, whose primary duty is--
``(A) the application of systems analysis techniques
and procedures, including consulting with users, to
determine hardware, software, or system functional
specifications;
``(B) the design, development, documentation,
analysis, creation, testing, or modification of computer
systems or programs, including prototypes, based on and
related to user or system design specifications;
``(C) the design, documentation, testing, creation,
or modification of computer programs related to machine
operating systems; or
``(D) a combination of duties described in
subparagraphs (A), (B), and (C) the performance of which
requires the same level of skills, and
who, in the case of an employee who is compensated on an hourly
basis, is compensated at a rate of not less than $27.63 an
hour.''.
(b) Tip Credit.--The last sentence of section 3(m) of the Fair Labor
Standards Act of 1938 (29 U.S.C. 203(m)) is amended by striking
``previous sentence'' and inserting ``preceding 2 sentences'' and by
striking ``(1)'' and ``(2)'' and such section is amended by striking the
next to last sentence and inserting the following: ``In determining the
wage an employer is required to pay a tipped employee, the amount paid
such employee by the employee's employer shall be an amount equal to--
``(1) the cash wage paid such employee which for purposes of
such determination shall be not less than the cash wage required
to be paid such an employee on the date of the enactment of this
paragraph; and
``(2) an additional amount on account of the tips received
by such employee which amount is equal to the difference between
the wage specified in paragraph (1) and the wage in effect under
section 6(a)(1).
The additional amount on account of tips may not exceed the value of the
tips actually received by an employee.''.
(c) Opportunity Wage.--Section 6 of the Fair Labor Standards Act of
1938 (29 U.S.C. 206) is amended by adding at the end the following:
``(g)(1) In lieu of the rate prescribed by subsection (a)(1), any
employer may pay any employee of such employer, during the first 90
consecutive calendar days after such employee is initially
[[Page 110 STAT. 1930]]
employed by such employer, a wage which is not less than $4.25 an hour.
``(2) No employer may take any action to displace employees
(including partial displacements such as reduction in hours, wages, or
employment benefits) for purposes of hiring individuals at the wage
authorized in paragraph (1).
``(3) Any employer who violates this subsection shall be considered
to have violated section 15(a)(3).
``(4) This subsection shall only apply to an employee who has not
attained the age of 20 years.''.
Approved August 20, 1996.
LEGISLATIVE HISTORY--H.R. 3448:
---------------------------------------------------------------------------
HOUSE REPORTS: Nos. 104-586 (Comm. on Ways and Means) and 104-737 (Comm.
of Conference).
SENATE REPORTS: No. 104-281 (Comm. on Finance).
CONGRESSIONAL RECORD, Vol. 142 (1996):
May 22, considered and passed House.
July 8, 9, considered and passed Senate, amended.
Aug. 2, House and Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 32 (1996):
Aug. 20, Presidential remarks and statement.
<all>