[105th Congress Public Law 34]
[From the U.S. Government Printing Office]
<DOC>
[DOCID: f:publ34.105]
[[Page 111 STAT. 787]]
TAXPAYER RELIEF ACT OF 1997
[[Page 111 STAT. 788]]
* Public Law 105-34
105th Congress
An Act
To provide for reconciliation <<NOTE: Aug. 5, 1997 - [H.R. 2014]>>
pursuant to subsections (b)(2) and (d) of section 105 of the concurrent
resolution on the budget for fiscal year 1998.
Be it enacted by the Senate and House of Representatives of the
United <<NOTE: Taxpayer Relief Act of 1997.>> States of America in
Congress assembled,
SECTION 1. SHORT TITLE; ETC.
(a) <<NOTE: 26 USC 1 note.>> Short Title.--This Act may be cited as
the ``Taxpayer Relief Act of 1997''.
(b) Amendment of 1986 Code.--Except as otherwise expressly provided,
whenever in this Act an amendment or repeal is expressed in terms of an
amendment to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provision of the
Internal Revenue Code of 1986.
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* Note: This is a hand enrollment pursuant to Public Law 105-
32.
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(c) <<NOTE: 26 USC 15 note.>> Section 15 Not To Apply.--No
amendment made by this Act shall be treated as a change in a rate of tax
for purposes of section 15 of the Internal Revenue Code of 1986.
(d) <<NOTE: 26 USC 6654 note.>> Waiver of Estimated Tax
Penalties.--No addition to tax shall be made under section 6654 or 6655
of the Internal Revenue Code of 1986 for any period before January 1,
1998, for any payment the due date of which is before January 16, 1998,
with respect to any underpayment attributable to such period to the
extent such underpayment was created or increased by any provision of
this Act.
(e) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; etc.
TITLE I--CHILD TAX CREDIT
Sec. 101. Child tax credit.
TITLE II--EDUCATION INCENTIVES
Subtitle A--Tax Benefits Relating to Education Expenses
Sec. 201. Hope and lifetime learning credits.
Sec. 202. Deduction for interest on education loans.
Sec. 203. Penalty-free withdrawals from individual retirement plans for
higher education expenses.
Subtitle B--Expanded Education Investment Savings Opportunities
Part I--Qualified Tuition Programs
Sec. 211. Modifications of qualified State tuition programs.
Part II--Education Individual Retirement Accounts
Sec. 213. Education individual retirement accounts.
Subtitle C--Other Education Initiatives
Sec. 221. Extension of exclusion for employer-provided educational
assistance.
[[Page 111 STAT. 789]]
Sec. 222. Repeal of limitation on qualified 501(c)(3) bonds other than
hospital bonds.
Sec. 223. Increase in arbitrage rebate exception for governmental bonds
used to finance education facilities.
Sec. 224. Contributions of computer technology and equipment for
elementary or secondary school purposes.
Sec. 225. Treatment of cancellation of certain student loans.
Sec. 226. Incentives for education zones.
TITLE III--SAVINGS AND INVESTMENT INCENTIVES
Subtitle A--Retirement Savings
Sec. 301. Restoration of IRA deduction for certain taxpayers.
Sec. 302. Establishment of nondeductible tax-free individual retirement
accounts.
Sec. 303. Distributions from certain plans may be used without penalty
to purchase first homes.
Sec. 304. Certain bullion not treated as collectibles.
Subtitle B--Capital Gains
Sec. 311. 20 percent maximum capital gains rate for individuals.
Sec. 312. Exemption from tax for gain on sale of principal residence.
Sec. 313. Rollover of gain from sale of qualified stock.
Sec. 314. Amount of net capital gain taken into account in computing
alternative tax on capital gains for corporations not to
exceed taxable income of the corporation.
TITLE IV--ALTERNATIVE MINIMUM TAX REFORM
Sec. 401. Exemption from alternative minimum tax for small corporations.
Sec. 402. Repeal of separate depreciation lives for minimum tax
purposes.
Sec. 403. Minimum tax not to apply to farmers' installment sales.
TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS
Subtitle A--Estate and Gift Tax Provisions
Sec. 501. Cost-of-living adjustments relating to estate and gift tax
provisions.
Sec. 502. Family-owned business exclusion.
Sec. 503. Modifications to rate of interest on portion of estate tax
extended under section 6166.
Sec. 504. Extension of treatment of certain rents under section 2032A to
lineal descendants.
Sec. 505. Clarification of judicial review of eligibility for extension
of time for payment of estate tax.
Sec. 506. Gifts may not be revalued for estate tax purposes after
expiration of statute of limitations.
Sec. 507. Repeal of throwback rules applicable to certain domestic
trusts.
Sec. 508. Treatment of land subject to a qualified conservation
easement.
Subtitle B--Generation-Skipping Tax Provision
Sec. 511. Expansion of exception from generation-skipping transfer tax
for transfers to individuals with deceased parents.
TITLE VI--EXTENSIONS
Sec. 601. Research tax credit.
Sec. 602. Contributions of stock to private foundations.
Sec. 603. Work opportunity tax credit.
Sec. 604. Orphan drug tax credit.
TITLE VII--INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA
Sec. 701. Tax incentives for revitalization of the District of Columbia.
TITLE VIII--WELFARE-TO-WORK INCENTIVES
Sec. 801. Incentives for employing long-term family assistance
recipients.
TITLE IX--MISCELLANEOUS PROVISIONS
Subtitle A--Provisions Relating to Excise Taxes
Sec. 901. General revenue portion of highway motor fuels taxes deposited
into Highway Trust Fund.
Sec. 902. Repeal of tax on diesel fuel used in recreational boats.
[[Page 111 STAT. 790]]
Sec. 903. Continued application of tax on imported recycled Halon-1211.
Sec. 904. Uniform rate of tax on vaccines.
Sec. 905. Operators of multiple gasoline retail outlets treated as
wholesale distributor for refund purposes.
Sec. 906. Exemption of electric and other clean-fuel motor vehicles from
luxury automobile classification.
Sec. 907. Rate of tax on certain special fuels determined on basis of
BTU equivalency with gasoline.
Sec. 908. Modification of tax treatment of hard cider.
Sec. 909. Study of feasibility of moving collection point for distilled
spirits excise tax.
Sec. 910. Clarification of authority to use semi-generic designations on
wine labels.
Subtitle B--Revisions Relating to Disasters
Sec. 911. Authority to postpone certain tax-related deadlines by reason
of presidentially declared disaster.
Sec. 912. Use of certain appraisals to establish amount of disaster
loss.
Sec. 913. Treatment of livestock sold on account of weather-related
conditions.
Sec. 914. Mortgage financing for residences located in disaster areas.
Sec. 915. Abatement of interest on underpayments by taxpayers in
presidentially declared disaster areas.
Subtitle C--Provisions Relating to Employment Taxes
Sec. 921. Clarification of standard to be used in determining employment
tax status of securities brokers.
Sec. 922. Clarification of exemption from self-employment tax for
certain termination payments received by former insurance
salesmen.
Subtitle D--Provisions Relating to Small Businesses
Sec. 931. Waiver of penalty through June 30, 1998, on small businesses
failing to make electronic fund transfers of taxes.
Sec. 932. Clarification of treatment of home office use for
administrative and management activities.
Sec. 933. Averaging of farm income over 3 years.
Sec. 934. Increase in deduction for health insurance costs of self-
employed individuals.
Sec. 935. Moratorium on certain regulations.
Subtitle E--Brownfields
Sec. 941. Expensing of environmental remediation costs.
Subtitle F--Empowerment Zones, Enterprise Communities, Brownfields, and
Community Development Financial Institutions
Chapter 1--Additional Empowerment Zones
Sec. 951. Additional empowerment zones.
Chapter 2--New Empowerment Zones
Sec. 952. Designation of new empowerment zones.
Sec. 953. Volume cap not to apply to enterprise zone facility bonds with
respect to new empowerment zones.
Sec. 954. Modification to eligibility criteria for designation of future
enterprise zones in Alaska or Hawaii.
Chapter 3--Treatment Of Empowerment Zones and Enterprise Communities
Sec. 955. Modifications to enterprise zone facility bond rules for all
empowerment zones and enterprise communities.
Sec. 956. Modifications to enterprise zone business definition for all
empowerment zones and enterprise communities.
Subtitle G--Other Provisions
Sec. 961. Use of estimates of shrinkage for inventory accounting.
Sec. 962. Assignment of workmen's compensation liability eligible for
exclusion relating to personal injury liability assignments.
Sec. 963. Tax-exempt status for certain State worker's compensation act
companies.
Sec. 964. Election for 1987 partnerships to continue exception from
treatment of publicly traded partnerships as corporations.
Sec. 965. Exclusion from unrelated business taxable income for certain
sponsorship payments.
Sec. 966. Associations of holders of timeshare interests to be taxed
like other homeowners associations.
[[Page 111 STAT. 791]]
Sec. 967. Additional advance refunding of certain Virgin Island bonds.
Sec. 968. Nonrecognition of gain on sale of stock to certain farmers'
cooperatives.
Sec. 969. Increased deductibility of business meal expenses for
individuals subject to Federal hours of service.
Sec. 970. Clarification of de minimis fringe benefit rules to no-charge
employee meals.
Sec. 971. Exemption of the incremental cost of a clean fuel vehicle from
the limits on depreciation for vehicles.
Sec. 972. Temporary suspension of taxable income limit on percentage
depletion for marginal production.
Sec. 973. Increase in standard mileage rate expense deduction for
charitable use of passenger automobile.
Sec. 974. Clarification of treatment of certain receivables purchased by
cooperative hospital service organizations.
Sec. 975. Deduction in computing adjusted gross income for expenses in
connection with service performed by certain officials.
Sec. 976. Combined employment tax reporting demonstration project.
Sec. 977. Elective carryback of existing carryovers of National Railroad
Passenger Corporation.
Subtitle H--Extension of Duty-Free Treatment Under Generalized System of
Preferences
Sec. 981. Generalized System of Preferences.
TITLE X--REVENUES
Subtitle A--Financial Products
Sec. 1001. Constructive sales treatment for appreciated financial
positions.
Sec. 1002. Limitation on exception for investment companies under
section 351.
Sec. 1003. Gains and losses from certain terminations with respect to
property.
Sec. 1004. Determination of original issue discount where pooled debt
obligations subject to acceleration.
Sec. 1005. Denial of interest deductions on certain debt instruments.
Subtitle B--Corporate Organizations and Reorganizations
Sec. 1011. Tax treatment of certain extraordinary dividends.
Sec. 1012. Application of section 355 to distributions in connection
with acquisitions and to intragroup transactions.
Sec. 1013. Tax treatment of redemptions involving related corporations.
Sec. 1014. Certain preferred stock treated as boot.
Sec. 1015. Modification of holding period applicable to dividends
received deduction.
Subtitle C--Administrative Provisions
Sec. 1021. Reporting of certain payments made to attorneys.
Sec. 1022. Decrease of threshold for reporting payments to corporations
performing services for Federal agencies.
Sec. 1023. Disclosure of return information for administration of
certain veterans programs.
Sec. 1024. Continuous levy on certain payments.
Sec. 1025. Modification of levy exemption.
Sec. 1026. Confidentiality and disclosure of returns and return
information.
Sec. 1027. Returns of beneficiaries of estates and trusts required to
file returns consistent with estate or trust return or to
notify Secretary of inconsistency.
Sec. 1028. Registration and other provisions relating to confidential
corporate tax shelters.
Subtitle D--Excise and Employment Tax Provisions
Sec. 1031. Extension and modification of taxes funding Airport and
Airway Trust Fund; increased deposits into such Fund.
Sec. 1032. Kerosene taxed as diesel fuel.
Sec. 1033. Restoration of Leaking Underground Storage Tank Trust Fund
taxes.
Sec. 1034. Application of communications tax to prepaid telephone cards.
Sec. 1035. Extension of temporary unemployment tax.
Subtitle E--Provisions Relating to Tax-Exempt Entities
Sec. 1041. Expansion of look-thru rule for interest, annuities,
royalties, and rents derived by subsidiaries of tax-exempt
organizations.
Sec. 1042. Termination of certain exceptions from rules relating to
exempt organizations which provide commercial-type insurance.
[[Page 111 STAT. 792]]
Subtitle F--Foreign Provisions
Sec. 1051. Definition of foreign personal holding company income.
Sec. 1052. Personal property used predominantly in the United States
treated as not property of a like kind with respect to
property used predominantly outside the United States.
Sec. 1053. Holding period requirement for certain foreign taxes.
Sec. 1054. Denial of treaty benefits for certain payments through hybrid
entities.
Sec. 1055. Interest on underpayments not reduced by foreign tax credit
carrybacks.
Sec. 1056. Clarification of period of limitations on claim for credit or
refund attributable to foreign tax credit carryforward.
Sec. 1057. Repeal of exception to alternative minimum foreign tax credit
limit.
Subtitle G--Partnership Provisions
Sec. 1061. Allocation of basis among properties distributed by
partnership.
Sec. 1062. Repeal of requirement that inventory be substantially
appreciated with respect to sale or exchange of partnership
interest.
Sec. 1063. Extension of time for taxing precontribution gain.
Subtitle H--Pension Provisions
Sec. 1071. Pension accrued benefit distributable without consent
increased to $5,000.
Sec. 1072. Election to receive taxable cash compensation in lieu of
nontaxable parking benefits.
Sec. 1073. Repeal of excess distribution and excess retirement
accumulation tax.
Sec. 1074. Increase in tax on prohibited transactions.
Sec. 1075. Basis recovery rules for annuities over more than one life.
Subtitle I--Other Revenue Provisions
Sec. 1081. Termination of suspense accounts for family corporations
required to use accrual method of accounting.
Sec. 1082. Modification of taxable years to which net operating losses
may be carried.
Sec. 1083. Modifications to taxable years to which unused credits may be
carried.
Sec. 1084. Expansion of denial of deduction for certain amounts paid in
connection with insurance.
Sec. 1085. Improved enforcement of the application of the earned income
credit.
Sec. 1086. Limitation on property for which income forecast method may
be used.
Sec. 1087. Expansion of requirement that involuntarily converted
property be replaced with property acquired from an unrelated
person.
Sec. 1088. Treatment of exception from installment sales rules for sales
of property by a manufacturer to a dealer.
Sec. 1089. Limitations on charitable remainder trust eligibility for
certain trusts.
Sec. 1090. Expanded SSA records for tax enforcement.
Sec. 1091. Modification of estimated tax safe harbors.
TITLE XI--SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS
Subtitle A--General Provisions
Sec. 1101. Certain individuals exempt from foreign tax credit
limitation.
Sec. 1102. Exchange rate used in translating foreign taxes.
Sec. 1103. Election to use simplified section 904 limitation for
alternative minimum tax.
Sec. 1104. Treatment of personal transactions by individuals under
foreign currency rules.
Sec. 1105. Foreign tax credit treatment of dividends from noncontrolled
section 902 corporations.
Subtitle B--Treatment of Controlled Foreign Corporations
Sec. 1111. Gain on certain stock sales by controlled foreign
corporations treated as dividends.
Sec. 1112. Miscellaneous modifications to subpart F.
Sec. 1113. Indirect foreign tax credit allowed for certain lower tier
companies.
Subtitle C--Treatment of Passive Foreign Investment Companies
Sec. 1121. United States shareholders of controlled foreign corporations
not subject to PFIC inclusion.
Sec. 1122. Election of mark to market for marketable stock in passive
foreign investment company.
Sec. 1123. Valuation of assets for passive foreign investment company
determination.
[[Page 111 STAT. 793]]
Sec. 1124. Effective date.
Subtitle D--Repeal of Excise Tax on Transfers to Foreign Entities
Sec. 1131. Repeal of excise tax on transfers to foreign entities;
recognition of gain on certain transfers to foreign trusts
and estates.
Subtitle E--Information Reporting
Sec. 1141. Clarification of application of return requirement to foreign
partnerships.
Sec. 1142. Controlled foreign partnerships subject to information
reporting comparable to information reporting for controlled
foreign corporations.
Sec. 1143. Modifications relating to returns required to be filed by
reason of changes in ownership interests in foreign
partnership.
Sec. 1144. Transfers of property to foreign partnerships subject to
information reporting comparable to information reporting for
such transfers to foreign corporations.
Sec. 1145. Extension of statute of limitations for foreign transfers.
Sec. 1146. Increase in filing thresholds for returns as to organization
of foreign corporations and acquisitions of stock in such
corporations.
Subtitle F--Determination of Foreign or Domestic Status of Partnerships
Sec. 1151. Determination of foreign or domestic status of partnerships.
Subtitle G--Other Simplification Provisions
Sec. 1161. Transition rule for certain trusts.
Sec. 1162. Repeal of stock and securities safe harbor requirement that
principal office be outside the United States.
Sec. 1163. Miscellaneous clarifications.
Subtitle H--Other Provisions
Sec. 1171. Treatment of computer software as FSC export property.
Sec. 1172. Adjustment of dollar limitation on section 911 exclusion.
Sec. 1173. United States property not to include certain assets acquired
by dealers in ordinary course of trade or business.
Sec. 1174. Treatment of nonresident aliens engaged in international
transportation services.
Sec. 1175. Exemption for active financing income.
TITLE XII--SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND
BUSINESSES
Subtitle A--Provisions Relating to Individuals
Sec. 1201. Basic standard deduction and minimum tax exemption amount for
certain dependents.
Sec. 1202. Increase in amount of tax exempt from estimated tax
requirements.
Sec. 1203. Treatment of certain reimbursed expenses of rural mail
carriers.
Sec. 1204. Treatment of traveling expenses of certain Federal employees
engaged in criminal investigations.
Sec. 1205. Payment of tax by commercially acceptable means.
Subtitle B--Provisions Relating to Businesses Generally
Sec. 1211. Modifications to look-back method for long-term contracts.
Sec. 1212. Minimum tax treatment of certain property and casualty
insurance companies.
Sec. 1213. Qualified lessee construction allowances for short-term
leases.
Subtitle C--Simplification Relating to Electing Large Partnerships
Part I--General Provisions
Sec. 1221. Simplified flow-through for electing large partnerships.
Sec. 1222. Simplified audit procedures for electing large partnerships.
Sec. 1223. Due date for furnishing information to partners of electing
large partnerships.
Sec. 1224. Returns required on magnetic media.
Sec. 1225. Treatment of partnership items of individual retirement
accounts.
Sec. 1226. Effective date.
Part II--Provisions Related to TEFRA Partnership Proceedings
Sec. 1231. Treatment of partnership items in deficiency proceedings.
Sec. 1232. Partnership return to be determinative of audit procedures to
be followed.
[[Page 111 STAT. 794]]
Sec. 1233. Provisions relating to statute of limitations.
Sec. 1234. Expansion of small partnership exception.
Sec. 1235. Exclusion of partial settlements from 1-year limitation on
assessment.
Sec. 1236. Extension of time for filing a request for administrative
adjustment.
Sec. 1237. Availability of innocent spouse relief in context of
partnership proceedings.
Sec. 1238. Determination of penalties at partnership level.
Sec. 1239. Provisions relating to court jurisdiction, etc.
Sec. 1240. Treatment of premature petitions filed by notice partners or
5-percent groups.
Sec. 1241. Bonds in case of appeals from certain proceeding.
Sec. 1242. Suspension of interest where delay in computational
adjustment resulting from certain settlements.
Sec. 1243. Special rules for administrative adjustment requests with
respect to bad debts or worthless securities.
Part III--Provision Relating to Closing of Partnership Taxable Year With
Respect to Deceased Partner, Etc.
Sec. 1246. Closing of partnership taxable year with respect to deceased
partner, etc.
Subtitle D--Provisions Relating to Real Estate Investment Trusts
Sec. 1251. Clarification of limitation on maximum number of
shareholders.
Sec. 1252. De minimis rule for tenant services income.
Sec. 1253. Attribution rules applicable to stock ownership.
Sec. 1254. Credit for tax paid by REIT on retained capital gains.
Sec. 1255. Repeal of 30-percent gross income requirement.
Sec. 1256. Modification of earnings and profits rules for determining
whether REIT has earnings and profits from non-REIT year.
Sec. 1257. Treatment of foreclosure property.
Sec. 1258. Payments under hedging instruments.
Sec. 1259. Excess noncash income.
Sec. 1260. Prohibited transaction safe harbor.
Sec. 1261. Shared appreciation mortgages.
Sec. 1262. Wholly owned subsidiaries.
Sec. 1263. Effective date.
Subtitle E--Provisions Relating to Regulated Investment Companies
Sec. 1271. Repeal of 30-percent gross income limitation.
Subtitle F--Taxpayer Protections
Sec. 1281. Reasonable cause exception for certain penalties.
Sec. 1282. Clarification of period for filing claims for refunds.
Sec. 1283. Repeal of authority to disclose whether prospective juror has
been audited.
Sec. 1284. Clarification of statute of limitations.
Sec. 1285. Awarding of administrative costs.
TITLE XIII--SIMPLIFICATION PROVISIONS RELATING TO ESTATE AND GIFT TAXES
Sec. 1301. Gifts to charities exempt from gift tax filing requirements.
Sec. 1302. Clarification of waiver of certain rights of recovery.
Sec. 1303. Transitional rule under section 2056A.
Sec. 1304. Treatment for estate tax purposes of short-term obligations
held by nonresident aliens.
Sec. 1305. Certain revocable trusts treated as part of estate.
Sec. 1306. Distributions during first 65 days of taxable year of estate.
Sec. 1307. Separate share rules available to estates.
Sec. 1308. Executor of estate and beneficiaries treated as related
persons for disallowance of losses, etc.
Sec. 1309. Treatment of funeral trusts.
Sec. 1310. Adjustments for gifts within 3 years of decedent's death.
Sec. 1311. Clarification of treatment of survivor annuities under
qualified terminable interest rules.
Sec. 1312. Treatment under qualified domestic trust rules of forms of
ownership which are not trusts.
Sec. 1313. Opportunity to correct certain failures under section 2032A.
Sec. 1314. Authority to waive requirement of United States trustee for
qualified domestic trusts.
[[Page 111 STAT. 795]]
TITLE XIV--SIMPLIFICATION PROVISIONS RELATING TO EXCISE TAXES, TAX-
EXEMPT BONDS, AND OTHER MATTERS
Subtitle A--Excise Tax Simplification
Part I--Excise Taxes on Heavy Trucks and Luxury Cars
Sec. 1401. Increase in de minimis limit for after-market alterations for
heavy trucks and luxury cars.
Sec. 1402. Credit for tire tax in lieu of exclusion of value of tires in
computing price.
Part II--Provisions Related to Distilled Spirits, Wines, and Beer
Sec. 1411. Credit or refund for imported bottled distilled spirits
returned to distilled spirits plant.
Sec. 1412. Authority to cancel or credit export bonds without submission
of records.
Sec. 1413. Repeal of required maintenance of records on premises of
distilled spirits plant.
Sec. 1414. Fermented material from any brewery may be received at a
distilled spirits plant.
Sec. 1415. Repeal of requirement for wholesale dealers in liquors to
post sign.
Sec. 1416. Refund of tax to wine returned to bond not limited to
unmerchantable wine.
Sec. 1417. Use of additional ameliorating material in certain wines.
Sec. 1418. Domestically produced beer may be withdrawn free of tax for
use of foreign embassies, legations, etc.
Sec. 1419. Beer may be withdrawn free of tax for destruction.
Sec. 1420. Authority to allow drawback on exported beer without
submission of records.
Sec. 1421. Transfer to brewery of beer imported in bulk without payment
of tax.
Sec. 1422. Transfer to bonded wine cellars of wine imported in bulk
without payment of tax.
Part III--Other Excise Tax Provisions
Sec. 1431. Authority to grant exemptions from registration requirements.
Sec. 1432. Repeal of expired provisions.
Sec. 1433. Simplification of imposition of excise tax on arrows.
Sec. 1434. Modifications to retail tax on heavy trucks.
Sec. 1435. Skydiving flights exempt from tax on transportation of
persons by air.
Sec. 1436. Allowance or credit of refund for tax-paid aviation fuel
purchased by registered producer of aviation fuel.
Subtitle B--Tax-Exempt Bond Provisions
Sec. 1441. Repeal of $100,000 limitation on unspent proceeds under 1-
year exception from rebate.
Sec. 1442. Exception from rebate for earnings on bona fide debt service
fund under construction bond rules.
Sec. 1443. Repeal of debt service-based limitation on investment in
certain nonpurpose investments.
Sec. 1444. Repeal of expired provisions.
Sec. 1445. Effective date.
Subtitle C--Tax Court Procedures
Sec. 1451. Overpayment determinations of Tax Court.
Sec. 1452. Redetermination of interest pursuant to motion.
Sec. 1453. Application of net worth requirement for awards of litigation
costs.
Sec. 1454. Proceedings for determination of employment status.
Subtitle D--Other Provisions
Sec. 1461. Extension of due date of first quarter estimated tax payment
by private foundations.
Sec. 1462. Clarification of authority to withhold Puerto Rico income
taxes from salaries of Federal employees.
Sec. 1463. Certain notices disregarded under provision increasing
interest rate on large corporate underpayments.
TITLE XV--PENSIONS AND EMPLOYEE BENEFITS
Subtitle A--Simplification
Sec. 1501. Matching contributions of self-employed individuals not
treated as elective employer contributions.
[[Page 111 STAT. 796]]
Sec. 1502. Modification of prohibition of assignment or alienation.
Sec. 1503. Elimination of paperwork burdens on plans.
Sec. 1504. Modification of 403(b) exclusion allowance to conform to 415
modifications.
Sec. 1505. Extension of moratorium on application of certain
nondiscrimination rules to State and local governments.
Sec. 1506. Clarification of certain rules relating to employee stock
ownership plans of S corporations.
Sec. 1507. Modification of 10-percent tax for nondeductible
contributions.
Sec. 1508. Modification of funding requirements for certain plans.
Sec. 1509. Clarification of disqualification rules relating to
acceptance of rollover contributions.
Sec. 1510. New technologies in retirement plans.
Subtitle B--Other Provisions Relating to Pensions and Employee Benefits
Sec. 1521. Increase in current liability funding limit.
Sec. 1522. Special rules for church plans.
Sec. 1523. Repeal of application of unrelated business income tax to
ESOPs.
Sec. 1524. Diversification of section 401(k) plan investments.
Sec. 1525. Section 401(k) plans for certain irrigation and drainage
entities.
Sec. 1526. Portability of permissive service credit under governmental
pension plans.
Sec. 1527. Removal of dollar limitation on benefit payments from a
defined benefit plan maintained for certain police and fire
employees.
Sec. 1528. Survivor benefits for public safety officers killed in the
line of duty.
Sec. 1529. Treatment of certain disability benefits received by former
police officers or firefighters.
Sec. 1530. Gratuitous transfers for the benefit of employees.
Subtitle C--Provisions Relating to Certain Health Acts
Sec. 1531. Amendments to the Internal Revenue Code of 1986 to implement
the Newborns' and Mothers' Health Protection Act of 1996 and
the Mental Health Parity Act of 1996.
Sec. 1532. Special rules relating to church plans.
Subtitle D--Provisions Relating to Plan Amendments
Sec. 1541. Provisions relating to plan amendments.
TITLE XVI--TECHNICAL AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION
ACT OF 1996 AND OTHER LEGISLATION
Sec. 1600. Coordination with other titles.
Sec. 1601. Amendments related to Small Business Job Protection Act of
1996.
Sec. 1602. Amendments related to Health Insurance Portability and
Accountability Act of 1996.
Sec. 1603. Amendments related to Taxpayer Bill of Rights 2.
Sec. 1604. Miscellaneous provisions.
TITLE XVII--IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM
VETO
Sec. 1701. Identification of limited tax benefits subject to line item
veto.
TITLE I--CHILD TAX CREDIT
SEC. 101. CHILD TAX CREDIT.
(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 23 the following new section:
``SEC. 24. CHILD TAX CREDIT.
``(a) Allowance of Credit.--There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year with
respect to each qualifying child of the taxpayer an amount equal to $500
($400 in the case of taxable years beginning in 1998).
``(b) Limitation Based on Adjusted Gross Income.--
``(1) In general.--The amount of the credit allowable under
subsection (a) shall be reduced (but not below zero) by $50
[[Page 111 STAT. 797]]
for each $1,000 (or fraction thereof) by which the taxpayer's
modified adjusted gross income exceeds the threshold amount. For
purposes of the preceding sentence, the term `modified adjusted
gross income' means adjusted gross income increased by any
amount excluded from gross income under section 911, 931, or
933.
``(2) Threshold amount.--For purposes of paragraph (1), the
term `threshold amount' means--
``(A) $110,000 in the case of a joint return,
``(B) $75,000 in the case of an individual who is
not married, and
``(C) $55,000 in the case of a married individual
filing a separate return.
For purposes of this paragraph, marital status shall be
determined under section 7703.
``(c) Qualifying Child.--For purposes of this section--
``(1) In general.--The term `qualifying child' means any
individual if--
``(A) the taxpayer is allowed a deduction under
section 151 with respect to such individual for the
taxable year,
``(B) such individual has not attained the age of 17
as of the close of the calendar year in which the
taxable year of the taxpayer begins, and
``(C) such individual bears a relationship to the
taxpayer described in section 32(c)(3)(B).
``(2) Exception for certain noncitizens.--The term
`qualifying child' shall not include any individual who would
not be a dependent if the first sentence of section 152(b)(3)
were applied without regard to all that follows `resident of the
United States'.
``(d) Additional Credit for Families With 3 or More Children.--
``(1) In general.--In the case of a taxpayer with 3 or more
qualifying children for any taxable year, the amount of the
credit allowed under this section shall be equal to the greater
of--
``(A) the amount of the credit allowed under this
section (without regard to this subsection and after
application of the limitation under section 26), or
``(B) the alternative credit amount determined under
paragraph (2).
``(2) Alternative credit amount.--For purposes of this
subsection, the alternative credit amount is the amount of the
credit which would be allowed under this section if the
limitation under paragraph (3) were applied in lieu of the
limitation under section 26.
``(3) Limitation.--The limitation under this paragraph for
any taxable year is the limitation under section 26 (without
regard to this subsection)--
``(A) increased by the taxpayer's social security
taxes for such taxable year, and
``(B) reduced by the sum of--
``(i) the credits allowed under this part
other than under subpart C or this section, and
``(ii) the credit allowed under section 32
without regard to subsection (m) thereof.
[[Page 111 STAT. 798]]
``(4) Unused credit to be refundable.--If the amount of the
credit under paragraph (1)(B) exceeds the amount of the credit
under paragraph (1)(A), such excess shall be treated as a credit
to which subpart C applies. The rule of section 32(h) shall
apply to such excess.
``(5) Social security taxes.--For purposes of paragraph
(3)--
``(A) In general.--The term `social security taxes'
means, with respect to any taxpayer for any taxable
year--
``(i) the amount of the taxes imposed by
sections 3101 and 3201(a) on amounts received by
the taxpayer during the calendar year in which the
taxable year begins,
``(ii) 50 percent of the taxes imposed by
section 1401 on the self-employment income of the
taxpayer for the taxable year, and
``(iii) 50 percent of the taxes imposed by
section 3211(a)(1) on amounts received by the
taxpayer during the calendar year in which the
taxable year begins.
``(B) Coordination with special refund of social
security taxes.--The term `social security taxes' shall
not include any taxes to the extent the taxpayer is
entitled to a special refund of such taxes under section
6413(c).
``(C) Special rule.--Any amounts paid pursuant to an
agreement under section 3121(l) (relating to agreements
entered into by American employers with respect to
foreign affiliates) which are equivalent to the taxes
referred to in subparagraph (A)(i) shall be treated as
taxes referred to in such subparagraph.
``(e) Identification Requirement.--No credit shall be allowed under
this section to a taxpayer with respect to any qualifying child unless
the taxpayer includes the name and taxpayer identification number of
such qualifying child on the return of tax for the taxable year.
``(f) Taxable Year Must Be Full Taxable Year.--Except in the case of
a taxable year closed by reason of the death of the taxpayer, no credit
shall be allowable under this section in the case of a taxable year
covering a period of less than 12 months.''.
(b) Supplemental Credit.--Section 32 is amended by adding at the end
the following new subsection:
``(m) Supplemental Child Credit.--
``(1) In general.--In the case of a taxpayer with respect to
whom a credit is allowed under section 24 for the taxable year,
there shall be allowed as a credit under this section an amount
equal to the supplemental child credit (if any) determined for
such taxpayer for such taxable year under paragraph (2). Such
credit shall be in addition to the credit allowed under
subsection (a).
``(2) Supplemental child credit.--For purposes of this
subsection, the supplemental child credit is an amount equal to
the excess (if any) of--
``(A) the amount determined under section
24(d)(1)(A), over
``(B) the amount determined under section
24(d)(1)(B).
The amounts referred to in subparagraphs (A) and (B) shall be
determined as if section 24(d) applied to all taxpayers.
[[Page 111 STAT. 799]]
``(3) Coordination with section 24.--The amount of the
credit under section 24 shall be reduced by the amount of the
credit allowed under this subsection.''.
(c) High Risk Pools Permitted To Cover Spouses and Dependents of
High Risk Individuals.--Paragraph (26) of section 501(c) is amended by
adding at the end the following flush sentence:
``A spouse and any qualifying child (as defined in section
24(c)) of an individual described in subparagraph (B) (without
regard to this sentence) shall be treated as described in
subparagraph (B).''.
(d) Conforming Amendments.--
(1) Section 1324(b)(2) of title 31, United States Code, is
amended by inserting before the period at the end ``, or enacted
by the Taxpayer Relief Act of 1997''.
(2) Paragraph (2) of section 6213(g) (relating to the
definition of mathematical or clerical errors) is amended by
striking ``and'' at the end of subparagraph (G), by striking the
period at the end of subparagraph (H) and inserting ``, and'',
and by inserting after subparagraph (H) the following new
subparagraph:
``(I) an omission of a correct TIN required under
section 24(e) (relating to child tax credit) to be
included on a return.''.
(3) 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 23 the following new item:
``Sec. 24. Child tax credit.''.
(e) <<NOTE: 26 USC 24 note.>> Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
TITLE II--EDUCATION INCENTIVES
Subtitle A--Tax Benefits Relating to Education Expenses
SEC. 201. HOPE AND LIFETIME LEARNING CREDITS.
(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 25 the following new section:
``SEC. 25A. HOPE AND LIFETIME LEARNING CREDITS.
``(a) Allowance of Credit.--In the case of an individual, there
shall be allowed as a credit against the tax imposed by this chapter for
the taxable year the amount equal to the sum of--
``(1) the Hope Scholarship Credit, plus
``(2) the Lifetime Learning Credit.
``(b) Hope Scholarship Credit.--
``(1) Per student credit.--In the case of any eligible
student for whom an election is in effect under this section for
any taxable year, the Hope Scholarship Credit is an amount equal
to the sum of--
``(A) 100 percent of so much of the qualified
tuition and related expenses paid by the taxpayer during
the taxable year (for education furnished to the
eligible student
[[Page 111 STAT. 800]]
during any academic period beginning in such taxable
year) as does not exceed $1,000, plus
``(B) 50 percent of such expenses so paid as exceeds
$1,000 but does not exceed the applicable limit.
``(2) Limitations applicable to hope scholarship credit.--
``(A) Credit allowed only for 2 taxable years.--An
election to have this section apply with respect to any
eligible student for purposes of the Hope Scholarship
Credit under subsection (a)(1) may not be made for any
taxable year if such an election (by the taxpayer or any
other individual) is in effect with respect to such
student for any 2 prior taxable years.
``(B) Credit allowed for year only if individual is
at least \1/2\ time student for portion of year.--The
Hope Scholarship Credit under subsection (a)(1) shall
not be allowed for a taxable year with respect to the
qualified tuition and related expenses of an individual
unless such individual is an eligible student for at
least one academic period which begins during such year.
``(C) Credit allowed only for first 2 years of
postsecondary education.--The Hope Scholarship Credit
under subsection (a)(1) shall not be allowed for a
taxable year with respect to the qualified tuition and
related expenses of an eligible student if the student
has completed (before the beginning of such taxable
year) the first 2 years of postsecondary education at an
eligible educational institution.
``(D) Denial of credit if student convicted of a
felony drug offense.--The Hope Scholarship Credit under
subsection (a)(1) shall not be allowed for qualified
tuition and related expenses for the enrollment or
attendance of a student for any academic period if such
student has been convicted of a Federal or State felony
offense consisting of the possession or distribution of
a controlled substance before the end of the taxable
year with or within which such period ends.
``(3) Eligible student.--For purposes of this subsection,
the term `eligible student' means, with respect to any academic
period, a student who--
``(A) meets the requirements of section 484(a)(1) of
the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)),
as in effect on the date of the enactment of this
section, and
``(B) is carrying at least \1/2\ the normal full-
time work load for the course of study the student is
pursuing.
``(4) Applicable limit.--For purposes of paragraph (1)(B),
the applicable limit for any taxable year is an amount equal to
2 times the dollar amount in effect under paragraph (1)(A) for
such taxable year.
``(c) Lifetime Learning Credit.--
``(1) Per taxpayer credit.--The Lifetime Learning Credit for
any taxpayer for any taxable year is an amount equal to 20
percent of so much of the qualified tuition and related expenses
paid by the taxpayer during the taxable year (for education
furnished during any academic period beginning in
[[Page 111 STAT. 801]]
such taxable year) as does not exceed $10,000 ($5,000 in the
case of taxable years beginning before January 1, 2003).
``(2) Special rules for determining expenses.--
``(A) Coordination with hope scholarship.--The
qualified tuition and related expenses with respect to
an individual who is an eligible student for whom a Hope
Scholarship Credit under subsection (a)(1) is allowed
for the taxable year shall not be taken into account
under this subsection.
``(B) Expenses eligible for lifetime learning
credit.--For purposes of paragraph (1), qualified
tuition and related expenses shall include expenses
described in subsection (f)(1) with respect to any
course of instruction at an eligible educational
institution to acquire or improve job skills of the
individual.
``(d) Limitation Based on Modified Adjusted Gross Income.--
``(1) In general.--The amount which would (but for this
subsection) be taken into account under subsection (a) for the
taxable year shall be reduced (but not below zero) by the amount
determined under paragraph (2).
``(2) Amount of reduction.--The amount determined under this
paragraph is the amount which bears the same ratio to the amount
which would be so taken into account as--
``(A) the excess of--
``(i) the taxpayer's modified adjusted gross
income for such taxable year, over
``(ii) $40,000 ($80,000 in the case of a joint
return), bears to
``(B) $10,000 ($20,000 in the case of a joint
return).
``(3) Modified adjusted gross income.--The term `modified
adjusted gross income' means the adjusted gross income of the
taxpayer for the taxable year increased by any amount excluded
from gross income under section 911, 931, or 933.
``(e) Election To Have Section Apply.--
``(1) In general.--No credit shall be allowed under
subsection (a) for a taxable year with respect to the qualified
tuition and related expenses of an individual unless the
taxpayer elects to have this section apply with respect to such
individual for such year.
``(2) Coordination with exclusions.--An election under this
subsection shall not take effect with respect to an individual
for any taxable year if any portion of any distribution during
such taxable year from an education individual retirement
account is excluded from gross income under section 530(d)(2).
``(f) Definitions.--For purposes of this section--
``(1) Qualified tuition and related expenses.--
``(A) In general.--The term `qualified tuition and
related expenses' means tuition and fees required for
the enrollment or attendance of--
``(i) the taxpayer,
``(ii) the taxpayer's spouse, or
``(iii) any dependent of the taxpayer with
respect to whom the taxpayer is allowed a
deduction under section 151,
[[Page 111 STAT. 802]]
at an eligible educational institution for courses of
instruction of such individual at such institution.
``(B) Exception for education involving sports,
etc.--Such term does not include expenses with respect
to any course or other education involving sports,
games, or hobbies, unless such course or other education
is part of the individual's degree program.
``(C) Exception for nonacademic fees.--Such term
does not include student activity fees, athletic fees,
insurance expenses, or other expenses unrelated to an
individual's academic course of instruction.
``(2) Eligible educational institution.--The term `eligible
educational institution' means an institution--
``(A) which is described in section 481 of the
Higher Education Act of 1965 (20 U.S.C. 1088), as in
effect on the date of the enactment of this section, and
``(B) which is eligible to participate in a program
under title IV of such Act.
``(g) Special Rules.--
``(1) Identification requirement.--No credit shall be
allowed under subsection (a) to a taxpayer with respect to the
qualified tuition and related expenses of an individual unless
the taxpayer includes the name and taxpayer identification
number of such individual on the return of tax for the taxable
year.
``(2) Adjustment for certain scholarships, etc.--The amount
of qualified tuition and related expenses otherwise taken into
account under subsection (a) with respect to an individual for
an academic period shall be reduced (before the application of
subsections (b), (c), and (d)) by the sum of any amounts paid
for the benefit of such individual which are allocable to such
period as--
``(A) a qualified scholarship which is excludable
from gross income under section 117,
``(B) an educational assistance allowance under
chapter 30, 31, 32, 34, or 35 of title 38, United States
Code, or under chapter 1606 of title 10, United States
Code, and
``(C) a payment (other than a gift, bequest, devise,
or inheritance within the meaning of section 102(a)) for
such individual's educational expenses, or attributable
to such individual's enrollment at an eligible
educational institution, which is excludable from gross
income under any law of the United States.
``(3) Treatment of expenses paid by dependent.--If a
deduction under section 151 with respect to an individual is
allowed to another taxpayer for a taxable year beginning in the
calendar year in which such individual's taxable year begins--
``(A) no credit shall be allowed under subsection
(a) to such individual for such individual's taxable
year, and
``(B) qualified tuition and related expenses paid by
such individual during such individual's taxable year
shall be treated for purposes of this section as paid by
such other taxpayer.
``(4) Treatment of certain prepayments.--If qualified
tuition and related expenses are paid by the taxpayer during a
taxable year for an academic period which begins during
[[Page 111 STAT. 803]]
the first 3 months following such taxable year, such academic
period shall be treated for purposes of this section as
beginning during such taxable year.
``(5) Denial of double benefit.--No credit shall be allowed
under this section for any expense for which a deduction is
allowed under any other provision of this chapter.
``(6) No credit for married individuals filing separate
returns.--If the taxpayer is a married individual (within the
meaning of section 7703), this section shall apply only if the
taxpayer and the taxpayer's spouse file a joint return for the
taxable year.
``(7) Nonresident aliens.--If the taxpayer is a nonresident
alien individual for any portion of the taxable year, this
section shall apply only if such individual is treated as a
resident alien of the United States for purposes of this chapter
by reason of an election under subsection (g) or (h) of section
6013.
``(h) Inflation Adjustments.--
``(1) Dollar limitation on amount of credit.--
``(A) In general.--In the case of a taxable year
beginning after 2001, each of the $1,000 amounts under
subsection (b)(1) shall be increased by an amount equal
to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(f)(3) for the calendar
year in which the taxable year begins, determined
by substituting `calendar year 2000' for `calendar
year 1992' in subparagraph (B) thereof.
``(B) Rounding.--If any amount as adjusted under
subparagraph (A) is not a multiple of $100, such amount
shall be rounded to the next lowest multiple of $100.
``(2) Income limits.--
``(A) In general.--In the case of a taxable year
beginning after 2001, the $40,000 and $80,000 amounts in
subsection (d)(2) shall each be increased by an amount
equal to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(f)(3) for the calendar
year in which the taxable year begins, determined
by substituting `calendar year 2000' for `calendar
year 1992' in subparagraph (B) thereof.
``(B) Rounding.--If any amount as adjusted under
subparagraph (A) is not a multiple of $1,000, such
amount shall be rounded to the next lowest multiple of
$1,000.
``(i) Regulations.--The Secretary may prescribe such regulations as
may be necessary or appropriate to carry out this section, including
regulations providing for a recapture of the credit allowed under this
section in cases where there is a refund in a subsequent taxable year of
any amount which was taken into account in determining the amount of
such credit.''.
(b) Extension of Procedures Applicable to Mathematical or Clerical
Errors.--Paragraph (2) of section 6213(g) (relating to the definition of
mathematical or clerical errors), as amended by section 101, is amended
by striking ``and'' at the end of subparagraph (H), by striking the
period at the end of subparagraph (I)
[[Page 111 STAT. 804]]
and inserting ``, and'', and by inserting after subparagraph (I) the
following new subparagraph:
``(J) an omission of a correct TIN required under
section 25A(g)(1) (relating to higher education tuition
and related expenses) to be included on a return.''.
(c) Returns Relating to Tuition and Related Expenses.--
(1) In general.--Subpart B of part III of subchapter A of
chapter 61 (relating to information concerning transactions with
other persons) is amended by inserting after section 6050R the
following new section:
``SEC. 6050S. RETURNS RELATING TO HIGHER EDUCATION TUITION AND RELATED
EXPENSES.
``(a) In General.--Any person--
``(1) which is an eligible educational institution which
receives payments for qualified tuition and related expenses
with respect to any individual for any calendar year, or
``(2) which is engaged in a trade or business and which, in
the course of such trade or business, makes payments during any
calendar year to any individual which constitute reimbursements
or refunds (or similar amounts) of qualified tuition and related
expenses of such individual,
shall make the return described in subsection (b) with respect to the
individual at such time as the Secretary may by regulations prescribe.
``(b) Form and Manner of Returns.--A return is described in this
subsection if such return--
``(1) is in such form as the Secretary may prescribe,
``(2) contains--
``(A) the name, address, and TIN of the individual
with respect to whom payments described in subsection
(a) were received from (or were paid to),
``(B) the name, address, and TIN of any individual
certified by the individual described in subparagraph
(A) as the taxpayer who will claim the individual as a
dependent for purposes of the deduction allowable under
section 151 for any taxable year ending with or within
the calendar year, and
``(C) the--
``(i) aggregate amount of payments for
qualified tuition and related expenses received
with respect to the individual described in
subparagraph (A) during the calendar year, and
``(ii) aggregate amount of reimbursements or
refunds (or similar amounts) paid to such
individual during the calendar year, and
``(D) such other information as the Secretary may
prescribe.
``(c) Application to Governmental Units.--For purposes of this
section--
``(1) a governmental unit or any agency or instrumentality
thereof shall be treated as a person, and
``(2) any return required under subsection (a) by such
governmental entity shall be made by the officer or employee
appropriately designated for the purpose of making such return.
``(d) Statements To Be Furnished to Individuals With Respect to Whom
Information Is Required.--Every person
[[Page 111 STAT. 805]]
required to make a return under subsection (a) shall furnish to each
individual whose name is required to be set forth in such return under
subparagraph (A) or (B) of subsection (b)(2) a written statement
showing--
``(1) the name, address, and phone number of the information
contact of the person required to make such return, and
``(2) the aggregate amounts described in subparagraph (C) of
subsection (b)(2).
The written statement required under the preceding sentence shall be
furnished on or before January 31 of the year following the calendar
year for which the return under subsection (a) was required to be made.
``(e) Definitions.--For purposes of this section, the terms
`eligible educational institution' and `qualified tuition and related
expenses' have the meanings given such terms by section 25A.
``(f) Returns Which Would Be Required To Be Made by 2 or More
Persons.--Except to the extent provided in regulations prescribed by the
Secretary, in the case of any amount received by any person on behalf of
another person, only the person first receiving such amount shall be
required to make the return under subsection (a).
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary to carry out the provisions of this section. No
penalties shall be imposed under part II of subchapter B of chapter 68
with respect to any return or statement required under this section
until such time as such regulations are issued.''.
(2) Assessable penalties.--
(A) Subparagraph (B) of section 6724(d)(1) (relating
to definitions) is amended by redesignating clauses (ix)
through (xiv) as clauses (x) through (xv), respectively,
and by inserting after clause (viii) the following new
clause:
``(ix) section 6050S (relating to returns
relating to payments for qualified tuition and
related expenses),''.
(B) Paragraph (2) of section 6724(d) is amended by
striking ``or'' at the end of the next to last
subparagraph, by striking the period at the end of the
last subparagraph and inserting ``, or'', and by adding
at the end the following new subparagraph:
``(Z) section 6050S(d) (relating to returns relating
to qualified tuition and related expenses).''.
(3) Clerical amendment.--The table of sections for subpart B
of part III of subchapter A of chapter 61 is amended by
inserting after the item relating to section 6050R the following
new item:
``Sec. 6050S. Returns relating to higher education
tuition and related expenses.''.
(d) Coordination With Section 135.--Subsection (d) of section 135 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) Coordination with higher education credit.--The amount
of the qualified higher education expenses otherwise taken into
account under subsection (a) with respect to the education of an
individual shall be reduced (before the application of
subsection (b)) by the amount of such expenses which are taken
into account in determining the credit allowable
[[Page 111 STAT. 806]]
to the taxpayer or any other person under section 25A with
respect to such expenses.''.
(e) Clerical Amendment.--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 25 the following new item:
``Sec. 25A. Higher education tuition and related
expenses.''.
(f) <<NOTE: 26 USC 25A note.>> Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to expenses paid after December 31, 1997 (in taxable years
ending after such date), for education furnished in academic
periods beginning after such date.
(2) Lifetime learning credit.--Section 25A(a)(2) of the
Internal Revenue Code of 1986 shall apply to expenses paid after
June 30, 1998 (in taxable years ending after such date), for
education furnished in academic periods beginning after such
dates.
SEC. 202. DEDUCTION FOR INTEREST ON EDUCATION LOANS.
(a) In General.--Part VII of subchapter B of chapter 1 (relating to
additional itemized deductions for individuals) is amended by
redesignating section 221 as section 222 and by inserting after section
220 the following new section:
``SEC. 221. INTEREST ON EDUCATION LOANS.
``(a) Allowance of Deduction.--In the case of an individual, there
shall be allowed as a deduction for the taxable year an amount equal to
the interest paid by the taxpayer during the taxable year on any
qualified education loan.
``(b) Maximum Deduction.--
``(1) In general.--Except as provided in paragraph (2), the
deduction allowed by subsection (a) for the taxable year shall
not exceed the amount determined in accordance with the
following table:
``In the case of taxable years The dollar
beginning in: amount is:
1998........................................ $1,000
1999........................................ $1,500
2000........................................ $2,000
2001 or thereafter.......................... $2,500.
``(2) Limitation based on modified adjusted gross income.--
``(A) In general.--The amount which would (but for
this paragraph) be allowable as a deduction under this
section shall be reduced (but not below zero) by the
amount determined under subparagraph (B).
``(B) Amount of reduction.--The amount determined
under this subparagraph is the amount which bears the
same ratio to the amount which would be so taken into
account as--
``(i) the excess of--
``(I) the taxpayer's modified
adjusted gross income for such taxable
year, over
``(II) $40,000 ($60,000 in the case
of a joint return), bears to
``(ii) $15,000.
[[Page 111 STAT. 807]]
``(C) Modified adjusted gross income.--The term
`modified adjusted gross income' means adjusted gross
income determined--
``(i) without regard to this section and
sections 135, 137, 911, 931, and 933, and
``(ii) after application of sections 86, 219,
and 469.
For purposes of sections 86, 135, 137, 219, and 469,
adjusted gross income shall be determined without regard
to the deduction allowed under this section.
``(c) Dependents Not Eligible for Deduction.--No deduction shall be
allowed by this section to an individual for the taxable year if a
deduction under section 151 with respect to such individual is allowed
to another taxpayer for the taxable year beginning in the calendar year
in which such individual's taxable year begins.
``(d) Limit on Period Deduction Allowed.--A deduction shall be
allowed under this section only with respect to interest paid on any
qualified education loan during the first 60 months (whether or not
consecutive) in which interest payments are required. For purposes of
this paragraph, any loan and all refinancings of such loan shall be
treated as 1 loan.
``(e) Definitions.--For purposes of this section--
``(1) Qualified education loan.--The term `qualified
education loan' means any indebtedness incurred to pay qualified
higher education expenses--
``(A) which are incurred on behalf of the taxpayer,
the taxpayer's spouse, or any dependent of the taxpayer
as of the time the indebtedness was incurred,
``(B) which are paid or incurred within a reasonable
period of time before or after the indebtedness is
incurred, and
``(C) which are attributable to education furnished
during a period during which the recipient was an
eligible student.
Such term includes indebtedness used to refinance indebtedness
which qualifies as a qualified education loan. The term
`qualified education loan' shall not include any indebtedness
owed to a person who is related (within the meaning of section
267(b) or 707(b)(1)) to the taxpayer.
``(2) Qualified higher education expenses.--The term
`qualified higher education expenses' means the cost of
attendance (as defined in section 472 of the Higher Education
Act of 1965, 20 U.S.C. 1087ll, as in effect on the day before
the date of the enactment of this Act) at an eligible
educational institution, reduced by the sum of--
``(A) the amount excluded from gross income under
section 127, 135, or 530 by reason of such expenses, and
``(B) the amount of any scholarship, allowance, or
payment described in section 25A(g)(2).
For purposes of the preceding sentence, the term `eligible
educational institution' has the same meaning given such term by
section 25A(f)(2), except that such term shall also include an
institution conducting an internship or residency program
leading to a degree or certificate awarded by an institution of
higher education, a hospital, or a health care facility which
offers postgraduate training.
``(3) Eligible student.--The term `eligible student' has the
meaning given such term by section 25A(b)(3).
[[Page 111 STAT. 808]]
``(4) Dependent.--The term `dependent' has the meaning given
such term by section 152.
``(f) Special Rules.--
``(1) Denial of double benefit.--No deduction shall be
allowed under this section for any amount for which a deduction
is allowable under any other provision of this chapter.
``(2) Married couples must file joint return.--If the
taxpayer is married at the close of the taxable year, the
deduction shall be allowed under subsection (a) only if the
taxpayer and the taxpayer's spouse file a joint return for the
taxable year.
``(3) Marital status.--Marital status shall be determined in
accordance with section 7703.
``(g) Inflation Adjustments.--
``(1) In general.--In the case of a taxable year beginning
after 2002, the $40,000 and $60,000 amounts in subsection (b)(2)
shall each be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which the
taxable year begins, determined by substituting
`calendar year 2001' for `calendar year 1992' in
subparagraph (B) thereof.
``(2) Rounding.--If any amount as adjusted under paragraph
(1) is not a multiple of $5,000, such amount shall be rounded to
the next lowest multiple of $5,000.''.
(b) Deduction Allowed Whether or Not Taxpayer Itemizes Other
Deductions.--Subsection (a) of section 62 is amended by inserting after
paragraph (16) the following new paragraph:
``(17) Interest on education loans.--The deduction allowed
by section 221.''.
(c) Reporting Requirement.--
(1) In general.--Section 6050S(a)(2) (relating to returns
relating to higher education tuition and related expenses) is
amended to read as follows:
``(2) which is engaged in a trade or business and which, in
the course of such trade or business--
``(A) makes payments during any calendar year to any
individual which constitutes reimbursements or refunds
(or similar amounts) of qualified tuition and related
expenses of such individual, or
``(B) except as provided in regulations, receives
from any individual interest aggregating $600 or more
for any calendar year on 1 or more qualified education
loans,''.
(2) Information.--Section 6050S(b)(2) is amended--
(A) by inserting ``or interest'' after ``payments''
in subparagraph (A), and
(B) in subparagraph (C), by striking ``and'' at the
end of clause (i), by inserting ``and'' at the end of
clause (ii), and by inserting after clause (ii) the
following:
``(iii) aggregate amount of interest received
for the calendar year from such individual,''.
(3) Definition.--Section 6050S(e) is amended by inserting
``, and except as provided in regulations, the term `qualified
education loan' has the meaning given such term by section
221(e)(1)'' after ``section 25A''.
[[Page 111 STAT. 809]]
(d) Clerical Amendment.--The table of sections for part VII of
subchapter B of chapter 1 is amended by striking the last item and
inserting the following new items:
``Sec. 221. Interest on education loans.
``Sec. 222. Cross reference.''.
(e) <<NOTE: 26 USC 62 note.>> Effective Date.--The amendments made
by this section shall apply to any qualified education loan (as defined
in section 221(e)(1) of the Internal Revenue Code of 1986, as added by
this section) incurred on, before, or after the date of the enactment of
this Act, but only with respect to--
(1) any loan interest payment due and paid after December
31, 1997, and
(2) the portion of the 60-month period referred to in
section 221(d) of the Internal Revenue Code of 1986 (as added by
this section) after December 31, 1997.
SEC. 203. PENALTY-FREE WITHDRAWALS FROM INDIVIDUAL RETIREMENT PLANS FOR
HIGHER EDUCATION EXPENSES.
(a) In General.--Paragraph (2) of section 72(t) (relating to
exceptions to 10-percent additional tax on early distributions from
qualified retirement plans) is amended by adding at the end the
following new subparagraph:
``(E) Distributions from individual retirement plans
for higher education expenses.--Distributions to an
individual from an individual retirement plan to the
extent such distributions do not exceed the qualified
higher education expenses (as defined in paragraph (7))
of the taxpayer for the taxable year. Distributions
shall not be taken into account under the preceding
sentence if such distributions are described in
subparagraph (A), (C), or (D) or to the extent paragraph
(1) does not apply to such distributions by reason of
subparagraph (B).''.
(b) Definition.--Section 72(t) is amended by adding at the end the
following new paragraph:
``(7) Qualified higher education expenses.--For purposes of
paragraph (2)(E)--
``(A) In general.--The term `qualified higher
education expenses' means qualified higher education
expenses (as defined in section 529(e)(3)) for education
furnished to--
``(i) the taxpayer,
``(ii) the taxpayer's spouse, or
``(iii) any child (as defined in section
151(c)(3)) or grandchild of the taxpayer or the
taxpayer's spouse,
at an eligible educational institution (as defined in
section 529(e)(5)).
``(B) Coordination with other benefits.--The amount
of qualified higher education expenses for any taxable
year shall be reduced as provided in section
25A(g)(2).''.
(c) <<NOTE: 26 USC 72 note.>> Effective Date.--The amendments made
by this section shall apply to distributions after December 31, 1997,
with respect to expenses paid after such date (in taxable years ending
after such date), for education furnished in academic periods beginning
after such date.
[[Page 111 STAT. 810]]
Subtitle B--Expanded Education Investment Savings Opportunities
PART I--QUALIFIED TUITION PROGRAMS
SEC. 211. MODIFICATIONS OF QUALIFIED STATE TUITION PROGRAMS.
(a) Qualified Higher Education Expenses To Include Room and Board.--
Paragraph (3) of section 529(e) (defining qualified higher education
expenses) is amended to read as follows:
``(3) Qualified higher education expenses.--
``(A) In general.--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.
``(B) Room and board included for students under
guaranteed plans who are at least half-time.--
``(i) In general.--In the case of an
individual who is an eligible student (as defined
in section 25A(b)(3)) for any academic period,
such term shall also include reasonable costs for
such period (as determined under the qualified
State tuition program) incurred by the designated
beneficiary for room and board while attending
such institution. For purposes of subsection
(b)(7), a designated beneficiary shall be treated
as meeting the requirements of this clause.
``(ii) Limitation.--The amount treated as
qualified higher education expenses by reason of
the preceding sentence shall not exceed the
minimum amount (applicable to the student)
included for room and board for such period in the
cost of attendance (as defined in section 472 of
the Higher Education Act of 1965, 20 U.S.C.
1087ll, as in effect on the date of the enactment
of this paragraph) for the eligible educational
institution for such period.''.
(b) Additional Modifications.--
(1) Member of family.--Paragraph (2) of section 529(e)
(relating to other definitions and special rules) is amended to
read as follows:
``(2) Member of family.--The term `member of the family'
means--
``(A) an individual who bears a relationship to
another individual which is a relationship described in
paragraphs (1) through (8) of section 152(a), and
``(B) the spouse of any individual described in
subparagraph (A).''.
(2) Eligible educational institution.--Section 529(e) is
amended by adding at the end the following:
``(5) Eligible educational institution.--The term `eligible
educational institution' means an institution--
``(A) which is described in section 481 of the
Higher Education Act of 1965 (20 U.S.C. 1088), as in
effect on the date of the enactment of this paragraph,
and
``(B) which is eligible to participate in a program
under title IV of such Act.''.
(3) Estate and gift tax treatment.--
(A) Gift tax treatment.--
[[Page 111 STAT. 811]]
(i) Paragraph (2) of section 529(c) is amended
to read as follows:
``(2) Gift tax treatment of contributions.--For purposes of
chapters 12 and 13--
``(A) In general.--Any contribution to a qualified
tuition program on behalf of any designated
beneficiary--
``(i) shall be treated as a completed gift to
such beneficiary which is not a future interest in
property, and
``(ii) shall not be treated as a qualified
transfer under section 2503(e).
``(B) Treatment of excess contributions.--If the
aggregate amount of contributions described in
subparagraph (A) during the calendar year by a donor
exceeds the limitation for such year under section
2503(b), such aggregate amount shall, at the election of
the donor, be taken into account for purposes of such
section ratably over the 5-year period beginning with
such calendar year.''.
(ii) Paragraph (5) of section 529(c) is
amended to read as follows:
``(5) Other gift tax rules.--For purposes of chapters 12 and
13--
``(A) Treatment of distributions.--Except as
provided in subparagraph (B), in no event shall a
distribution from a qualified tuition program be treated
as a taxable gift.
``(B) Treatment of designation of new beneficiary.--
The taxes imposed by chapters 12 and 13 shall apply to a
transfer by reason of a change in the designated
beneficiary under the program (or a rollover to the
account of a new beneficiary) only if the new
beneficiary is a generation below the generation of the
old beneficiary (determined in accordance with section
2651).''.
(B) Estate tax treatment.--Paragraph (4) of section
529(c) is amended to read as follows:
``(4) Estate tax treatment.--
``(A) In general.--No amount shall be includible in
the gross estate of any individual for purposes of
chapter 11 by reason of an interest in a qualified
tuition program.
``(B) Amounts includible in estate of designated
beneficiary in certain cases.--Subparagraph (A) shall
not apply to amounts distributed on account of the death
of a beneficiary.
``(C) Amounts includible in estate of donor making
excess contributions.--In the case of a donor who makes
the election described in paragraph (2)(B) and who dies
before the close of the 5-year period referred to in
such paragraph, notwithstanding subparagraph (A), the
gross estate of the donor shall include the portion of
such contributions properly allocable to periods after
the date of death of the donor.''.
(4) Prohibition against investment direction.--Section
529(b)(5) is amended by inserting ``directly or indirectly''
after ``may not''.
(c) Coordination With Education Savings Bond.--Section 135(c)(2)
(defining qualified higher education expenses) is amended by adding at
the end the following:
[[Page 111 STAT. 812]]
``(C) Contributions to qualified state tuition
program.--Such term shall include any contribution to a
qualified State tuition program (as defined in section
529) on behalf of a designated beneficiary (as defined
in such section) who is an individual described in
subparagraph (A); but there shall be no increase in the
investment in the contract for purposes of applying
section 529(c)(3)(A) by reason of any portion of such
contribution which is not includible in gross income by
reason of this subparagraph.''.
(d) Clarification of Taxation of Distributions.--Subparagraph (A) of
section 529(c)(3) is amended by striking ``section 72'' and inserting
``section 72(b)''.
(e) Technical Amendments.--
(1)(A) The heading for part VIII of subchapter F of chapter
1 is amended to read as follows:
``PART VIII--HIGHER EDUCATION SAVINGS ENTITIES''.
(B) The table of parts for subchapter F of chapter 1 is
amended by striking the item relating to part VIII and
inserting:
``Part VIII. Higher education savings entities.''.
(2)(A) Section 529(d) is amended to read as follows:
``(d) Reports.--Each officer or employee having control of the
qualified State tuition program or their designee shall make such
reports regarding such program to the Secretary and to designated
beneficiaries with respect to contributions, distributions, and such
other matters as the Secretary may require. The reports required by this
subsection shall be filed at such time and in such manner and furnished
to such individuals at such time and in such manner as may be required
by the Secretary.''.
(B) Paragraph (2) of section 6693(a) (relating to failure to
provide reports on individual retirement accounts or annuities)
is amended by striking ``and'' at the end of subparagraph (A),
by striking the period at the end of subparagraph (B) and
inserting ``, and'', and by adding at the end the following new
subparagraph:
``(C) Section 529(d) (relating to qualified State
tuition programs).''.
(C) The section heading for section 6693 is amended by
striking ``individual retirement'' and inserting ``certain tax-
favored''.
(D) The item relating to section 6693 in the table of
sections for part I of subchapter B of chapter 68 is amended by
striking ``individual retirement'' and inserting ``certain tax-
favored''.
(f) <<NOTE: 26 USC 529 note.>> Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall take
effect on January 1, 1998.
(2) Expenses to include room and board.--The amendment made
by subsection (a) shall take effect as if included in the
amendments made by section 1806 of the Small Business Job
Protection Act of 1996.
(3) Eligible educational institution.--The amendment made by
subsection (b)(2) shall apply to distributions after
[[Page 111 STAT. 813]]
December 31, 1997, with respect to expenses paid after such date
(in taxable years ending after such date), for education
furnished in academic periods beginning after such date.
(4) Coordination with education savings bonds.--The
amendment made by subsection (c) shall apply to taxable years
beginning after December 31, 1997.
(5) Estate and gift tax changes.--
(A) Gift tax changes.--Paragraphs (2) and (5) of
section 529(c) of the Internal Revenue Code of 1986, as
amended by this section, shall apply to transfers
(including designations of new beneficiaries) made after
the date of the enactment of this Act.
(B) Estate tax changes.--Paragraph (4) of such
section 529(c) shall apply to estates of decedents dying
after June 8, 1997.
(6) Transition rule for pre-august 20, 1996 contracts.--In
the case of any contract issued prior to August 20, 1996,
section 529(c)(3)(C) of the Internal Revenue Code of 1986 shall
be applied for taxable years ending after August 20, 1996,
without regard to the requirement that a distribution be
transferred to a member of the family or the requirement that a
change in beneficiaries may be made only to a member of the
family.
PART II--EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS
SEC. 213. EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.
(a) In General.--Part VIII of subchapter F of chapter 1 (relating to
qualified State tuition programs) is amended by adding at the end the
following new section:
``SEC. 530. EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.
``(a) General Rule.--An education individual retirement account
shall be exempt from taxation under this subtitle. Notwithstanding the
preceding sentence, the education individual retirement account shall be
subject to the taxes imposed by section 511 (relating to imposition of
tax on unrelated business income of charitable organizations).
``(b) Definitions and Special Rules.--For purposes of this section--
``(1) Education individual retirement account.--The term
`education individual retirement account' means a trust created
or organized in the United States exclusively for the purpose of
paying the qualified higher education expenses of the designated
beneficiary of the trust (and designated as an education
individual retirement account at the time created or organized),
but only if the written governing instrument creating the trust
meets the following requirements:
``(A) No contribution will be accepted--
``(i) unless it is in cash,
``(ii) after the date on which such
beneficiary attains age 18, or
``(iii) except in the case of rollover
contributions, if such contribution would result
in aggregate contributions for the taxable year
exceeding $500.
[[Page 111 STAT. 814]]
``(B) The trustee is a bank (as defined in section
408(n)) or another person who demonstrates to the
satisfaction of the Secretary that the manner in which
that person will administer the trust will be consistent
with the requirements of this section or who has so
demonstrated with respect to any individual retirement
plan.
``(C) No part of the trust assets will be invested
in life insurance contracts.
``(D) The assets of the trust shall not be
commingled with other property except in a common trust
fund or common investment fund.
``(E) Upon the death of the designated beneficiary,
any balance to the credit of the beneficiary shall be
distributed within 30 days after the date of death to
the estate of such beneficiary.
``(2) Qualified higher education expenses.--
``(A) In general.--The term `qualified higher
education expenses' has the meaning given such term by
section 529(e)(3), reduced as provided in section
25A(g)(2).
``(B) Qualified state tuition programs.--Such term
shall include amounts paid or incurred to purchase
tuition credits or certificates, or to make
contributions to an account, under a qualified State
tuition program (as defined in section 529(b)) for the
benefit of the beneficiary of the account.
``(3) Eligible educational institution.--The term `eligible
educational institution' has the meaning given such term by
section 529(e)(5).
``(c) Reduction in Permitted Contributions Based on Adjusted Gross
Income.--
``(1) In general.--The maximum amount which a contributor
could otherwise make to an account under this section shall be
reduced by an amount which bears the same ratio to such maximum
amount as--
``(A) the excess of--
``(i) the contributor's modified adjusted
gross income for such taxable year, over
``(ii) $95,000 ($150,000 in the case of a
joint return), bears to
``(B) $15,000 ($10,000 in the case of a joint
return).
``(2) Modified adjusted gross income.--For purposes of
paragraph (1), the term `modified adjusted gross income' means
the adjusted gross income of the taxpayer for the taxable year
increased by any amount excluded from gross income under section
911, 931, or 933.
``(d) Tax Treatment of Distributions.--
``(1) In general.--Any distribution shall be includible in
the gross income of the distributee in the manner as provided in
section 72(b).
``(2) Distributions for qualified higher education
expenses.--
``(A) In general.--No amount shall be includible in
gross income under paragraph (1) if the qualified higher
education expenses of the designated beneficiary during
the taxable year are not less than the aggregate
distributions during the taxable year.
[[Page 111 STAT. 815]]
``(B) Distributions in excess of expenses.--If such
aggregate distributions exceed such expenses during the
taxable year, the amount otherwise includible in gross
income under paragraph (1) shall be reduced by the
amount which bears the same ratio to the amount which
would be includible in gross income under paragraph (1)
(without regard to this subparagraph) as the qualified
higher education expenses bear to such aggregate
distributions.
``(C) Election to waive exclusion.--A taxpayer may
elect to waive the application of this paragraph for any
taxable year.
``(3) Special rules for applying estate and gift taxes with
respect to account.--Rules similar to the rules of paragraphs
(2), (4), and (5) of section 529(c) shall apply for purposes of
this section.
``(4) Additional tax for distributions not used for
educational expenses.--
``(A) In general.--The tax imposed by this chapter
for any taxable year on any taxpayer who receives a
payment or distribution from an education individual
retirement account which is includible in gross income
shall be increased by 10 percent of the amount which is
so includible.
``(B) Exceptions.--Subparagraph (A) shall not apply
if the payment or distribution is--
``(i) made to a beneficiary (or to the estate
of the designated beneficiary) on or after the
death of the designated beneficiary,
``(ii) attributable to the designated
beneficiary's being disabled (within the meaning
of section 72(m)(7)), or
``(iii) made on account of a scholarship,
allowance, or payment described in section
25A(g)(2) received by the account holder to the
extent the amount of the payment or distribution
does not exceed the amount of the scholarship,
allowance, or payment.
``(C) Excess contributions returned before due date
of return.--Subparagraph (A) shall not apply to the
distribution of any contribution made during a taxable
year on behalf of a designated beneficiary to the extent
that such contribution exceeds $500 if--
``(i) such distribution is received on or
before the day prescribed by law (including
extensions of time) for filing such contributor's
return for such taxable year, and
``(ii) such distribution is accompanied by the
amount of net income attributable to such excess
contribution.
Any net income described in clause (ii) shall be
included in gross income for the taxable year in which
such excess contribution was made.
``(5) Rollover contributions.--Paragraph (1) shall not apply
to any amount paid or distributed from an education individual
retirement account to the extent that the amount received is
paid into another education individual retirement account for
the benefit of the same beneficiary or a member of the family
(within the meaning of section 529(e)(2)) of such
[[Page 111 STAT. 816]]
beneficiary not later than the 60th day after the date of such
payment or distribution. The preceding sentence shall not apply
to any payment or distribution if it applied to any prior
payment or distribution during the 12-month period ending on the
date of the payment or distribution.
``(6) Change in beneficiary.--Any change in the beneficiary
of an education individual retirement account shall not be
treated as a distribution for purposes of paragraph (1) if the
new beneficiary is a member of the family (as so defined) of the
old beneficiary.
``(7) Special rules for death and divorce.--Rules similar to
the rules of paragraphs (7) and (8) of section 220(f) shall
apply.
``(e) Tax Treatment of Accounts.--Rules similar to the rules of
paragraphs (2) and (4) of section 408(e) shall apply to any education
individual retirement account.
``(f) Community Property Laws.--This section shall be applied
without regard to any community property laws.
``(g) Custodial Accounts.--For purposes of this section, a custodial
account shall be treated as a trust if the assets of such account are
held by a bank (as defined in section 408(n)) or another person who
demonstrates, to the satisfaction of the Secretary, that the manner in
which he will administer the account will be consistent with the
requirements of this section, and if the custodial account would, except
for the fact that it is not a trust, constitute an account described in
subsection (b)(1). For purposes of this title, in the case of a
custodial account treated as a trust by reason of the preceding
sentence, the custodian of such account shall be treated as the trustee
thereof.
``(h) Reports.--The trustee of an education individual retirement
account shall make such reports regarding such account to the Secretary
and to the beneficiary of the account with respect to contributions,
distributions, and such other matters as the Secretary may require. The
reports required by this subsection shall be filed at such time and in
such manner and furnished to such individuals at such time and in such
manner as may be required.''.
(b) Tax on Prohibited Transactions.--
(1) In general.--Paragraph (1) of section 4975(e) (relating
to prohibited transactions) is amended by striking ``or'' at the
end of subparagraph (D), by redesignating subparagraph (E) as
subparagraph (F), and by inserting after subparagraph (D) the
following new subparagraph:
``(E) an education individual retirement account
described in section 530, or''.
(2) Special rule.--Subsection (c) of section 4975 is amended
by adding at the end of subsection (c) the following new
paragraph:
``(5) Special rule for education individual retirement
accounts.--An individual for whose benefit an education
individual retirement account is established and any contributor
to such account shall be exempt from the tax imposed by this
section with respect to any transaction concerning such account
(which would otherwise be taxable under this section) if section
530(d) applies with respect to such transaction.''.
(c) Failure To Provide Reports on Education Individual Retirement
Accounts.--Paragraph (2) of section 6693(a) (relating to failure to
provide reports on individual retirement accounts or
[[Page 111 STAT. 817]]
annuities) 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 at the end the following new subparagraph:
``(D) Section 530(h) (relating to education
individual retirement accounts).''.
(d) Tax on Excess Contributions.--
(1) In general.--Subsection (a) of section 4973 is amended
by striking ``or'' at the end of paragraph (2), by adding ``or''
at the end of paragraph (3), and by inserting after paragraph
(3) the following new paragraph:
``(4) an education individual retirement account (as defined
in section 530),''.
(2) Excess contributions defined.--Section 4973 is amended
by adding at the end the following new subsection:
``(e) Excess Contributions to Education Individual Retirement
Accounts.--For purposes of this section--
``(1) In general.--In the case of education individual
retirement accounts maintained for the benefit of any 1
beneficiary, the term `excess contributions' means--
``(A) the amount by which the amount contributed for
the taxable year to such accounts exceeds $500, and
``(B) any amount contributed to such accounts for
any taxable year if any amount is contributed during
such year to a qualified State tuition program for the
benefit of such beneficiary.
``(2) Special rules.--For purposes of paragraph (1), the
following contributions shall not be taken into account:
``(A) Any contribution which is distributed out of
the education individual retirement account in a
distribution to which section 530(d)(4)(C) applies.
``(B) Any contribution described in section
530(b)(2)(B) to a qualified State tuition program.
``(C) Any rollover contribution.''.
(e) Technical Amendments.--
(1) Section 26(b)(2) is amended by redesignating
subparagraphs (E) through (P) as subparagraphs (F) through (Q),
respectively, and by inserting after subparagraph (D) the
following new subparagraph:
``(E) section 530(d)(3) (relating to additional tax
on certain distributions from education individual
retirement accounts),''.
(2) Subparagraph (C) of section 135(c)(2), as added by the
preceding section, is amended by inserting ``, or to an
education individual retirement account (as defined in section
530) on behalf of an account beneficiary,'' after ``(as defined
in such section)''.
(3) The table of sections for part VIII of subchapter F of
chapter 1 is amended by adding at the end the following new
item:
``Sec. 530. Education individual retirement accounts.''.
(f) <<NOTE: 26 USC 26 note.>> Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
[[Page 111 STAT. 818]]
Subtitle C--Other Education Initiatives
SEC. 221. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL
ASSISTANCE.
(a) In General.--Subsection (d) of section 127 (relating to
educational assistance programs) is amended to read as follows:
``(d) Termination.--This section shall not apply to expenses paid
with respect to courses beginning after May 31, 2000.''.
(b) <<NOTE: 26 USC 127 note.>> Effective Date.--The amendment made
by subsection (a) shall apply to taxable years beginning after December
31, 1996.
SEC. 222. REPEAL OF LIMITATION ON QUALIFIED 501(c)(3) BONDS OTHER THAN
HOSPITAL BONDS.
Section 145(b) (relating to qualified 501(c)(3) bond) is amended by
adding at the end the following new paragraph:
``(5) Termination of limitation.--This subsection shall not
apply with respect to bonds issued after the date of the
enactment of this paragraph as part of an issue 95 percent or
more of the net proceeds of which are to be used to finance
capital expenditures incurred after such date.''.
SEC. 223. INCREASE IN ARBITRAGE REBATE EXCEPTION FOR GOVERNMENTAL BONDS
USED TO FINANCE EDUCATION FACILITIES.
(a) In General.--Section 148(f)(4)(D) (relating to exception for
governmental units issuing $5,000,000 or less of bonds) is amended by
adding at the end the following new clause:
``(vii) Increase in exception for bonds
financing public school capital expenditures.--
Each of the $5,000,000 amounts in the preceding
provisions of this subparagraph shall be increased
by the lesser of $5,000,000 or so much of the
aggregate face amount of the bonds as are
attributable to financing the construction (within
the meaning of subparagraph (C)(iv)) of public
school facilities.''.
(b) <<NOTE: 26 USC 148 note.>> Effective Date.--The amendments made
by this section shall apply to bonds issued after December 31, 1997.
SEC. 224. CONTRIBUTIONS OF COMPUTER TECHNOLOGY AND EQUIPMENT FOR
ELEMENTARY OR SECONDARY SCHOOL PURPOSES.
(a) Contributions of Computer Technology and Equipment for
Elementary or Secondary School Purposes.--Subsection (e) of section 170
is amended by adding at the end the following new paragraph:
``(6) Special rule for contributions of computer technology
and equipment for elementary or secondary school purposes.--
``(A) Limit on reduction.--In the case of a
qualified elementary or secondary educational
contribution, the reduction under paragraph (1)(A) shall
be no greater than the amount determined under paragraph
(3)(B).
``(B) Qualified elementary or secondary educational
contribution.--For purposes of this paragraph, the term
`qualified elementary or secondary educational
[[Page 111 STAT. 819]]
contribution' means a charitable contribution by a
corporation of any computer technology or equipment, but
only if--
``(i) the contribution is to--
``(I) an educational organization
described in subsection (b)(1)(A)(ii),
or
``(II) an entity described in
section 501(c)(3) and exempt from tax
under section 501(a) (other than an
entity described in subclause (I)) that
is organized primarily for purposes of
supporting elementary and secondary
education,
``(ii) the contribution is made not later than
2 years after the date the taxpayer acquired the
property (or in the case of property constructed
by the taxpayer, the date the construction of the
property is substantially completed),
``(iii) the original use of the property is by
the donor or the donee,
``(iv) substantially all of the use of the
property by the donee is for use within the United
States for educational purposes in any of the
grades K-12 that are related to the purpose or
function of the organization or entity,
``(v) the property is not transferred by the
donee in exchange for money, other property, or
services, except for shipping, installation and
transfer costs,
``(vi) the property will fit productively into
the entity's education plan, and
``(vii) the entity's use and disposition of
the property will be in accordance with the
provisions of clauses (iv) and (v).
``(C) Contribution to private foundation.--A
contribution by a corporation of any computer technology
or equipment to a private foundation (as defined in
section 509) shall be treated as a qualified elementary
or secondary educational contribution for purposes of
this paragraph if--
``(i) the contribution to the private
foundation satisfies the requirements of clauses
(ii) and (v) of subparagraph (B), and
``(ii) within 30 days after such contribution,
the private foundation--
``(I) contributes the property to an
entity described in clause (i) of
subparagraph (B) that satisfies the
requirements of clauses (iv) through
(vii) of subparagraph (B), and
``(II) notifies the donor of such
contribution.
``(D) Special rule relating to construction of
property.--For the purposes of this paragraph, the rules
of paragraph (4)(C) shall apply.
``(E) Definitions.--For the purposes of this
paragraph--
``(i) Computer technology or equipment.--The
term `computer technology or equipment' means
computer software (as defined by section
197(e)(3)(B)), computer or peripheral equipment
(as defined by section
[[Page 111 STAT. 820]]
168(i)(2)(B)), and fiber optic cable related to
computer use.
``(ii) Corporation.--The term `corporation'
has the meaning given to such term by paragraph
(4)(D).
``(F) Termination.--This paragraph shall not apply
to any contribution made during any taxable year
beginning after December 31, 1999.''.
(b) <<NOTE: 26 USC 170 note.>> Effective Date.--The amendment made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 225. TREATMENT OF CANCELLATION OF CERTAIN STUDENT LOANS.
(a) Certain Loans by Exempt Organizations.--
(1) In general.--Paragraph (2) of section 108(f) (defining
student loan) is amended by striking ``or'' at the end of
subparagraph (B) and by striking subparagraph (D) and inserting
the following:
``(D) any educational organization described in
section 170(b)(1)(A)(ii) if such loan is made--
``(i) pursuant to an agreement with any entity
described in subparagraph (A), (B), or (C) under
which the funds from which the loan was made were
provided to such educational organization, or
``(ii) pursuant to a program of such
educational organization which is designed to
encourage its students to serve in occupations
with unmet needs or in areas with unmet needs and
under which the services provided by the students
(or former students) are for or under the
direction of a governmental unit or an
organization described in section 501(c)(3) and
exempt from tax under section 501(a).
The term `student loan' includes any loan made by an educational
organization so described or by an organization exempt from tax
under section 501(a) to refinance a loan meeting the
requirements of the preceding sentence.''.
(2) Exception for discharges on account of services
performed for certain lenders.--Subsection (f) of section 108 is
amended by adding at the end the following new paragraph:
``(3) Exception for discharges on account of services
performed for certain lenders.--Paragraph (1) shall not apply to
the discharge of a loan made by an organization described in
paragraph (2)(D) (or by an organization described in paragraph
(2)(E) from funds provided by an organization described in
paragraph (2)(D)) if the discharge is on account of services
performed for either such organization.''.
(b) <<NOTE: 26 USC 108 note.>> Effective Date.--The amendments made
by this section shall apply to discharges of indebtedness after the date
of the enactment of this Act.
SEC. 226. INCENTIVES FOR EDUCATION ZONES.
(a) In General.--Subchapter U of chapter 1 (relating to additional
incentives for empowerment zones) is amended by redesignating part IV as
part V, by redesignating section 1397E as section 1397F, <<NOTE: 26 USC
1397D, 1397F.>> and by inserting after part III the following new part:
[[Page 111 STAT. 821]]
``PART IV--INCENTIVES FOR EDUCATION ZONES
``Sec. 1397E. Credit to holders of qualified zone
academy bonds.''.
``SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED ZONE ACADEMY BONDS.
``(a) Allowance of Credit.--In the case of an eligible taxpayer who
holds a qualified zone academy bond on the credit allowance date of such
bond which occurs during the taxable year, there shall be allowed as a
credit against the tax imposed by this chapter for such taxable year the
amount determined under subsection (b).
``(b) Amount of Credit.--
``(1) In general.--The amount of the credit determined under
this subsection with respect to any qualified zone academy bond
is the amount equal to the product of--
``(A) the credit rate determined by the Secretary
under paragraph (2) for the month in which such bond was
issued, multiplied by
``(B) the face amount of the bond held by the
taxpayer on the credit allowance date.
``(2) Determination.--During each calendar month, the
Secretary shall determine a credit rate which shall apply to
bonds issued during the following calendar month. The credit
rate for any month is the percentage which the Secretary
estimates will permit the issuance of qualified zone academy
bonds without discount and without interest cost to the issuer.
``(c) Limitation Based on Amount of Tax.--The credit allowed under
subsection (a) for any taxable year shall not exceed the excess of--
``(1) the sum of the regular tax liability (as defined in
section 26(b)) plus the tax imposed by section 55, over
``(2) the sum of the credits allowable under part IV of
subchapter A (other than subpart C thereof, relating to
refundable credits).
``(d) Qualified Zone Academy Bond.--For purposes of this section--
``(1) In general.--The term `qualified zone academy bond'
means any bond issued as part of an issue if--
``(A) 95 percent or more of the proceeds of such
issue are to be used for a qualified purpose with
respect to a qualified zone academy established by an
eligible local education agency,
``(B) the bond is issued by a State or local
government within the jurisdiction of which such academy
is located,
``(C) the issuer--
``(i) designates such bond for purposes of
this section,
``(ii) certifies that it has written
assurances that the private business contribution
requirement of paragraph (2) will be met with
respect to such academy, and
``(iii) certifies that it has the written
approval of the eligible local education agency
for such bond issuance, and
[[Page 111 STAT. 822]]
``(D) the term of each bond which is part of such
issue does not exceed the maximum term permitted under
paragraph (3).
``(2) Private business contribution requirement.--
``(A) In general.--For purposes of paragraph (1),
the private business contribution requirement of this
paragraph is met with respect to any issue if the
eligible local education agency that established the
qualified zone academy has written commitments from
private entities to make qualified contributions having
a present value (as of the date of issuance of the
issue) of not less than 10 percent of the proceeds of
the issue.
``(B) Qualified contributions.--For purposes of
subparagraph (A), the term `qualified contribution'
means any contribution (of a type and quality acceptable
to the eligible local education agency) of--
``(i) equipment for use in the qualified zone
academy (including state-of-the-art technology and
vocational equipment),
``(ii) technical assistance in developing
curriculum or in training teachers in order to
promote appropriate market driven technology in
the classroom,
``(iii) services of employees as volunteer
mentors,
``(iv) internships, field trips, or other
educational opportunities outside the academy for
students, or
``(v) any other property or service specified
by the eligible local education agency.
``(3) Term requirement.--During each calendar month, the
Secretary shall determine the maximum term permitted under this
paragraph for bonds issued during the following calendar month.
Such maximum term shall be the term which the Secretary
estimates will result in the present value of the obligation to
repay the principal on the bond being equal to 50 percent of the
face amount of the bond. Such present value shall be determined
using as a discount rate the average annual interest rate of
tax-exempt obligations having a term of 10 years or more which
are issued during the month. If the term as so determined is not
a multiple of a whole year, such term shall be rounded to the
next highest whole year.
``(4) Qualified zone academy.--
``(A) In general.--The term `qualified zone academy'
means any public school (or academic program within a
public school) which is established by and operated
under the supervision of an eligible local education
agency to provide education or training below the
postsecondary level if--
``(i) such public school or program (as the
case may be) is designed in cooperation with
business to enhance the academic curriculum,
increase graduation and employment rates, and
better prepare students for the rigors of college
and the increasingly complex workforce,
``(ii) students in such public school or
program (as the case may be) will be subject to
the same academic standards and assessments as
other students educated by the eligible local
education agency,
[[Page 111 STAT. 823]]
``(iii) the comprehensive education plan of
such public school or program is approved by the
eligible local education agency, and
``(iv)(I) such public school is located in an
empowerment zone or enterprise community
(including any such zone or community designated
after the date of the enactment of this section),
or
``(II) there is a reasonable expectation (as
of the date of issuance of the bonds) that at
least 35 percent of the students attending such
school or participating in such program (as the
case may be) will be eligible for free or reduced-
cost lunches under the school lunch program
established under the National School Lunch Act.
``(B) Eligible local education agency.--The term
`eligible local education agency' means any local
education agency as defined in section 14101 of the
Elementary and Secondary Education Act of 1965.
``(5) Qualified purpose.--The term `qualified purpose'
means, with respect to any qualified zone academy--
``(A) rehabilitating or repairing the public school
facility in which the academy is established,
``(B) providing equipment for use at such academy,
``(C) developing course materials for education to
be provided at such academy, and
``(D) training teachers and other school personnel
in such academy.
``(6) Eligible taxpayer.--The term `eligible taxpayer'
means--
``(A) a bank (within the meaning of section 581),
``(B) an insurance company to which subchapter L
applies, and
``(C) a corporation actively engaged in the business
of lending money.
``(e) Limitation on Amount of Bonds Designated.--
``(1) National limitation.--There is a national zone academy
bond limitation for each calendar year. Such limitation is
$400,000,000 for 1998 and 1999, and, except as provided in
paragraph (4), zero thereafter.
``(2) Allocation of limitation.--The national zone academy
bond limitation for a calendar year shall be allocated by the
Secretary among the States on the basis of their respective
populations of individuals below the poverty line (as defined by
the Office of Management and Budget). The limitation amount
allocated to a State under the preceding sentence shall be
allocated by the State education agency to qualified zone
academies within such State.
``(3) Designation subject to limitation amount.--The maximum
aggregate face amount of bonds issued during any calendar year
which may be designated under subsection (d)(1) with respect to
any qualified zone academy shall not exceed the limitation
amount allocated to such academy under paragraph (2) for such
calendar year.
``(4) Carryover of unused limitation.--If for any calendar
year--
``(A) the limitation amount for any State, exceeds
[[Page 111 STAT. 824]]
``(B) the amount of bonds issued during such year
which are designated under subsection (d)(1) with
respect to qualified zone academies within such State,
the limitation amount for such State for the following calendar
year shall be increased by the amount of such excess.
``(f) Other Definitions.--For purposes of this section--
``(1) Credit allowance date.--The term `credit allowance
date' means, with respect to any issue, the last day of the 1-
year period beginning on the date of issuance of such issue and
the last day of each successive 1-year period thereafter.
``(2) Bond.--The term `bond' includes any obligation.
``(3) State.--The term `State' includes the District of
Columbia and any possession of the United States.
``(g) Credit Included in Gross Income.--Gross income includes the
amount of the credit allowed to the taxpayer under this section.''.
(b) Conforming Amendments.--
(1) The table of parts for subchapter U of chapter 1 is
amended by striking the last item and inserting the following:
``Part IV. Incentives for education zones.
``Part V. Regulations.''.
(2) The table of sections for part V, as so redesignated, is
amended to read as follows:
``Sec. 1397F. Regulations.''.
(c) <<NOTE: 26 USC 1397E note.>> Effective Date.--The amendments
made by this section shall apply to obligations issued after December
31, 1997.
TITLE III--SAVINGS AND INVESTMENT INCENTIVES
Subtitle A--Retirement Savings
SEC. 301. RESTORATION OF IRA DEDUCTION FOR CERTAIN TAXPAYERS.
(a) Increase in Income Limits Applicable to Active Participants.--
(1) In general.--Subparagraph (B) of section 219(g)(3)
(relating to applicable dollar amount) is amended to read as
follows:
``(B) Applicable dollar amount.--The term
`applicable dollar amount' means the following:
``(i) In the case of a taxpayer filing a joint
return:
The applicable............................
``For taxable years beginning dollar amount is:.........................
1998 $50,000
1999 $51,000
2000 $52,000
2001 $53,000
2002 $54,000
2003 $60,000
2004 $65,000
2005 $70,000
2006 $75,000
2007 and thereafter $80,000.
[[Page 111 STAT. 825]]
``(ii) In the case of any other taxpayer
(other than a married individual filing a separate
return):
The.......................................
applicable................................
``For taxable years beginning dollar amount.............................
is:.......................................
1998 $30,000
1999 $31,000
2000 $32,000
2001 $33,000
2002 $34,000
2003 $40,000
2004 $45,000
2005 and thereafter $50,000.
``(iii) In the case of a married individual
filing a separate return, zero.''.
(2) Increase in phase-out range for joint returns.--Clause
(ii) of section 219(g)(2)(A) is amended by inserting ``($20,000
in the case of a joint return for a taxable year beginning after
December 31, 2006)''.
(b) Limitations for Active Participation Not Based on Spouse's
Participation.--Section 219(g) (relating to limitation on deduction for
active participants in certain pension plans) is amended--
(1) by striking ``or the individual's spouse'' in paragraph
(1), and
(2) by adding at the end the following new paragraph:
``(7) Special rule for certain spouses.--In the case of an
individual who is an active participant at no time during any
plan year ending with or within the taxable year but whose
spouse is an active participant for any part of any such plan
year--
``(A) the applicable dollar amount under paragraph
(3)(B)(i) with respect to the taxpayer shall be
$150,000, and
``(B) the amount applicable under paragraph
(2)(A)(ii) shall be $10,000.''.
<<NOTE: 26 USC 219 note.>> (c) Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 302. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE INDIVIDUAL RETIREMENT
ACCOUNTS.
(a) In General.--Subpart A of part I of subchapter D of chapter 1
(relating to pension, profit-sharing, stock bonus plans, etc.) is
amended by inserting after section 408 the following new section:
``SEC. 408A. ROTH IRAS.
``(a) General Rule.--Except as provided in this section, a Roth IRA
shall be treated for purposes of this title in the same manner as an
individual retirement plan.
``(b) Roth IRA.--For purposes of this title, the term `Roth IRA'
means an individual retirement plan (as defined in section 7701(a)(37))
which is designated (in such manner as the Secretary may prescribe) at
the time of establishment of the plan as a Roth IRA. Such designation
shall be made in such manner as the Secretary may prescribe.
``(c) Treatment of Contributions.--
``(1) No deduction allowed.--No deduction shall be allowed
under section 219 for a contribution to a Roth IRA.
[[Page 111 STAT. 826]]
``(2) Contribution limit.--The aggregate amount of
contributions for any taxable year to all Roth IRAs maintained
for the benefit of an individual shall not exceed the excess (if
any) of--
``(A) the maximum amount allowable as a deduction
under section 219 with respect to such individual for
such taxable year (computed without regard to subsection
(d)(1) or (g) of such section), over
``(B) the aggregate amount of contributions for such
taxable year to all other individual retirement plans
(other than Roth IRAs) maintained for the benefit of the
individual.
``(3) Limits based on modified adjusted gross income.--
``(A) Dollar limit.--The amount determined under
paragraph (2) for any taxable year shall be reduced (but
not below zero) by the amount which bears the same ratio
to such amount as--
``(i) the excess of--
``(I) the taxpayer's adjusted gross
income for such taxable year, over
``(II) the applicable dollar amount,
bears to
``(ii) $15,000 ($10,000 in the case of a joint
return).
The rules of subparagraphs (B) and (C) of section
219(g)(2) shall apply to any reduction under this
subparagraph.
``(B) Rollover from ira.--A taxpayer shall not be
allowed to make a qualified rollover contribution to a
Roth IRA from an individual retirement plan other than a
Roth IRA during any taxable year if--
``(i) the taxpayer's adjusted gross income for
such taxable year exceeds $100,000, or
``(ii) the taxpayer is a married individual
filing a separate return.
``(C) Definitions.--For purposes of this paragraph--
``(i) adjusted gross income shall be
determined in the same manner as under section
219(g)(3), except that any amount included in
gross income under subsection (d)(3) shall not be
taken into account and the deduction under section
219 shall be taken into account, and
``(ii) the applicable dollar amount is--
``(I) in the case of a taxpayer
filing a joint return, $150,000,
``(II) in the case of any other
taxpayer (other than a married
individual filing a separate return),
$95,000, and
``(III) in the case of a married
individual filing a separate return,
zero.
``(D) Marital status.--Section 219(g)(4) shall apply
for purposes of this paragraph.
``(4) Contributions permitted after age 70\1/2\.--
Contributions to a Roth IRA may be made even after the
individual for whom the account is maintained has attained age
70\1/2\.
``(5) Mandatory distribution rules not to apply before
death.--Notwithstanding subsections (a)(6) and (b)(3) of section
408 (relating to required distributions), the following
provisions shall not apply to any Roth IRA:
``(A) Section 401(a)(9)(A).
[[Page 111 STAT. 827]]
``(B) The incidental death benefit requirements of
section 401(a).
``(6) Rollover contributions.--
``(A) In general.--No rollover contribution may be
made to a Roth IRA unless it is a qualified rollover
contribution.
``(B) Coordination with limit.--A qualified rollover
contribution shall not be taken into account for
purposes of paragraph (2).
``(7) Time when contributions made.--For purposes of this
section, the rule of section 219(f)(3) shall apply.
``(d) Distribution Rules.--For purposes of this title--
``(1) General rules.--
``(A) Exclusions from gross income.--Any qualified
distribution from a Roth IRA shall not be includible in
gross income.
``(B) Nonqualified distributions.--In applying
section 72 to any distribution from a Roth IRA which is
not a qualified distribution, such distribution shall be
treated as made from contributions to the Roth IRA to
the extent that such distribution, when added to all
previous distributions from the Roth IRA, does not
exceed the aggregate amount of contributions to the Roth
IRA.
``(2) Qualified distribution.--For purposes of this
subsection--
``(A) In general.--The term `qualified distribution'
means any payment or distribution--
``(i) made on or after the date on which the
individual attains age 59\1/2\,
``(ii) made to a beneficiary (or to the estate
of the individual) on or after the death of the
individual,
``(iii) attributable to the individual's being
disabled (within the meaning of section 72(m)(7)),
or
``(iv) which is a qualified special purpose
distribution.
``(B) Certain distributions within 5 years.--A
payment or distribution shall not be treated as a
qualified distribution under subparagraph (A) if--
``(i) it is made within the 5-taxable year
period beginning with the 1st taxable year for
which the individual made a contribution to a Roth
IRA (or such individual's spouse made a
contribution to a Roth IRA) established for such
individual, or
``(ii) in the case of a payment or
distribution properly allocable (as determined in
the manner prescribed by the Secretary) to a
qualified rollover contribution from an individual
retirement plan other than a Roth IRA (or income
allocable thereto), it is made within the 5-
taxable year period beginning with the taxable
year in which the rollover contribution was made.
``(3) Rollovers from an ira other than a Roth IRA.--
``(A) In general.--Notwithstanding section
408(d)(3), in the case of any distribution to which this
paragraph applies--
``(i) there shall be included in gross income
any amount which would be includible were it not
part of a qualified rollover contribution,
[[Page 111 STAT. 828]]
``(ii) section 72(t) shall not apply, and
``(iii) in the case of a distribution before
January 1, 1999, any amount required to be
included in gross income by reason of this
paragraph shall be so included ratably over the 4-
taxable year period beginning with the taxable
year in which the payment or distribution is made.
``(B) Distributions to which paragraph applies.--
This paragraph shall apply to a distribution from an
individual retirement plan (other than a Roth IRA)
maintained for the benefit of an individual which is
contributed to a Roth IRA maintained for the benefit of
such individual in a qualified rollover contribution.
``(C) Conversions.--The conversion of an individual
retirement plan (other than a Roth IRA) to a Roth IRA
shall be treated for purposes of this paragraph as a
distribution to which this paragraph applies.
``(D) Conversion of excess contributions.--If, no
later than the due date for filing the return of tax for
any taxable year (without regard to extensions), an
individual transfers, from an individual retirement plan
(other than a Roth IRA), contributions for such taxable
year (and any earnings allocable thereto) to a Roth IRA,
no such amount shall be includible in gross income to
the extent no deduction was allowed with respect to such
amount.
``(E) Additional reporting requirements.--Trustees
of Roth IRAs, trustees of individual retirement plans,
or both, whichever is appropriate, shall include such
additional information in reports required under section
408(i) as the Secretary may require to ensure that
amounts required to be included in gross income under
subparagraph (A) are so included.
``(4) Coordination with individual retirement accounts.--
Section 408(d)(2) shall be applied separately with respect to
Roth IRAs and other individual retirement plans.
``(5) Qualified special purpose distribution.--For purposes
of this section, the term `qualified special purpose
distribution' means any distribution to which subparagraph (F)
of section 72(t)(2) applies.
``(e) Qualified Rollover Contribution.--For purposes of this
section, the term `qualified rollover contribution' means a rollover
contribution to a Roth IRA from another such account, or from an
individual retirement plan, but only if such rollover contribution meets
the requirements of section 408(d)(3). For purposes of section
408(d)(3)(B), there shall be disregarded any qualified rollover
contribution from an individual retirement plan (other than a Roth IRA)
to a Roth IRA.''.
(b) Excess Contributions.--Section 4973(b), as amended by title II,
is amended by adding at the end the following new subsection:
``(f) Excess Contributions to Roth IRAs.--For purposes of this
section, in the case of contributions to a Roth IRA (within the meaning
of section 408A(b)), the term `excess contributions' means the sum of--
``(1) the excess (if any) of--
[[Page 111 STAT. 829]]
``(A) the amount contributed for the taxable year to
such accounts (other than a qualified rollover
contribution described in section 408A(e)), over
``(B) the amount allowable as a contribution under
sections 408A (c)(2) and (c)(3), and
``(2) the amount determined under this subsection for the
preceding taxable year, reduced by the sum of--
``(A) the distributions out of the accounts for the
taxable year, and
``(B) the excess (if any) of the maximum amount
allowable as a contribution under sections 408A (c)(2)
and (c)(3) for the taxable year over the amount
contributed to the accounts for the taxable year.
For purposes of this subsection, any contribution which is distributed
from a Roth IRA in a distribution described in section 408(d)(4) shall
be treated as an amount not contributed.''.
(c) Spousal IRA.--Clause (ii) of section 219(c)(1)(B) is amended to
read as follows:
``(ii) the compensation includible in the
gross income of such individual's spouse for the
taxable year reduced by--
``(I) the amount allowed as a
deduction under subsection (a) to such
spouse for such taxable year, and
``(II) the amount of any
contribution on behalf of such spouse to
a Roth IRA under section 408A for such
taxable year.''.
(d) Authority To Prescribe Necessary Reporting.--Section 408(i) is
amended--
(1) by striking ``under regulations'', and
(2) by striking ``in such regulations'' each place it
appears.
(e) Conforming Amendment.--The table of sections for subpart A of
part I of subchapter D of chapter 1 is amended by inserting after the
item relating to section 408 the following new item:
``Sec. 408A. Roth IRAs.''.
(f) <<NOTE: 26 USC 219 note.>> Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 303. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT PENALTY
TO PURCHASE FIRST HOMES.
(a) In General.--Paragraph (2) of section 72(t) (relating to
exceptions to 10-percent additional tax on early distributions from
qualified retirement plans), as amended by section 203, is amended by
adding at the end the following new subparagraph:
``(F) Distributions from certain plans for first
home purchases.--Distributions to an individual from an
individual retirement plan which are qualified first-
time homebuyer distributions (as defined in paragraph
(8)). Distributions shall not be taken into account
under the preceding sentence if such distributions are
described in subparagraph (A), (C), (D), or (E) or to
the extent paragraph (1) does not apply to such
distributions by reason of subparagraph (B).''.
(b) Definitions.--Section 72(t), as amended by section 203, is
amended by adding at the end the following new paragraphs:
``(8) Qualified first-time homebuyer distributions.--For
purposes of paragraph (2)(F)--
[[Page 111 STAT. 830]]
``(A) In general.--The term `qualified first-time
homebuyer distribution' means any payment or
distribution received by an individual to the extent
such payment or distribution is used by the individual
before the close of the 120th day after the day on which
such payment or distribution is received to pay
qualified acquisition costs with respect to a principal
residence of a first-time homebuyer who is such
individual, the spouse of such individual, or any child,
grandchild, or ancestor of such individual or the
individual's spouse.
``(B) Lifetime dollar limitation.--The aggregate
amount of payments or distributions received by an
individual which may be treated as qualified first-time
homebuyer distributions for any taxable year shall not
exceed the excess (if any) of--
``(i) $10,000, over
``(ii) the aggregate amounts treated as
qualified first-time homebuyer distributions with
respect to such individual for all prior taxable
years.
``(C) Qualified acquisition costs.--For purposes of
this paragraph, the term `qualified acquisition costs'
means the costs of acquiring, constructing, or
reconstructing a residence. Such term includes any usual
or reasonable settlement, financing, or other closing
costs.
``(D) First-time homebuyer; other definitions.--For
purposes of this paragraph--
``(i) First-time homebuyer.--The term `first-
time homebuyer' means any individual if--
``(I) such individual (and if
married, such individual's spouse) had
no present ownership interest in a
principal residence during the 2-year
period ending on the date of acquisition
of the principal residence to which this
paragraph applies, and
``(II) subsection (h) or (k) of
section 1034 (as in effect on the day
before the date of the enactment of this
paragraph) did not suspend the running
of any period of time specified in
section 1034 (as so in effect) with
respect to such individual on the day
before the date the distribution is
applied pursuant to subparagraph (A).
``(ii) Principal residence.--The term
`principal residence' has the same meaning as when
used in section 121.
``(iii) Date of acquisition.--The term `date
of acquisition' means the date--
``(I) on which a binding contract to
acquire the principal residence to which
subparagraph (A) applies is entered
into, or
``(II) on which construction or
reconstruction of such a principal
residence is commenced.
``(E) Special rule where delay in acquisition.--If
any distribution from any individual retirement plan
fails to meet the requirements of subparagraph (A)
solely by reason of a delay or cancellation of the
purchase or construction of the residence, the amount of
the distribution may be contributed to an individual
retirement plan as
[[Page 111 STAT. 831]]
provided in section 408(d)(3)(A)(i) (determined by
substituting `120 days' for `60 days' in such section),
except that--
``(i) section 408(d)(3)(B) shall not be
applied to such contribution, and
``(ii) such amount shall not be taken into
account in determining whether section
408(d)(3)(B) applies to any other amount.''.
(c) <<NOTE: 26 USC 72 note.>> Effective Date.--The amendments made
by this section shall apply to payments and distributions in taxable
years beginning after December 31, 1997.
SEC. 304. CERTAIN BULLION NOT TREATED AS COLLECTIBLES.
(a) In General.--Paragraph (3) of section 408(m) (relating to
exception for certain coins) is amended to read as follows:
``(3) Exception for certain coins and bullion.--For purposes
of this subsection, the term `collectible' shall not include--
``(A) any coin which is--
``(i) a gold coin described in paragraph (7),
(8), (9), or (10) of section 5112(a) of title 31,
United States Code,
``(ii) a silver coin described in section
5112(e) of title 31, United States Code,
``(iii) a platinum coin described in section
5112(k) of title 31, United States Code, or
``(iv) a coin issued under the laws of any
State, or
``(B) any gold, silver, platinum, or palladium
bullion of a fineness equal to or exceeding the minimum
fineness that a contract market (as described in section
7 of the Commodity Exchange Act, 7 U.S.C. 7) requires
for metals which may be delivered in satisfaction of a
regulated futures contract,
if such bullion is in the physical possession of a trustee
described under subsection (a) of this section.''.
(b) <<NOTE: 26 USC 408 note.>> Effective Date.--The amendment made
by this section shall apply to taxable years beginning after December
31, 1997.
Subtitle B--Capital Gains
SEC. 311. MAXIMUM CAPITAL GAINS RATES FOR INDIVIDUALS.
(a) In General.--Subsection (h) of section 1 (relating to maximum
capital gains rate) is amended to read as follows:
``(h) Maximum Capital Gains Rate.--
``(1) In general.--If a taxpayer has a net capital gain for
any taxable year, the tax imposed by this section for such
taxable year shall not exceed the sum of--
``(A) a tax computed at the rates and in the same
manner as if this subsection had not been enacted on the
greater of--
``(i) taxable income reduced by the net
capital gain, or
``(ii) the lesser of--
``(I) the amount of taxable income
taxed at a rate below 28 percent, or
``(II) taxable income reduced by the
adjusted net capital gain, plus
[[Page 111 STAT. 832]]
``(B) 25 percent of the excess (if any) of--
``(i) the unrecaptured section 1250 gain (or,
if less, the net capital gain), over
``(ii) the excess (if any) of--
``(I) the sum of the amount on which
tax is determined under subparagraph (A)
plus the net capital gain, over
``(II) taxable income, plus
``(C) 28 percent of the amount of taxable income in
excess of the sum of--
``(i) the adjusted net capital gain, plus
``(ii) the sum of the amounts on which tax is
determined under subparagraphs (A) and (B), plus
``(D) 10 percent of so much of the taxpayer's
adjusted net capital gain (or, if less, taxable income)
as does not exceed the excess (if any) of--
``(i) the amount of taxable income which would
(without regard to this paragraph) be taxed at a
rate below 28 percent, over
``(ii) the taxable income reduced by the
adjusted net capital gain, plus
``(E) 20 percent of the taxpayer's adjusted net
capital gain (or, if less, taxable income) in excess of
the amount on which a tax is determined under
subparagraph (D).
``(2) Reduced capital gain rates for qualified 5-year
gain.--
``(A) Reduction in 10-percent rate.--In the case of
any taxable year beginning after December 31, 2000, the
rate under paragraph (1)(D) shall be 8 percent with
respect to so much of the amount to which the 10-percent
rate would otherwise apply as does not exceed qualified
5-year gain, and 10 percent with respect to the
remainder of such amount.
``(B) Reduction in 20-percent rate.--The rate under
paragraph (1)(E) shall be 18 percent with respect to so
much of the amount to which the 20-percent rate would
otherwise apply as does not exceed the lesser of--
``(i) the excess of qualified 5-year gain over
the amount of such gain taken into account under
subparagraph (A) of this paragraph, or
``(ii) the amount of qualified 5-year gain
(determined by taking into account only property
the holding period for which begins after December
31, 2000),
and 20 percent with respect to the remainder of such
amount. For purposes of determining under the preceding
sentence whether the holding period of property begins
after December 31, 2000, the holding period of property
acquired pursuant to the exercise of an option (or other
right or obligation to acquire property) shall include
the period such option (or other right or obligation)
was held.
``(3) Net capital gain taken into account as investment
income.--For purposes of this subsection, the net capital gain
for any taxable year shall be reduced (but not below zero) by
the amount which the taxpayer takes into account as investment
income under section 163(d)(4)(B)(iii).
[[Page 111 STAT. 833]]
``(4) Adjusted net capital gain.--For purposes of this
subsection, the term `adjusted net capital gain' means net
capital gain determined without regard to--
``(A) collectibles gain,
``(B) unrecaptured section 1250 gain,
``(C) section 1202 gain, and
``(D) mid-term gain.
``(5) Collectibles gain.--For purposes of this subsection--
``(A) In general.--The term `collectibles gain'
means gain from the sale or exchange of a collectible
(as defined in section 408(m) without regard to
paragraph (3) thereof) which is a capital asset held for
more than 1 year but only to the extent such gain is
taken into account in computing gross income.
``(B) Partnerships, etc.--For purposes of
subparagraph (A), any gain from the sale of an interest
in a partnership, S corporation, or trust which is
attributable to unrealized appreciation in the value of
collectibles shall be treated as gain from the sale or
exchange of a collectible. Rules similar to the rules of
section 751 shall apply for purposes of the preceding
sentence.
``(6) Unrecaptured section 1250 gain.--For purposes of this
subsection--
``(A) In general.--The term `unrecaptured section
1250 gain' means the amount of long-term capital gain
which would be treated as ordinary income if--
``(i) section 1250(b)(1) included all
depreciation and the applicable percentage under
section 1250(a) were 100 percent, and
``(ii) in the case of gain properly taken into
account after July 28, 1997, only gain from
section 1250 property held for more than 18 months
were taken into account.
``(B) Limitation with respect to section 1231
property.--The amount of unrecaptured section 1250 gain
from sales, exchanges, and conversions described in
section 1231(a)(3)(A) for any taxable year shall not
exceed the excess of the net section 1231 gain (as
defined in section 1231(c)(3)) for such year over the
amount treated as ordinary income under section
1231(c)(1) for such year.
``(C) Pre-may 7, 1997, gain.--In the case of a
taxable year which includes May 7, 1997, subparagraph
(A) shall be applied by taking into account only the
gain properly taken into account for the portion of the
taxable year after May 6, 1997.
``(7) Section 1202 gain.--For purposes of this subsection,
the term `section 1202 gain' means an amount equal to the gain
excluded from gross income under section 1202(a).
``(8) Mid-term gain.--For purposes of this subsection, the
term `mid-term gain' means the amount which would be adjusted
net capital gain for the taxable year if--
``(A) adjusted net capital gain were determined by
taking into account only the gain or loss properly taken
into account after July 28, 1997, from property held for
more than 1 year but not more than 18 months, and
``(B) paragraph (3) and section 1212 did not apply.
[[Page 111 STAT. 834]]
``(9) Qualified 5-year gain.--For purposes of this
subsection, the term `qualified 5-year gain' means the amount of
long-term capital gain which would be computed for the taxable
year if only gains from the sale or exchange of property held by
the taxpayer for more than 5 years were taken into account. The
determination under the preceding sentence shall be made without
regard to collectibles gain, unrecaptured section 1250 gain
(determined without regard to subparagraph (B) of paragraph
(6)), section 1202 gain, or mid-term gain.
``(10) Pre-effective date gain.--
``(A) In general.--In the case of a taxable year
which includes May 7, 1997, gains and losses properly
taken into account for the portion of the taxable year
before May 7, 1997, shall be taken into account in
determining mid-term gain as if such gains and losses
were described in paragraph (8)(A).
``(B) Special rules for pass-thru entities.--In
applying subparagraph (A) with respect to any pass-thru
entity, the determination of when gains and loss are
properly taken into account shall be made at the entity
level.
``(C) Pass-thru entity defined.--For purposes of
subparagraph (B), the term `pass-thru entity' means--
``(i) a regulated investment company,
``(ii) a real estate investment trust,
``(iii) an S corporation,
``(iv) a partnership,
``(v) an estate or trust, and
``(vi) a common trust fund.
``(11) Treatment of pass-thru entities.--The Secretary may
prescribe such regulations as are appropriate (including
regulations requiring reporting) to apply this subsection in the
case of sales and exchanges by pass-thru entities (as defined in
paragraph (10)(C)) and of interests in such entities.''.
(b) Minimum Tax.--
(1) In general.--Subsection (b) of section 55 is amended by
adding at the end the following new paragraph:
``(3) Maximum rate of tax on net capital gain of
noncorporate taxpayers.--The amount determined under the first
sentence of paragraph (1)(A)(i) shall not exceed the sum of--
``(A) the amount determined under such first
sentence computed at the rates and in the same manner as
if this paragraph had not been enacted on the taxable
excess reduced by the lesser of--
``(i) the net capital gain, or
``(ii) the sum of--
``(I) the adjusted net capital gain,
plus
``(II) the unrecaptured section 1250
gain, plus
``(B) 25 percent of the lesser of--
``(i) the unrecaptured section 1250 gain, or
``(ii) the amount of taxable excess in excess
of the sum of--
``(I) the adjusted net capital gain,
plus
``(II) the amount on which a tax is
determined under subparagraph (A), plus
``(C) 10 percent of so much of the taxpayer's
adjusted net capital gain (or, if less, taxable excess)
as does not
[[Page 111 STAT. 835]]
exceed the amount on which a tax is determined under
section 1(h)(1)(D), plus
``(D) 20 percent of the taxpayer's adjusted net
capital gain (or, if less, taxable excess) in excess of
the amount on which tax is determined under subparagraph
(C).
In the case of taxable years beginning after December 31, 2000,
rules similar to the rules of section 1(h)(2) shall apply for
purposes of subparagraphs (C) and (D). Terms used in this
paragraph which are also used in section 1(h) shall have the
respective meanings given such terms by section 1(h).''.
(2) Conforming amendments.--
(A) Clause (ii) of section 55(b)(1)(A) is amended by
striking ``clause (i)'' and inserting ``this
subsection''.
(B) Paragraph (7) of section 57(a) is amended by
striking ``one-half'' and inserting ``42 percent''.
(c) Other Conforming Amendments.--
(1) Paragraph (1) of section 1445(e) is amended by striking
``28 percent'' and inserting ``20 percent''.
(2) The second sentence of section 7518(g)(6)(A), and the
second sentence of section 607(h)(6)(A) of the Merchant Marine
Act, 1936, <<NOTE: 46 USC app. 1177.>> are each amended by
striking ``28 percent'' and inserting ``20 percent''.
(3) Paragraph (2) of section 904(b) is amended by adding at
the end the following new subparagraph:
``(C) Coordination with capital gains rates.--The
Secretary may by regulations modify the application of
this paragraph and paragraph (3) to the extent necessary
to properly reflect any capital gain rate differential
under section 1(h) or 1201(a) and the computation of net
capital gain.''.
(d) <<NOTE: 26 USC 1 note.>> Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
ending after May 6, 1997.
(2) Withholding.--The amendment made by subsection (c)(1)
shall apply only to amounts paid after the date of the enactment
of this Act.
(e) <<NOTE: 26 USC 1 note.>> Election To Recognize Gain on Assets
Held on January 1, 2001.--For purposes of the Internal Revenue Code of
1986--
(1) In general.--A taxpayer other than a corporation may
elect to treat--
(A) any readily tradable stock (which is a capital
asset) held by such taxpayer on January 1, 2001, and not
sold before the next business day after such date, as
having been sold on such next business day for an amount
equal to its closing market price on such next business
day (and as having been reacquired on such next business
day for an amount equal to such closing market price),
and
(B) any other capital asset or property used in the
trade or business (as defined in section 1231(b) of the
Internal Revenue Code of 1986) held by the taxpayer on
January 1, 2001, as having been sold on such date for an
amount equal to its fair market value on such date (and
as having been reacquired on such date for an amount
equal to such fair market value).
(2) Treatment of gain or loss.--
[[Page 111 STAT. 836]]
(A) Any gain resulting from an election under
paragraph (1) shall be treated as received or accrued on
the date the asset is treated as sold under paragraph
(1) and shall be recognized notwithstanding any
provision of the Internal Revenue Code of 1986.
(B) Any loss resulting from an election under
paragraph (1) shall not be allowed for any taxable year.
(3) Election.--An election under paragraph (1) shall be made
in such manner as the Secretary of the Treasury or his delegate
may prescribe and shall specify the assets for which such
election is made. Such an election, once made with respect to
any asset, shall be irrevocable.
(4) Readily tradable stock.--For purposes of this
subsection, the term ``readily tradable stock'' means any stock
which, as of January 1, 2001, is readily tradable on an
established securities market or otherwise.
SEC. 312. EXEMPTION FROM TAX FOR GAIN ON SALE OF PRINCIPAL RESIDENCE.
(a) In General.--Section 121 (relating to one-time exclusion of gain
from sale of principal residence by individual who has attained age 55)
is amended to read as follows:
``SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.
``(a) Exclusion.--Gross income shall not include gain from the sale
or exchange of property if, during the 5-year period ending on the date
of the sale or exchange, such property has been owned and used by the
taxpayer as the taxpayer's principal residence for periods aggregating 2
years or more.
``(b) Limitations.--
``(1) In general.--The amount of gain excluded from gross
income under subsection (a) with respect to any sale or exchange
shall not exceed $250,000.
``(2) $500,000 limitation for certain joint returns.--
Paragraph (1) shall be applied by substituting `$500,000' for
`$250,000' if--
``(A) a husband and wife make a joint return for the
taxable year of the sale or exchange of the property,
``(B) either spouse meets the ownership requirements
of subsection (a) with respect to such property,
``(C) both spouses meet the use requirements of
subsection (a) with respect to such property, and
``(D) neither spouse is ineligible for the benefits
of subsection (a) with respect to such property by
reason of paragraph (3).
``(3) Application to only 1 sale or exchange every 2
years.--
``(A) In general.--Subsection (a) shall not apply to
any sale or exchange by the taxpayer if, during the 2-
year period ending on the date of such sale or exchange,
there was any other sale or exchange by the taxpayer to
which subsection (a) applied.
``(B) Pre-may 7, 1997, sales not taken into
account.--Subparagraph (A) shall be applied without
regard to any sale or exchange before May 7, 1997.
``(c) Exclusion for Taxpayers Failing To Meet Certain
Requirements.--
[[Page 111 STAT. 837]]
``(1) In general.--In the case of a sale or exchange to
which this subsection applies, the ownership and use
requirements of subsection (a) shall not apply and subsection
(b)(3) shall not apply; but the amount of gain excluded from
gross income under subsection (a) with respect to such sale or
exchange shall not exceed--
``(A) the amount which bears the same ratio to the
amount which would be so excluded under this section if
such requirements had been met, as
``(B) the shorter of--
``(i) the aggregate periods, during the 5-year
period ending on the date of such sale or
exchange, such property has been owned and used by
the taxpayer as the taxpayer's principal
residence, or
``(ii) the period after the date of the most
recent prior sale or exchange by the taxpayer to
which subsection (a) applied and before the date
of such sale or exchange,
bears to 2 years.
``(2) Sales and exchanges to which subsection applies.--This
subsection shall apply to any sale or exchange if--
``(A) subsection (a) would not (but for this
subsection) apply to such sale or exchange by reason
of--
``(i) a failure to meet the ownership and use
requirements of subsection (a), or
``(ii) subsection (b)(3), and
``(B) such sale or exchange is by reason of a change
in place of employment, health, or, to the extent
provided in regulations, unforeseen circumstances.
``(d) Special Rules.--
``(1) Joint returns.--If a husband and wife make a joint
return for the taxable year of the sale or exchange of the
property, subsections (a) and (c) shall apply if either spouse
meets the ownership and use requirements of subsection (a) with
respect to such property.
``(2) Property of deceased spouse.--For purposes of this
section, in the case of an unmarried individual whose spouse is
deceased on the date of the sale or exchange of property, the
period such unmarried individual owned and used such property
shall include the period such deceased spouse owned and used
such property before death.
``(3) Property owned by spouse or former spouse.--For
purposes of this section--
``(A) Property transferred to individual from spouse
or former spouse.--In the case of an individual holding
property transferred to such individual in a transaction
described in section 1041(a), the period such individual
owns such property shall include the period the
transferor owned the property.
``(B) Property used by former spouse pursuant to
divorce decree, etc.--Solely for purposes of this
section, an individual shall be treated as using
property as such individual's principal residence during
any period of ownership while such individual's spouse
or former spouse is granted use of the property under a
divorce or separation instrument (as defined in section
71(b)(2)).
[[Page 111 STAT. 838]]
``(4) Tenant-stockholder in cooperative housing
corporation.--For purposes of this section, if the taxpayer
holds stock as a tenant-stockholder (as defined in section 216)
in a cooperative housing corporation (as defined in such
section), then--
``(A) the holding requirements of subsection (a)
shall be applied to the holding of such stock, and
``(B) the use requirements of subsection (a) shall
be applied to the house or apartment which the taxpayer
was entitled to occupy as such stockholder.
``(5) Involuntary conversions.--
``(A) In general.--For purposes of this section, the
destruction, theft, seizure, requisition, or
condemnation of property shall be treated as the sale of
such property.
``(B) Application of section 1033.--In applying
section 1033 (relating to involuntary conversions), the
amount realized from the sale or exchange of property
shall be treated as being the amount determined without
regard to this section, reduced by the amount of gain
not included in gross income pursuant to this section.
``(C) Property acquired after involuntary
conversion.--If the basis of the property sold or
exchanged is determined (in whole or in part) under
section 1033(b) (relating to basis of property acquired
through involuntary conversion), then the holding and
use by the taxpayer of the converted property shall be
treated as holding and use by the taxpayer of the
property sold or exchanged.
``(6) Recognition of gain attributable to depreciation.--
Subsection (a) shall not apply to so much of the gain from the
sale of any property as does not exceed the portion of the
depreciation adjustments (as defined in section 1250(b)(3))
attributable to periods after May 6, 1997, in respect of such
property.
``(7) Determination of use during periods of out-of-
residence care.--In the case of a taxpayer who--
``(A) becomes physically or mentally incapable of
self-care, and
``(B) owns property and uses such property as the
taxpayer's principal residence during the 5-year period
described in subsection (a) for periods aggregating at
least 1 year,
then the taxpayer shall be treated as using such property as the
taxpayer's principal residence during any time during such 5-
year period in which the taxpayer owns the property and resides
in any facility (including a nursing home) licensed by a State
or political subdivision to care for an individual in the
taxpayer's condition.
``(8) Sales of remainder interests.--For purposes of this
section--
``(A) In general.--At the election of the taxpayer,
this section shall not fail to apply to the sale or
exchange of an interest in a principal residence by
reason of such interest being a remainder interest in
such residence, but this section shall not apply to any
other interest in such residence which is sold or
exchanged separately.
``(B) Exception for sales to related parties.--
Subparagraph (A) shall not apply to any sale to, or
[[Page 111 STAT. 839]]
exchange with, any person who bears a relationship to
the taxpayer which is described in section 267(b) or
707(b).
``(e) Denial of Exclusion for Expatriates.--This section shall not
apply to any sale or exchange by an individual if the treatment provided
by section 877(a)(1) applies to such individual.
``(f) Election To Have Section Not Apply.--This section shall not
apply to any sale or exchange with respect to which the taxpayer elects
not to have this section apply.
``(g) Residences Acquired in Rollovers Under Section 1034.--For
purposes of this section, in the case of property the acquisition of
which by the taxpayer resulted under section 1034 (as in effect on the
day before the date of the enactment of this section) in the
nonrecognition of any part of the gain realized on the sale or exchange
of another residence, in determining the period for which the taxpayer
has owned and used such property as the taxpayer's principal residence,
there shall be included the aggregate periods for which such other
residence (and each prior residence taken into account under section
1223(7) in determining the holding period of such property) had been so
owned and used.''.
(b) Repeal of Nonrecognition of Gain on Rollover of Principal
Residence.--Section 1034 (relating to rollover of gain on sale of
principal residence) is hereby repealed.
(c) Exception From Reporting.--Subsection (e) of section 6045
(relating to return required in the case of real estate transactions) is
amended by adding at the end the following new paragraph:
``(5) Exception for sales or exchanges of certain principal
residences.--
``(A) In general.--Paragraph (1) shall not apply to
any sale or exchange of a residence for $250,000 or less
if the person referred to in paragraph (2) receives
written assurance in a form acceptable to the Secretary
from the seller that--
``(i) such residence is the principal
residence (within the meaning of section 121) of
the seller,
``(ii) if the Secretary requires the inclusion
on the return under subsection (a) of information
as to whether there is federally subsidized
mortgage financing assistance with respect to the
mortgage on residences, that there is no such
assistance with respect to the mortgage on such
residence, and
``(iii) the full amount of the gain on such
sale or exchange is excludable from gross income
under section 121.
If such assurance includes an assurance that the seller
is married, the preceding sentence shall be applied by
substituting `$500,000' for `$250,000'.
The Secretary may by regulation increase the dollar amounts
under this subparagraph if the Secretary determines that such an
increase will not materially reduce revenues to the Treasury.
``(B) Seller.--For purposes of this paragraph, the
term `seller' includes the person relinquishing the
residence in an exchange.''.
(d) Conforming Amendments.--
(1) The following provisions of the Internal Revenue Code of
1986 are each amended by striking ``section 1034'' and inserting
``section 121'': sections 25(e)(7), 56(e)(1)(A), 56(e)(3)(B)(i),
[[Page 111 STAT. 840]]
143(i)(1)(C)(i)(I), 163(h)(4)(A)(i)(I), 280A(d)(4)(A),
464(f)(3)(B)(i), 1033(h)(4), 1274(c)(3)(B), 6334(a)(13), and
7872(f)(11)(A).
(2) Paragraph (4) of section 32(c) is amended by striking
``(as defined in section 1034(h)(3))'' and by adding at the end
the following new sentence: ``For purposes of the preceding
sentence, the term `extended active duty' means any period of
active duty pursuant to a call or order to such duty for a
period in excess of 90 days or for an indefinite period.''.
(3) Subparagraph (A) of 143(m)(6) is amended by inserting
``(as in effect on the day before the date of the enactment of
the Taxpayer Relief Act of 1997)'' after ``1034(e)''.
(4) Subsection (e) of section 216 is amended by striking
``such exchange qualifies for nonrecognition of gain under
section 1034(f)'' and inserting ``such dwelling unit is used as
his principal residence (within the meaning of section 121)''.
(5) Section 512(a)(3)(D) is amended by inserting ``(as in
effect on the day before the date of the enactment of the
Taxpayer Relief Act of 1997)'' after ``1034''.
(6) Paragraph (7) of section 1016(a) is amended by inserting
``(as in effect on the day before the date of the enactment of
the Taxpayer Relief Act of 1997)'' after ``1034'' and by
inserting ``(as so in effect)'' after ``1034(e)''.
(7) Paragraph (3) of section 1033(k) is amended to read as
follows:
``(3) For exclusion from gross income of gain from
involuntary conversion of principal residence, see section
121.''.
(8) Subsection (e) of section 1038 is amended to read as
follows:
``(e) Principal Residences.--If--
``(1) subsection (a) applies to a reacquisition of real
property with respect to the sale of which gain was not
recognized under section 121 (relating to gain on sale of
principal residence); and
``(2) within 1 year after the date of the reacquisition of
such property by the seller, such property is resold by him,
then, under regulations prescribed by the Secretary, subsections (b),
(c), and (d) of this section shall not apply to the reacquisition of
such property and, for purposes of applying section 121, the resale of
such property shall be treated as a part of the transaction constituting
the original sale of such property.''.
(9) Paragraph (7) of section 1223 is amended by inserting
``(as in effect on the day before the date of the enactment of
the Taxpayer Relief Act of 1997)'' after ``1034''.
(10)(A) Subsection (d) of section 1250 is amended by
striking paragraph (7) and by redesignating paragraphs (9) and
(10) as paragraphs (7) and (8), respectively.
(B) Subsection (e) of section 1250 is amended by striking
paragraph (3).
(11) Subsection (c) of section 6012 is amended by striking
``(relating to one-time exclusion of gain from sale of principal
residence by individual who has attained age 55)'' and inserting
``(relating to gain from sale of principal residence)''.
(12) Paragraph (2) of section 6212(c) is amended by striking
subparagraph (C) and by redesignating the succeeding
subparagraphs accordingly.
(13) Section 6504 is amended by striking paragraph (4) and
by redesignating the succeeding paragraphs accordingly.
[[Page 111 STAT. 841]]
(14) The item relating to section 121 in the table of
sections for part III of subchapter B of chapter 1 is amended to
read as follows:
``Sec. 121. Exclusion of gain from sale of principal
residence.''.
(15) The table of sections for part III of subchapter O of
chapter 1 is amended by striking the item relating to section
1034.
(d) <<NOTE: 26 USC 121 note.>> Effective Date.--
(1) In general.--The amendments made by this section shall
apply to sales and exchanges after May 6, 1997.
(2) Sales before date of enactment.--At the election of the
taxpayer, the amendments made by this section shall not apply to
any sale or exchange before the date of the enactment of this
Act.
(3) Certain sales within 2 years after date of enactment.--
Section 121 of the Internal Revenue Code of 1986 (as amended by
this section) shall be applied without regard to subsection
(c)(2)(B) thereof in the case of any sale or exchange of
property during the 2-year period beginning on the date of the
enactment of this Act if the taxpayer held such property on the
date of the enactment of this Act and fails to meet the
ownership and use requirements of subsection (a) thereof with
respect to such property.
(4) Binding contracts.--At the election of the taxpayer, the
amendments made by this section shall not apply to a sale or
exchange after the date of the enactment of this Act, if--
(A) such sale or exchange is pursuant to a contract
which was binding on such date, or
(B) without regard to such amendments, gain would
not be recognized under section 1034 of the Internal
Revenue Code of 1986 (as in effect on the day before the
date of the enactment of this Act) on such sale or
exchange by reason of a new residence acquired on or
before such date or with respect to the acquisition of
which by the taxpayer a binding contract was in effect
on such date.
This paragraph shall not apply to any sale or exchange by an
individual if the treatment provided by section 877(a)(1) of the
Internal Revenue Code of 1986 applies to such individual.
SEC. 313. ROLLOVER OF GAIN FROM SALE OF QUALIFIED STOCK.
(a) In General.--Part III of subchapter O of chapter 1 is amended by
adding at the end the following new section:
``SEC. 1045. ROLLOVER OF GAIN FROM QUALIFIED SMALL BUSINESS STOCK TO
ANOTHER QUALIFIED SMALL BUSINESS STOCK.
``(a) Nonrecognition of Gain.--In the case of any sale of qualified
small business stock held by an individual for more than 6 months and
with respect to which such individual elects the application of this
section, gain from such sale shall be recognized only to the extent that
the amount realized on such sale exceeds--
``(1) the cost of any qualified small business stock
purchased by the taxpayer during the 60-day period beginning on
the date of such sale, reduced by
``(2) any portion of such cost previously taken into account
under this section.
[[Page 111 STAT. 842]]
This section shall not apply to any gain which is treated as ordinary
income for purposes of this title.
``(b) Definitions and Special Rules.--For purposes of this section--
``(1) Qualified small business stock.--The term `qualified
small business stock' has the meaning given such term by section
1202(c).
``(2) Purchase.--A taxpayer shall be treated as having
purchased any property if, but for paragraph (3), the unadjusted
basis of such property in the hands of the taxpayer would be its
cost (within the meaning of section 1012).
``(3) Basis adjustments.--If gain from any sale is not
recognized by reason of subsection (a), such gain shall be
applied to reduce (in the order acquired) the basis for
determining gain or loss of any qualified small business stock
which is purchased by the taxpayer during the 60-day period
described in subsection (a).
``(4) Holding period.--For purposes of determining whether
the nonrecognition of gain under subsection (a) applies to stock
which is sold--
``(A) the taxpayer's holding period for such stock
and the stock referred to in subsection (a)(1) shall be
determined without regard to section 1223, and
``(B) only the first 6 months of the taxpayer's
holding period for the stock referred to in subsection
(a)(1) shall be taken into account for purposes of
applying section 1202(c)(2).''.
(b) Conforming Amendments.--
(1) Section 1016(a)(23) is amended--
(A) by striking ``or 1044'' and inserting ``, 1044,
or 1045'', and
(B) by striking ``or 1044(d)'' and inserting ``,
1044(d), or 1045(b)(4)''.
(2) Section 1223 is amended by redesignating paragraph (15)
as paragraph (16) and by inserting after paragraph (14) the
following new paragraph:
``(15) In determining the period for which the taxpayer has
held property the acquisition of which resulted under section
1045 in the nonrecognition of any part of the gain realized on
the sale of other property, there shall be included the period
for which such other property has been held as of the date of
such sale.''.
(3) The table of sections for part III of subchapter O of
chapter 1 is amended by adding at the end the following new
item:
``Sec. 1045. Rollover of gain from qualified small
business stock to another qualified
small business stock.''.
(c) <<NOTE: 26 USC 1016 note.>> Effective Date.--The amendments
made by this section shall apply to sales after the date of enactment of
this Act.
SEC. 314. AMOUNT OF NET CAPITAL GAIN TAKEN INTO ACCOUNT IN COMPUTING
ALTERNATIVE TAX ON CAPITAL GAINS FOR CORPORATIONS NOT TO
EXCEED TAXABLE INCOME OF THE CORPORATION.
(a) In General.--Paragraph (2) of section 1201(a) is amended by
inserting before the period ``(or, if less, taxable income)''.
[[Page 111 STAT. 843]]
(b) <<NOTE: 26 USC 1201 note.>> Effective Date.--The amendment made
by this section shall apply to taxable years ending after December 31,
1997.
TITLE IV--ALTERNATIVE MINIMUM TAX REFORM
SEC. 401. EXEMPTION FROM ALTERNATIVE MINIMUM TAX FOR SMALL CORPORATIONS.
(a) In General.--Section 55 (relating to alternative minimum tax
imposed) is amended by adding at the end the following new subsection:
``(e) Exemption for Small Corporations.--
``(1) In general.--The tentative minimum tax of a
corporation shall be zero for any taxable year if--
``(A) such corporation met the $5,000,000 gross
receipts test of section 448(c) for its first taxable
year beginning after December 31, 1996, and
``(B) such corporation would meet such test for the
taxable year and all prior taxable years beginning after
such first taxable year if such test were applied by
substituting `$7,500,000' for `$5,000,000'.
``(2) Prospective application of minimum tax if small
corporation ceases to be small.--In the case of a corporation
whose tentative minimum tax is zero for any prior taxable year
by reason of paragraph (1), the application of this part for
taxable years beginning with the first taxable year such
corporation ceases to be described in paragraph (1) shall be
determined with the following modifications:
``(A) Section 56(a)(1) (relating to depreciation)
and section 56(a)(5) (relating to pollution control
facilities) shall apply only to property placed in
service on or after the change date.
``(B) Section 56(a)(2) (relating to mining
exploration and development costs) shall apply only to
costs paid or incurred on or after the change date.
``(C) Section 56(a)(3) (relating to treatment of
long-term contracts) shall apply only to contracts
entered into on or after the change date.
``(D) Section 56(a)(4) (relating to alternative net
operating loss deduction) shall apply in the same manner
as if, in section 56(d)(2), the change date were
substituted for `January 1, 1987' and the day before the
change date were substituted for `December 31, 1986'
each place it appears.
``(E) Section 56(g)(2)(B) (relating to limitation on
allowance of negative adjustments based on adjusted
current earnings) shall apply only to prior taxable
years beginning on or after the change date.
``(F) Section 56(g)(4)(A) (relating to adjustment
for depreciation to adjusted current earnings) shall not
apply.
``(G) Subparagraphs (D) and (F) of section 56(g)(4)
(relating to other earnings and profits adjustments and
depletion) shall apply in the same manner as if the day
before the change date were substituted for `December
31, 1989' each place it appears therein.
[[Page 111 STAT. 844]]
``(3) Exception.--The modifications in paragraph (2) shall
not apply to--
``(A) any item acquired by the corporation in a
transaction to which section 381 applies, and
``(B) any property the basis of which in the hands
of the corporation is determined by reference to the
basis of the property in the hands of the transferor,
if such item or property was subject to any provision referred
to in paragraph (2) while held by the transferor.
``(4) Change date.--For purposes of paragraph (2), the
change date is the first day of the first taxable year for which
the taxpayer ceases to be described in paragraph (1).
``(5) Limitation on use of credit for prior year minimum tax
liability.--In the case of a taxpayer whose tentative minimum
tax for any taxable year is zero by reason of paragraph (1),
section 53(c) shall be applied for such year by reducing the
amount otherwise taken into account under section 53(c)(1) by 25
percent of so much of such amount as exceeds $25,000. Rules
similar to the rules of section 38(c)(3)(B) shall apply for
purposes of the preceding sentence.''.
(b) <<NOTE: 26 USC 55 note.>> Effective Date.--The amendment made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 402. REPEAL OF SEPARATE DEPRECIATION LIVES FOR MINIMUM TAX
PURPOSES.
(a) In General.--Clause (i) of section 56(a)(1)(A) is amended by
adding at the end the following new sentence: ``In the case of property
placed in service after December 31, 1998, the preceding sentence shall
not apply but clause (ii) shall continue to apply.''.
(b) Pollution Control Facilities.--Paragraph (5) of section 56(a) is
amended by adding at the end the following new sentence: ``In the case
of such a facility placed in service after December 31, 1998, such
deduction shall be determined under section 168 using the straight line
method.''.
SEC. 403. MINIMUM TAX NOT TO APPLY TO FARMERS' INSTALLMENT SALES.
(a) In General.--Subsection (a) of section 56 is amended by striking
paragraph (6) (relating to treatment of installment sales) and by
redesignating paragraphs (7) and (8) as paragraphs (6) and (7),
respectively.
(b) <<NOTE: 26 USC 56 note.>> Effective Dates.--
(1) In general.--The amendment made by this section shall
apply to dispositions in taxable years beginning after December
31, 1987.
(2) Special rule for 1987.--In the case of taxable years
beginning in 1987, the last sentence of section 56(a)(6) of the
Internal Revenue Code of 1986 (as in effect for such taxable
years) shall be applied by inserting ``or in the case of a
taxpayer using the cash receipts and disbursements method of
accounting, any disposition described in section
453C(e)(1)(B)(ii)'' after ``section 453C(e)(4)''.
[[Page 111 STAT. 845]]
TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS
Subtitle A--Estate and Gift Tax Provisions
SEC. 501. COST-OF-LIVING ADJUSTMENTS RELATING TO ESTATE AND GIFT TAX
PROVISIONS.
(a) Increase in Unified Estate and Gift Tax Credit.--
(1) Estate tax credit.--
(A) In general.--Subsection (a) of section 2010
(relating to unified credit against estate tax) is
amended by striking ``$192,800'' and inserting ``the
applicable credit amount''.
(B) Applicable credit amount.--Section 2010 is
amended by redesignating subsection (c) as subsection
(d) and by inserting after subsection (b) the following
new subsection:
``(c) Applicable Credit Amount.--For purposes of this section, the
applicable credit amount is the amount of the tentative tax which would
be determined under the rate schedule set forth in section 2001(c) if
the amount with respect to which such tentative tax is to be computed
were the applicable exclusion amount determined in accordance with the
following table:
``In the case of estates of decedents The applicable
dying, and gifts made, during: exclusion amount is:
1998........................................ $625,000
1999........................................ $650,000
2000 and 2001............................... $675,000
2002 and 2003............................... $700,000
2004........................................ $850,000
2005........................................ $950,000
2006 or thereafter......................$1,000,000.''.
(C) Estate tax returns.--Paragraph (1) of section
6018(a) is amended by striking ``$600,000'' and
inserting ``the applicable exclusion amount in effect
under section 2010(c) for the calendar year which
includes the date of death''.
(D) Phaseout of graduated rates and unified
credit.--Paragraph (2) of section 2001(c) is amended by
striking ``$21,040,000'' and inserting ``the amount at
which the average tax rate under this section is 55
percent''.
(E) Estates of nonresidents not citizens.--
Subparagraph (A) of section 2102(c)(3) is amended by
striking ``$192,800'' and inserting ``the applicable
credit amount in effect under section 2010(c) for the
calendar year which includes the date of death''.
(2) Unified gift tax credit.--Paragraph (1) of section
2505(a) is amended by striking ``$192,800'' and inserting ``the
applicable credit amount in effect under section 2010(c) for
such calendar year''.
(b) Alternate Valuation of Certain Farm, Etc., Real Property.--
Subsection (a) of section 2032A is amended by adding at the end the
following new paragraph:
``(3) Inflation adjustment.--In the case of estates of
decedents dying in a calendar year after 1998, the $750,000
[[Page 111 STAT. 846]]
amount contained in paragraph (2) shall be increased by an
amount equal to--
``(A) $750,000, multiplied by
``(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting
`calendar year 1997' for `calendar year 1992' in
subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a
multiple of $10,000, such amount shall be rounded to the next
lowest multiple of $10,000.''.
(c) Annual Gift Tax Exclusion.--Subsection (b) of section 2503 is
amended--
(1) by striking the subsection heading and inserting the
following:
``(b) Exclusions From Gifts.--
``(1) In general.--'',
(2) by moving the text 2 ems to the right, and
(3) by adding at the end the following new paragraph:
``(2) Inflation adjustment.--In the case of gifts made in a
calendar year after 1998, the $10,000 amount contained in
paragraph (1) shall be increased by an amount equal to--
``(A) $10,000, multiplied by
``(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting
`calendar year 1997' for `calendar year 1992' in
subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a
multiple of $1,000, such amount shall be rounded to the next
lowest multiple of $1,000.''.
(d) Exemption From Generation-Skipping Tax.--Section 2631 (relating
to GST exemption) is amended by adding at the end the following new
subsection:
``(c) Inflation Adjustment.--In the case of an individual who dies
in any calendar year after 1998, the $1,000,000 amount contained in
subsection (a) shall be increased by an amount equal to--
``(1) $1,000,000, multiplied by
``(2) the cost-of-living adjustment determined under section
1(f)(3) for such calendar year by substituting `calendar year
1997' for `calendar year 1992' in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a multiple
of $10,000, such amount shall be rounded to the next lowest multiple of
$10,000.''.
(e) Amount Subject to Reduced Rate Where Extension of Time for
Payment of Estate Tax on Closely Held Business.--Subsection (j) of
section 6601 is amended by redesignating paragraph (3) as paragraph (4)
and by inserting after paragraph (2) the following new paragraph:
``(3) Inflation adjustment.--In the case of estates of
decedents dying in a calendar year after 1998, the $1,000,000
amount contained in paragraph (2)(A) shall be increased by an
amount equal to--
``(A) $1,000,000, multiplied by
``(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting
`calendar year 1997' for `calendar year 1992' in
subparagraph (B) thereof.
[[Page 111 STAT. 847]]
If any amount as adjusted under the preceding sentence is not a
multiple of $10,000, such amount shall be rounded to the next
lowest multiple of $10,000.''.
(f) Effective date.--The amendments made by this section shall apply
to the estates of decedents dying, and gifts made, after December 31,
1997.
SEC. 502. FAMILY-OWNED BUSINESS EXCLUSION.
(a) In General.--Part III of subchapter A of chapter 11 (relating to
gross estate) is amended by inserting after section 2033 the following
new section:
``SEC. 2033A. FAMILY-OWNED BUSINESS EXCLUSION.
``(a) In General.--In the case of an estate of a decedent to which
this section applies, the value of the gross estate shall not include
the lesser of--
``(1) the adjusted value of the qualified family-owned
business interests of the decedent otherwise includible in the
estate, or
``(2) the excess of $1,300,000 over the applicable exclusion
amount under section 2010(c) with respect to such estate.
``(b) Estates to Which Section Applies.--
``(1) In general.--This section shall apply to an estate
if--
``(A) the decedent was (at the date of the
decedent's death) a citizen or resident of the United
States,
``(B) the executor elects the application of this
section and files the agreement referred to in
subsection (h),
``(C) the sum of--
``(i) the adjusted value of the qualified
family-owned business interests described in
paragraph (2), plus
``(ii) the amount of the gifts of such
interests determined under paragraph (3),
exceeds 50 percent of the adjusted gross estate, and
``(D) during the 8-year period ending on the date of
the decedent's death there have been periods aggregating
5 years or more during which--
``(i) such interests were owned by the
decedent or a member of the decedent's family, and
``(ii) there was material participation
(within the meaning of section 2032A(e)(6)) by the
decedent or a member of the decedent's family in
the operation of the business to which such
interests relate.
``(2) Includible qualified family-owned business
interests.--The qualified family-owned business interests
described in this paragraph are the interests which--
``(A) are included in determining the value of the
gross estate (without regard to this section), and
``(B) are acquired by any qualified heir from, or
passed to any qualified heir from, the decedent (within
the meaning of section 2032A(e)(9)).
``(3) Includible gifts of interests.--The amount of the
gifts of qualified family-owned business interests determined
under this paragraph is the excess of--
``(A) the sum of--
[[Page 111 STAT. 848]]
``(i) the amount of such gifts from the
decedent to members of the decedent's family taken
into account under subsection 2001(b)(1)(B), plus
``(ii) the amount of such gifts otherwise
excluded under section 2503(b),
to the extent such interests are continuously held by
members of such family (other than the decedent's
spouse) between the date of the gift and the date of the
decedent's death, over
``(B) the amount of such gifts from the decedent to
members of the decedent's family otherwise included in
the gross estate.
``(c) Adjusted Gross Estate.--For purposes of this section, the term
`adjusted gross estate' means the value of the gross estate (determined
without regard to this section)--
``(1) reduced by any amount deductible under paragraph (3)
or (4) of section 2053(a), and
``(2) increased by the excess of--
``(A) the sum of--
``(i) the amount of gifts determined under
subsection (b)(3), plus
``(ii) the amount (if more than de minimis) of
other transfers from the decedent to the
decedent's spouse (at the time of the transfer)
within 10 years of the date of the decedent's
death, plus
``(iii) the amount of other gifts (not
included under clause (i) or (ii)) from the
decedent within 3 years of such date, other than
gifts to members of the decedent's family
otherwise excluded under section 2503(b), over
``(B) the sum of the amounts described in clauses
(i), (ii), and (iii) of subparagraph (A) which are
otherwise includible in the gross estate.
For purposes of the preceding sentence, the Secretary may provide that
de minimis gifts to persons other than members of the decedent's family
shall not be taken into account.
``(d) Adjusted Value of the Qualified Family-Owned Business
Interests.--For purposes of this section, the adjusted value of any
qualified family-owned business interest is the value of such interest
for purposes of this chapter (determined without regard to this
section), reduced by the excess of--
``(1) any amount deductible under paragraph (3) or (4) of
section 2053(a), over
``(2) the sum of--
``(A) any indebtedness on any qualified residence of
the decedent the interest on which is deductible under
section 163(h)(3), plus
``(B) any indebtedness to the extent the taxpayer
establishes that the proceeds of such indebtedness were
used for the payment of educational and medical expenses
of the decedent, the decedent's spouse, or the
decedent's dependents (within the meaning of section
152), plus
``(C) any indebtedness not described in subparagraph
(A) or (B), to the extent such indebtedness does not
exceed $10,000.
``(e) Qualified Family-Owned Business Interest.--
[[Page 111 STAT. 849]]
``(1) In general.--For purposes of this section, the term
`qualified family-owned business interest' means--
``(A) an interest as a proprietor in a trade or
business carried on as a proprietorship, or
``(B) an interest in an entity carrying on a trade
or business, if--
``(i) at least--
``(I) 50 percent of such entity is
owned (directly or indirectly) by the
decedent and members of the decedent's
family,
``(II) 70 percent of such entity is
so owned by members of 2 families, or
``(III) 90 percent of such entity is
so owned by members of 3 families, and
``(ii) for purposes of subclause (II) or (III)
of clause (i), at least 30 percent of such entity
is so owned by the decedent and members of the
decedent's family.
``(2) Limitation.--Such term shall not include--
``(A) any interest in a trade or business the
principal place of business of which is not located in
the United States,
``(B) any interest in an entity, if the stock or
debt of such entity or a controlled group (as defined in
section 267(f)(1)) of which such entity was a member was
readily tradable on an established securities market or
secondary market (as defined by the Secretary) at any
time within 3 years of the date of the decedent's death,
``(C) any interest in a trade or business not
described in section 542(c)(2), if more than 35 percent
of the adjusted ordinary gross income of such trade or
business for the taxable year which includes the date of
the decedent's death would qualify as personal holding
company income (as defined in section 543(a)),
``(D) that portion of an interest in a trade or
business that is attributable to--
``(i) cash or marketable securities, or both,
in excess of the reasonably expected day-to-day
working capital needs of such trade or business,
and
``(ii) any other assets of the trade or
business (other than assets used in the active
conduct of a trade or business described in
section 542(c)(2)), which produce, or are held for
the production of, income of which is described in
section 543(a) or in section 954(c)(1) (determined
without regard to subparagraph (A) thereof and by
substituting `trade or business' for `controlled
foreign corporation').
``(3) Rules regarding ownership.--
``(A) Ownership of entities.--For purposes of
paragraph (1)(B)--
``(i) Corporations.--Ownership of a
corporation shall be determined by the holding of
stock possessing the appropriate percentage of the
total combined voting power of all classes of
stock entitled to vote and the appropriate
percentage of the total value of shares of all
classes of stock.
[[Page 111 STAT. 850]]
``(ii) Partnerships.--Ownership of a
partnership shall be determined by the owning of
the appropriate percentage of the capital interest
in such partnership.
``(B) Ownership of tiered entities.--For purposes of
this section, if by reason of holding an interest in a
trade or business, a decedent, any member of the
decedent's family, any qualified heir, or any member of
any qualified heir's family is treated as holding an
interest in any other trade or business--
``(i) such ownership interest in the other
trade or business shall be disregarded in
determining if the ownership interest in the first
trade or business is a qualified family-owned
business interest, and
``(ii) this section shall be applied
separately in determining if such interest in any
other trade or business is a qualified family-
owned business interest.
``(C) Individual ownership rules.--For purposes of
this section, an interest owned, directly or indirectly,
by or for an entity described in paragraph (1)(B) shall
be considered as being owned proportionately by or for
the entity's shareholders, partners, or beneficiaries. A
person shall be treated as a beneficiary of any trust
only if such person has a present interest in such
trust.
``(f) Tax Treatment of Failure To Materially Participate in Business
or Dispositions of Interests.--
``(1) In general.--There is imposed an additional estate tax
if, within 10 years after the date of the decedent's death and
before the date of the qualified heir's death--
``(A) the material participation requirements
described in section 2032A(c)(6)(B) are not met with
respect to the qualified family-owned business interest
which was acquired (or passed) from the decedent,
``(B) the qualified heir disposes of any portion of
a qualified family-owned business interest (other than
by a disposition to a member of the qualified heir's
family or through a qualified conservation contribution
under section 170(h)),
``(C) the qualified heir loses United States
citizenship (within the meaning of section 877) or with
respect to whom an event described in subparagraph (A)
or (B) of section 877(e)(1) occurs, and such heir does
not comply with the requirements of subsection (g), or
``(D) the principal place of business of a trade or
business of the qualified family-owned business interest
ceases to be located in the United States.
``(2) Additional estate tax.--
``(A) In general.--The amount of the additional
estate tax imposed by paragraph (1) shall be equal to--
``(i) the applicable percentage of the
adjusted tax difference attributable to the
qualified family-owned business interest (as
determined under rules similar to the rules of
section 2032A(c)(2)(B)), plus
``(ii) interest on the amount determined under
clause (i) at the underpayment rate established
under section 6621 for the period beginning on the
date the estate tax liability was due under this
chapter and ending on the date such additional
estate tax is due.
[[Page 111 STAT. 851]]
``(B) Applicable percentage.--For purposes of this
paragraph, the applicable percentage shall be determined
under the following table:
``If the event described in
paragraph (1) occurs in
the following year of The applicable
material participation: percentage is:
1 through 6 100
7 80
8 60
9 40
10 20.
``(g) Security Requirements for Noncitizen Qualified Heirs.--
``(1) In general.--Except upon the application of
subparagraph (F) or (M) of subsection (i)(3), if a qualified
heir is not a citizen of the United States, any interest under
this section passing to or acquired by such heir (including any
interest held by such heir at a time described in subsection
(f)(1)(C)) shall be treated as a qualified family-owned business
interest only if the interest passes or is acquired (or is held)
in a qualified trust.
``(2) Qualified trust.--The term `qualified trust' means a
trust--
``(A) which is organized under, and governed by, the
laws of the United States or a State, and
``(B) except as otherwise provided in regulations,
with respect to which the trust instrument requires that
at least 1 trustee of the trust be an individual citizen
of the United States or a domestic corporation.
``(h) Agreement.--The agreement referred to in this subsection is a
written agreement signed by each person in being who has an interest
(whether or not in possession) in any property designated in such
agreement consenting to the application of subsection (f) with respect
to such property.
``(i) Other Definitions and Applicable Rules.--For purposes of this
section--
``(1) Qualified heir.--The term `qualified heir'--
``(A) has the meaning given to such term by section
2032A(e)(1), and
``(B) includes any active employee of the trade or
business to which the qualified family-owned business
interest relates if such employee has been employed by
such trade or business for a period of at least 10 years
before the date of the decedent's death.
``(2) Member of the family.--The term `member of the family'
has the meaning given to such term by section 2032A(e)(2).
``(3) Applicable rules.--Rules similar to the following
rules shall apply:
``(A) Section 2032A(b)(4) (relating to decedents who
are retired or disabled).
``(B) Section 2032A(b)(5) (relating to special rules
for surviving spouses).
``(C) Section 2032A(c)(2)(D) (relating to partial
dispositions).
``(D) Section 2032A(c)(3) (relating to only 1
additional tax imposed with respect to any 1 portion).
[[Page 111 STAT. 852]]
``(E) Section 2032A(c)(4) (relating to due date).
``(F) Section 2032A(c)(5) (relating to liability for
tax; furnishing of bond).
``(G) Section 2032A(c)(7) (relating to no tax if use
begins within 2 years; active management by eligible
qualified heir treated as material participation).
``(H) Paragraphs (1) and (3) of section 2032A(d)
(relating to election; agreement).
``(I) Section 2032A(e)(10) (relating to community
property).
``(J) Section 2032A(e)(14) (relating to treatment of
replacement property acquired in section 1031 or 1033
transactions).
``(K) Section 2032A(f) (relating to statute of
limitations).
``(L) Section 6166(b)(3) (relating to farmhouses and
certain other structures taken into account).
``(M) Subparagraphs (B), (C), and (D) of section
6166(g)(1) (relating to acceleration of payment).
``(N) Section 6324B (relating to special lien for
additional estate tax).''.
(b) Clerical Amendment.--The table of sections for part III of
subchapter A of chapter 11 is amended by inserting after the item
relating to section 2033 the following new item:
``Sec. 2033A. Family-owned business exclusion.''.
(c) <<NOTE: 26 USC 2033A note.>> Effective Date.--The amendments
made by this section shall apply to estates of decedents dying after
December 31, 1997.
SEC. 503. MODIFICATIONS TO RATE OF INTEREST ON PORTION OF ESTATE TAX
EXTENDED UNDER SECTION 6166.
(a) In General.--Paragraphs (1) and (2) of section 6601(j) (relating
to 4-percent rate on certain portion of estate tax extended under
section 6166) are amended to read as follows:
``(1) In general.--If the time for payment of an amount of
tax imposed by chapter 11 is extended as provided in section
6166, then in lieu of the annual rate provided by subsection
(a)--
``(A) interest on the 2-percent portion of such
amount shall be paid at the rate of 2 percent, and
``(B) interest on so much of such amount as exceeds
the 2-percent portion shall be paid at a rate equal to
45 percent of the annual rate provided by subsection
(a).
For purposes of this subsection, the amount of any deficiency
which is prorated to installments payable under section 6166
shall be treated as an amount of tax payable in installments
under such section.
``(2) 2-percent portion.--For purposes of this subsection,
the term `2-percent portion' means the lesser of--
``(A)(i) the amount of the tentative tax which would
be determined under the rate schedule set forth in
section 2001(c) if the amount with respect to which such
tentative tax is to be computed were the sum of
$1,000,000 and the applicable exclusion amount in effect
under section 2010(c), reduced by
``(ii) the applicable credit amount in effect under
section 2010(c), or
``(B) the amount of the tax imposed by chapter 11
which is extended as provided in section 6166.''.
[[Page 111 STAT. 853]]
(b) Disallowance of Interest Deduction.--
(1) Estate tax.--Paragraph (1) of section 2053(c) is amended
by adding at the end the following new subparagraph:
``(D) Section 6166 interest.--No deduction shall be
allowed under this section for any interest payable
under section 6601 on any unpaid portion of the tax
imposed by section 2001 for the period during which an
extension of time for payment of such tax is in effect
under section 6166.''.
(2) Income tax.--
(A) Section 163 is amended by redesignating
subsection (k) as subsection (l) and by inserting after
subsection (j) the following new subsection:
``(k) Section 6166 Interest.--No deduction shall be allowed under
this section for any interest payable under section 6601 on any unpaid
portion of the tax imposed by section 2001 for the period during which
an extension of time for payment of such tax is in effect under section
6166.''.
(B) Subparagraph (E) of section 163(h)(2) is amended
by striking ``or 6166'' and all that follows and
inserting a period.
(c) Conforming Amendments.--
(1) Paragraphs (7)(A)(iii) and (8)(A)(iii) of section
6166(b) are amended by striking ``4-percent'' each place it
appears (including the heading) and inserting ``2-percent''.
(2) Paragraph (4) of section 6601(j), as redesignated by
section 501(e), is amended by striking ``4-percent'' each place
it appears and inserting ``2-percent''.
(3) The subsection heading for section 6601(j) is amended by
striking ``4-Percent'' and inserting ``2-Percent''.
(d) <<NOTE: 26 USC 163 note.>> Effective Date.--
(1) In general.--The amendments made by this section shall
apply to estates of decedents dying after December 31, 1997.
(2) Election.--In the case of the estate of any decedent
dying before January 1, 1998, with respect to which there is an
election under section 6166 of the Internal Revenue Code of
1986, the executor of the estate may elect to have the
amendments made by this section apply with respect to
installments due after the effective date of the election;
except that the 2-percent portion of such installments shall be
equal to the amount which would be the 4-percent portion of such
installments without regard to such election. Such an election
shall be made before January 1, 1999 in the manner prescribed by
the Secretary of the Treasury and, once made, is irrevocable.
SEC. 504. EXTENSION OF TREATMENT OF CERTAIN RENTS UNDER SECTION 2032A TO
LINEAL DESCENDANTS.
(a) General Rule.--Paragraph (7) of section 2032A(c) (relating to
special rules for tax treatment of dispositions and failures to use for
qualified use) is amended by adding at the end the following new
subparagraph:
``(E) Certain rents treated as qualified use.--For
purposes of this subsection, a surviving spouse or
lineal descendant of the decedent shall not be treated
as failing to use qualified real property in a qualified
use solely because such spouse or descendant rents such
property
[[Page 111 STAT. 854]]
to a member of the family of such spouse or descendant
on a net cash basis. For purposes of the preceding
sentence, a legally adopted child of an individual shall
be treated as the child of such individual by blood.''.
(b) Conforming Amendment.--Section 2032A(b)(5)(A) is amended by
striking the last sentence.
(c) <<NOTE: 26 USC 2032A note.>> Effective Date.--The amendments
made by this section shall apply with respect to leases entered into
after December 31, 1976.
SEC. 505. CLARIFICATION OF JUDICIAL REVIEW OF ELIGIBILITY FOR EXTENSION
OF TIME FOR PAYMENT OF ESTATE TAX.
(a) In General.--Part IV of subchapter C of chapter 76 of the
Internal Revenue Code of 1986 (relating to declaratory judgments) is
amended by adding at the end the following new section:
``SEC. 7479. DECLARATORY JUDGMENTS RELATING TO ELIGIBILITY OF ESTATE
WITH RESPECT TO INSTALLMENT PAYMENTS UNDER SECTION 6166.
``(a) Creation of remedy.--In a case of actual controversy involving
a determination by the Secretary of (or a failure by the Secretary to
make a determination with respect to)--
``(1) whether an election may be made under section 6166
(relating to extension of time for payment of estate tax where
estate consists largely of interest in closely held business)
with respect to an estate, or
``(2) whether the extension of time for payment of tax
provided in section 6166(a) has ceased to apply with respect to
an estate,
upon the filing of an appropriate pleading, the Tax Court may make a
declaration with respect to whether such election may be made or whether
such extension has ceased to apply. Any such declaration shall have the
force and effect of a decision of the Tax Court and shall be reviewable
as such.
``(b) Limitations.--
``(1) Petitioner.--A pleading may be filed under this
section, with respect to any estate, only--
``(A) by the executor of such estate, or
``(B) by any person who has assumed an obligation to
make payments under section 6166 with respect to such
estate (but only if each other such person is joined as
a party).
``(2) Exhaustion of administrative remedies.--The court
shall not issue a declaratory judgment or decree under this
section in any proceeding unless it determines that the
petitioner has exhausted all available administrative remedies
within the Internal Revenue Service. A petitioner shall be
deemed to have exhausted its administrative remedies with
respect to a failure of the Secretary to make a determination at
the expiration of 180 days after the date on which the request
for such determination was made if the petitioner has taken, in
a timely manner, all reasonable steps to secure such
determination.
``(3) Time for bringing action.--If the Secretary sends by
certified or registered mail notice of his determination as
described in subsection (a) to the petitioner, no proceeding may
be initiated under this section unless the pleading is filed
before the 91st day after the date of such mailing.''.
[[Page 111 STAT. 855]]
(b) Clerical Amendment.--The table of sections for part IV of
subchapter C of chapter 76 of such Code is amended by adding at the end
the following new item:
``Sec. 7479. Declaratory judgments relating to
eligibility of estate with respect to
installment payments under section
6166.''.
(c) <<NOTE: 26 USC 7479 note.>> Effective Date.--The amendments
made by this section shall apply to the estates of decedents dying after
the date of the enactment of this Act.
SEC. 506. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX PURPOSES AFTER
EXPIRATION OF STATUTE OF LIMITATIONS.
(a) In General.--Section 2001 (relating to imposition and rate of
estate tax) is amended by adding at the end the following new
subsection:
``(f) Valuation of Gifts.--If--
``(1) the time has expired within which a tax may be
assessed under chapter 12 (or under corresponding provisions of
prior laws) on the transfer of property by gift made during a
preceding calendar period (as defined in section 2502(b)), and
``(2) the value of such gift is shown on the return for such
preceding calendar period or is disclosed in such return, or in
a statement attached to the return, in a manner adequate to
apprise the Secretary of the nature of such gift,
the value of such gift shall, for purposes of computing the tax under
this chapter, be the value of such gift as finally determined for
purposes of chapter 12.''.
(b) Modification of Application of Statute of Limitations.--
Paragraph (9) of section 6501(c) is amended to read as follows:
``(9) Gift tax on certain gifts not shown on return.--If any
gift of property the value of which (or any increase in taxable
gifts required under section 2701(d) which) is required to be
shown on a return of tax imposed by chapter 12 (without regard
to section 2503(b)), and is not shown on such return, any tax
imposed by chapter 12 on such gift may be assessed, or a
proceeding in court for the collection of such tax may be begun
without assessment, at any time. The preceding sentence shall
not apply to any item which is disclosed in such return, or in a
statement attached to the return, in a manner adequate to
apprise the Secretary of the nature of such item. The value of
any item which is so disclosed may not be redetermined by the
Secretary after the expiration of the period under subsection
(a).''.
(c) Declaratory Judgment Procedure for Determining Value of Gift.--
(1) In general.--Part IV of subchapter C of chapter 76 is
amended by inserting after section 7476 the following new
section:
``SEC. 7477. DECLARATORY JUDGMENTS RELATING TO VALUE OF CERTAIN GIFTS.
``(a) Creation of Remedy.--In a case of an actual controversy
involving a determination by the Secretary of the value of any gift
shown on the return of tax imposed by chapter 12 or disclosed on such
return or in any statement attached to such return, upon the filing of
an appropriate pleading, the Tax Court may make
[[Page 111 STAT. 856]]
a declaration of the value of such gift. Any such declaration shall have
the force and effect of a decision of the Tax Court and shall be
reviewable as such.
``(b) Limitations.--
``(1) Petitioner.--A pleading may be filed under this
section only by the donor.
``(2) Exhaustion of administrative remedies.--The court
shall not issue a declaratory judgment or decree under this
section in any proceeding unless it determines that the
petitioner has exhausted all available administrative remedies
within the Internal Revenue Service.
``(3) Time for bringing action.--If the Secretary sends by
certified or registered mail notice of his determination as
described in subsection (a) to the petitioner, no proceeding may
be initiated under this section unless the pleading is filed
before the 91st day after the date of such mailing.''.
(2) Clerical amendment.--The table of sections for such part
IV is amended by inserting after the item relating to section
7476 the following new item:
``Sec. 7477. Declaratory judgments relating to value of
certain gifts.''.
(d) Conforming Amendment.--Subsection (c) of section 2504 is amended
by striking ``, and if a tax under this chapter or under corresponding
provisions of prior laws has been assessed or paid for such preceding
calendar period''.
(e) Effective Dates.--
(1) <<NOTE: 26 USC 2001 note.>> In general.--The amendments
made by subsections (a) and (c) shall apply to gifts made after
the date of the enactment of this Act.
(2) <<NOTE: 26 USC 6501 note.>> Subsection (b)--The
amendment made by subsection (b) shall apply to gifts made in
calendar years ending after the date of the enactment of this
Act.
SEC. 507. REPEAL OF THROWBACK RULES APPLICABLE TO CERTAIN DOMESTIC
TRUSTS.
(a) Accumulation Distributions.--
(1) In general.--Section 665 is amended by inserting after
subsection (b) the following new subsection:
``(c) Exception for Accumulation Distributions From Certain Domestic
Trusts.--For purposes of this subpart--
``(1) In general.--In the case of a qualified trust, any
distribution in any taxable year beginning after the date of the
enactment of this subsection shall be computed without regard to
any undistributed net income.
``(2) Qualified trust.--For purposes of this subsection, the
term `qualified trust' means any trust other than--
``(A) a foreign trust (or, except as provided in
regulations, a domestic trust which at any time was a
foreign trust), or
``(B) a trust created before March 1, 1984, unless
it is established that the trust would not be aggregated
with other trusts under section 643(f) if such section
applied to such trust.''.
(2) Conforming amendments.--Subsection (b) of section 665 is
amended by inserting ``except as provided in subsection (c),''
after ``subpart,''.
(b) Repeal of Tax on Transfers to Trusts at Less Than Fair Market
Value.--
[[Page 111 STAT. 857]]
(1) Subpart A of part I of subchapter J of chapter 1 is
amended by striking section 644 and by redesignating section 645
as section 644.
(2) Paragraph (5) of section 706(b) is amended by striking
``section 645'' and inserting ``section 644''.
(3) The table of sections for such subpart is amended by
striking the last 2 items and inserting the following new item:
``Sec. 644. Taxable year of trusts.''.
(c) Effective Dates.--
(1) <<NOTE: 26 USC 665 note.>> Accumulation
distributions.--The amendments made by subsection (a) shall
apply to distributions in taxable years beginning after the date
of the enactment of this Act.
(2) <<NOTE: 26 USC 644 note.>> Transferred property.--The
amendments made by subsection (b) shall apply to sales or
exchanges after the date of the enactment of this Act.
SEC. 508. TREATMENT OF LAND SUBJECT TO A QUALIFIED CONSERVATION
EASEMENT.
(a) Estate Tax With Respect to Land Subject to a Qualified
Conservation Easement.--Section 2031 (relating to the definition of
gross estate) is amended by redesignating subsection (c) as subsection
(d) and by inserting after subsection (b) the following new subsection:
``(c) Estate Tax With Respect to Land Subject to a Qualified
Conservation Easement.--
``(1) In general.--If the executor makes the election
described in paragraph (6), then, except as otherwise provided
in this subsection, there shall be excluded from the gross
estate the lesser of--
``(A) the applicable percentage of the value of land
subject to a qualified conservation easement, reduced by
the amount of any deduction under section 2055(f) with
respect to such land, or
``(B) the exclusion limitation.
``(2) Applicable percentage.--For purposes of paragraph (1),
the term `applicable percentage' means 40 percent reduced (but
not below zero) by 2 percentage points for each percentage point
(or fraction thereof) by which the value of the qualified
conservation easement is less than 30 percent of the value of
the land (determined without regard to the value of such
easement and reduced by the value of any retained development
right (as defined in paragraph (5)).
``(3) Exclusion limitation.--For purposes of paragraph (1),
the exclusion limitation is the limitation determined in
accordance with the following table:
``In the case of estates of The exclusion
decedents dying during: limitation is:
1998........................................ $100,000
1999........................................ $200,000
2000........................................ $300,000
2001........................................ $400,000
2002 or thereafter.......................... $500,000.
``(4) Treatment of certain indebtedness.--
``(A) In general.--The exclusion provided in
paragraph (1) shall not apply to the extent that the
land is debt-financed property.
``(B) Definitions.--For purposes of this paragraph--
[[Page 111 STAT. 858]]
``(i) Debt-financed property.--The term `debt-
financed property' means any property with respect
to which there is an acquisition indebtedness (as
defined in clause (ii)) on the date of the
decedent's death.
``(ii) Acquisition indebtedness.--The term
`acquisition indebtedness' means, with respect to
debt-financed property, the unpaid amount of--
``(I) the indebtedness incurred by
the donor in acquiring such property,
``(II) the indebtedness incurred
before the acquisition of such property
if such indebtedness would not have been
incurred but for such acquisition,
``(III) the indebtedness incurred
after the acquisition of such property
if such indebtedness would not have been
incurred but for such acquisition and
the incurrence of such indebtedness was
reasonably foreseeable at the time of
such acquisition, and
``(IV) the extension, renewal, or
refinancing of an acquisition
indebtedness.
``(5) Treatment of retained development right.--
``(A) In general.--Paragraph (1) shall not apply to
the value of any development right retained by the donor
in the conveyance of a qualified conservation easement.
``(B) Termination of retained development right.--If
every person in being who has an interest (whether or
not in possession) in the land executes an agreement to
extinguish permanently some or all of any development
rights (as defined in subparagraph (D)) retained by the
donor on or before the date for filing the return of the
tax imposed by section 2001, then any tax imposed by
section 2001 shall be reduced accordingly. Such
agreement shall be filed with the return of the tax
imposed by section 2001. The agreement shall be in such
form as the Secretary shall prescribe.
``(C) Additional tax.--Any failure to implement the
agreement described in subparagraph (B) not later than
the earlier of--
``(i) the date which is 2 years after the date
of the decedent's death, or
``(ii) the date of the sale of such land
subject to the qualified conservation easement,
shall result in the imposition of an additional tax in
the amount of the tax which would have been due on the
retained development rights subject to such agreement.
Such additional tax shall be due and payable on the last
day of the 6th month following such date.
``(D) Development right defined.--For purposes of
this paragraph, the term `development right' means any
right to use the land subject to the qualified
conservation easement in which such right is retained
for any commercial purpose which is not subordinate to
and directly supportive of the use of such land as a
farm for farming purposes (within the meaning of section
2032A(e)(5)).
[[Page 111 STAT. 859]]
``(6) Election.--The election under this subsection shall be
made on the return of the tax imposed by section 2001. Such an
election, once made, shall be irrevocable.
``(7) Calculation of estate tax due.--An executor making the
election described in paragraph (6) shall, for purposes of
calculating the amount of tax imposed by section 2001, include
the value of any development right (as defined in paragraph (5))
retained by the donor in the conveyance of such qualified
conservation easement. The computation of tax on any retained
development right prescribed in this paragraph shall be done in
such manner and on such forms as the Secretary shall prescribe.
``(8) Definitions.--For purposes of this subsection--
``(A) Land subject to a qualified conservation
easement.--The term `land subject to a qualified
conservation easement' means land--
``(i) which is located--
``(I) in or within 25 miles of an
area which, on the date of the
decedent's death, is a metropolitan area
(as defined by the Office of Management
and Budget),
``(II) in or within 25 miles of an
area which, on the date of the
decedent's death, is a national park or
wilderness area designated as part of
the National Wilderness Preservation
System (unless it is determined by the
Secretary that land in or within 25
miles of such a park or wilderness area
is not under significant development
pressure), or
``(III) in or within 10 miles of an
area which, on the date of the
decedent's death, is an Urban National
Forest (as designated by the Forest
Service),
``(ii) which was owned by the decedent or a
member of the decedent's family at all times
during the 3-year period ending on the date of the
decedent's death, and
``(iii) with respect to which a qualified
conservation easement has been made by an
individual described in subparagraph (C), as of
the date of the election described in paragraph
(6).
``(B) Qualified conservation easement.--The term
`qualified conservation easement' means a qualified
conservation contribution (as defined in section
170(h)(1)) of a qualified real property interest (as
defined in section 170(h)(2)(C)), except that clause
(iv) of section 170(h)(4)(A) shall not apply, and the
restriction on the use of such interest described in
section 170(h)(2)(C) shall include a prohibition on more
than a de minimis use for a commercial recreational
activity.
``(C) Individual described.--An individual is
described in this subparagraph if such individual is--
``(i) the decedent,
``(ii) a member of the decedent's family,
``(iii) the executor of the decedent's estate,
or
[[Page 111 STAT. 860]]
``(iv) the trustee of a trust the corpus of
which includes the land to be subject to the
qualified conservation easement.
``(D) Member of family.--The term `member of the
decedent's family' means any member of the family (as
defined in section 2032A(e)(2)) of the decedent.
``(9) Application of this section to interests in
partnerships, corporations, and trusts.--This section shall
apply to an interest in a partnership, corporation, or trust if
at least 30 percent of the entity is owned (directly or
indirectly) by the decedent, as determined under the rules
described in section 2033A(e)(3).''.
(b) Carryover Basis.--Section 1014(a) (relating to basis of property
acquired from a decedent) is amended by striking ``or'' at the end of
paragraphs (1) and (2), by striking the period at the end of paragraph
(3) and inserting ``, or'' and by adding at the end the following new
paragraph:
``(4) to the extent of the applicability of the exclusion
described in section 2031(c), the basis in the hands of the
decedent.''.
(c) Qualified Conservation Contribution Is Not a Disposition.--
Subsection (c) of section 2032A (relating to alternative valuation
method) is amended by adding at the end the following new paragraph:
``(8) Qualified conservation contribution is not a
disposition.--A qualified conservation contribution (as defined
in section 170(h)) by gift or otherwise shall not be deemed a
disposition under subsection (c)(1)(A).''.
(d) Qualified Conservation Contribution Where Surface and Mineral
Rights are Separated.--Section 170(h)(5)(B)(ii) (relating to special
rule) is amended to read as follows:
``(ii) Special rule.--With respect to any contribution of
property in which the ownership of the surface estate and
mineral interests has been and remains separated, subparagraph
(A) shall be treated as met if the probability of surface mining
occurring on such property is so remote as to be negligible.''.
(e) Effective Dates.--
(1) <<NOTE: 26 USC 1014 note.>> Exclusion.--The amendments
made by subsections (a) and (b) shall apply to estates of
decedents dying after December 31, 1997.
(2) <<NOTE: 26 USC 170 note.>> Easements.--The amendments
made by subsections (c) and (d) shall apply to easements granted
after December 31, 1997.
Subtitle B--Generation-Skipping Tax Provision
SEC. 511. EXPANSION OF EXCEPTION FROM GENERATION-SKIPPING TRANSFER TAX
FOR TRANSFERS TO INDIVIDUALS WITH DECEASED PARENTS.
(a) In General.--Section 2651 (relating to generation assignment) is
amended by redesignating subsection (e) as subsection (f) and by
inserting after subsection (d) the following new subsection:
``(e) Special Rule for Persons With a Deceased Parent.--
[[Page 111 STAT. 861]]
``(1) In general.--For purposes of determining whether any
transfer is a generation-skipping transfer, if--
``(A) an individual is a descendant of a parent of
the transferor (or the transferor's spouse or former
spouse), and
``(B) such individual's parent who is a lineal
descendant of the parent of the transferor (or the
transferor's spouse or former spouse) is dead at the
time the transfer (from which an interest of such
individual is established or derived) is subject to a
tax imposed by chapter 11 or 12 upon the transferor (and
if there shall be more than 1 such time, then at the
earliest such time),
such individual shall be treated as if such individual were a
member of the generation which is 1 generation below the lower
of the transferor's generation or the generation assignment of
the youngest living ancestor of such individual who is also a
descendant of the parent of the transferor (or the transferor's
spouse or former spouse), and the generation assignment of any
descendant of such individual shall be adjusted accordingly.
``(2) Limited application of subsection to collateral
heirs.--This subsection shall not apply with respect to a
transfer to any individual who is not a lineal descendant of the
transferor (or the transferor's spouse or former spouse) if, at
the time of the transfer, such transferor has any living lineal
descendant.''.
(b) Conforming Amendments.--
(1) Section 2612(c) (defining direct skip) is amended by
striking paragraph (2) and by redesignating paragraph (3) as
paragraph (2).
(2) Section 2612(c)(2) (as so redesignated) is amended by
striking ``section 2651(e)(2)'' and inserting ``section
2651(f)(2)''.
(c) <<NOTE: 26 USC 2612 note.>> Effective Date.--The amendments
made by this section shall apply to terminations, distributions, and
transfers occurring after December 31, 1997.
TITLE VI--EXTENSIONS
SEC. 601. RESEARCH TAX CREDIT.
(a) In General.--Paragraph (1) of section 41(h) (relating to
termination) is amended--
(1) by striking ``May 31, 1997'' and inserting ``June 30,
1998'', and
(2) by striking in the last sentence ``during the first 11
months of such taxable year.'' and inserting ``during the 24-
month period beginning with the first month of such year. The 24
months referred to in the preceding sentence shall be reduced by
the number of full months after June 1996 (and before the first
month of such first taxable year) during which the taxpayer paid
or incurred any amount which is taken into account in
determining the credit under this section.''.
(b) Technical Amendments.--
(1) Subparagraph (B) of section 41(c)(4) is amended to read
as follows:
[[Page 111 STAT. 862]]
``(B) Election.--An election under this paragraph
shall apply to the taxable year for which made and all
succeeding taxable years unless revoked with the consent
of the Secretary.''.
(2) Paragraph (1) of section 45C(b) is amended by striking
``May 31, 1997'' and inserting ``June 30, 1998''.
(c) <<NOTE: 26 USC 41 note.>> Effective Date.--The amendments made
by this section shall apply to amounts paid or incurred after May 31,
1997.
SEC. 602. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.
(a) In General.--Clause (ii) of section 170(e)(5)(D) (relating to
termination) is amended by striking ``May 31, 1997'' and inserting
``June 30, 1998''.
(b) <<NOTE: 26 USC 170 note.>> Effective Date.--The amendment made
by subsection (a) shall apply to contributions made after May 31, 1997.
SEC. 603. WORK OPPORTUNITY TAX CREDIT.
(a) Extension.--Subparagraph (B) of section 51(c)(4) (relating to
termination) is amended by striking ``September 30, 1997'' and inserting
``June 30, 1998''.
(b) Modification of Eligibility Requirement Based on Period on
Welfare.--
(1) In general.--Subparagraph (A) of section 51(d)(2)
(defining qualified IV-A recipient) is amended by striking all
that follows ``a IV-A program'' and inserting ``for any 9 months
during the 18-month period ending on the hiring date.''.
(2) Conforming amendment.--Subparagraph (A) of section
51(d)(3) is amended to read as follows:
``(A) In general.--The term `qualified veteran'
means any veteran who is certified by the designated
local agency as being 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.''.
(c) Qualified SSI Recipients Treated as Members of Targeted
Groups.--
(1) In general.--Section 51(d)(1) (relating to members of
targeted groups) is amended by striking ``or'' at the end of
subparagraph (F), by striking the period at the end of
subparagraph (G) and inserting ``, or'', and by adding at the
end the following new subparagraph:
``(H) a qualified SSI recipient.''.
(2) Qualified ssi recipients.--Section 51(d) is amended by
redesignating paragraphs (9), (10), and (11) as paragraphs (10),
(11), and (12), respectively, and by inserting after paragraph
(8) the following new paragraph:
``(9) Qualified ssi recipient.--The term `qualified SSI
recipient' means any individual who is certified by the
designated local agency as receiving supplemental security
income benefits under title XVI of the Social Security Act
(including supplemental security income benefits of the type
described in section 1616 of such Act or section 212 of Public
Law 93-66) for any month ending within the 60-day period ending
on the hiring date.''.
(d) Percentage of Wages Allowed as Credit.--
(1) In general.--Subsection (a) of section 51 (relating to
determination of amount) is amended by striking ``35 percent''
and inserting ``40 percent''.
[[Page 111 STAT. 863]]
(2) Application of credit for individuals performing fewer
than 400 hours of services.--Paragraph (3) of section 51(i) is
amended to read as follows:
``(3) Individuals not meeting minimum employment periods.--
``(A) Reduction of credit for individuals performing
fewer than 400 hours of service.--In the case of an
individual who has performed at least 120 hours, but
less than 400 hours, of service for the employer,
subsection (a) shall be applied by substituting `25
percent' for `40 percent'.
``(B) Denial of credit for individuals performing
fewer than 120 hours of service.--No wages shall be
taken into account under subsection (a) with respect to
any individual unless such individual has performed at
least 120 hours of service for the employer.''.
(e) <<NOTE: 26 USC 51 note.>> Effective date.--The amendments made
by this section shall apply to individuals who begin work for the
employer after September 30, 1997.
SEC. 604. ORPHAN DRUG TAX CREDIT.
(a) In General.--Section 45C (relating to clinical testing expenses
for certain drugs for rare diseases or conditions) is amended by
striking subsection (e).
(b) <<NOTE: 26 USC 45C note.>> Effective Date.--The amendment made
by subsection (a) shall apply to amounts paid or incurred after May 31,
1997.
TITLE VII--INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA
SEC. 701. TAX INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA.
(a) In General.--Chapter 1 is amended by adding at the end the
following new subchapter:
``Subchapter W--District of Columbia Enterprise Zone
``Sec. 1400. Establishment of DC Zone.
``Sec. 1400A. Tax-exempt economic development bonds.
``Sec. 1400B. Zero percent capital gains rate.
``Sec. 1400C. First-time homebuyer credit for District
of Columbia.
``SEC. 1400. ESTABLISHMENT OF DC ZONE.
``(a) In General.--For purposes of this title--
``(1) the applicable DC area is hereby designated as the
District of Columbia Enterprise Zone, and
``(2) except as otherwise provided in this subchapter, the
District of Columbia Enterprise Zone shall be treated as an
empowerment zone designated under subchapter U.
``(b) Applicable DC Area.--For purposes of subsection (a), the term
`applicable DC area' means the area consisting of--
``(1) the census tracts located in the District of Columbia
which are part of an enterprise community designated under
subchapter U before the date of the enactment of this
subchapter, and
[[Page 111 STAT. 864]]
``(2) all other census tracts--
``(A) which are located in the District of Columbia,
and
``(B) for which the poverty rate is not less than
than 20 percent.
``(c) District of Columbia Enterprise Zone.--For purposes of this
subchapter, the terms `District of Columbia Enterprise Zone' and `DC
Zone' mean the District of Columbia Enterprise Zone designated by
subsection (a).
``(d) Special Rules for Application of Employment Credit.--
``(1) Employees whose principal place of abode is in
district of columbia.--With respect to the DC Zone, section
1396(d)(1)(B) (relating to empowerment zone employment credit)
shall be applied by substituting `the District of Columbia' for
`such empowerment zone'.
``(2) No decrease of percentage in 2002.--In the case of the
DC Zone, section 1396 (relating to empowerment zone employment
credit) shall be applied by substituting ``20'' for ``15'' in
the table contained in section 1396(b). The preceding sentence
shall apply only with respect to qualified zone employees, as
defined in section 1396(d), determined by treating no area other
than the DC Zone as an empowerment zone or enterprise community.
``(e) Special Rule for Application of Enterprise Zone Business
Definition.--For purposes of this subchapter and for purposes of
applying subchapter U with respect to the DC Zone, section 1397B shall
be applied without regard to subsections (b)(6) and (c)(5) thereof.
``(f) Time For Which Designation Applicable.--
``(1) In general.--The designation made by subsection (a)
shall apply for the period beginning on January 1, 1998, and
ending on December 31, 2002.
``(2) Coordination with dc enterprise community designated
under subchapter u.--The designation under subchapter U of the
census tracts referred to in subsection (b)(1) as an enterprise
community shall terminate on December 31, 2002.
``SEC. 1400A. TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.
``(a) In General.--In the case of the District of Columbia
Enterprise Zone, subparagraph (A) of section 1394(c)(1) (relating to
limitation on amount of bonds) shall be applied by substituting
`$15,000,000' for `$3,000,000'.
``(b) Period of Applicability.--This section shall apply to bonds
issued during the period beginning on January 1, 1998, and ending on
December 31, 2002.
``SEC. 1400B. ZERO PERCENT CAPITAL GAINS RATE.
``(a) Exclusion.--Gross income shall not include qualified capital
gain from the sale or exchange of any DC Zone asset held for more than 5
years.
``(b) DC Zone Asset.--For purposes of this section--
``(1) In general.--The term `DC Zone asset' means--
``(A) any DC Zone business stock,
``(B) any DC Zone partnership interest, and
``(C) any DC Zone business property.
``(2) DC zone business stock.--
[[Page 111 STAT. 865]]
``(A) In general.--The term `DC Zone business stock'
means any stock in a domestic corporation which is
originally issued after December 31, 1997, if--
``(i) such stock is acquired by the taxpayer,
before January 1, 2003, at its original issue
(directly or through an underwriter) solely in
exchange for cash,
``(ii) as of the time such stock was issued,
such corporation was a DC Zone business (or, in
the case of a new corporation, such corporation
was being organized for purposes of being a DC
Zone business), and
``(iii) during substantially all of the
taxpayer's holding period for such stock, such
corporation qualified as a DC Zone business.
``(B) Redemptions.--A rule similar to the rule of
section 1202(c)(3) shall apply for purposes of this
paragraph.
``(3) DC zone partnership interest.--The term `DC Zone
partnership interest' means any capital or profits interest in a
domestic partnership which is originally issued after December
31, 1997, if--
``(A) such interest is acquired by the taxpayer,
before January 1, 2003, from the partnership solely in
exchange for cash,
``(B) as of the time such interest was acquired,
such partnership was a DC Zone business (or, in the case
of a new partnership, such partnership was being
organized for purposes of being a DC Zone business), and
``(C) during substantially all of the taxpayer's
holding period for such interest, such partnership
qualified as a DC Zone business.
A rule similar to the rule of paragraph (2)(B) shall apply for
purposes of this paragraph.
``(4) DC zone business property.--
``(A) In general.--The term `DC Zone business
property' means tangible property if--
``(i) such property was acquired by the
taxpayer by purchase (as defined in section
179(d)(2)) after December 31, 1997, and before
January 1, 2003,
``(ii) the original use of such property in
the DC Zone commences with the taxpayer, and
``(iii) during substantially all of the
taxpayer's holding period for such property,
substantially all of the use of such property was
in a DC Zone business of the taxpayer.
``(B) Special rule for buildings which are
substantially improved.--
``(i) In general.--The requirements of clauses
(i) and (ii) of subparagraph (A) shall be treated
as met with respect to--
``(I) property which is
substantially improved by the taxpayer
before January 1, 2003, and
``(II) any land on which such
property is located.
``(ii) Substantial improvement.--For purposes
of clause (i), property shall be treated as
substantially improved by the taxpayer only if,
during any 24-month period beginning after
December 31, 1997, additions
[[Page 111 STAT. 866]]
to basis with respect to such property in the
hands of the taxpayer exceed the greater of--
``(I) an amount equal to the
adjusted basis of such property at the
beginning of such 24-month period in the
hands of the taxpayer, or
``(II) $5,000.
``(6) Treatment of subsequent purchasers, etc.--The term `DC
Zone asset' includes any property which would be a DC Zone asset
but for paragraph (2)(A)(i), (3)(A), or (4)(A)(ii) in the hands
of the taxpayer if such property was a DC Zone asset in the
hands of a prior holder.
``(7) 5-year safe harbor.--If any property ceases to be a DC
Zone asset by reason of paragraph (2)(A)(iii), (3)(C), or
(4)(A)(iii) after the 5-year period beginning on the date the
taxpayer acquired such property, such property shall continue to
be treated as meeting the requirements of such paragraph; except
that the amount of gain to which subsection (a) applies on any
sale or exchange of such property shall not exceed the amount
which would be qualified capital gain had such property been
sold on the date of such cessation.
``(c) DC Zone Business.--For purposes of this section, the term `DC
Zone business' means any entity which is an enterprise zone business (as
defined in section 1397B), determined--
``(1) after the application of section 1400(e),
``(2) by substituting ``80 percent'' for ``50 percent'' in
subsections (b)(2) and (c)(1) of section 1397B, and
``(3) by treating no area other than the DC Zone as an
empowerment zone or enterprise community.
``(d) Treatment of Zone as Including Census Tracts With 10 Percent
Poverty Rate.--For purposes of applying this section (and for purposes
of applying this subchapter and subchapter U with respect to this
section), the DC Zone shall be treated as including all census tracts--
``(1) which are located in the District of Columbia, and
``(2) for which the poverty rate is not less than 10
percent.
``(e) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Qualified capital gain.--Except as otherwise provided
in this subsection, the term `qualified capital gain' means any
gain recognized on the sale or exchange of--
``(A) a capital asset, or
``(B) property used in the trade or business (as
defined in section 1231(b)).
``(2) Gain before 1998 or after 2007 not qualified.--The
term `qualified capital gain' shall not include any gain
attributable to periods before January 1, 1998, or after
December 31, 2007.
``(3) Certain gain not qualified.--The term `qualified
capital gain' shall not include any gain which would be treated
as ordinary income under section 1245 or under section 1250 if
section 1250 applied to all depreciation rather than the
additional depreciation.
``(4) Intangibles and land not integral part of dc zone
business.--The term `qualified capital gain' shall not include
any gain which is attributable to real property, or an
intangible asset, which is not an integral part of a DC Zone
business.
[[Page 111 STAT. 867]]
``(5) Related party transactions.--The term `qualified
capital gain' shall not include any gain attributable, directly
or indirectly, in whole or in part, to a transaction with a
related person. For purposes of this paragraph, persons are
related to each other if such persons are described in section
267(b) or 707(b)(1).
``(f) Certain Other Rules To Apply.--Rules similar to the rules of
subsections (g), (h), (i)(2), and (j) of section 1202 shall apply for
purposes of this section.
``(g) Sales and Exchanges of Interests in Partnerships and S
Corporations Which Are DC Zone Businesses.--In the case of the sale or
exchange of an interest in a partnership, or of stock in an S
corporation, which was a DC Zone business during substantially all of
the period the taxpayer held such interest or stock, the amount of
qualified capital gain shall be determined without regard to--
``(1) any gain which is attributable to real property, or an
intangible asset, which is not an integral part of a DC Zone
business, and
``(2) any gain attributable to periods before January 1,
1998, or after December 31, 2007.
``SEC. 1400C. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.
``(a) Allowance of Credit.--In the case of an individual who is a
first-time homebuyer of a principal residence in the District of
Columbia during any taxable year, there shall be allowed as a credit
against the tax imposed by this chapter for the taxable year an amount
equal to so much of the purchase price of the residence as does not
exceed $5,000.
``(b) Limitation Based on Modified Adjusted Gross Income.--
``(1) In general.--The amount allowable as a credit under
subsection (a) (determined without regard to this subsection)
for the taxable year shall be reduced (but not below zero) by
the amount which bears the same ratio to the credit so allowable
as--
``(A) the excess (if any) of--
``(i) the taxpayer's modified adjusted gross
income for such taxable year, over
``(ii) $70,000 ($110,000 in the case of a
joint return), bears to
``(B) $20,000.
``(2) Modified adjusted gross income.--For purposes of
paragraph (1), the term `modified adjusted gross income' means
the adjusted gross income of the taxpayer for the taxable year
increased by any amount excluded from gross income under section
911, 931, or 933.
``(c) First-Time Homebuyer.--For purposes of this section--
``(1) In general.--The term `first-time homebuyer' has the
same meaning as when used in section 72(t)(8)(D)(i), except that
`principal residence in the District of Columbia during the 1-
year period' shall be substituted for `principal residence
during the 2-year period' in subclause (I) thereof.
``(2) One-time only.--If an individual is treated as a
first-time homebuyer with respect to any principal residence,
such
[[Page 111 STAT. 868]]
individual may not be treated as a first-time homebuyer with
respect to any other principal residence.
``(3) Principal residence.--The term `principal residence'
has the same meaning as when used in section 121.
``(d) Carryover of Credit.--If the credit allowable under subsection
(a) exceeds the limitation imposed by section 26(a) for such taxable
year reduced by the sum of the credits allowable under subpart A of part
IV of subchapter A (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.
``(e) Special Rules.--For purposes of this section--
``(1) Allocation of dollar limitation.--
``(A) Married individuals filing separately.--In the
case of a married individual filing a separate return,
subsection (a) shall be applied by substituting `$2,500'
for `$5,000'.
``(B) Other taxpayers.--If 2 or more individuals who
are not married purchase a principal residence, the
amount of the credit allowed under subsection (a) shall
be allocated among such individuals in such manner as
the Secretary may prescribe, except that the total
amount of the credits allowed to all such individuals
shall not exceed $5,000.
``(2) Purchase.--
``(A) In general.--The term `purchase' means any
acquisition, but only if--
``(i) the property is not acquired from a
person whose relationship to the person acquiring
it would result in the disallowance of losses
under section 267 or 707(b) (but, in applying
section 267 (b) and (c) for purposes of this
section, paragraph (4) of section 267(c) shall be
treated as providing that the family of an
individual shall include only his spouse,
ancestors, and lineal descendants), and
``(ii) the basis of the property in the hands
of the person acquiring it is not determined--
``(I) in whole or in part by
reference to the adjusted basis of such
property in the hands of the person from
whom acquired, or
``(II) under section 1014(a)
(relating to property acquired from a
decedent).
``(B) Construction.--A residence which is
constructed by the taxpayer shall be treated as
purchased by the taxpayer.
``(3) Purchase price.--The term `purchase price' means the
adjusted basis of the principal residence on the date of
acquisition (within the meaning of section 72(t)(8)(D)(iii)).
``(f) Reporting.--If the Secretary requires information reporting
under section 6045 by a person described in subsection (e)(2) thereof to
verify the eligibility of taxpayers for the credit allowable by this
section, the exception provided by section 6045(e)(5) shall not apply.
``(g) Credit Treated as Nonrefundable Personal Credit.--For purposes
of this title, the credit allowed by this section shall be treated as a
credit allowable under subpart A of part IV of subchapter A of this
chapter.
[[Page 111 STAT. 869]]
``(h) Basis Adjustment.--For purposes of this subtitle, if a credit
is allowed under this section with respect to the purchase of any
residence, the basis of such residence shall be reduced by the amount of
the credit so allowed.
``(i) Termination.--This section shall not apply to any property
purchased after December 31, 2000.''.
(b) Conforming Amendments.--
(1) Subsection (d) of section 39 is amended by adding at the
end the following new paragraph:
``(8) No carryback of dc zone credits before effective
date.--No portion of the unused business credit for any taxable
year which is attributable to the credits allowable under
subchapter U by reason of section 1400 may be carried back to a
taxable year ending before the date of the enactment of section
1400.''.
(2) Subsection (a) of section 1016 is amended by striking
``and'' at the end of paragraph (25), by striking the period at
the end of paragraph (26) and inserting ``, and'', and by adding
at the end thereof the following new paragraph:
``(27) in the case of a residence with respect to which a
credit was allowed under section 1400C, to the extent provided
in section 1400C(h).''.
(c) Clerical Amendment.--The table of subchapters for chapter 1 is
amended by adding at the end the following new item:
``Subchapter W. District of Columbia Enterprise Zone.''.
(d) <<NOTE: 26 USC 39 note.>> Effective Date.--Except as provided
in subsection (c), the amendments made by this section shall take effect
on the date of the enactment of this Act.
TITLE VIII--WELFARE-TO-WORK INCENTIVES
SEC. 801. INCENTIVES FOR EMPLOYING LONG-TERM FAMILY ASSISTANCE
RECIPIENTS.
(a) In General.--Subpart F of part IV of subchapter A of chapter 1
is amended by inserting after section 51 the following new section:
``SEC. 51A. TEMPORARY INCENTIVES FOR EMPLOYING LONG-TERM FAMILY
ASSISTANCE RECIPIENTS.
``(a) Determination of Amount.--For purposes of section 38, the
amount of the welfare-to-work credit determined under this section for
the taxable year shall be equal to--
``(1) 35 percent of the qualified first-year wages for such
year, and
``(2) 50 percent of the qualified second-year wages for such
year.
``(b) Qualified Wages Defined.--For purposes of this section--
``(1) In general.--The term `qualified wages' means the
wages paid or incurred by the employer during the taxable year
to individuals who are long-term family assistance recipients.
``(2) Qualified first-year wages.--The term `qualified
first-year wages' means, with respect to any individual,
qualified wages attributable to service rendered during the 1-
year
[[Page 111 STAT. 870]]
period beginning with the day the individual begins work for the
employer.
``(3) Qualified second-year wages.--The term `qualified
second-year wages' means, with respect to any individual,
qualified wages attributable to service rendered during the 1-
year period beginning on the day after the last day of the 1-
year period with respect to such individual determined under
paragraph (2).
``(4) Only first $10,000 of wages per year taken into
account.--The amount of the qualified first-year wages, and the
amount of qualified second-year wages, which may be taken into
account with respect to any individual shall not exceed $10,000
per year.
``(5) Wages.--
``(A) In general.--The term `wages' has the meaning
given such term by section 51(c), without regard to
paragraph (4) thereof.
``(B) Certain amounts treated as wages.--The term
`wages' includes amounts paid or incurred by the
employer which are excludable from such recipient's
gross income under--
``(i) section 105 (relating to amounts
received under accident and health plans),
``(ii) section 106 (relating to contributions
by employer to accident and health plans),
``(iii) section 127 (relating to educational
assistance programs) or would be so excludable but
for section 127(d), but only to the extent paid or
incurred to a person not related to the employer,
or
``(iv) section 129 (relating to dependent care
assistance programs).
The amount treated as wages by clause (i) or (ii) for
any period shall be based on the reasonable cost of
coverage for the period, but shall not exceed the
applicable premium for the period under section
4980B(f)(4).
``(C) Special rules for agricultural and railway
labor.--If such recipient is an employee to whom
subparagraph (A) or (B) of section 51(h)(1) applies,
rules similar to the rules of such subparagraphs shall
apply except that--
``(i) such subparagraph (A) shall be applied
by substituting `$10,000' for `$6,000', and
``(ii) such subparagraph (B) shall be applied
by substituting `$833.33' for `$500'.
``(c) Long-Term Family Assistance Recipients.--For purposes of this
section--
``(1) In general.--The term `long-term family assistance
recipient' means any individual who is certified by the
designated local agency (as defined in section 51(d)(10))--
``(A) as being a member of a family receiving
assistance under a IV-A program (as defined in section
51(d)(2)(B)) for at least the 18-month period ending on
the hiring date,
``(B)(i) as being a member of a family receiving
such assistance for 18 months beginning after the date
of the enactment of this section, and
[[Page 111 STAT. 871]]
``(ii) as having a hiring date which is not more
than 2 years after the end of the earliest such 18-month
period, or
``(C)(i) as being a member of a family which ceased
to be eligible after the date of the enactment of this
section for such assistance by reason of any limitation
imposed by Federal or State law on the maximum period
such assistance is payable to a family, and
``(ii) as having a hiring date which is not more
than 2 years after the date of such cessation.
``(2) Hiring date.--The term `hiring date' has the meaning
given such term by section 51(d).
``(d) Certain Rules To Apply.--
``(1) In general.--Rules similar to the rules of section 52,
and subsections (d)(11), (f), (g), (i) (as in effect on the day
before the date of the enactment of the Taxpayer Relief Act of
1997), (j), and (k) of section 51, shall apply for purposes of
this section.
``(2) Credit to be part of general business credit, etc.--
References to section 51 in section 38(b), 280C(a), and
1396(c)(3) shall be treated as including references to this
section.
``(e) Coordination With Work Opportunity Credit.--If a credit is
allowed under this section to an employer with respect to an individual
for any taxable year, then for purposes of applying section 51 to such
employer, such individual shall not be treated as a member of a targeted
group for such taxable year.
``(f) Termination.--This section shall not apply to individuals who
begin work for the employer after April 30, 1999.''.
(b) Clerical Amendment.--The table of sections for subpart F of part
IV of subchapter A of chapter 1 is amended by inserting after the item
relating to section 51 the following new item:
``Sec. 51A. Temporary incentives for employing long-term
family assistance recipients.''.
(c) <<NOTE: 26 USC 51A note.>> Effective Date.--The amendments made
by this section shall apply to individuals who begin work for the
employer after December 31, 1997.
TITLE IX--MISCELLANEOUS PROVISIONS
Subtitle A--Provisions Relating to Excise Taxes
SEC. 901. GENERAL REVENUE PORTION OF HIGHWAY MOTOR FUELS TAXES DEPOSITED
INTO HIGHWAY TRUST FUND.
(a) In General.--Paragraph (4) of section 9503(b) (relating to
certain additional taxes not transferred to Highway Trust Fund) is
amended to read as follows:
``(4) Certain taxes not transferred to highway trust fund.--
For purposes of paragraphs (1) and (2), there shall not be taken
into account the taxes imposed by--
``(A) section 4041(d),
[[Page 111 STAT. 872]]
``(B) section 4081 to the extent attributable to the
rate specified in section 4081(a)(2)(B),
``(C) section 4041 or 4081 to the extent
attributable to fuel used in a train,
``(D) in the case of fuels used as described in
paragraph (4)(D), (5)(B), or (6)(D) of subsection (c),
section 4041 or 4081--
``(i) with respect to so much of the rate of
tax on gasoline or special motor fuels as exceeds
11.5 cents per gallon, and
``(ii) with respect to so much of the rate of
tax on diesel fuel or kerosene as exceeds 17.5
cents per gallon,
``(E) in the case of fuels described in section
4041(b)(2)(A), 4041(k), or 4081(c), section 4041 or 4081
before October 1, 1999, with respect to a rate equal to
2.5 cents per gallon, or
``(F) in the case of fuels described in section
4081(c)(2), such section before October 1, 1999, with
respect to a rate equal to 2.8 cents per gallon.''.
(b) Mass Transit Portion.--Section 9503(e)(2) (relating to transfers
to Mass Transit Account) is amended by striking ``2 cents'' and
inserting ``2.85 cents''.
(c) Limitation on Expenditures.--Subsection (c) of section 9503 is
amended by adding at the end the following new paragraph:
``(7) Limitation on expenditures.--Notwithstanding any other
provision of law, in calculating amounts under section 157(a) of
title 23, United States Code, and sections 1013(c), 1015(a), and
1015(b) of the Intermodal Surface Transportation Efficiency Act
of 1991 (Public Law 102-240; 105 Stat. 1914), deposits in the
Highway Trust Fund resulting from the amendments made by the
Taxpayer Relief Act of 1997 shall not be taken into account.''.
(d) Technical Amendments.--
(1) Section 9503 is amended by striking subsection (f).
(2) The last sentence of subparagraph (A) of section
9503(c)(2) is amended by striking ``by taking into account only
the Highway Trust Fund financing rate applicable to any fuel''
and inserting ``by taking into account only the portion of the
taxes which are deposited into the Highway Trust Fund''.
(3) Paragraphs (4)(D), (5)(B), and (6)(D) of section 9503(c)
are each amended by striking ``attributable to the Highway Trust
Fund financing rate'' and inserting ``deposited into the Highway
Trust Fund''.
(e) <<NOTE: 26 USC 6302 note.>> Delayed Deposits of Highway Motor
Fuel Tax Revenues.--Notwithstanding section 6302 of the Internal Revenue
Code of 1986, in the case of deposits of taxes imposed by sections 4041
and 4081 (other than subsection (a)(2)(A)(ii)) of the Internal Revenue
Code of 1986, the due date for any deposit which would (but for this
subsection) be required to be made after July 31, 1998, and before
October 1, 1998, shall be October 5, 1998.
(f) <<NOTE: 26 USC 9503 note.>> Effective Date.--The amendments
made by this section shall apply to taxes received in the Treasury after
September 30, 1997.
[[Page 111 STAT. 873]]
SEC. 902. REPEAL OF TAX ON DIESEL FUEL USED IN RECREATIONAL BOATS.
(a) In General.--Subparagraph (B) of section 6421(e)(2) (defining
off-highway business use) is amended by striking clauses (iii) and (iv).
(b) Conforming Amendments.--
(1) Subparagraph (A) of section 4041(a)(1) is amended--
(A) by striking ``, a diesel-powered train, or a
diesel-powered boat'' each place it appears and
inserting ``or a diesel-powered train'', and
(B) by striking ``vehicle, train, or boat'' and
inserting ``vehicle or train''.
(2) Paragraph (1) of section 4041(a) is amended by striking
subparagraph (D).
(3) Paragraph (3) of section 4083(a) is amended by striking
``, a diesel-powered train, or a diesel-powered boat'' and
inserting ``or a diesel-powered train''.
(c) <<NOTE: 26 USC 4041 note.>> Effective Date.--The amendments
made by this section shall take effect on January 1, 1998.
SEC. 903. CONTINUED APPLICATION OF TAX ON IMPORTED RECYCLED HALON-1211.
(a) In General.--Paragraph (1) of section 4682(d) is amended by
striking ``recycled halon'' and inserting ``recycled Halon-1301 or
recycled Halon-2402''.
(b) <<NOTE: 26 USC 4682 note.>> Effective Date.--The amendment made
by subsection (a) shall take effect on the date of the enactment of this
Act.
SEC. 904. UNIFORM RATE OF TAX ON VACCINES.
(a) In General.--Subsection (b) of section 4131 is amended to read
as follows:
``(b) Amount of Tax.--
``(1) In general.--The amount of the tax imposed by
subsection (a) shall be 75 cents per dose of any taxable
vaccine.
``(2) Combinations of vaccines.--If any taxable vaccine is
described in more than 1 subparagraph of section 4132(a)(1), the
amount of the tax imposed by subsection (a) on such vaccine
shall be the sum of the amounts for the vaccines which are so
included.''.
(b) Taxable Vaccines.--Paragraph (1) of section 4132(a) is amended
to read as follows:
``(1) Taxable vaccine.--The term `taxable vaccine' means any
of the following vaccines which are manufactured or produced in
the United States or entered into the United States for
consumption, use, or warehousing:
``(A) Any vaccine containing diphtheria toxoid.
``(B) Any vaccine containing tetanus toxoid.
``(C) Any vaccine containing pertussis bacteria,
extracted or partial cell bacteria, or specific
pertussis antigens.
``(D) Any vaccine against measles.
``(E) Any vaccine against mumps.
``(F) Any vaccine against rubella.
``(G) Any vaccine containing polio virus.
``(H) Any HIB vaccine.
``(I) Any vaccine against hepatitis B.
``(J) Any vaccine against chicken pox.''.
[[Page 111 STAT. 874]]
(c) Conforming Amendment.--Subsection (a) of section 4132 is amended
by striking paragraphs (2), (3), (4), and (5) and by redesignating
paragraphs (6) through (8) as paragraphs (2) through (4), respectively.
(d) <<NOTE: 26 USC 4131 note.>> Effective Date.--The amendments
made by this section shall take effect on the day after the date of the
enactment of this Act.
(e) <<NOTE: 26 USC 4132 note.>> Limitation on Certain Credits or
Refunds.--For purposes of applying section 4132(b) of the Internal
Revenue Code of 1986 with respect to any claim for credit or refund
filed before January 1, 1999, the amount of tax taken into account shall
not exceed the tax computed under the rate in effect on the day after
the date of the enactment of this Act.
SEC. 905. OPERATORS OF MULTIPLE GASOLINE RETAIL OUTLETS TREATED AS
WHOLESALE DISTRIBUTOR FOR REFUND PURPOSES.
(a) In General.--Subparagraph (B) of section 6416(a)(4) (defining
wholesale distributor) is amended by adding at the end the following new
sentence: ``Such term includes any person who makes retail sales of
gasoline at 10 or more retail motor fuel outlets.''.
(b) <<NOTE: 26 USC 6416 note.>> Effective Date.--The amendment made
by subsection (a) shall apply to sales after the date of the enactment
of this Act.
SEC. 906. EXEMPTION OF ELECTRIC AND OTHER CLEAN-FUEL MOTOR VEHICLES FROM
LUXURY AUTOMOBILE CLASSIFICATION.
(a) In General.--Subsection (a) of section 4001 (relating to
imposition of tax) is amended to read as follows:
``(a) Imposition of Tax.--
``(1) In general.--There is hereby imposed on the 1st retail
sale of any passenger vehicle a tax equal to 10 percent of the
price for which so sold to the extent such price exceeds the
applicable amount.
``(2) Applicable amount.--
``(A) In general.--Except as provided in
subparagraphs (B) and (C), the applicable amount is
$30,000.
``(B) Qualified clean-fuel vehicle property.--In the
case of a passenger vehicle which is propelled by a fuel
which is not a clean-burning fuel and to which is
installed qualified clean-fuel vehicle property (as
defined in section 179A(c)(1)(A)) for purposes of
permitting such vehicle to be propelled by a clean-
burning fuel, the applicable amount is equal to the sum
of--
``(i) the dollar amount in effect under
subparagraph (A), plus
``(ii) the increase in the price for which the
passenger vehicle was sold (within the meaning of
section 4002) due to the installation of such
property.
``(C) Purpose built passenger vehicle.--
``(i) In general.--In the case of a purpose
built passenger vehicle, the applicable amount is
equal to 150 percent of the dollar amount in
effect under subparagraph (A).
``(ii) Purpose built passenger vehicle.--For
purposes of clause (i), the term `purpose built
passenger vehicle' means a passenger vehicle
produced by an original equipment manufacturer and
designed so that the vehicle may be propelled
primarily by electricity.''.
[[Page 111 STAT. 875]]
(b) Conforming Amendments.--
(1) Subsection (e) of section 4001 (relating to inflation
adjustment) is amended by striking ``and section 4003(a)''.
(2) Subsection (f) of section 4001 (relating to phasedown)
is amended by striking ``subsection (a)'' and inserting
``subsection (a)(1)''.
(3) Subparagraph (A) of section 4003(a)(1) is amended by
inserting ``(other than property described in section
4001(a)(2)(B))'' after ``part or accessory''.
(4) Subparagraph (B) of section 4003(a)(2) is amended to
read as follows:
``(B) the appropriate applicable amount as
determined under section 4001(a)(2).''.
(c) <<NOTE: 26 USC 4001 note.>> Effective Date.--The amendments
made by this section shall apply to sales and installations occurring
after the date of the enactment of this Act.
SEC. 907. RATE OF TAX ON CERTAIN SPECIAL FUELS DETERMINED ON BASIS OF
BTU EQUIVALENCY WITH GASOLINE.
(a) Special Motor Fuels.--
(1) In general.--Paragraph (2) of section 4041(a) (relating
to special motor fuels) is amended to read as follows:
``(2) Special motor fuels.--
``(A) In general.--There is hereby imposed a tax on
any liquid (other than kerosene, gas oil, fuel oil, or
any product taxable under section 4081)--
``(i) sold by any person to an owner, lessee,
or other operator of a motor vehicle or motorboat
for use as a fuel in such motor vehicle or
motorboat, or
``(ii) used by any person as a fuel in a motor
vehicle or motorboat unless there was a taxable
sale of such liquid under clause (i).
``(B) Rate of tax.--The rate of the tax imposed by
this paragraph shall be--
``(i) except as otherwise provided in this
subparagraph, the rate of tax specified in section
4081(a)(2)(A)(i) which is in effect at the time of
such sale or use,
``(ii) 13.6 cents per gallon in the case of
liquefied petroleum gas, and
``(iii) 11.9 cents per gallon in the case of
liquefied natural gas.
In the case of any sale or use after September 30, 1999,
clause (ii) shall be applied by substituting `3.2 cents'
for `13.6 cents', and clause (iii) shall be applied by
substituting `2.8 cents' for `11.9 cents'.''.
(2) Conforming amendment.--Paragraph (1) of section 4041(d)
is amended by inserting ``and other than liquefied natural gas''
after ``liquefied petroleum gas''.
(b) Methanol Fuel Produced From Natural Gas.--Subparagraph (A) of
section 4041(m)(1) is amended to read as follows:
``(A) the rate of the tax imposed by subsection
(a)(2) shall be--
``(i) after September 30, 1997, and before
October 1, 1999--
[[Page 111 STAT. 876]]
``(I) in the case of fuel none of
the alcohol in which consists of
ethanol, 9.15 cents per gallon, and
``(II) in any other case, 11.3 cents
per gallon, and
``(ii) after September 30, 1999--
``(I) in the case of fuel none of
the alcohol in which consists of
ethanol, 2.15 cents per gallon, and
``(II) in any other case, 4.3 cents
per gallon, and''.
(c) <<NOTE: 26 USC 4041 note.>> Effective Date.--The amendments
made by this section shall take effect on October 1, 1997.
SEC. 908. MODIFICATION OF TAX TREATMENT OF HARD CIDER.
(a) Hard Cider Containing Less Than 7 Percent Alcohol Taxed as
Wine.--Subsection (b) of section 5041 (relating to imposition and rate
of tax) is amended by striking ``and'' at the end of paragraph (4), by
striking the period at the end of paragraph (5) and inserting ``; and'',
and by adding at the end the following new paragraph:
``(6) On hard cider derived primarily from apples or apple
concentrate and water, containing no other fruit product, and
containing at least one-half of 1 percent and less than 7
percent alcohol by volume, 22.6 cents per wine gallon.''.
(b) Application of Small Producer Credit.--Paragraph (1) of section
5041(c) (relating to credit for small domestic producers) is amended by
adding at the end the following new sentence: ``In the case of wine
described in subsection (b)(6), the preceding sentence shall be applied
by substituting `5.6 cents' for `90 cents'.''.
(c) <<NOTE: 26 USC 5041 note.>> Effective Date.--The amendments
made by this section shall take effect on October 1, 1997.
SEC. 909. STUDY OF FEASIBILITY OF MOVING COLLECTION POINT FOR DISTILLED
SPIRITS EXCISE TAX.
(a) In General.--The Secretary of the Treasury or his delegate shall
conduct a study of options for changing the event on which the tax
imposed by section 5001 of the Internal Revenue Code of 1986 is
determined. One such option which shall be studied is determining such
tax on removal from registered wholesale warehouses. In studying each
such option, such Secretary shall focus on administrative issues
including--
(1) tax compliance,
(2) the number of taxpayers required to pay the tax,
(3) the types of financial responsibility requirements that
might be required, and
(4) special requirements regarding segregation of non-tax-
paid distilled spirits from other products.
Such study shall review the effects of each such option on the
Department of the Treasury (including staffing and other demands on
budgetary resources) and the change in the period between the time such
tax is currently paid and the time such tax would be paid under each
such option.
(b) Report.--The report of such study shall be submitted to the
Committee on Finance of the Senate and the Committee on Ways and Means
of the House of Representatives not later than March 31, 1998.
[[Page 111 STAT. 877]]
SEC. 910. CLARIFICATION OF AUTHORITY TO USE SEMI-GENERIC DESIGNATIONS ON
WINE LABELS.
(a) In General.--Section 5388 (relating to designation of wines) is
amended by adding at the end the following new subsection:
``(c) Use of Semi-Generic Designations.--
``(1) In general.--Semi-generic designations may be used to
designate wines of an origin other than that indicated by such
name only if--
``(A) there appears in direct conjunction therewith
an appropriate appellation of origin disclosing the true
place of origin of the wine, and
``(B) the wine so designated conforms to the
standard of identity, if any, for such wine contained in
the regulations under this section or, if there is no
such standard, to the trade understanding of such class
or type.
``(2) Determination of whether name is semi-generic.--
``(A) In general.--Except as provided in
subparagraph (B), a name of geographic significance,
which is also the designation of a class or type of
wine, shall be deemed to have become semi-generic only
if so found by the Secretary.
``(B) Certain names treated as semi-generic.--The
following names shall be treated as semi-generic:
Angelica, Burgundy, Claret, Chablis, Champagne, Chianti,
Malaga, Marsala, Madeira, Moselle, Port, Rhine Wine or
Hock, Sauterne, Haut Sauterne, Sherry, Tokay.''.
(b) <<NOTE: 26 USC 5388 note.>> Effective Date.--The amendment made
by this section shall take effect on the date of the enactment of this
Act.
Subtitle B--Revisions Relating to Disasters
SEC. 911. AUTHORITY TO POSTPONE CERTAIN TAX-RELATED DEADLINES BY REASON
OF PRESIDENTIALLY DECLARED DISASTER.
(a) In General.--Chapter 77 is amended by inserting after section
7508 the following new section:
``SEC. 7508A. AUTHORITY TO POSTPONE CERTAIN TAX-RELATED DEADLINES BY
REASON OF PRESIDENTIALLY DECLARED DISASTER.
``(a) In General.--In the case of a taxpayer determined by the
Secretary to be affected by a Presidentially declared disaster (as
defined by section 1033(h)(3)), the Secretary may prescribe regulations
under which a period of up to 90 days may be disregarded in determining,
under the internal revenue laws, in respect of any tax liability
(including any penalty, additional amount, or addition to the tax) of
such taxpayer--
``(1) whether any of the acts described in paragraph (1) of
section 7508(a) were performed within the time prescribed
therefor, and
``(2) the amount of any credit or refund.
``(b) Interest on Overpayments and Underpayments.--Subsection (a)
shall not apply for the purpose of determining interest on any
overpayment or underpayment.''.
[[Page 111 STAT. 878]]
(b) Clerical Amendment.--The table of sections for chapter 77 is
amended by inserting after the item relating to section 7508 the
following new item:
``Sec. 7508A. Authority to postpone certain tax-related
deadlines by reason of presidentially
declared disaster.''.
(c) <<NOTE: 26 USC 7508A note.>> Effective Date.--The amendments
made by this section shall apply with respect to any period for
performing an act that has not expired before the date of the enactment
of this Act.
SEC. 912. USE OF CERTAIN APPRAISALS TO ESTABLISH AMOUNT OF DISASTER
LOSS.
(a) In General.--Subsection (i) of section 165 is amended by adding
at the end the following new paragraph:
``(4) Use of disaster loan appraisals to establish amount of
loss.--Nothing in this title shall be construed to prohibit the
Secretary from prescribing regulations or other guidance under
which an appraisal for the purpose of obtaining a loan of
Federal funds or a loan guarantee from the Federal Government as
a result of a Presidentially declared disaster (as defined by
section 1033(h)(3)) may be used to establish the amount of any
loss described in paragraph (1) or (2).''.
(b) <<NOTE: 26 USC 165 note.>> Effective Date.--The amendment made
by subsection (a) shall take effect on the date of the enactment of this
Act.
SEC. 913. TREATMENT OF LIVESTOCK SOLD ON ACCOUNT OF WEATHER-RELATED
CONDITIONS.
(a) Deferral of Income Inclusion.--Subsection (e) of section 451
(relating to special rules for proceeds from livestock sold on account
of drought) is amended--
(1) by striking ``drought conditions, and that these drought
conditions'' in paragraph (1) and inserting ``drought, flood, or
other weather-related conditions, and that such conditions'';
and
(2) by inserting ``, Flood, or Other Weather-Related
Conditions'' after ``Drought'' in the subsection heading.
(b) Involuntary Conversions.--Subsection (e) of section 1033
(relating to livestock sold on account of drought) is amended--
(1) by inserting ``, flood, or other weather-related
conditions'' before the period at the end thereof; and
(2) by inserting ``, Flood, or Other Weather-Related
Conditions'' after ``Drought'' in the subsection heading.
(c) <<NOTE: 26 USC 451 note.>> Effective Date.--The amendments made
by this section shall apply to sales and exchanges after December 31,
1996.
SEC. 914. MORTGAGE FINANCING FOR RESIDENCES LOCATED IN DISASTER AREAS.
Subsection (k) of section 143 (relating to mortgage revenue bonds;
qualified mortgage bond and qualified veteran's mortgage bond) is
amended by adding at the end the following new paragraph:
``(11) Special rules for residences located in disaster
areas.--In the case of a residence located in an area determined
by the President to warrant assistance from the Federal
Government under the Robert T. Stafford Disaster Relief and
Emergency Assistance Act (as in effect on the date of the
enactment of the Taxpayer Relief Act of 1997), this section
shall be applied with the following modifications to financing
provided with respect to such residence within 2 years after the
date of the disaster declaration:
[[Page 111 STAT. 879]]
``(A) Subsection (d) (relating to 3-year
requirement) shall not apply.
``(B) Subsections (e) and (f) (relating to purchase
price requirement and income requirement) shall be
applied as if such residence were a targeted area
residence.
The preceding sentence <<NOTE: Effective date.>> shall apply
only with respect to bonds issued after December 31, 1996, and
before January 1, 1999.''.
SEC. 915. ABATEMENT OF INTEREST ON UNDERPAYMENTS BY TAXPAYERS IN
PRESIDENTIALLY DECLARED DISASTER AREAS.
(a) <<NOTE: 26 USC 7508A note.>> In General.--If the Secretary of
the Treasury extends for any period the time for filing income tax
returns under section 6081 of the Internal Revenue Code of 1986 and the
time for paying income tax with respect to such returns under section
6161 of such Code (and waives any penalties relating to the failure to
so file or so pay) for any individual located in a Presidentially
declared disaster area, the Secretary shall, notwithstanding section
7508A(b) of such Code, abate for such period the assessment of any
interest prescribed under section 6601 of such Code on such income tax.
(b) Presidentially Declared Disaster Area.--For purposes of
subsection (a), the term ``Presidentially declared disaster area''
means, with respect to any individual, any area which the President has
determined during 1997 warrants assistance by the Federal Government
under the Robert T. Stafford Disaster Relief and Emergency Assistance
Act.
(c) Individual.--For purposes of this section, the term
``individual'' shall not include any estate or trust.
(d) Effective Date.--This section shall apply to disasters declared
after December 31, 1996.
Subtitle C--Provisions Relating to Employment Taxes
SEC. 921. <<NOTE: 26 USC 3121 note.>> CLARIFICATION OF STANDARD TO BE
USED IN DETERMINING EMPLOYMENT TAX STATUS OF SECURITIES
BROKERS.
(a) In General.--In determining for purposes of the Internal Revenue
Code of 1986 whether a registered representative of a securities broker-
dealer is an employee (as defined in section 3121(d) of the Internal
Revenue Code of 1986), no weight shall be given to instructions from the
service recipient which are imposed only in compliance with investor
protection standards imposed by the Federal Government, any State
government, or a governing body pursuant to a delegation by a Federal or
State agency.
(b) Effective Date.--Subsection (a) shall apply to services
performed after December 31, 1997.
SEC. 922. CLARIFICATION OF EXEMPTION FROM SELF-EMPLOYMENT TAX FOR
CERTAIN TERMINATION PAYMENTS RECEIVED BY FORMER INSURANCE
SALESMEN.
(a) Internal Revenue Code.--Section 1402 (relating to definitions)
is amended by adding at the end the following new subsection:
``(k) Codification of Treatment of Certain Termination Payments
Received by Former Insurance Salesmen.--Nothing in subsection (a) shall
be construed as including in the net earnings
[[Page 111 STAT. 880]]
from self-employment of an individual any amount received during the
taxable year from an insurance company on account of services performed
by such individual as an insurance salesman for such company if--
``(1) such amount is received after termination of such
individual's agreement to perform such services for such
company,
``(2) such individual performs no services for such company
after such termination and before the close of such taxable
year,
``(3) such individual enters into a covenant not to compete
against such company which applies to at least the 1-year period
beginning on the date of such termination, and
``(4) the amount of such payment--
``(A) depends primarily on policies sold by or
credited to the account of such individual during the
last year of such agreement or the extent to which such
policies remain in force for some period after such
termination, or both, and
``(B) does not depend to any extent on length of
service or overall earnings from services performed for
such company (without regard to whether eligibility for
payment depends on length of service).''.
(b) Social Security Act.--Section 211 of the Social Security
Act <<NOTE: 42 USC 411.>> is amended by adding at the end the following
new subsection:
``Codification of Treatment of Certain Termination Payments Received by
Former Insurance Salesmen
``(j) Nothing in subsection (a) shall be construed as including in
the net earnings from self-employment of an individual any amount
received during the taxable year from an insurance company on account of
services performed by such individual as an insurance salesman for such
company if--
``(1) such amount is received after termination of such
individual's agreement to perform such services for such
company,
``(2) such individual performs no services for such company
after such termination and before the close of such taxable
year,
``(3) such individual enters into a covenant not to compete
against such company which applies to at least the 1-year period
beginning on the date of such termination, and
``(4) the amount of such payment--
``(A) depends primarily on policies sold by or
credited to the account of such individual during the
last year of such agreement or the extent to which such
policies remain in force for some period after such
termination, or both, and
``(B) does not depend to any extent on length of
service or overall earnings from services performed for
such company (without regard to whether eligibility for
payment depends on length of service).''.
(c) <<NOTE: 26 USC 1402 note.>> Effective Date.--The amendments
made by this section shall apply to payments after December 31, 1997.
[[Page 111 STAT. 881]]
Subtitle D--Provisions Relating to Small Businesses
SEC. 931. WAIVER OF PENALTY THROUGH JUNE 30, 1998, ON SMALL BUSINESSES
FAILING TO MAKE ELECTRONIC FUND TRANSFERS OF TAXES.
No <<NOTE: 26 USC 6302 note.>> penalty shall be imposed under the
Internal Revenue Code of 1986 solely by reason of a failure by a person
to use the electronic fund transfer system established under section
6302(h) of such Code if--
(1) such person is a member of a class of taxpayers first
required to use such system on or after July 1, 1997, and
(2) such failure occurs before July 1, 1998.
SEC. 932. CLARIFICATION OF TREATMENT OF HOME OFFICE USE FOR
ADMINISTRATIVE AND MANAGEMENT ACTIVITIES.
(a) In General.--Paragraph (1) of section 280A(c) is amended by
adding at the end the following new sentence: ``For purposes of
subparagraph (A), the term `principal place of business' includes a
place of business which is used by the taxpayer for the administrative
or management activities of any trade or business of the taxpayer if
there is no other fixed location of such trade or business where the
taxpayer conducts substantial administrative or management activities of
such trade or business.''.
(b) <<NOTE: 26 USC 280A note.>> Effective Date.--The amendment made
by subsection (a) shall apply to taxable years beginning after December
31, 1998.
SEC. 933. AVERAGING OF FARM INCOME OVER 3 YEARS.
(a) In General.--Subchapter Q of chapter 1 (relating to readjustment
of tax between years and special limitations) is amended by adding the
following new part:
``PART I--INCOME AVERAGING
``Sec. 1301. Averaging of farm income.
``SEC. 1301. AVERAGING OF FARM INCOME.
``(a) In General.--At the election of an individual engaged in a
farming business, the tax imposed by section 1 for such taxable year
shall be equal to the sum of--
``(1) a tax computed under such section on taxable income
reduced by elected farm income, plus
``(2) the increase in tax imposed by section 1 which would
result if taxable income for each of the 3 prior taxable years
were increased by an amount equal to one-third of the elected
farm income.
Any adjustment under this section for any taxable year shall be taken
into account in applying this section for any subsequent taxable year.
``(b) Definitions.--In this section--
``(1) Elected farm income.--
``(A) In general.--The term `elected farm income'
means so much of the taxable income for the taxable
year--
``(i) which is attributable to any farming
business; and
[[Page 111 STAT. 882]]
``(ii) which is specified in the election
under subsection (a).
``(B) Treatment of gains.--For purposes of
subparagraph (A), gain from the sale or other
disposition of property (other than land) regularly used
by the taxpayer in such a farming business for a
substantial period shall be treated as attributable to
such a farming business.
``(2) Individual.--The term `individual' shall not include
any estate or trust.
``(3) Farming business.--The term `farming business' has the
meaning given such term by section 263A(e)(4).
``(c) Regulations.--The Secretary shall prescribe such regulations
as may be appropriate to carry out the purposes of this section,
including regulations regarding--
``(1) the order and manner in which items of income, gain,
deduction, or loss, or limitations on tax, shall be taken into
account in computing the tax imposed by this chapter on the
income of any taxpayer to whom this section applies for any
taxable year, and
``(2) the treatment of any short taxable year.''.
(b) Clerical Amendment.--The table of parts for such subchapter Q is
amended by inserting before the item relating to part II the following
new item:
``Part I. Income averaging.''.
(c) <<NOTE: 26 USC 1301 note.>> Effective Date.--The amendments
made by this section shall apply to taxable years beginning after
December 31, 1997, and before January 1, 2001.
SEC. 934. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
EMPLOYED INDIVIDUALS.
(a) In General.--The table contained in section 162(l)(1)(B) is
amended to read as follows:
``For taxable years beginnThe applicable percentage is--
calendar year--
1997 40
1998 and 1999 45
2000 and 2001 50
2002 60
2003 through 2005 80
2006 90
2007 and thereafter 100.''.
<<NOTE: 26 USC 162 note.>> (b) Effective Date.--The amendment made
by this section shall apply to taxable years beginning after December
31, 1996.
SEC. 935. MORATORIUM ON CERTAIN REGULATIONS.
No temporary or final regulation with respect to the definition of a
limited partner under section 1402(a)(13) of the Internal Revenue Code
of 1986 may be issued or made effective before July 1, 1998.
Subtitle E--Brownfields
SEC. 941. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
adding at the end the following new section:
[[Page 111 STAT. 883]]
``SEC. 198. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.
``(a) In General.--A taxpayer may elect to treat any qualified
environmental remediation expenditure which is paid or incurred by the
taxpayer as an expense which is not chargeable to capital account. Any
expenditure which is so treated shall be allowed as a deduction for the
taxable year in which it is paid or incurred.
``(b) Qualified Environmental Remediation Expenditure.--For purposes
of this section--
``(1) In general.--The term `qualified environmental
remediation expenditure' means any expenditure--
``(A) which is otherwise chargeable to capital
account, and
``(B) which is paid or incurred in connection with
the abatement or control of hazardous substances at a
qualified contaminated site.
``(2) Special rule for expenditures for depreciable
property.--Such term shall not include any expenditure for the
acquisition of property of a character subject to the allowance
for depreciation which is used in connection with the abatement
or control of hazardous substances at a qualified contaminated
site; except that the portion of the allowance under section 167
for such property which is otherwise allocated to such site
shall be treated as a qualified environmental remediation
expenditure.
``(c) Qualified Contaminated Site.--For purposes of this section--
``(1) Qualified contaminated site.--
``(A) In general.--The term `qualified contaminated
site' means any area--
``(i) which is held by the taxpayer for use in
a trade or business or for the production of
income, or which is property described in section
1221(1) in the hands of the taxpayer,
``(ii) which is within a targeted area, and
``(iii) at or on which there has been a
release (or threat of release) or disposal of any
hazardous substance.
``(B) Taxpayer must receive statement from state
environmental agency.--An area shall be treated as a
qualified contaminated site with respect to expenditures
paid or incurred during any taxable year only if the
taxpayer receives a statement from the appropriate
agency of the State in which such area is located that
such area meets the requirements of clauses (ii) and
(iii) of subparagraph (A).
``(C) Appropriate state agency.--For purposes of
subparagraph (B), the chief executive officer of each
State may, in consultation with the Administrator of the
Environmental Protection Agency, designate the
appropriate State environmental agency within 60 days of
the date of the enactment of this section. If the chief
executive officer of a State has not designated an
appropriate State environmental agency within such 60-
day period, the appropriate environmental agency for
such State shall be designated by the Administrator of
the Environmental Protection Agency.
``(2) Targeted area.--
[[Page 111 STAT. 884]]
``(A) In general.--The term `targeted area' means--
``(i) any population census tract with a
poverty rate of not less than 20 percent,
``(ii) a population census tract with a
population of less than 2,000 if--
``(I) more than 75 percent of such
tract is zoned for commercial or
industrial use, and
``(II) such tract is contiguous to 1
or more other population census tracts
which meet the requirement of clause (i)
without regard to this clause,
``(iii) any empowerment zone or enterprise
community (and any supplemental zone designated on
December 21, 1994), and
``(iv) any site announced before February 1,
1997, as being included as a brownfields pilot
project of the Environmental Protection Agency.
``(B) National priorities listed sites not
included.--Such term shall not include any site which is
on, or proposed for, the national priorities list under
section 105(a)(8)(B) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 (as in
effect on the date of the enactment of this section).
``(C) Certain rules to apply.--For purposes of this
paragraph the rules of sections 1392(b)(4) and
1393(a)(9) shall apply.
``(d) Hazardous Substance.--For purposes of this section--
``(1) In general.--The term `hazardous substance' means--
``(A) any substance which is a hazardous substance
as defined in section 101(14) of the Comprehensive
Environmental Response, Compensation, and Liability Act
of 1980, and
``(B) any substance which is designated as a
hazardous substance under section 102 of such Act.
``(2) Exception.--Such term shall not include any substance
with respect to which a removal or remedial action is not
permitted under section 104 of such Act by reason of subsection
(a)(3) thereof.
``(e) Deduction Recaptured as Ordinary Income on Sale, Etc.--Solely
for purposes of section 1245, in the case of property to which a
qualified environmental remediation expenditure would have been
capitalized but for this section--
``(1) the deduction allowed by this section for such
expenditure shall be treated as a deduction for depreciation,
and
``(2) such property (if not otherwise section 1245 property)
shall be treated as section 1245 property solely for purposes of
applying section 1245 to such deduction.
``(f) Coordination With Other Provisions.--Sections 280B and 468
shall not apply to amounts which are treated as expenses under this
section.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.
``(h) Termination.--This section shall not apply to expenditures
paid or incurred after December 31, 2000.''.
[[Page 111 STAT. 885]]
(b) Clerical Amendment.--The table of sections for part VI of
subchapter B of chapter 1 is amended by adding at the end the following
new item:
``Sec. 198. Expensing of environmental remediation
costs.''.
(c) <<NOTE: 26 USC 198 note.>> Effective Date.--The amendments made
by this section shall apply to expenditures paid or incurred after the
date of the enactment of this Act, in taxable years ending after such
date.
Subtitle F--Empowerment Zones, Enterprise Communities, Brownfields, and
Community Development Financial Institutions
CHAPTER 1--ADDITIONAL EMPOWERMENT ZONES
SEC. 951. ADDITIONAL EMPOWERMENT ZONES.
(a) In General.--Paragraph (2) of section 1391(b) (relating to
designations of empowerment zones and enterprise communities) is
amended--
(1) by striking ``9'' and inserting ``11'',
(2) by striking ``6'' and inserting ``8'', and
(3) by striking ``750,000'' and inserting ``1,000,000''.
(b) Special Rules for Application of Employment Credit.--Subsection
(b) of section 1396 (relating to empowerment zone employment credit) is
amended--
(1) by striking so much of the subsection as precedes the
table and inserting the following:
``(b) Applicable Percentage.--For purposes of this section--
``(1) In general.--Except as provided in paragraph (2), the
term `applicable percentage' means the percentage determined in
accordance with the following table:'', and
(2) by adding at the end the following new paragraph:
``(2) Special Rule.--With respect to each empowerment zone
designated pursuant to the amendments made by the Taxpayer
Relief Act of 1997 to section 1391(b)(2), the following table
shall apply in lieu of the table in paragraph (1):
The.......................................
applicable................................
``In the case of wages paid orpercentage................................
incurred during calendar yeais--......................................
2000 through 2004 20
2005 15
2006 10
2007 5.''.
<<NOTE: 26 USC 1391 note.>> (c) Effective Date.--The amendments made
by this section shall take effect on the date of the enactment of this
Act, except that designations of new empowerment zones made pursuant to
such amendments shall be made during the 180-day period beginning on the
date of the enactment of this Act. No designation pursuant to such
amendments shall take effect before January 1, 2000.
[[Page 111 STAT. 886]]
CHAPTER 2--NEW EMPOWERMENT ZONES
SEC. 952. DESIGNATION OF NEW EMPOWERMENT ZONES.
(a) In General.--Section 1391 (relating to designation procedure for
empowerment zones and enterprise communities) is amended by adding at
the end the following new subsection:
``(g) Additional Designations Permitted.--
``(1) In general.--In addition to the areas designated under
subsection (a), the appropriate Secretaries may designate in the
aggregate an additional 20 nominated areas as empowerment zones
under this section, subject to the availability of eligible
nominated areas. Of that number, not more than 15 may be
designated in urban areas and not more than 5 may be designated
in rural areas.
``(2) Period designations may be made and take effect.--A
designation may be made under this subsection after the date of
the enactment of this subsection and before January 1, 1999.
``(3) Modifications to eligibility criteria, etc.--
``(A) Poverty rate requirement.--
``(i) In general.--A nominated area shall be
eligible for designation under this subsection
only if the poverty rate for each population
census tract within the nominated area is not less
than 20 percent and the poverty rate for at least
90 percent of the population census tracts within
the nominated area is not less than 25 percent.
``(ii) Treatment of census tracts with small
populations.--A population census tract with a
population of less than 2,000 shall be treated as
having a poverty rate of not less than 25 percent
if--
``(I) more than 75 percent of such
tract is zoned for commercial or
industrial use, and
``(II) such tract is contiguous to 1
or more other population census tracts
which have a poverty rate of not less
than 25 percent (determined without
regard to this clause).
``(iii) Exception for developable sites.--
Clause (i) shall not apply to up to 3
noncontiguous parcels in a nominated area which
may be developed for commercial or industrial
purposes. The aggregate area of noncontiguous
parcels to which the preceding sentence applies
with respect to any nominated area shall not
exceed 2,000 acres.
``(iv) Certain provisions not to apply.--
Section 1392(a)(4) (and so much of paragraphs (1)
and (2) of section 1392(b) as relate to section
1392(a)(4)) shall not apply to an area nominated
for designation under this subsection.
``(v) Special rule for rural empowerment
zone.--The Secretary of Agriculture may designate
not more than 1 empowerment zone in a rural area
without regard to clause (i) if such area
satisfies emigration criteria specified by the
Secretary of Agriculture.
``(B) Size limitation.--
``(i) In general.--The parcels described in
subparagraph (A)(iii) shall not be taken into
account
[[Page 111 STAT. 887]]
in determining whether the requirement of
subparagraph (A) or (B) of section 1392(a)(3) is
met.
``(ii) Special rule for rural areas.--If a
population census tract (or equivalent division
under section 1392(b)(4)) in a rural area exceeds
1,000 square miles or includes a substantial
amount of land owned by the Federal, State, or
local government, the nominated area may exclude
such excess square mileage or governmentally owned
land and the exclusion of that area will not be
treated as violating the continuous boundary
requirement of section 1392(a)(3)(B).
``(C) Aggregate population limitation.--The
aggregate population limitation under the last sentence
of subsection (b)(2) shall not apply to a designation
under paragraph (1)(B).
``(D) Previously designated enterprise communities
may be included.--Subsection (e)(5) shall not apply to
any enterprise community designated under subsection (a)
that is also nominated for designation under this
subsection.
``(E) Indian reservations may be nominated.--
``(i) In general.--Section 1393(a)(4) shall
not apply to an area nominated for designation
under this subsection.
``(ii) Special rule.--An area in an Indian
reservation shall be treated as nominated by a
State and a local government if it is nominated by
the reservation governing body (as determined by
the Secretary of Interior).''.
(b) Employment Credit Not To Apply to New Empowerment Zones.--
Section 1396 (relating to empowerment zone employment credit) is amended
by adding at the end the following new subsection:
``(e) Credit Not To Apply to Empowerment Zones Designated Under
Section 1391(g).--This section shall be applied without regard to any
empowerment zone designated under section 1391(g).''.
(c) Increased Expensing Under Section 179 Not To Apply in
Developable Sites.--Section 1397A (relating to increase in expensing
under section 179) is amended by adding at the end the following new
subsection:
``(c) Limitation.--For purposes of this section, qualified zone
property shall not include any property substantially all of the use of
which is in any parcel described in section 1391(g)(3)(A)(iii).''.
(d) Conforming Amendments.--
(1) Subsections (e) and (f) of section 1391 are each amended
by striking ``subsection (a)'' and inserting ``this section''.
(2) Section 1391(c) is amended by striking ``this section''
and inserting ``subsection (a)''.
SEC. 953. VOLUME CAP NOT TO APPLY TO ENTERPRISE ZONE FACILITY BONDS WITH
RESPECT TO NEW EMPOWERMENT ZONES.
(a) In General.--Section 1394 (relating to tax-exempt enterprise
zone facility bonds) is amended by adding at the end the following new
subsection:
``(f) Bonds for Empowerment Zones Designated Under Section
1391(g).--
[[Page 111 STAT. 888]]
``(1) In general.--In the case of a new empowerment zone
facility bond--
``(A) such bond shall not be treated as a private
activity bond for purposes of section 146, and
``(B) subsection (c) of this section shall not
apply.
``(2) Limitation on amount of bonds.--
``(A) In general.--Paragraph (1) shall apply to a
new empowerment zone facility bond only if such bond is
designated for purposes of this subsection by the local
government which nominated the area to which such bond
relates.
``(B) Limitation on bonds designated.--The aggregate
face amount of bonds which may be designated under
subparagraph (A) with respect to any empowerment zone
shall not exceed--
``(i) $60,000,000 if such zone is in a rural
area,
``(ii) $130,000,000 if such zone is in an
urban area and the zone has a population of less
than 100,000, and
``(iii) $230,000,000 if such zone is in an
urban area and the zone has a population of at
least 100,000.
``(C) Special rules.--
``(i) Coordination with limitation in
subsection (c).--Bonds to which paragraph (1)
applies shall not be taken into account in
applying the limitation of subsection (c) to other
bonds.
``(ii) Current refunding not taken into
account.--In the case of a refunding (or series of
refundings) of a bond designated under this
paragraph, the refunding obligation shall be
treated as designated under this paragraph (and
shall not be taken into account in applying
subparagraph (B)) if--
``(I) the amount of the refunding
bond does not exceed the outstanding
amount of the refunded bond, and
``(II) the refunded bond is redeemed
not later than 90 days after the date of
issuance of the refunding bond.
``(3) New empowerment zone facility bond.--For purposes of
this subsection, the term `new empowerment zone facility bond'
means any bond which would be described in subsection (a) if
only empowerment zones designated under section 1391(g) were
taken into account under sections 1397B and 1397C.''.
(b) <<NOTE: 26 USC 1394 note.>> Effective Date.--The amendment made
by this section shall apply to obligations issued after the date of the
enactment of this Act.
SEC. 954. MODIFICATION TO ELIGIBILITY CRITERIA FOR DESIGNATION OF FUTURE
ENTERPRISE ZONES IN ALASKA OR HAWAII.
Section 1392 (relating to eligibility criteria) is amended by adding
at the end the following new subsection:
``(d) Special Eligibility for Nominated Areas Located in Alaska or
Hawaii.--A nominated area in Alaska or Hawaii shall be treated as
meeting the requirements of paragraphs (2), (3), and (4) of subsection
(a) if for each census tract or block group within such area 20 percent
or more of the families have income
[[Page 111 STAT. 889]]
which is 50 percent or less of the statewide median family income (as
determined under section 143).''.
CHAPTER 3--TREATMENT OF EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES
SEC. 955. MODIFICATIONS TO ENTERPRISE ZONE FACILITY BOND RULES FOR ALL
EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES.
(a) Modifications Relating to Enterprise Zone Business.--Paragraph
(3) of section 1394(b) (defining enterprise zone business) is amended to
read as follows:
``(3) Enterprise zone business.--
``(A) In general.--Except as modified in this
paragraph, the term `enterprise zone business' has the
meaning given such term by section 1397B.
``(B) Modifications.--In applying section 1397B for
purposes of this section--
``(i) Businesses in enterprise communities
eligible.--References in section 1397B to
empowerment zones shall be treated as including
references to enterprise communities.
``(ii) Waiver of requirements during startup
period.--A business shall not fail to be treated
as an enterprise zone business during the startup
period if--
``(I) as of the beginning of the
startup period, it is reasonably
expected that such business will be an
enterprise zone business (as defined in
section 1397B as modified by this
paragraph) at the end of such period,
and
``(II) such business makes bona fide
efforts to be such a business.
``(iii) Reduced requirements after testing
period.--A business shall not fail to be treated
as an enterprise zone business for any taxable
year beginning after the testing period by reason
of failing to meet any requirement of subsection
(b) or (c) of section 1397B if at least 35 percent
of the employees of such business for such year
are residents of an empowerment zone or an
enterprise community. The preceding sentence shall
not apply to any business which is not a qualified
business by reason of paragraph (1), (4), or (5)
of section 1397B(d).
``(C) Definitions relating to subparagraph (b).--For
purposes of subparagraph (B)--
``(i) Startup period.--The term `startup
period' means, with respect to any property being
provided for any business, the period before the
first taxable year beginning more than 2 years
after the later of--
``(I) the date of issuance of the
issue providing such property, or
``(II) the date such property is
first placed in service after such
issuance (or, if earlier, the date which
is 3 years after the date described in
subclause (I)).
[[Page 111 STAT. 890]]
``(ii) Testing period.--The term `testing
period' means the first 3 taxable years beginning
after the startup period.
``(D) Portions of business may be enterprise zone
business.--The term `enterprise zone business' includes
any trades or businesses which would qualify as an
enterprise zone business (determined after the
modifications of subparagraph (B)) if such trades or
businesses were separately incorporated.''.
(b) Modifications Relating to Qualified Zone Property.--Paragraph
(2) of section 1394(b) (defining qualified zone property) is amended to
read as follows:
``(2) Qualified zone property.--The term `qualified zone
property' has the meaning given such term by section 1397C;
except that--
``(A) the references to empowerment zones shall be
treated as including references to enterprise
communities, and
``(B) section 1397C(a)(2) shall be applied by
substituting `an amount equal to 15 percent of the
adjusted basis' for `an amount equal to the adjusted
basis'.''.
(c) <<NOTE: 26 USC 1394 note.>> Effective Date.--The amendments
made by this section shall apply to obligations issued after the date of
the enactment of this Act.
SEC. 956. MODIFICATIONS TO ENTERPRISE ZONE BUSINESS DEFINITION FOR ALL
EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES.
(a) In General.--Section 1397B (defining enterprise zone business)
is amended--
(1) by striking ``80 percent'' in subsections (b)(2) and
(c)(1) and inserting ``50 percent'',
(2) by striking ``substantially all'' each place it appears
in subsections (b) and (c) and inserting ``a substantial
portion'',
(3) by striking ``, and exclusively related to,'' in
subsections (b)(4) and (c)(3),
(4) by adding at the end of subsection (d)(2) the following
new flush sentence:
``For purposes of subparagraph (B), the lessor of the property
may rely on a lessee's certification that such lessee is an
enterprise zone business.'',
(5) by striking ``substantially all'' in subsection (d)(3)
and inserting ``at least 50 percent'', and
(6) by adding at the end the following new subsection:
``(f) Treatment of Businesses Straddling Census Tract Lines.--For
purposes of this section, if--
``(1) a business entity or proprietorship uses real property
located within an empowerment zone,
``(2) the business entity or proprietorship also uses real
property located outside the empowerment zone,
``(3) the amount of real property described in paragraph (1)
is substantial compared to the amount of real property described
in paragraph (2), and
``(4) the real property described in paragraph (2) is
contiguous to part or all of the real property described in
paragraph (1),
[[Page 111 STAT. 891]]
then all the services performed by employees, all business activities,
all tangible property, and all intangible property of the business
entity or proprietorship that occur in or is located on the real
property described in paragraphs (1) and (2) shall be treated as
occurring or situated in an empowerment zone.''.
(b) <<NOTE: 26 USC 1397B note.>> Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning on or after the date of the
enactment of this Act.
(2) Special rule for enterprise zone facility bonds.--For
purposes of section 1394(b) of the Internal Revenue Code of
1986, the amendments made by this section shall apply to
obligations issued after the date of the enactment of this Act.
Subtitle G--Other Provisions
SEC. 961. USE OF ESTIMATES OF SHRINKAGE FOR INVENTORY ACCOUNTING.
(a) In General.--Section 471 (relating to general rule for
inventories) is amended by redesignating subsection (b) as subsection
(c) and by inserting after subsection (a) the following new subsection:
``(b) Estimates of Inventory Shrinkage Permitted.--A method of
determining inventories shall not be treated as failing to clearly
reflect income solely because it utilizes estimates of inventory
shrinkage that are confirmed by a physical count only after the last day
of the taxable year if--
``(1) the taxpayer normally does a physical count of
inventories at each location on a regular and consistent basis,
and
``(2) the taxpayer makes proper adjustments to such
inventories and to its estimating methods to the extent such
estimates are greater than or less than the actual shrinkage.''.
(b) <<NOTE: 26 USC 471 note.>> Effective Date.--
(1) In general.--The amendment made by this section shall
apply to taxable years ending after the date of the enactment of
this Act.
(2) Coordination with section 481.--In the case of any
taxpayer permitted by this section to change its method of
accounting to a permissible method for any taxable year--
(A) such changes shall be treated as initiated by
the taxpayer,
(B) such changes shall be treated as made with the
consent of the Secretary of the Treasury, and
(C) the period for taking into account the
adjustments under section 481 by reason of such change
shall be 4 years.
SEC. 962. ASSIGNMENT OF WORKMEN'S COMPENSATION LIABILITY ELIGIBLE FOR
EXCLUSION RELATING TO PERSONAL INJURY LIABILITY ASSIGNMENTS.
(a) In General.--Subsection (c) of section 130 (relating to certain
personal injury liability assignments) is amended--
(1) by inserting ``, or as compensation under any workmen's
compensation act,'' after ``(whether by suit or agreement)'' in
the material preceding paragraph (1),
[[Page 111 STAT. 892]]
(2) by inserting ``or the workmen's compensation claim,''
after ``agreement,'' in paragraph (1), and
(3) by striking ``section 104(a)(2)'' in paragraph (2)(D)
and inserting ``paragraph (1) or (2) of section 104(a)''.
(b) <<NOTE: 26 USC 130 note.>> Effective Date.--The amendments made
by subsection (a) shall apply to claims under workmen's compensation
acts filed after the date of the enactment of this Act.
SEC. 963. TAX-EXEMPT STATUS FOR CERTAIN STATE WORKER'S COMPENSATION ACT
COMPANIES.
(a) In General.--Section 501(c)(27) (relating to membership
organizations under workmen's compensation acts) is amended by adding at
the end the following:
``(B) Any organization (including a mutual insurance
company) if--
``(i) such organization is created by State law and
is organized and operated under State law exclusively
to--
``(I) provide workmen's compensation insurance
which is required by State law or with respect to
which State law provides significant disincentives
if such insurance is not purchased by an employer,
and
``(II) provide related coverage which is
incidental to workmen's compensation insurance,
``(ii) such organization must provide workmen's
compensation insurance to any employer in the State (for
employees in the State or temporarily assigned out-of-
State) which seeks such insurance and meets other
reasonable requirements relating thereto,
``(iii)(I) the State makes a financial commitment
with respect to such organization either by extending
the full faith and credit of the State to the initial
debt of such organization or by providing the initial
operating capital of such organization, and (II) in the
case of periods after the date of enactment of this
subparagraph, the assets of such organization revert to
the State upon dissolution or State law does not permit
the dissolution of such organization, and
``(iv) the majority of the board of directors or
oversight body of such organization are appointed by the
chief executive officer or other executive branch
official of the State, by the State legislature, or by
both.''.
(b) Conforming Amendments.--Section 501(c)(27) is amended by
inserting ``(A)'' after ``(27)'', by redesignating subparagraphs (A),
(B), and (C) as clauses (i), (ii), and (iii), respectively, and by
redesignating clauses (i) and (ii) of subparagraphs (B) and (C) (before
redesignation) as subclauses (I) and (II), respectively.
(c) <<NOTE: 26 USC 501 note.>> Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 964. ELECTION FOR 1987 PARTNERSHIPS TO CONTINUE EXCEPTION FROM
TREATMENT OF PUBLICLY TRADED PARTNERSHIPS AS CORPORATIONS.
(a) In General.--Section 7704 is amended by adding at the end the
following new subsection:
``(g) Exception for Electing 1987 Partnerships.--
``(1) In general.--Subsection (a) shall not apply to an
electing 1987 partnership.
[[Page 111 STAT. 893]]
``(2) Electing 1987 partnership.--For purposes of this
subsection, the term `electing 1987 partnership' means any
publicly traded partnership if--
``(A) such partnership is an existing partnership
(as defined in section 10211(c)(2) of the Revenue
Reconciliation Act of 1987),
``(B) subsection (a) has not applied (and without
regard to subsection (c)(1) would not have applied) to
such partnership for all prior taxable years beginning
after December 31, 1987, and before January 1, 1998, and
``(C) such partnership elects the application of
this subsection, and consents to the application of the
tax imposed by paragraph (3), for its first taxable year
beginning after December 31, 1997.
A partnership which, but for this sentence, would be treated as
an electing 1987 partnership shall cease to be so treated (and
the election under subparagraph (C) shall cease to be in effect)
as of the 1st day after December 31, 1997, on which there has
been an addition of a substantial new line of business with
respect to such partnership.
``(3) Additional tax on electing partnerships.--
``(A) Imposition of tax.--There is hereby imposed
for each taxable year on the income of each electing
1987 partnership a tax equal to 3.5 percent of such
partnership's gross income for the taxable year from the
active conduct of trades and businesses by the
partnership.
``(B) Adjustments in the case of tiered
partnerships.--For purposes of this paragraph, in the
case of a partnership which is a partner in another
partnership, the gross income referred to in
subparagraph (A) shall include the partnership's
distributive share of the gross income of such other
partnership from the active conduct of trades and
businesses of such other partnership. A similar rule
shall apply in the case of lower-tiered partnerships.
``(C) Treatment of tax.--For purposes of this title,
the tax imposed by this paragraph shall be treated as
imposed by chapter 1 other than for purposes of
determining the amount of any credit allowable under
chapter 1.
``(4) Election.--An election and consent under this
subsection shall apply to the taxable year for which made and
all subsequent taxable years unless revoked by the partnership.
Such revocation may be made without the consent of the
Secretary, but, once so revoked, may not be reinstated.''.
(b) <<NOTE: 26 USC 7704 note.>> Effective Date.--The amendment made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 965. EXCLUSION FROM UNRELATED BUSINESS TAXABLE INCOME FOR CERTAIN
SPONSORSHIP PAYMENTS.
(a) In General.--Section 513 (relating to unrelated trade or
business income) is amended by adding at the end the following new
subsection:
``(i) Treatment of Certain Sponsorship Payments.--
``(1) In general.--The term `unrelated trade or business'
does not include the activity of soliciting and receiving
qualified sponsorship payments.
``(2) Qualified sponsorship payments.--For purposes of this
subsection--
[[Page 111 STAT. 894]]
``(A) In general.--The term `qualified sponsorship
payment' means any payment made by any person engaged in
a trade or business with respect to which there is no
arrangement or expectation that such person will receive
any substantial return benefit other than the use or
acknowledgement of the name or logo (or product lines)
of such person's trade or business in connection with
the activities of the organization that receives such
payment. Such a use or acknowledgement does not include
advertising such person's products or services
(including messages containing qualitative or
comparative language, price information, or other
indications of savings or value, an endorsement, or an
inducement to purchase, sell, or use such products or
services).
``(B) Limitations.--
``(i) Contingent payments.--The term
`qualified sponsorship payment' does not include
any payment if the amount of such payment is
contingent upon the level of attendance at one or
more events, broadcast ratings, or other factors
indicating the degree of public exposure to one or
more events.
``(ii) Safe harbor does not apply to
periodicals and qualified convention and trade
show activities.--The term `qualified sponsorship
payment' does not include--
``(I) any payment which entitles the
payor to the use or acknowledgement of
the name or logo (or product lines) of
the payor's trade or business in
regularly scheduled and printed material
published by or on behalf of the payee
organization that is not related to and
primarily distributed in connection with
a specific event conducted by the payee
organization, or
``(II) any payment made in
connection with any qualified convention
or trade show activity (as defined in
subsection (d)(3)(B)).
``(3) Allocation of portions of single payment.--For
purposes of this subsection, to the extent that a portion of a
payment would (if made as a separate payment) be a qualified
sponsorship payment, such portion of such payment and the other
portion of such payment shall be treated as separate
payments.''.
(b) <<NOTE: 26 USC 513 note.>> Effective Date.--The amendment made
by this section shall apply to payments solicited or received after
December 31, 1997.
SEC. 966. ASSOCIATIONS OF HOLDERS OF TIMESHARE INTERESTS TO BE TAXED
LIKE OTHER HOMEOWNERS ASSOCIATIONS.
(a) Timeshare Associations Included as Homeowner Associations.--
(1) In general.--Paragraph (1) of section 528(c) (defining
homeowners association) is amended--
(A) by striking ``or a residential real estate
management association'' and inserting ``, a residential
real estate management association, or a timeshare
association'' in the material preceding subparagraph
(A),
[[Page 111 STAT. 895]]
(B) by striking ``or'' at the end of clause (i) of
subparagraph (B), by striking the period at the end of
clause (ii) of subparagraph (B) and inserting ``, or'',
and by adding at the end of subparagraph (B) the
following new clause:
``(iii) owners of timeshare rights to use, or
timeshare ownership interests in, association
property in the case of a timeshare
association,'', and
(C) by inserting ``and, in the case of a timeshare
association, for activities provided to or on behalf of
members of the association'' before the comma at the end
of subparagraph (C).
(2) Timeshare association defined.--Subsection (c) of
section 528 is amended by redesignating paragraph (4) as
paragraph (5) and by inserting after paragraph (3) the following
new paragraph:
``(4) Timeshare association.--The term `timeshare
association' means any organization (other than a condominium
management association) meeting the requirement of subparagraph
(A) of paragraph (1) if any member thereof holds a timeshare
right to use, or a timeshare ownership interest in, real
property constituting association property.''.
(b) Exempt Function Income.--Paragraph (3) of section 528(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
adding at the end the following new subparagraph:
``(C) owners of timeshare rights to use, or
timeshare ownership interests in, real property in the
case of a timeshare association.''.
(c) Association Property.--Paragraph (5) of section 528(c), as
redesignated by subsection (a)(2), is amended by adding at the end the
following new flush sentence:
``In the case of a timeshare association, such term includes
property in which the timeshare association, or members of the
association, have rights arising out of recorded easements,
covenants, or other recorded instruments to use property related
to the timeshare project.''.
(d) Rate of Tax.--Subsection (b) of section 528 (relating to certain
homeowners associations) is amended by inserting before the period ``(32
percent of such income in the case of a timeshare association)''.
(e) <<NOTE: 26 USC 528 note.>> Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1996.
SEC. 967. ADDITIONAL ADVANCE REFUNDING OF CERTAIN VIRGIN ISLAND BONDS.
Subclause (I) of section 149(d)(3)(A)(i) of the Internal Revenue
Code of 1986 shall not apply to the second advance refunding of any
issue of the Virgin Islands which was first advance refunded before June
9, 1997, if the debt provisions of the refunding bonds are changed to
repeal the priority first lien requirement of the refunded bonds.
SEC. 968. NONRECOGNITION OF GAIN ON SALE OF STOCK TO CERTAIN FARMERS'
COOPERATIVES.
(a) In General.--Section 1042 (relating to sales of stock to
employee stock ownership plans or certain cooperatives) is amended by
adding at the end the following new subsection:
[[Page 111 STAT. 896]]
``(g) Application of Section to Sales of Stock in Agricultural
Refiners and Processors to Eligible Farm Cooperatives.--
``(1) In general.--This section shall apply to the sale of
stock of a qualified refiner or processor to an eligible
farmers' cooperative.
``(2) Qualified refiner or processor.--For purposes of this
subsection, the term `qualified refiner or processor' means a
domestic corporation--
``(A) substantially all of the activities of which
consist of the active conduct of the trade or business
of refining or processing agricultural or horticultural
products, and
``(B) which, during the 1-year period ending on the
date of the sale, purchases more than one-half of such
products to be refined or processed from--
``(i) farmers who make up the eligible
farmers' cooperative which is purchasing stock in
the corporation in a transaction to which this
subsection is to apply, or
``(ii) such cooperative.
``(3) Eligible farmers' cooperative.--For purposes of this
section, the term `eligible farmers' cooperative' means an
organization to which part I of subchapter T applies and which
is engaged in the marketing of agricultural or horticultural
products.
``(4) Special rules.--In applying this section to a sale to
which paragraph (1) applies--
``(A) the eligible farmers' cooperative shall be
treated in the same manner as a cooperative described in
subsection (b)(1)(B),
``(B) subsection (b)(2) shall be applied by
substituting `100 percent' for `30 percent' each place
it appears,
``(C) the determination as to whether any stock in
the domestic corporation is a qualified security shall
be made without regard to whether the stock is an
employer security or to subsection (c)(1)(A), and
``(D) paragraphs (2)(D) and (7) of subsection (c)
shall not apply.''.
(b) <<NOTE: 26 USC 1042 note.>> Effective Date.--The amendment made
by this section shall apply to sales after December 31, 1997.
SEC. 969. INCREASED DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR
INDIVIDUALS SUBJECT TO FEDERAL HOURS OF SERVICE.
(a) In General.--Section 274(n) (relating to only 50 percent of meal
and entertainment expenses allowed as deduction) is amended by adding at
the end the following new paragraph:
``(3) Special rule for individuals subject to federal hours
of service.--
``(A) In general.--In the case of any expenses for
food or beverages consumed while away from home (within
the meaning of section 162(a)(2)) by an individual
during, or incident to, the period of duty subject to
the hours of service limitations of the Department of
Transportation, paragraph (1) shall be applied by
substituting `the applicable percentage' for `50
percent'.
[[Page 111 STAT. 897]]
``(B) Applicable percentage.--For purposes of this
paragraph, the term `applicable percentage' means the
percentage determined under the following table:
The.......................................
applicable................................
``For taxable years beginning percentage................................
in calendar year-- is--......................................
1998 or 1999 55
2000 or 2001 60
2002 or 2003 65
2004 or 2005 70
2006 or 2007 75
2008 or thereafter 80.''.
<<NOTE: 26 USC 274 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall apply to taxable years beginning after December
31, 1997.
SEC. 970. CLARIFICATION OF DE MINIMIS FRINGE BENEFIT RULES TO NO-CHARGE
EMPLOYEE MEALS.
(a) In General.--Paragraph (2) of section 132(e) (defining de
minimis fringe) is amended by adding at the end the following new
sentence: ``For purposes of subparagraph (B), an employee entitled under
section 119 to exclude the value of a meal provided at such facility
shall be treated as having paid an amount for such meal equal to the
direct operating costs of the facility attributable to such meal.''.
<<NOTE: 26 USC 132 note.>> (b) Effective Date.--The amendment made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 971. EXEMPTION OF THE INCREMENTAL COST OF A CLEAN FUEL VEHICLE FROM
THE LIMITS ON DEPRECIATION FOR VEHICLES.
(a) In General.--Section 280F(a)(1) (relating to limiting
depreciation on luxury automobiles) is amended by adding at the end the
following new subparagraph:
``(C) Special rule for certain clean-fuel passenger
automobiles.--
``(i) Modified automobiles.--In the case of a
passenger automobile which is propelled by a fuel
which is not a clean-burning fuel and to which is
installed qualified clean-fuel vehicle property
(as defined in section 179A(c)(1)(A)) for purposes
of permitting such vehicle to be propelled by a
clean burning fuel (as defined in section
179A(e)(1)), subparagraph (A) shall not apply to
the cost of the installed qualified clean burning
vehicle property.
``(ii) Purpose built passenger vehicles.--In
the case of a purpose built passenger vehicle (as
defined in section 4001(a)(2)(C)(ii)), each of the
annual limitations specified in subparagraph (A)
shall be tripled.''.
<<NOTE: 26 USC 280F note.>> (b) Effective Date.--The amendments made
by this section shall apply to property placed in service after the date
of enactment of this Act and before January 1, 2005.
SEC. 972. TEMPORARY SUSPENSION OF TAXABLE INCOME LIMIT ON PERCENTAGE
DEPLETION FOR MARGINAL PRODUCTION.
(a) In General.--Paragraph (6) of section 613A(c) is amended by
adding at the end the following new subparagraph:
[[Page 111 STAT. 898]]
``(H) Temporary suspension of taxable income limit
with respect to marginal production.--The second
sentence of subsection (a) of section 613 shall not
apply to so much of the allowance for depletion as is
determined under subparagraph (A) for any taxable year
beginning after December 31, 1997, and before January 1,
2000.''.
(b) <<NOTE: 26 USC 613A note.>> Effective Date.--The amendment made
by subsection (a) shall apply to taxable years beginning after December
31, 1997.
SEC. 973. INCREASE IN STANDARD MILEAGE RATE EXPENSE DEDUCTION FOR
CHARITABLE USE OF PASSENGER AUTOMOBILE.
(a) In General.--Section 170(i) (relating to standard mileage rate
for use of passenger automobile) is amended to read as follows:
``(i) Standard Mileage Rate for Use of Passenger Automobile.--For
purposes of computing the deduction under this section for use of a
passenger automobile, the standard mileage rate shall be 14 cents per
mile.''.
(b) <<NOTE: 26 USC 170 note.>> Effective Date.--The amendment made
by subsection (a) shall apply to taxable years beginning after December
31, 1997.
SEC. 974. CLARIFICATION OF TREATMENT OF CERTAIN RECEIVABLES PURCHASED BY
COOPERATIVE HOSPITAL SERVICE ORGANIZATIONS.
(a) In General.--Subparagraph (A) of section 501(e)(1) is amended by
inserting ``(including the purchase of patron accounts receivable on a
recourse basis)'' after ``billing and collection''.
(b) <<NOTE: 26 USC 501 note.>> Effective Date.--The amendment made
by subsection (a) shall apply to taxable years beginning after December
31, 1996.
SEC. 975. DEDUCTION IN COMPUTING ADJUSTED GROSS INCOME FOR EXPENSES IN
CONNECTION WITH SERVICE PERFORMED BY CERTAIN OFFICIALS.
(a) In General.--Paragraph (2) of section 62(a) (defining adjusted
gross income) is amended by adding at the end the following new
subparagraph:
``(C) Certain expenses of officials.--The deductions
allowed by section 162 which consist of expenses paid or
incurred with respect to services performed by an
official as an employee of a State or a political
subdivision thereof in a position compensated in whole
or in part on a fee basis.''.
(b) <<NOTE: 26 USC 62 note.>> Effective Date.--The amendment made
by this section shall apply to expenses paid or incurred in taxable
years beginning after December 31, 1986.
SEC. 976. COMBINED EMPLOYMENT TAX REPORTING DEMONSTRATION PROJECT.
(a) <<NOTE: 26 USC 6103 note.>> In General.--The Secretary of the
Treasury shall provide for a demonstration project to assess the
feasibility and desirability of expanding combined Federal and State tax
reporting.
(b) <<NOTE: 26 USC 6103 note.>> Description of Demonstration
Project.--The demonstration project under subsection (a) shall be--
(1) carried out between the Internal Revenue
Service <<NOTE: Montana.>> and the State of Montana for a
period ending with the date which is 5 years after the date of
the enactment of this Act,
(2) limited to the reporting of employment taxes, and
[[Page 111 STAT. 899]]
(3) limited to the disclosure of the taxpayer identity (as
defined in section 6103(b)(6) of such Code) and the signature of
the taxpayer.
(c) Conforming Amendment.--Section 6103(d) is amended by adding at
the end the following new paragraph:
``(5) Disclosure for certain combined reporting project.--
The Secretary shall disclose taxpayer identities and signatures
for purposes of the demonstration project described in section
967 of the Taxpayer Relief Act of 1997.''.
SEC. 977. <<NOTE: 26 USC 172 note.>> ELECTIVE CARRYBACK OF EXISTING
CARRYOVERS OF NATIONAL RAILROAD PASSENGER CORPORATION.
(a) Elective Carryback.--
(1) In general.--If the National Railroad Passenger
Corporation (in this section referred to as the
``Corporation'')--
(A) makes an election under this section for its
first taxable year ending after September 30, 1997, and
(B) agrees to the conditions specified in paragraph
(2),
then the Corporation shall be treated as having made a payment
of the tax imposed by chapter 1 of the Internal Revenue Code of
1986 for such first taxable year and the succeeding taxable year
in an amount (for each such taxable year) equal to 50 percent of
the amount determined under paragraph (3). Each such payment
shall be treated as having been made by the Corporation on the
last day prescribed by law (without regard to extensions) for
filing its return of tax under chapter 1 of such Code for the
taxable year to which such payment relates.
(2) Conditions.--
(A) In general.--This section shall only apply to
the Corporation if it agrees (in such manner as the
Secretary of the Treasury or his delegate may prescribe)
to--
(i) except as provided in clause (ii), use any
refund of the payment described in paragraph (1)
(and any interest thereon) solely to finance
qualified expenses of the Corporation, and
(ii) make the payments to non-Amtrak States as
described in subsection (c).
(B) Repayment.--
(i) In general.--The Corporation shall repay
to the United States any amount not used in
accordance with this paragraph and any amount
remaining unused as of January 1, 2010.
(ii) Special rules.--For purposes of clause
(i)--
(I) no amount shall be treated as
remaining unused as of January 1, 2010,
if it is obligated as of such date for a
qualified expense, and
(II) the Corporation shall not be
treated as failing to meet the
requirements of clause (i) by reason of
investing any amount for a temporary
period.
(3) Amount.--For purposes of paragraph (1)--
(A) In general.--The amount determined under this
paragraph shall be the lesser of--
(i) 35 percent of the Corporation's existing
qualified carryovers, or
[[Page 111 STAT. 900]]
(ii) the Corporation's net tax liability for
the carryback period.
(B) Dollar limit.--Such amount shall not exceed
$2,323,000,000.
(b) Existing Qualified Carryovers; Net Tax Liability.--For purposes
of this section--
(1) Existing qualified carryovers.--The term ``existing
qualified carryovers'' means the aggregate of the amounts which
are net operating loss carryovers under section 172(b) of the
Internal Revenue Code of 1986 to the Corporation's first taxable
year ending after September 30, 1997.
(2) Net tax liability for carryback period.--
(A) In general.--The Corporation's net tax liability
for the carryback period is the aggregate of the net tax
liability of the Corporation's railroad predecessors for
taxable years in the carryback period.
(B) Net tax liability.--The term ``net tax
liability'' means, with respect to any taxable year, the
amount of the tax imposed by chapter 1 of the Internal
Revenue Code of 1986 (or any corresponding provision of
prior law) for such taxable year, reduced by the sum of
the credits allowable against such tax under such Code
(or any corresponding provision of prior law).
(C) Carryback period.--The term ``carryback period''
means the period--
(i) which begins with the first taxable year
of any railroad predecessor beginning before
January 1, 1971, for which there is a net tax
liability, and
(ii) which ends with the last taxable year of
any railroad predecessor beginning before January
1, 1971.
(3) Railroad predecessor.--
(A) In general.--The term ``railroad predecessor''
means--
(i) any railroad which entered into a contract
under section 401 or 404(a) of the Rail Passenger
Service Act of 1970 relieving the railroad of its
entire responsibility for the provision of
intercity rail passenger service, and
(ii) any predecessor thereof.
(B) Consolidated returns.--If any railroad described
in subparagraph (A) was a member of an affiliated group
which filed a consolidated return for any taxable year
in the carryback period, each member of such group shall
be treated as a railroad predecessor for such year.
(c) Payments to Non-Amtrak States.--
(1) In general.--Within 30 days after receipt of any refund
of any payment described in subsection (a)(1), the Corporation
shall pay to each non-Amtrak State an amount equal to 1 percent
of the amount of such refund.
(2) Use of payment.--Each non-Amtrak State shall use the
payment described in paragraph (1) (and any interest thereon)
solely to finance qualified expenses of the State.
(3) Repayment.--A non-Amtrak State shall pay to the United
States--
(A) any portion of the payment received by the State
under paragraph (1) (and any interest thereon) which is
used for a purpose other than to finance qualified
expenses
[[Page 111 STAT. 901]]
of the State or which remains unused as of January 1,
2010, or
(B) if such State ceases to be a non-Amtrak State,
the portion of such payment (and any interest thereon)
remaining as of the date of the cessation.
Rules similar to the rules of subsection (a)(2)(B) shall apply
for purposes of this paragraph.
(d) Tax Consequences.--
(1) Reduction in carryovers.--If the Corporation elects the
application of this section, the Corporation's existing
qualified carryovers shall be reduced by an amount equal to the
amount determined under subsection (a)(3) divided by 0.35.
(2) Reduction in tax paid by railroad predecessors.--
(A) In general.--The Secretary of the Treasury or
his delegate shall appropriately adjust the tax account
of each railroad predecessor to reduce the net tax
liability of such predecessor for taxable years
beginning in the carryback period which is offset by
reason of the application of this section.
(B) FIFO ordering rule.--The Secretary shall make
the adjustments under subparagraph (A) first for the
earliest year in the carryback period and then for each
subsequent year in such period.
(C) No effect on other taxpayers.--In no event shall
any taxpayer other than the Corporation be allowed a
refund or credit by reason of this section.
(D) Waiver of limitations.--If the adjustment under
subparagraph (A) is barred by the operation of any law
or rule of law, such law or rule of law shall be waived
solely for purposes of making such adjustment.
(3) Tax treatment of expenditures.--With respect to any
payment by the Corporation of qualified expenses described in
subsection (e)(1)(A) during any taxable year from the amount of
any refund of the payment described in subsection (a)(1)--
(A) no deduction shall be allowed to the Corporation
with respect to any amount paid or incurred which is
attributable to such amount, and
(B) the basis of any property shall be reduced by
the portion of the cost of such property which is
attributable to such amount.
(4) Payments to a non-amtrak state.--No deduction shall be
allowed to the Corporation under chapter 1 of the Internal
Revenue Code of 1986 for any payment to a non-Amtrak State
required under subsection (a)(2)(A)(ii).
(e) Definitions.--For purposes of this section--
(1) Qualified expenses.--The term ``qualified expenses''
means expenses incurred for--
(A) in the case of the Corporation--
(i) the acquisition of equipment, rolling
stock, and other capital improvements, the
upgrading of maintenance facilities, and the
maintenance of existing equipment, in intercity
passenger rail service, and
(ii) the payment of interest and principal on
obligations incurred for such acquisition,
upgrading, and maintenance, and
(B) in the case of a non-Amtrak State--
[[Page 111 STAT. 902]]
(i) the acquisition of equipment, rolling
stock, and other capital improvements, the
upgrading of maintenance facilities, and the
maintenance of existing equipment, in intercity
passenger rail service,
(ii) the acquisition of equipment, rolling
stock, and other capital improvements, the
upgrading of maintenance facilities, and the
maintenance of existing equipment, in intercity
bus service,
(iii) the purchase of intercity passenger rail
services from the Corporation, and
(iv) the payment of interest and principal on
obligations incurred for such acquisition,
upgrading, maintenance, and purchase.
In the case of a non-Amtrak State which provides its own
intercity passenger rail service on the date of the enactment of
this paragraph, subparagraph (B) shall be applied by only taking
into account clauses (i) and (iv).
(2) Non-amtrak state.--The term ``non-Amtrak State'' means,
with respect to any payment, any State which does not receive
intercity passenger rail service from the Corporation at any
time during the period beginning on the date of the enactment of
this Act and ending on the date of the payment.
(f) Authorizing Reform Required.--
(1) In general.--The Secretary of the Treasury shall not
make payment of any refund of any payment described in
subsection (a)(1) earlier than the date of the enactment of
Federal legislation, other than legislation included in this
section, which is enacted after July 29, 1997, and which
authorizes reforms of the National Railroad Passenger
Corporation.
(2) No interest.--Notwithstanding any other provision of
law, if the payment of any refund is delayed by reason of
paragraph (1), no interest shall accrue with respect to such
payment prior to the 45th day following the date of the
enactment of Federal legislation described in paragraph (1).
(3) Estimate of revenue.--For purposes of estimating
revenues under budget reconciliation, the impact of this section
on Federal revenues shall be determined without regard to this
subsection.
Subtitle H--Extension of Duty-Free Treatment Under Generalized System of
Preferences
SEC. 981. GENERALIZED SYSTEM OF PREFERENCES.
(a) Extension of Duty-Free Treatment Under System.--Section 505 of
the Trade Act of 1974 (19 U.S.C. 2465) is amended by striking ``May 31,
1997'' and inserting ``June 30, 1998''.
(b) <<NOTE: 19 USC 465 note.>> Retroactive Application for Certain
Liquidations and Reliquidations.--
(1) In general.--Notwithstanding section 514 of the Tariff
Act of 1930 or any other provision of law and subject to
paragraph (2), the entry--
(A) of any article to which duty-free treatment
under title V of the Trade Act of 1974 would have
applied if the entry had been made on May 31, 1997, and
[[Page 111 STAT. 903]]
(B) that was made after May 31, 1997, and before the
date of the enactment of this Act,
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. As used in this subsection, the term
``entry'' includes a withdrawal from warehouse for consumption.
(2) Requests.--Liquidation or reliquidation may be made
under paragraph (1) 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--
(A) to locate the entry; or
(B) to reconstruct the entry if it cannot be
located.
TITLE X--REVENUES
Subtitle A--Financial Products
SEC. 1001. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED FINANCIAL
POSITIONS.
(a) In General.--Part IV of subchapter P of chapter 1 is amended by
adding at the end the following new section:
``SEC. 1259. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED FINANCIAL
POSITIONS.
``(a) In General.--If there is a constructive sale of an appreciated
financial position--
``(1) the taxpayer shall recognize gain as if such position
were sold, assigned, or otherwise terminated at its fair market
value on the date of such constructive sale (and any gain shall
be taken into account for the taxable year which includes such
date), and
``(2) for purposes of applying this title for periods after
the constructive sale--
``(A) proper adjustment shall be made in the amount
of any gain or loss subsequently realized with respect
to such position for any gain taken into account by
reason of paragraph (1), and
``(B) the holding period of such position shall be
determined as if such position were originally acquired
on the date of such constructive sale.
``(b) Appreciated Financial Position.--For purposes of this
section--
``(1) In general.--Except as provided in paragraph (2), the
term `appreciated financial position' means any position with
respect to any stock, debt instrument, or partnership interest
if there would be gain were such position sold, assigned, or
otherwise terminated at its fair market value.
``(2) Exceptions.--The term `appreciated financial position'
shall not include--
``(A) any position with respect to debt if--
``(i) the debt unconditionally entitles the
holder to receive a specified principal amount,
``(ii) the interest payments (or other similar
amounts) with respect to such debt meet the
requirements of clause (i) of section
860G(a)(1)(B), and
[[Page 111 STAT. 904]]
``(iii) such debt is not convertible (directly
or indirectly) into stock of the issuer or any
related person, and
``(B) any position which is marked to market under
any provision of this title or the regulations
thereunder.
``(3) Position.--The term `position' means an interest,
including a futures or forward contract, short sale, or option.
``(c) Constructive Sale.--For purposes of this section--
``(1) In general.--A taxpayer shall be treated as having
made a constructive sale of an appreciated financial position if
the taxpayer (or a related person)--
``(A) enters into a short sale of the same or
substantially identical property,
``(B) enters into an offsetting notional principal
contract with respect to the same or substantially
identical property,
``(C) enters into a futures or forward contract to
deliver the same or substantially identical property,
``(D) in the case of an appreciated financial
position that is a short sale or a contract described in
subparagraph (B) or (C) with respect to any property,
acquires the same or substantially identical property,
or
``(E) to the extent prescribed by the Secretary in
regulations, enters into 1 or more other transactions
(or acquires 1 or more positions) that have
substantially the same effect as a transaction described
in any of the preceding subparagraphs.
``(2) Exception for sales of nonpublicly traded property.--
The term `constructive sale' shall not include any contract for
sale of any stock, debt instrument, or partnership interest
which is not a marketable security (as defined in section
453(f)) if the contract settles within 1 year after the date
such contract is entered into.
``(3) Exception for certain closed transactions.--
``(A) In general.--In applying this section, there
shall be disregarded any transaction (which would
otherwise be treated as a constructive sale) during the
taxable year if--
``(i) such transaction is closed before the
end of the 30th day after the close of such
taxable year,
``(ii) the taxpayer holds the appreciated
financial position throughout the 60-day period
beginning on the date such transaction is closed,
and
``(iii) at no time during such 60-day period
is the taxpayer's risk of loss with respect to
such position reduced by reason of a circumstance
which would be described in section 246(c)(4) if
references to stock included references to such
position.
``(B) Treatment of positions which are
reestablished.--If--
``(i) a transaction, which would otherwise be
treated as a constructive sale of an appreciated
financial position, is closed during the taxable
year or during the 30 days thereafter, and
``(ii) another substantially similar
transaction is entered into during the 60-day
period beginning on the date the transaction
referred to in clause (i) is closed--
[[Page 111 STAT. 905]]
``(I) which also would otherwise be
treated as a constructive sale of such
position,
``(II) which is closed before the
30th day after the close of the taxable
year in which the transaction referred
to in clause (i) occurs, and
``(III) which meets the requirements
of clauses (ii) and (iii) of
subparagraph (A),
the transaction referred to in clause (ii) shall be
disregarded for purposes of determining whether the
requirements of subparagraph (A)(iii) are met with
respect to the transaction described in clause (i).
``(4) Related person.--A person is related to another person
with respect to a transaction if--
``(A) the relationship is described in section
267(b) or 707(b), and
``(B) such transaction is entered into with a view
toward avoiding the purposes of this section.
``(d) Other Definitions.--For purposes of this section--
``(1) Forward contract.--The term `forward contract' means a
contract to deliver a substantially fixed amount of property for
a substantially fixed price.
``(2) Offsetting notional principal contract.--The term
`offsetting notional principal contract' means, with respect to
any property, an agreement which includes--
``(A) a requirement to pay (or provide credit for)
all or substantially all of the investment yield
(including appreciation) on such property for a
specified period, and
``(B) a right to be reimbursed for (or receive
credit for) all or substantially all of any decline in
the value of such property.
``(e) Special Rules.--
``(1) Treatment of subsequent sale of position which was
deemed sold.--If--
``(A) there is a constructive sale of any
appreciated financial position,
``(B) such position is subsequently disposed of, and
``(C) at the time of such disposition, the
transaction resulting in the constructive sale of such
position is open with respect to the taxpayer or any
related person,
solely for purposes of determining whether the taxpayer has
entered into a constructive sale of any other appreciated
financial position held by the taxpayer, the taxpayer shall be
treated as entering into such transaction immediately after such
disposition. For purposes of the preceding sentence, an
assignment or other termination shall be treated as a
disposition.
``(2) Certain trust instruments treated as stock.--For
purposes of this section, an interest in a trust which is
actively traded (within the meaning of section 1092(d)(1)) shall
be treated as stock unless substantially all (by value) of the
property held by the trust is debt described in subsection
(b)(2)(A).
``(3) Multiple positions in property.--If a taxpayer holds
multiple positions in property, the determination of whether a
specific transaction is a constructive sale and, if so, which
appreciated financial position is deemed sold shall be made in
the same manner as actual sales.
[[Page 111 STAT. 906]]
``(f) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(b) Election of Mark to Market for Dealers in Commodities and for
Traders in Securities or Commodities.--Section 475 (relating to mark to
market accounting method for dealers in securities) is amended by
redesignating subsection (e) as subsection (g) and by inserting after
subsection (d) the following new subsections:
``(e) Election of Mark to Market For Dealers in Commodities.--
``(1) In general.--In the case of a dealer in commodities
who elects the application of this subsection, this section
shall apply to commodities held by such dealer in the same
manner as this section applies to securities held by a dealer in
securities.
``(2) Commodity.--For purposes of this subsection and
subsection (f), the term `commodity' means--
``(A) any commodity which is actively traded (within
the meaning of section 1092(d)(1));
``(B) any notional principal contract with respect
to any commodity described in subparagraph (A);
``(C) any evidence of an interest in, or a
derivative instrument in, any commodity described in
subparagraph (A) or (B), including any option, forward
contract, futures contract, short position, and any
similar instrument in such a commodity; and
``(D) any position which--
``(i) is not a commodity described in
subparagraph (A), (B), or (C),
``(ii) is a hedge with respect to such a
commodity, and
``(iii) is clearly identified in the
taxpayer's records as being described in this
subparagraph before the close of the day on which
it was acquired or entered into (or such other
time as the Secretary may by regulations
prescribe).
``(3) Election.--An election under this subsection may be
made without the consent of the Secretary. Such an election,
once made, shall apply to the taxable year for which made and
all subsequent taxable years unless revoked with the consent of
the Secretary.
``(f) Election of Mark to Market For Traders in Securities or
Commodities.--
``(1) Traders in securities.--
``(A) In general.--In the case of a person who is
engaged in a trade or business as a trader in securities
and who elects to have this paragraph apply to such
trade or business--
``(i) such person shall recognize gain or loss
on any security held in connection with such trade
or business at the close of any taxable year as if
such security were sold for its fair market value
on the last business day of such taxable year, and
``(ii) any gain or loss shall be taken into
account for such taxable year.
[[Page 111 STAT. 907]]
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.
``(B) Exception.--Subparagraph (A) shall not apply
to any security--
``(i) which is established to the satisfaction
of the Secretary as having no connection to the
activities of such person as a trader, and
``(ii) which is clearly identified in such
person's records as being described in clause (i)
before the close of the day on which it was
acquired, originated, or entered into (or such
other time as the Secretary may by regulations
prescribe).
If a security ceases to be described in clause (i) at
any time after it was identified as such under clause
(ii), subparagraph (A) shall apply to any changes in
value of the security occurring after the cessation.
``(C) Coordination with section 1259.--Any security
to which subparagraph (A) applies and which was acquired
in the normal course of the taxpayer's activities as a
trader in securities shall not be taken into account in
applying section 1259 to any position to which
subparagraph (A) does not apply.
``(D) Other rules to apply.--Rules similar to the
rules of subsections (b)(4) and (d) shall apply to
securities held by a person in any trade or business
with respect to which an election under this paragraph
is in effect.
``(2) Traders in commodities.--In the case of a person who
is engaged in a trade or business as a trader in commodities and
who elects to have this paragraph apply to such trade or
business, paragraph (1) shall apply to commodities held by such
trader in connection with such trade or business in the same
manner as paragraph (1) applies to securities held by a trader
in securities.
``(3) Election.--The elections under paragraphs (1) and (2)
may be made separately for each trade or business and without
the consent of the Secretary. Such an election, once made, shall
apply to the taxable year for which made and all subsequent
taxable years unless revoked with the consent of the
Secretary.''.
(c) Clerical Amendment.--The table of sections for part IV of
subchapter P of chapter 1 is amended by adding at the end the following
new item:
``Sec. 1259. Constructive sales treatment for
appreciated financial positions.''.
(d) <<NOTE: 26 USC 475 note.>> Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
any constructive sale after June 8, 1997.
(2) Exception for sales of positions, etc. held before june
9, 1997.--If--
(A) before June 9, 1997, the taxpayer entered into
any transaction which is a constructive sale of any
appreciated financial position, and
[[Page 111 STAT. 908]]
(B) before the close of the 30-day period beginning
on the date of the enactment of this Act or before such
later date as may be specified by the Secretary of the
Treasury, such transaction and position are clearly
identified in the taxpayer's records as offsetting,
such transaction and position shall not be taken into account in
determining whether any other constructive sale after June 8,
1997, has occurred. The preceding sentence shall cease to apply
as of the date such transaction is closed or the taxpayer ceases
to hold such position.
(3) Special rule.--In the case of a decedent dying after
June 8, 1997, if--
(A) there was a constructive sale on or before such
date of any appreciated financial position,
(B) the transaction resulting in such constructive
sale of such position remains open (with respect to the
decedent or any related person)--
(i) for not less than 2 years after the date
of such transaction (whether such period is before
or after June 8, 1997), and
(ii) at any time during the 3-year period
ending on the date of the decedent's death, and
(C) such transaction is not closed within the 30-day
period beginning on the date of the enactment of this
Act,
then, for purposes of such Code, such position (and the
transaction resulting in such constructive sale) shall be
treated as property constituting rights to receive an item of
income in respect of a decedent under section 691 of such Code.
Section 1014(c) of such Code shall not apply to so much of such
position's or property's value (as included in the decedent's
estate for purposes of chapter 11 of such Code) as exceeds its
fair market value as of the date such transaction is closed.
(4) Election of mark to market by securities traders and
traders and dealers in commodities.--
(A) In general.--The amendments made by subsection
(b) shall apply to taxable years ending after the date
of the enactment of this Act.
(B) 4-year spread of adjustments.--In the case of a
taxpayer who elects under subsection (e) or (f) of
section 475 of the Internal Revenue Code of 1986 (as
added by this section) to change its method of
accounting for the taxable year which includes the date
of the enactment of this Act--
(i) any identification required under such
subsection with respect to securities and
commodities held on the date of the enactment of
this Act shall be treated as timely made if made
on or before the 30th day after such date of
enactment, and
(ii) the net amount of the adjustments
required to be taken into account by the taxpayer
under section 481 of such Code shall be taken into
account ratably over the 4-taxable year period
beginning with such first taxable year.
[[Page 111 STAT. 909]]
SEC. 1002. LIMITATION ON EXCEPTION FOR INVESTMENT COMPANIES UNDER
SECTION 351.
(a) In General.--Paragraph (1) of section 351(e) (relating to
exceptions) is amended by adding at the end the following: ``For
purposes of the preceding sentence, the determination of whether a
company is an investment company shall be made--
``(A) by taking into account all stock and
securities held by the company, and
``(B) by treating as stock and securities--
``(i) money,
``(ii) stocks and other equity interests in a
corporation, evidences of indebtedness, options,
forward or futures contracts, notional principal
contracts and derivatives,
``(iii) any foreign currency,
``(iv) any interest in a real estate
investment trust, a common trust fund, a regulated
investment company, a publicly-traded partnership
(as defined in section 7704(b)) or any other
equity interest (other than in a corporation)
which pursuant to its terms or any other
arrangement is readily convertible into, or
exchangeable for, any asset described in any
preceding clause, this clause or clause (v) or
(viii),
``(v) except to the extent provided in
regulations prescribed by the Secretary, any
interest in a precious metal, unless such metal is
used or held in the active conduct of a trade or
business after the contribution,
``(vi) except as otherwise provided in
regulations prescribed by the Secretary, interests
in any entity if substantially all of the assets
of such entity consist (directly or indirectly) of
any assets described in any preceding clause or
clause (viii),
``(vii) to the extent provided in regulations
prescribed by the Secretary, any interest in any
entity not described in clause (vi), but only to
the extent of the value of such interest that is
attributable to assets listed in clauses (i)
through (v) or clause (viii), or
``(viii) any other asset specified in
regulations prescribed by the Secretary.
The Secretary may prescribe regulations that, under appropriate
circumstances, treat any asset described in clauses (i) through
(v) as not so listed.''.
(b) <<NOTE: 26 USC 351 note.>> Effective Date.--
(1) In general.--The amendment made by subsection (a) shall
apply to transfers after June 8, 1997, in taxable years ending
after such date.
(2) Binding contracts.--The amendment made by subsection (a)
shall not apply to any transfer pursuant to a written binding
contract in effect on June 8, 1997, and at all times thereafter
before such transfer if such contract provides for the transfer
of a fixed amount of property.
SEC. 1003. GAINS AND LOSSES FROM CERTAIN TERMINATIONS WITH RESPECT TO
PROPERTY.
(a) Application of Capital Treatment to Property Other Than Personal
Property.--
[[Page 111 STAT. 910]]
(1) In general.--Paragraph (1) of section 1234A (relating to
gains and losses from certain terminations) is amended by
striking ``personal property (as defined in section
1092(d)(1))'' and inserting ``property''.
(2) <<NOTE: 26 USC 1234A note.>> Effective date.--The
amendment made by paragraph (1) shall apply to terminations more
than 30 days after the date of the enactment of this Act.
(b) Treatment of Short Sales of Property Which Becomes Substantially
Worthless.--
(1) In general.--Section 1233 is amended by adding at the
end the following new subsection:
``(h) Short Sales of Property Which Becomes Substantially
Worthless.--
``(1) In general.--If--
``(A) the taxpayer enters into a short sale of
property, and
``(B) such property becomes substantially worthless,
the taxpayer shall recognize gain in the same manner as if the
short sale were closed when the property becomes substantially
worthless. To the extent provided in regulations prescribed by
the Secretary, the preceding sentence also shall apply with
respect to any option with respect to property, any offsetting
notional principal contract with respect to property, any
futures or forward contract to deliver any property, and any
other similar transaction.
``(2) Statute of limitations.--If property becomes
substantially worthless during a taxable year and any short sale
of such property remains open at the time such property becomes
substantially worthless, then--
``(A) the statutory period for the assessment of any
deficiency attributable to any part of the gain on such
transaction shall not expire before the earlier of--
``(i) the date which is 3 years after the date
the Secretary is notified by the taxpayer (in such
manner as the Secretary may by regulations
prescribe) of the substantial worthlessness of
such property, or
``(ii) the date which is 6 years after the
date the return for such taxable year is filed,
and
``(B) such deficiency may be assessed before the
date applicable under subparagraph (A) notwithstanding
the provisions of any other law or rule of law which
would otherwise prevent such assessment.''.
(2) <<NOTE: 26 USC 1233 note.>> Effective date.--The
amendment made by paragraph (1) shall apply to property which
becomes substantially worthless after the date of the enactment
of this Act.
(c) Application of Capital Treatment, Etc. to Obligations Issued by
Natural Persons.--
(1) In general.--Section 1271(b) is amended to read as
follows:
``(b) Exception for Certain Obligations.--
``(1) In general.--This section shall not apply to--
``(A) any obligation issued by a natural person
before June 9, 1997, and
``(B) any obligation issued before July 2, 1982, by
an issuer which is not a corporation and is not a
government or political subdivision thereof.
[[Page 111 STAT. 911]]
``(2) Termination.--Paragraph (1) shall not apply to any
obligation purchased (within the meaning of section 1272(d)(1))
after June 8, 1997.''.
(2) <<NOTE: 26 USC 1271 note.>> Effective date.--The
amendment made by paragraph (1) shall apply to sales, exchanges,
and retirements after the date of enactment of this Act.
SEC. 1004. DETERMINATION OF ORIGINAL ISSUE DISCOUNT WHERE POOLED DEBT
OBLIGATIONS SUBJECT TO ACCELERATION.
(a) In General.--Subparagraph (C) of section 1272(a)(6) (relating to
debt instruments to which the paragraph applies) is amended by striking
``or'' at the end of clause (i), by striking the period at the end of
clause (ii) and inserting ``, or'', and by inserting after clause (ii)
the following:
``(iii) any pool of debt instruments the yield
on which may be affected by reason of prepayments
(or to the extent provided in regulations, by
reason of other events).
To the extent provided in regulations prescribed by the
Secretary, in the case of a small business engaged in
the trade or business of selling tangible personal
property at retail, clause (iii) shall not apply to debt
instruments incurred in the ordinary course of such
trade or business while held by such business.''.
(b) <<NOTE: 26 USC 1272 note.>> Effective Dates.--
(1) In general.--The amendment made by this section shall
apply to taxable years beginning after the date of the enactment
of this Act.
(2) Change in method of accounting.--In the case of any
taxpayer required by this section to change its method of
accounting for its first taxable year beginning after the date
of the enactment of this Act--
(A) such change shall be treated as initiated by the
taxpayer,
(B) such change shall be treated as made with the
consent of the Secretary of the Treasury, and
(C) the net amount of the adjustments required to be
taken into account by the taxpayer under section 481 of
the Internal Revenue Code of 1986 shall be taken into
account ratably over the 4-taxable year period beginning
with such first taxable year.
SEC. 1005. DENIAL OF INTEREST DEDUCTIONS ON CERTAIN DEBT INSTRUMENTS.
(a) In General.--Section 163 (relating to deduction for interest),
as amended by title V, is amended by redesignating subsection (l) as
subsection (m) and by inserting after subsection (k) the following new
subsection:
``(l) Disallowance of Deduction on Certain Debt Instruments of
Corporations.--
``(1) In general.--No deduction shall be allowed under this
chapter for any interest paid or accrued on a disqualified debt
instrument.
``(2) Disqualified debt instrument.--For purposes of this
subsection, the term `disqualified debt instrument' means any
indebtedness of a corporation which is payable in equity of the
issuer or a related party.
[[Page 111 STAT. 912]]
``(3) Special rules for amounts payable in equity.--For
purposes of paragraph (2), indebtedness shall be treated as
payable in equity of the issuer or a related party only if--
``(A) a substantial amount of the principal or
interest is required to be paid or converted, or at the
option of the issuer or a related party is payable in,
or convertible into, such equity,
``(B) a substantial amount of the principal or
interest is required to be determined, or at the option
of the issuer or a related party is determined, by
reference to the value of such equity, or
``(C) the indebtedness is part of an arrangement
which is reasonably expected to result in a transaction
described in subparagraph (A) or (B).
For purposes of this paragraph, principal or interest shall be
treated as required to be so paid, converted, or determined if
it may be required at the option of the holder or a related
party and there is a substantial certainty the option will be
exercised.
``(4) Related party.--For purposes of this subsection, a
person is a related party with respect to another person if such
person bears a relationship to such other person described in
section 267(b) or 707(b).
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this subsection, including regulations preventing
avoidance of this subsection through the use of an issuer other
than a corporation.''.
(b) <<NOTE: 26 USC 163 note.>> Effective Date.--
(1) In general.--The amendment made by this section shall
apply to disqualified debt instruments issued after June 8,
1997.
(2) Transition rule.--The amendment made by this section
shall not apply to any instrument issued after June 8, 1997, if
such instrument is--
(A) issued pursuant to a written agreement which was
binding on such date and at all times thereafter,
(B) described in a ruling request submitted to the
Internal Revenue Service on or before such date, or
(C) described on or before such date in a public
announcement or in a filing with the Securities and
Exchange Commission required solely by reason of the
issuance.
Subtitle B--Corporate Organizations and Reorganizations
SEC. 1011. TAX TREATMENT OF CERTAIN EXTRAORDINARY DIVIDENDS.
(a) Treatment of Extraordinary Dividends in Excess of Basis.--
Paragraph (2) of section 1059(a) (relating to corporate shareholder's
recognition of gain attributable to nontaxed portion of extraordinary
dividends) is amended to read as follows:
``(2) Amounts in excess of basis.--If the nontaxed portion
of such dividends exceeds such basis, such excess shall be
treated as gain from the sale or exchange of such stock for
[[Page 111 STAT. 913]]
the taxable year in which the extraordinary dividend is
received.''.
(b) Treatment of Redemptions Where Options Involved.--Paragraph (1)
of section 1059(e) (relating to treatment of partial liquidations and
non-pro rata redemptions) is amended to read as follows:
``(1) Treatment of partial liquidations and certain
redemptions.--Except as otherwise provided in regulations--
``(A) Redemptions.--In the case of any redemption of
stock--
``(i) which is part of a partial liquidation
(within the meaning of section 302(e)) of the
redeeming corporation,
``(ii) which is not pro rata as to all
shareholders, or
``(iii) which would not have been treated (in
whole or in part) as a dividend if any options had
not been taken into account under section
318(a)(4),
any amount treated as a dividend with respect to such
redemption shall be treated as an extraordinary dividend
to which paragraphs (1) and (2) of subsection (a) apply
without regard to the period the taxpayer held such
stock. In the case of a redemption described in clause
(iii), only the basis in the stock redeemed shall be
taken into account under subsection (a).
``(B) Reorganizations, etc.--An exchange described
in section 356 which is treated as a dividend shall be
treated as a redemption of stock for purposes of
applying subparagraph (A).''.
(c) Time for Reduction.--Paragraph (1) of section 1059(d) is amended
to read as follows:
``(1) Time for reduction.--Any reduction in basis under
subsection (a)(1) shall be treated as occurring at the beginning
of the ex-dividend date of the extraordinary dividend to which
the reduction relates.''.
(d) <<NOTE: 26 USC 1059 note.>> Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to distributions after May 3, 1995.
(2) Transition rule.--The amendments made by this section
shall not apply to any distribution made pursuant to the terms
of--
(A) a written binding contract in effect on May 3,
1995, and at all times thereafter before such
distribution, or
(B) a tender offer outstanding on May 3, 1995.
(3) Certain dividends not pursuant to certain redemptions.--
In determining whether the amendment made by subsection (a)
applies to any extraordinary dividend other than a dividend
treated as an extraordinary dividend under section 1059(e)(1) of
the Internal Revenue Code of 1986 (as amended by this Act),
paragraphs (1) and (2) shall be applied by substituting
``September 13, 1995'' for ``May 3, 1995''.
[[Page 111 STAT. 914]]
SEC. 1012. APPLICATION OF SECTION 355 TO DISTRIBUTIONS IN CONNECTION
WITH ACQUISITIONS AND TO INTRAGROUP TRANSACTIONS.
(a) Distributions In Connection With Acquisitions.--Section 355
(relating to distributions of stock and securities of a controlled
corporation) is amended by adding at the end the following new
subsection:
``(e) Recognition of Gain on Certain Distributions of Stock or
Securities In Connection With Acquisitions.--
``(1) General rule.--If there is a distribution to which
this subsection applies, any stock or securities in the
controlled corporation shall not be treated as qualified
property for purposes of subsection (c)(2) of this section or
section 361(c)(2).
``(2) Distributions to which subsection applies.--
``(A) In general.--This subsection shall apply to
any distribution--
``(i) to which this section (or so much of
section 356 as relates to this section) applies,
and
``(ii) which is part of a plan (or series of
related transactions) pursuant to which 1 or more
persons acquire directly or indirectly stock
representing a 50-percent or greater interest in
the distributing corporation or any controlled
corporation.
``(B) Plan presumed to exist in certain cases.--If 1
or more persons acquire directly or indirectly stock
representing a 50-percent or greater interest in the
distributing corporation or any controlled corporation
during the 4-year period beginning on the date which is
2 years before the date of the distribution, such
acquisition shall be treated as pursuant to a plan
described in subparagraph (A)(ii) unless it is
established that the distribution and the acquisition
are not pursuant to a plan or series of related
transactions.
``(C) Certain plans disregarded.--A plan (or series
of related transactions) shall not be treated as
described in subparagraph (A)(ii) if, immediately after
the completion of such plan or transactions, the
distributing corporation and all controlled corporations
are members of a single affiliated group (as defined in
section 1504 without regard to subsection (b) thereof).
``(D) Coordination with subsection (d).--This
subsection shall not apply to any distribution to which
subsection (d) applies.
``(3) Special rules relating to acquisitions.--
``(A) Certain acquisitions not taken into account.--
Except as provided in regulations, the following
acquisitions shall not be treated as described in
paragraph (2)(A)(ii):
``(i) The acquisition of stock in any
controlled corporation by the distributing
corporation.
``(ii) The acquisition by a person of stock in
any controlled corporation by reason of holding
stock or securities in the distributing
corporation.
``(iii) The acquisition by a person of stock
in any successor corporation of the distributing
corporation or any controlled corporation by
reason of holding stock
[[Page 111 STAT. 915]]
or securities in such distributing or controlled
corporation.
``(iv) The acquisition of stock in a
corporation if shareholders owning directly or
indirectly stock possessing--
``(I) more than 50 percent of the
total combined voting power of all
classes of stock entitled to vote, and
``(II) more than 50 percent of the
total value of shares of all classes of
stock,
in the distributing corporation or any controlled
corporation before such acquisition own directly
or indirectly stock possessing such vote and value
in such distributing or controlled corporation
after such acquisition.
This subparagraph shall not apply to any acquisition if
the stock held before the acquisition was acquired
pursuant to a plan (or series of related transactions)
described in paragraph (2)(A)(ii).
``(B) Asset acquisitions.--Except as provided in
regulations, for purposes of this subsection, if the
assets of the distributing corporation or any controlled
corporation are acquired by a successor corporation in a
transaction described in subparagraph (A), (C), or (D)
of section 368(a)(1) or any other transaction specified
in regulations by the Secretary, the shareholders
(immediately before the acquisition) of the corporation
acquiring such assets shall be treated as acquiring
stock in the corporation from which the assets were
acquired.
``(4) Definition and special rules.--For purposes of this
subsection--
``(A) 50-percent or greater interest.--The term `50-
percent or greater interest' has the meaning given such
term by subsection (d)(4).
``(B) Distributions in title 11 or similar case.--
Paragraph (1) shall not apply to any distribution made
in a title 11 or similar case (as defined in section
368(a)(3)).
``(C) Aggregation and attribution rules.--
``(i) Aggregation.--The rules of paragraph
(7)(A) of subsection (d) shall apply.
``(ii) Attribution.--Section 318(a)(2) shall
apply in determining whether a person holds stock
or securities in any corporation. Except as
provided in regulations, section 318(a)(2)(C)
shall be applied without regard to the phrase `50
percent or more in value' for purposes of the
preceding sentence.
``(D) Successors and predecessors.--For purposes of
this subsection, any reference to a controlled
corporation or a distributing corporation shall include
a reference to any predecessor or successor of such
corporation.
``(E) Statute of limitations.--If there is a
distribution to which paragraph (1) applies--
``(i) the statutory period for the assessment
of any deficiency attributable to any part of the
gain recognized under this subsection by reason of
such distribution shall not expire before the
expiration of 3 years from the date the Secretary
is notified by the taxpayer
[[Page 111 STAT. 916]]
(in such manner as the Secretary may by
regulations prescribe) that such distribution
occurred, and
``(ii) 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.
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this subsection, including regulations--
``(A) providing for the application of this
subsection where there is more than 1 controlled
corporation,
``(B) treating 2 or more distributions as 1
distribution where necessary to prevent the avoidance of
such purposes, and
``(C) providing for the application of rules similar
to the rules of subsection (d)(6) where appropriate for
purposes of paragraph (2)(B).''.
(b) Special Rules for Certain Intragroup Transactions.--
(1) Section 355 not to apply.--Section 355, as amended by
subsection (a), is amended by adding at the end the following
new subsection:
``(f) Section Not To Apply to Certain Intragroup Distributions.--
Except as provided in regulations, this section (or so much of section
356 as relates to this section) shall not apply to the distribution of
stock from 1 member of an affiliated group (as defined in section
1504(a)) to another member of such group if such distribution is part of
a plan (or series of related transactions) described in subsection
(e)(2)(A)(ii) (determined after the application of subsection (e)).''.
(2) Adjustments to basis.--Section 358 (relating to basis to
distributees) is amended by adding at the end the following new
subsection:
``(g) Adjustments in Intragroup Transactions Involving Section
355.--In the case of a distribution to which section 355 (or so much of
section 356 as relates to section 355) applies and which involves the
distribution of stock from 1 member of an affiliated group (as defined
in section 1504(a) without regard to subsection (b) thereof) to another
member of such group, the Secretary may, notwithstanding any other
provision of this section, provide adjustments to the adjusted basis of
any stock which--
``(1) is in a corporation which is a member of such group,
and
``(2) is held by another member of such group,
to appropriately reflect the proper treatment of such distribution.''.
(c) Determination of Control in Certain Divisive Transactions.--
(1) Section 351 transactions.--Section 351(c) (relating to
special rule) is amended to read as follows:
``(c) Special Rules Where Distribution to Shareholders.--In
determining control for purposes of this section--
``(1) the fact that any corporate transferor distributes
part or all of the stock in the corporation which it receives in
the exchange to its shareholders shall not be taken into
account, and
``(2) if the requirements of section 355 are met with
respect to such distribution, the shareholders shall be treated
as in control of such corporation immediately after the exchange
[[Page 111 STAT. 917]]
if the shareholders own (immediately after the distribution)
stock possessing--
``(A) more than 50 percent of the total combined
voting power of all classes of stock of such corporation
entitled to vote, and
``(B) more than 50 percent of the total value of
shares of all classes of stock of such corporation.''.
(2) D reorganizations.--Section 368(a)(2)(H) (relating to
special rule for determining whether certain transactions are
qualified under paragraph (1)(D)) is amended to read as follows:
``(H) Special rules for determining whether certain
transactions are qualified under paragraph (1)(d).--For
purposes of determining whether a transaction qualifies
under paragraph (1)(D)--
``(i) in the case of a transaction with
respect to which the requirements of subparagraphs
(A) and (B) of section 354(b)(1) are met, the term
`control' has the meaning given such term by
section 304(c), and
``(ii) in the case of a transaction with
respect to which the requirements of section 355
are met, the shareholders described in paragraph
(1)(D) shall be treated as having control of the
corporation to which the assets are transferred if
such shareholders own (immediately after the
distribution) stock possessing--
``(I) more than 50 percent of the
total combined voting power of all
classes of stock of such corporation
entitled to vote, and
``(II) more than 50 percent of the
total value of shares of all classes of
stock of such corporation.''.
(d) <<NOTE: 26 USC 351 note.>> Effective Dates.--
(1) Section 355 rules.--The amendments made by subsections
(a) and (b) shall apply to distributions after April 16, 1997,
pursuant to a plan (or series of related transactions) which
involves an acquisition described in section 355(e)(2)(A)(ii) of
the Internal Revenue Code of 1986 occurring after such date.
(2) Divisive transactions.--The amendments made by
subsection (c) shall apply to transfers after the date of the
enactment of this Act.
(3) Transition rule.--The amendments made by this section
shall not apply to any distribution pursuant to a plan (or
series of related transactions) which involves an acquisition
described in section 355(e)(2)(A)(ii) of the Internal Revenue
Code of 1986 (or, in the case of the amendments made by
subsection (c), any transfer) occurring after April 16, 1997, if
such acquisition or transfer is--
(A) made pursuant to an agreement which was binding
on such date and at all times thereafter,
(B) described in a ruling request submitted to the
Internal Revenue Service on or before such date, or
(C) described on or before such date in a public
announcement or in a filing with the Securities and
Exchange Commission required solely by reason of the
acquisition or transfer.
This paragraph shall not apply to any agreement, ruling request,
or public announcement or filing unless it identifies
[[Page 111 STAT. 918]]
the acquirer of the distributing corporation or any controlled
corporation, or the transferee, whichever is applicable.
SEC. 1013. TAX TREATMENT OF REDEMPTIONS INVOLVING RELATED CORPORATIONS.
(a) Stock Purchases by Related Corporations.--The last sentence of
section 304(a)(1) (relating to acquisition by related corporation other
than subsidiary) is amended to read as follows: ``To the extent that
such distribution is treated as a distribution to which section 301
applies, the transferor and the acquiring corporation shall be treated
in the same manner as if the transferor had transferred the stock so
acquired to the acquiring corporation in exchange for stock of the
acquiring corporation in a transaction to which section 351(a) applies,
and then the acquiring corporation had redeemed the stock it was treated
as issuing in such transaction.''.
(b) Coordination With Section 1059.--Clause (iii) of section
1059(e)(1)(A), as amended by this title, is amended to read as follows:
``(iii) which would not have been treated (in
whole or in part) as a dividend if--
``(I) any options had not been taken
into account under section 318(a)(4), or
``(II) section 304(a) had not
applied,''.
(c) Special Rule for Acquisitions by Foreign Corporations.--Section
304(b) (relating to special rules for application of subsection (a)) is
amended by adding at the end the following new paragraph:
``(5) Acquisitions by foreign corporations.--
``(A) In general.--In the case of any acquisition to
which subsection (a) applies in which the acquiring
corporation is a foreign corporation, the only earnings
and profits taken into account under paragraph (2)(A)
shall be those earnings and profits--
``(i) which are attributable (under
regulations prescribed by the Secretary) to stock
of the acquiring corporation owned (within the
meaning of section 958(a)) by a corporation or
individual which is--
``(I) a United States shareholder
(within the meaning of section 951(b))
of the acquiring corporation, and
``(II) the transferor or a person
who bears a relationship to the
transferor described in section 267(b)
or 707(b), and
``(ii) which were accumulated during the
period or periods such stock was owned by such
person while the acquiring corporation was a
controlled foreign corporation.
``(B) Application of section 1248.--For purposes of
subparagraph (A), the rules of section 1248(d) shall
apply except to the extent otherwise provided by the
Secretary.
``(C) Regulations.--The Secretary shall prescribe
such regulations as are appropriate to carry out the
purposes of this paragraph.''.
(d) <<NOTE: 26 USC 304 note.>> Effective Date.--
(1) In general.--The amendments made by this section shall
apply to distributions and acquisitions after June 8, 1997.
[[Page 111 STAT. 919]]
(2) Transition rule.--The amendments made by this section
shall not apply to any distribution or acquisition after June 8,
1997, if such distribution or acquisition is--
(A) made pursuant to a written agreement which was
binding on such date and at all times thereafter,
(B) described in a ruling request submitted to the
Internal Revenue Service on or before such date, or
(C) described in a public announcement or filing
with the Securities and Exchange Commission on or before
such date.
SEC. 1014. CERTAIN PREFERRED STOCK TREATED AS BOOT.
(a) Section 351.--Section 351 (relating to transfer to corporation
controlled by transferor) is amended by redesignating subsection (g) as
subsection (h) and by inserting after subsection (f) the following new
subsection:
``(g) Nonqualified Preferred Stock Not Treated as Stock.--
``(1) In general.--In the case of a person who transfers
property to a corporation and receives nonqualified preferred
stock--
``(A) subsection (a) shall not apply to such
transferor,
``(B) subsection (b) shall apply to such transferor,
and
``(C) such nonqualified preferred stock shall be
treated as other property for purposes of applying
subsection (b).
``(2) Nonqualified preferred stock.--For purposes of
paragraph (1)--
``(A) In general.--The term `nonqualified preferred
stock' means preferred stock if--
``(i) the holder of such stock has the right
to require the issuer or a related person to
redeem or purchase the stock,
``(ii) the issuer or a related person is
required to redeem or purchase such stock,
``(iii) the issuer or a related person has the
right to redeem or purchase the stock and, as of
the issue date, it is more likely than not that
such right will be exercised, or
``(iv) the dividend rate on such stock varies
in whole or in part (directly or indirectly) with
reference to interest rates, commodity prices, or
other similar indices.
``(B) Limitations.--Clauses (i), (ii), and (iii) of
subparagraph (A) shall apply only if the right or
obligation referred to therein may be exercised within
the 20-year period beginning on the issue date of such
stock and such right or obligation is not subject to a
contingency which, as of the issue date, makes remote
the likelihood of the redemption or purchase.
``(C) Exceptions for certain rights or
obligations.--
``(i) In general.--A right or obligation shall
not be treated as described in clause (i), (ii),
or (iii) of subparagraph (A) if--
``(I) it may be exercised only upon
the death, disability, or mental
incompetency of the holder, or
[[Page 111 STAT. 920]]
``(II) in the case of a right or
obligation to redeem or purchase stock
transferred in connection with the
performance of services for the issuer
or a related person (and which
represents reasonable compensation), it
may be exercised only upon the holder's
separation from service from the issuer
or a related person.
``(ii) Exception.--Clause (i)(I) shall not
apply if the stock relinquished in the exchange,
or the stock acquired in the exchange is in--
``(I) a corporation if any class of
stock in such corporation or a related
party is readily tradable on an
established securities market or
otherwise, or
``(II) any other corporation if such
exchange is part of a transaction or
series of transactions in which such
corporation is to become a corporation
described in subclause (I).
``(3) Definitions.--For purposes of this subsection--
``(A) Preferred stock.--The term `preferred stock'
means stock which is limited and preferred as to
dividends and does not participate in corporate growth
to any significant extent.
``(B) Related person.--A person shall be treated as
related to another person if they bear a relationship to
such other person described in section 267(b) or 707(b).
``(4) Regulations.--The Secretary may prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this subsection and sections 354(a)(2)(C),
355(a)(3)(D), and 356(e). The Secretary may also prescribe
regulations, consistent with the treatment under this subsection
and such sections, for the treatment of nonqualified preferred
stock under other provisions of this title.''.
(b) Section 354.--Paragraph (2) of section 354(a) (relating to
exchanges of stock and securities in certain reorganizations) is amended
by adding at the end the following new subparagraph:
``(C) Nonqualified preferred stock.--
``(i) In general.--Nonqualified preferred
stock (as defined in section 351(g)(2)) received
in exchange for stock other than nonqualified
preferred stock (as so defined) shall not be
treated as stock or securities.
``(ii) Recapitalizations of family-owned
corporations.--
``(I) In general.--Clause (i) shall
not apply in the case of a
recapitalization under section
368(a)(1)(E) of a family-owned
corporation.
``(II) Family-owned corporation.--
For purposes of this clause, except as
provided in regulations, the term
`family-owned corporation' means any
corporation which is described in clause
(i) of section 447(d)(2)(C) throughout
the 8-year period beginning on the date
which is 5 years before the date of the
recapitalization. For purposes of the
preceding sentence, stock shall not be
treated as owned by a family member
during any period described in section
355(d)(6)(B).''.
[[Page 111 STAT. 921]]
(c) Section 355.--Paragraph (3) of section 355(a) is amended by
adding at the end the following new subparagraph:
``(D) Nonqualified preferred stock.--Nonqualified
preferred stock (as defined in section 351(g)(2))
received in a distribution with respect to stock other
than nonqualified preferred stock (as so defined) shall
not be treated as stock or securities.''.
(d) Section 356.--Section 356 is amended by redesignating
subsections (e) and (f) as subsections (f) and (g), respectively, and by
inserting after subsection (d) the following new subsection:
``(e) Nonqualified Preferred Stock Treated as Other Property.--For
purposes of this section--
``(1) In general.--Except as provided in paragraph (2), the
term `other property' includes nonqualified preferred stock (as
defined in section 351(g)(2)).
``(2) Exception.--The term `other property' does not include
nonqualified preferred stock (as so defined) to the extent that,
under section 354 or 355, such preferred stock would be
permitted to be received without the recognition of gain.''.
(e) Conforming Amendments.--
(1) Subparagraph (B) of section 354(a)(2) and subparagraph
(C) of section 355(a)(3)(C) are each amended by inserting
``(including nonqualified preferred stock, as defined in section
351(g)(2))'' after ``stock''.
(2) Subparagraph (A) of section 354(a)(3) and subparagraph
(A) of section 355(a)(4) are each amended by inserting
``nonqualified preferred stock and'' after ``including''.
(3) Section 1036 is amended by redesignating subsection (b)
as subsection (c) and by inserting after subsection (a) the
following new subsection:
``(b) Nonqualified Preferred Stock Not Treated as Stock.--For
purposes of this section, nonqualified preferred stock (as defined in
section 351(g)(2)) shall be treated as property other than stock.''.
(f) <<NOTE: 26 USC 351 note.>> Effective Date.--
(1) In general.--The amendments made by this section shall
apply to transactions after June 8, 1997.
(2) Transition rule.--The amendments made by this section
shall not apply to any transaction after June 8, 1997, if such
transaction is--
(A) made pursuant to a written agreement which was
binding on such date and at all times thereafter,
(B) described in a ruling request submitted to the
Internal Revenue Service on or before such date, or
(C) described on or before such date in a public
announcement or in a filing with the Securities and
Exchange Commission required solely by reason of the
transaction.
SEC. 1015. MODIFICATION OF HOLDING PERIOD APPLICABLE TO DIVIDENDS
RECEIVED DEDUCTION.
(a) In General.--Subparagraph (A) of section 246(c)(1) is amended to
read as follows:
``(A) which is held by the taxpayer for 45 days or
less during the 90-day period beginning on the date
which is 45 days before the date on which such share
becomes ex-dividend with respect to such dividend, or''.
[[Page 111 STAT. 922]]
(b) Conforming Amendments.--
(1) Paragraph (2) of section 246(c) is amended to read as
follows:
``(2) 90-day rule in the case of certain preference
dividends.--In the case of stock having preference in dividends,
if the taxpayer receives dividends with respect to such stock
which are attributable to a period or periods aggregating in
excess of 366 days, paragraph (1)(A) shall be applied--
``(A) by substituting `90 days' for `45 days' each
place it appears, and
``(B) by substituting `180-day period' for `90-day
period'.''.
(2) Paragraph (3) of section 246(c) is amended by adding
``and'' at the end of subparagraph (A), by striking subparagraph
(B), and by redesignating subparagraph (C) as subparagraph (B).
(c) <<NOTE: 26 USC 246 note.>> Effective Date.--
(1) In general.--The amendments made by this section shall
apply to dividends received or accrued after the 30th day after
the date of the enactment of this Act.
(2) Transitional rule.--The amendments made by this section
shall not apply to dividends received or accrued during the 2-
year period beginning on the date of the enactment of this Act
if--
(A) the dividend is paid with respect to stock held
by the taxpayer on June 8, 1997, and all times
thereafter until the dividend is received,
(B) such stock is continuously subject to a position
described in section 246(c)(4) of the Internal Revenue
Code of 1986 on June 8, 1997, and all times thereafter
until the dividend is received, and
(C) such stock and position are clearly identified
in the taxpayer's records within 30 days after the date
of the enactment of this Act.
Stock shall not be treated as meeting the requirement of
subparagraph (B) if the position is sold, closed, or otherwise
terminated and reestablished.
Subtitle C--Administrative Provisions
SEC. 1021. REPORTING OF CERTAIN PAYMENTS MADE TO ATTORNEYS.
(a) In General.--Section 6045 (relating to returns of brokers) is
amended by adding at the end the following new subsection:
``(f) Return Required in the Case of Payments to Attorneys.--
``(1) In general.--Any person engaged in a trade or business
and making a payment (in the course of such trade or business)
to which this subsection applies shall file a return under
subsection (a) and a statement under subsection (b) with respect
to such payment.
``(2) Application of subsection.--
``(A) In general.--This subsection shall apply to
any payment to an attorney in connection with legal
services (whether or not such services are performed for
the payor).
``(B) Exception.--This subsection shall not apply to
the portion of any payment which is required to be
reported
[[Page 111 STAT. 923]]
under section 6041(a) (or would be so required but for
the dollar limitation contained therein) or section
6051.''.
(b) Reporting of Attorneys' Fees Payable to Corporations.--The
regulations providing an exception under section 6041 of the Internal
Revenue Code of 1986 for payments made to corporations shall not apply
to payments of attorneys' fees.
(c) <<NOTE: 26 USC 6045 note.>> Effective Date.--The amendment made
by this section shall apply to payments made after December 31, 1997.
SEC. 1022. DECREASE OF THRESHOLD FOR REPORTING PAYMENTS TO CORPORATIONS
PERFORMING SERVICES FOR FEDERAL AGENCIES.
(a) In General.--Subsection (d) of section 6041A (relating to
returns regarding payments of remuneration for services and direct
sales) is amended by adding at the end the following new paragraph:
``(3) Payments to corporations by federal executive
agencies.--
``(A) In general.--Notwithstanding any regulation
prescribed by the Secretary before the date of the
enactment of this paragraph, subsection (a) shall apply
to remuneration paid to a corporation by any Federal
executive agency (as defined in section 6050M(b)).
``(B) Exception.--Subparagraph (A) shall not apply
to--
``(i) services under contracts described in
section 6050M(e)(3) with respect to which the
requirements of section 6050M(e)(2) are met, and
``(ii) such other services as the Secretary
may specify in regulations prescribed after the
date of the enactment of this paragraph.''.
(b) <<NOTE: 26 USC 6041A note.>> Effective Date.--The amendment
made by this section shall apply to returns the due date for which
(determined without regard to any extension) is more than 90 days after
the date of the enactment of this Act.
SEC. 1023. DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRATION OF
CERTAIN VETERANS PROGRAMS.
(a) General Rule.--Clause (viii) of section 6103(l)(7)(D) (relating
to disclosure of return information to Federal, State, and local
agencies administering certain programs) is amended by striking ``1998''
and inserting ``2003''.
(b) <<NOTE: 26 USC 6103 note.>> Effective Date.--The amendment made
by subsection (a) shall take effect on the date of the enactment of this
Act.
SEC. 1024. CONTINUOUS LEVY ON CERTAIN PAYMENTS.
(a) In General.--Section 6331 (relating to levy and distraint) is
amended--
(1) by redesignating subsection (h) as subsection (i), and
(2) by inserting after subsection (g) the following new
subsection:
``(h) Continuing Levy on Certain Payments.--
``(1) In general.--The effect of a levy on specified
payments to or received by a taxpayer shall be continuous from
the date such levy is first made until such levy is released.
Notwithstanding section 6334, such continuous levy shall attach
to up to 15 percent of any specified payment due to the
taxpayer.
``(2) Specified payment.--For the purposes of paragraph (1),
the term `specified payment' means--
[[Page 111 STAT. 924]]
``(A) any Federal payment other than a payment for
which eligibility is based on the income or assets (or
both) of a payee,
``(B) any payment described in paragraph (4), (7),
(9), or (11) of section 6334(a), and
``(C) any annuity or pension payment under the
Railroad Retirement Act or benefit under the Railroad
Unemployment Insurance Act.''.
(b) <<NOTE: 26 USC 6331 note.>> Effective Date.--The amendment made
by subsection (a) shall apply to levies issued after the date of the
enactment of this Act.
SEC. 1025. MODIFICATION OF LEVY EXEMPTION.
(a) In General.--Section 6334 (relating to property exempt from
levy) is amended by redesignating subsection (f) as subsection (g) and
by inserting after subsection (e) the following new subsection:
``(f) Levy Allowed on Certain Specified Payments.--Any payment
described in subparagraph (B) or (C) of section 6331(h)(2) shall not be
exempt from levy if the Secretary approves the levy thereon under
section 6331(h).''.
(b) <<NOTE: 26 USC 6334 note.>> Effective Date.--The amendment made
by subsection (a) shall apply to levies issued after the date of the
enactment of this Act.
SEC. 1026. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN
INFORMATION.
(a) In General.--Subsection (k) of section 6103 is amended by adding
at the end the following new paragraph:
``(8) Levies on certain government payments.--
``(A) Disclosure of return information in levies on
financial management service.--In serving a notice of
levy, or release of such levy, with respect to any
applicable government payment, the Secretary may
disclose to officers and employees of the Financial
Management Service--
``(i) return information, including taxpayer
identity information,
``(ii) the amount of any unpaid liability
under this title (including penalties and
interest), and
``(iii) the type of tax and tax period to
which such unpaid liability relates.
``(B) Restriction on use of disclosed information.--
Return information disclosed under subparagraph (A) may
be used by officers and employees of the Financial
Management Service only for the purpose of, and to the
extent necessary in, transferring levied funds in
satisfaction of the levy, maintaining appropriate agency
records in regard to such levy or the release thereof,
notifying the taxpayer and the agency certifying such
payment that the levy has been honored, or in the
defense of any litigation ensuing from the honor of such
levy.
``(C) Applicable government payment.--For purposes
of this paragraph, the term `applicable government
payment' means--
``(i) any Federal payment (other than a
payment for which eligibility is based on the
income or assets
[[Page 111 STAT. 925]]
(or both) of a payee) certified to the Financial
Management Service for disbursement, and
``(ii) any other payment which is certified to
the Financial Management Service for disbursement
and which the Secretary designates by published
notice.''.
(b) Conforming Amendments.--
(1) Section 6103(p) is amended--
(A) in paragraph (3)(A), by striking ``(2), or (6)''
and inserting ``(2), (6), or (8)'', and
(B) in paragraph (4), by inserting ``(k)(8),'' after
``(j) (1) or (2),'' each place it appears.
(2) Section 552a(a)(8)(B) of title 5, United States Code, is
amended by striking ``or'' at the end of clause (v), by adding
``or'' at the end of clause (vi), and by adding at the end the
following new clause:
``(vii) matches performed incident to a levy
described in section 6103(k)(8) of the Internal
Revenue Code of 1986;''.
(c) <<NOTE: 26 USC 6103 note.>> Effective Date.--The amendments
made by this section shall apply to levies issued after the date of the
enactment of this Act.
SEC. 1027. RETURNS OF BENEFICIARIES OF ESTATES AND TRUSTS REQUIRED TO
FILE RETURNS CONSISTENT WITH ESTATE OR TRUST RETURN OR TO
NOTIFY SECRETARY OF INCONSISTENCY.
(a) Domestic Estates and Trusts.--Section 6034A (relating to
information to beneficiaries of estates and trusts) is amended by adding
at the end the following new subsection:
``(c) Beneficiary's Return Must be Consistent with Estate or Trust
Return or Secretary Notified of Inconsistency.--
``(1) In general.--A beneficiary of any estate or trust to
which subsection (a) applies shall, on such beneficiary's
return, treat any reported item in a manner which is consistent
with the treatment of such item on the applicable entity's
return.
``(2) Notification of inconsistent treatment.--
``(A) In general.--In the case of any reported item,
if--
``(i)(I) the applicable entity has filed a
return but the beneficiary's treatment on such
beneficiary's return is (or may be) inconsistent
with the treatment of the item on the applicable
entity's return, or
``(II) the applicable entity has not filed a
return, and
``(ii) the beneficiary files with the
Secretary a statement identifying the
inconsistency,
paragraph (1) shall not apply to such item.
``(B) Beneficiary receiving incorrect information.--
A beneficiary shall be treated as having complied with
clause (ii) of subparagraph (A) with respect to a
reported item if the beneficiary--
``(i) demonstrates to the satisfaction of the
Secretary that the treatment of the reported item
on the beneficiary's return is consistent with the
treatment of the item on the statement furnished
under subsection (a) to the beneficiary by the
applicable entity, and
[[Page 111 STAT. 926]]
``(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 beneficiary does not comply with
subparagraph (A)(ii) of paragraph (2),
any adjustment required to make the treatment of the items by
such beneficiary consistent with the treatment of the items on
the applicable entity's 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) Definitions.--For purposes of this subsection--
``(A) Reported item.--The term `reported item' means
any item for which information is required to be
furnished under subsection (a).
``(B) Applicable entity.--The term `applicable
entity' means the estate or trust of which the taxpayer
is the beneficiary.
``(5) Addition to tax for failure to comply with section.--
For addition to tax in the case of a beneficiary's negligence in
connection with, or disregard of, the requirements of this
section, see part II of subchapter A of chapter 68.''.
(b) Foreign Trusts.--Subsection (d) of section 6048 (relating to
information with respect to certain foreign trusts) is amended by adding
at the end the following new paragraph:
``(5) United states person's return must be consistent with
trust return or secretary notified of inconsistency.--Rules
similar to the rules of section 6034A(c) shall apply to items
reported by a trust under subsection (b)(1)(B) and to United
States persons referred to in such subsection.''.
(c) <<NOTE: 26 USC 6034A note.>> Effective Date.--The amendments
made by this section shall apply to returns of beneficiaries and owners
filed after the date of the enactment of this Act.
SEC. 1028. REGISTRATION AND OTHER PROVISIONS RELATING TO CONFIDENTIAL
CORPORATE TAX SHELTERS.
(a) In General.--Section 6111 (relating to registration of tax
shelters) is amended by redesignating subsections (d) and (e) as
subsections (e) and (f), respectively, and by inserting after subsection
(c) the following new subsection:
``(d) Certain Confidential Arrangements Treated as Tax Shelters.--
``(1) In general.--For purposes of this section, the term
`tax shelter' includes any entity, plan, arrangement, or
transaction--
``(A) a significant purpose of the structure of
which is the avoidance or evasion of Federal income tax
for a direct or indirect participant which is a
corporation,
``(B) which is offered to any potential participant
under conditions of confidentiality, and
``(C) for which the tax shelter promoters may
receive fees in excess of $100,000 in the aggregate.
[[Page 111 STAT. 927]]
``(2) Conditions of confidentiality.--For purposes of
paragraph (1)(B), an offer is under conditions of
confidentiality if--
``(A) the potential participant to whom the offer is
made (or any other person acting on behalf of such
participant) has an understanding or agreement with or
for the benefit of any promoter of the tax shelter that
such participant (or such other person) will limit
disclosure of the tax shelter or any significant tax
features of the tax shelter, or
``(B) any promoter of the tax shelter--
``(i) claims, knows, or has reason to know,
``(ii) knows or has reason to know that any
other person (other than the potential
participant) claims, or
``(iii) causes another person to claim,
that the tax shelter (or any aspect thereof) is
proprietary to any person other than the potential
participant or is otherwise protected from disclosure to
or use by others.
For purposes of this subsection, the term `promoter' means any
person or any related person (within the meaning of section 267
or 707) who participates in the organization, management, or
sale of the tax shelter.
``(3) Persons other than promoter required to register in
certain cases.--
``(A) In general.--If--
``(i) the requirements of subsection (a) are
not met with respect to any tax shelter (as
defined in paragraph (1)) by any tax shelter
promoter, and
``(ii) no tax shelter promoter is a United
States person,
then each United States person who discussed
participation in such shelter shall register such
shelter under subsection (a).
``(B) Exception.--Subparagraph (A) shall not apply
to a United States person who discussed participation in
a tax shelter if--
``(i) such person notified the promoter in
writing (not later than the close of the 90th day
after the day on which such discussions began)
that such person would not participate in such
shelter, and
``(ii) such person does not participate in
such shelter.
``(4) Offer to participate treated as offer for sale.--For
purposes of subsections (a) and (b), an offer to participate in
a tax shelter (as defined in paragraph (1)) shall be treated as
an offer for sale.''.
(b) Penalty.--Subsection (a) of section 6707 (relating to failure to
furnish information regarding tax shelters) is amended by adding at the
end the following new paragraph:
``(3) Confidential arrangements.--
``(A) In general.--In the case of a tax shelter (as
defined in section 6111(d)), the penalty imposed under
paragraph (1) shall be an amount equal to the greater
of--
``(i) 50 percent of the fees paid to all
promoters of the tax shelter with respect to
offerings made before
[[Page 111 STAT. 928]]
the date such shelter is registered under section
6111, or
``(ii) $10,000.
Clause (i) shall be applied by substituting `75 percent'
for `50 percent' in the case of an intentional failure
or act described in paragraph (1).
``(B) Special rule for participants required to
register shelter.--In the case of a person required to
register such a tax shelter by reason of section
6111(d)(3)--
``(i) such person shall be required to pay the
penalty under paragraph (1) only if such person
actually participated in such shelter,
``(ii) the amount of such penalty shall be
determined by taking into account under
subparagraph (A)(i) only the fees paid by such
person, and
``(iii) such penalty shall be in addition to
the penalty imposed on any other person for
failing to register such shelter.''.
(c) Modifications to Substantial Understatement Penalty.--
(1) Restriction on reasonable basis for corporate
understatement of income tax.--Subparagraph (B) of section
6662(d)(2) is amended by adding at the end the following new
flush sentence:
``For purposes of clause (ii)(II), in no event shall a
corporation be treated as having a reasonable basis for
its tax treatment of an item attributable to a multiple-
party financing transaction if such treatment does not
clearly reflect the income of the corporation.''.
(2) Modification to definition of tax shelter.--Clause (iii)
of section 6662(d)(2)(C) is amended by striking ``the principal
purpose'' and inserting ``a significant purpose''.
(d) Conforming Amendments.--
(1) Paragraph (2) of section 6707(a) is amended by striking
``The penalty'' and inserting ``Except as provided in paragraph
(3), the penalty''.
(2) Subparagraph (A) of section 6707(a)(1) is amended by
striking ``paragraph (2)'' and inserting ``paragraph (2) or (3),
as the case may be''.
(e) <<NOTE: 26 USC 6111 note.>> Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to any tax shelter
(as defined in section 6111(d) of the Internal Revenue Code of
1986, as amended by this section) interests in which are offered
to potential participants after the Secretary of the Treasury
prescribes guidance with respect to meeting requirements added
by such amendments.
(2) Modifications to substantial understatement penalty.--
The amendments made by subsection (c) shall apply to items with
respect to transactions entered into after the date of the
enactment of this Act.
[[Page 111 STAT. 929]]
Subtitle D--Excise and Employment Tax Provisions
SEC. 1031. EXTENSION AND MODIFICATION OF TAXES FUNDING AIRPORT AND
AIRWAY TRUST FUND; INCREASED DEPOSITS INTO SUCH FUND.
(a) Fuel Taxes.--
(1) Aviation fuel.--Clause (ii) of section 4091(b)(3)(A) is
amended by striking ``September 30, 1997'' and inserting
``September 30, 2007''.
(2) Aviation gasoline.--Subparagraph (B) of section
4081(d)(2) is amended by striking ``September 30, 1997'' and
inserting ``September 30, 2007''.
(3) Noncommercial aviation.--Subparagraph (B) of section
4041(c)(3) is amended by striking ``September 30, 1997'' and
inserting ``September 30, 2007''.
(b) Ticket Taxes.--
(1) Persons.--Clause (ii) of section 4261(g)(1)(A) is
amended by striking ``September 30, 1997'' and inserting
``September 30, 2007''.
(2) Property.--Clause (ii) of section 4271(d)(1)(A) is
amended by striking ``September 30, 1997'' and inserting
``September 30, 2007''.
(c) Modifications to Tax on Transportation of Persons by Air.--
(1) In general.--Section 4261 (relating to imposition of
tax) is amended by striking subsections (a), (b), and (c) and
inserting the following new subsections:
``(a) In General.--There is hereby imposed on the amount paid for
taxable transportation of any person a tax equal to 7.5 percent of the
amount so paid.
``(b) Domestic Segments of Taxable Transportation.--
``(1) In general.--There is hereby imposed on the amount
paid for each domestic segment of taxable transportation by air
a tax in the amount determined in accordance with the following
table for the period in which the segment begins:
In the case of segments
beginning: The tax is:
After September 30, 1997, and before $1.00
October 1, 1998
After September 30, 1998, and before $2.00
October 1, 1999
After September 30, 1999, and before $2.25
January 1, 2000
During 2000 $2.50
During 2001 $2.75
During 2002 or thereafter $3.00.
``(2) Domestic segment.--For purposes of this section, the
term `domestic segment' means any segment consisting of 1
takeoff and 1 landing and which is taxable transportation
described in section 4262(a)(1).
``(3) Changes in segments by reason of rerouting.--If--
``(A) transportation is purchased between 2
locations on specified flights, and
``(B) there is a change in the route taken between
such 2 locations which changes the number of domestic
segments, but there is no change in the amount charged
for such transportation,
[[Page 111 STAT. 930]]
the tax imposed by paragraph (1) shall be determined without
regard to such change in route.
``(c) Use of International Travel Facilities.--
``(1) In general.--There is hereby imposed a tax of $12.00
on any amount paid (whether within or without the United States)
for any transportation of any person by air, if such
transportation begins or ends in the United States.
``(2) Exception for transportation entirely taxable under
subsection (a).--This subsection shall not apply to any
transportation all of which is taxable under subsection (a)
(determined without regard to sections 4281 and 4282).
``(3) Special rule for alaska and hawaii.--In any case in
which the tax imposed by paragraph (1) applies to a domestic
segment beginning or ending in Alaska or Hawaii, such tax shall
apply only to departures and shall be at the rate of $6.''.
(2) Special rules.--Section 4261 is amended by redesignating
subsections (e), (f), and (g) as subsections (f), (g), and (h),
respectively, and by inserting after subsection (d) the
following new subsection:
``(e) Special Rules.--
``(1) Segments to and from rural airports.--
``(A) Exception from segment tax.--The tax imposed
by subsection (b)(1) shall not apply to any domestic
segment beginning or ending at an airport which is a
rural airport for the calendar year in which such
segment begins or ends (as the case may be).
``(B) Rural airport.--For purposes of this
paragraph, the term `rural airport' means, with respect
to any calendar year, any airport if--
``(i) there were fewer than 100,000 commercial
passengers departing by air during the second
preceding calendar year from such airport, and
``(ii) such airport--
``(I) is not located within 75 miles
of another airport which is not
described in clause (i), or
``(II) is receiving essential air
service subsidies as of the date of the
enactment of this paragraph.
``(C) No phasein of reduced ticket tax.--In the case
of transportation beginning before October 1, 1999--
``(i) In general.--Paragraph (5) shall not
apply to any domestic segment beginning or ending
at an airport which is a rural airport for the
calendar year in which such segment begins or ends
(as the case may be).
``(ii) Transportation involving multiple
segments.--In the case of transportation involving
more than 1 domestic segment at least 1 of which
does not begin or end at a rural airport, the 7.5
percent rate applicable by reason of clause (i)
shall be applied by taking into account only an
amount which bears the same ratio to the amount
paid for such transportation as the number of
specified miles in domestic segments which begin
or end at a rural airport bears to the total
number of specified miles in such transportation.
[[Page 111 STAT. 931]]
``(2) Amounts paid outside the united states.--In the case
of amounts paid outside the United States for taxable
transportation, the taxes imposed by subsections (a) and (b)
shall apply only if such transportation begins and ends in the
United States.
``(3) Amounts paid for right to award free or reduced rate
air transportation.--
``(A) In general.--Any amount paid (and the value of
any other benefit provided) to an air carrier (or any
related person) for the right to provide mileage awards
for (or other reductions in the cost of) any
transportation of persons by air shall be treated for
purposes of subsection (a) as an amount paid for taxable
transportation, and such amount shall be taxable under
subsection (a) without regard to any other provision of
this subchapter.
``(B) Controlled group.--For purposes of
subparagraph (A), a corporation and all wholly owned
subsidiaries of such corporation shall be treated as 1
corporation.
``(C) Regulations.--The Secretary shall prescribe
rules which reallocate items of income, deduction,
credit, exclusion, or other allowance to the extent
necessary to prevent the avoidance of tax imposed by
reason of this paragraph. The Secretary may prescribe
rules which exclude from the tax imposed by subsection
(a) amounts attributable to mileage awards which are
used other than for transportation of persons by air.
``(4) Inflation adjustment of dollar rates of tax.--
``(A) In general.--In the case of taxable events in
a calendar year after the last nonindexed year, the
$3.00 amount contained in subsection (b) and each dollar
amount contained in subsection (c) shall be increased by
an amount equal to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(f)(3) for such calendar
year by substituting the year before the last
nonindexed year for `calendar year 1992' in
subparagraph (B) thereof.
If any increase determined under the preceding sentence
is not a multiple of 10 cents, such increase shall be
rounded to the nearest multiple of 10 cents.
``(B) Last nonindexed year.--For purposes of
subparagraph (A), the last nonindexed year is--
``(i) 2002 in the case of the $3.00 amount
contained in subsection (b), and
``(ii) 1998 in the case of the dollar amounts
contained in subsection (c).
``(C) Taxable event.--For purposes of subparagraph
(A), in the case of the tax imposed subsection (b), the
beginning of the domestic segment shall be treated as
the taxable event.
``(5) Rates of ticket tax for transportation beginning
before october 1, 1999.--Subsection (a) shall be applied by
substituting for `7.5 percent'--
``(A) `9 percent' in the case of transportation
beginning after September 30, 1997, and before October
1, 1998, and
[[Page 111 STAT. 932]]
``(B) `8 percent' in the case of transportation
beginning after September 30, 1998, and before October
1, 1999.''.
(3) Secondary liability of carrier for unpaid tax.--
Subsection (c) of section 4263 is amended by striking
``subchapter--'' and all that follows and inserting
``subchapter, such tax shall be paid by the carrier providing
the initial segment of such transportation which begins or ends
in the United States.''.
(d) Increased Airport and Airway Trust Fund Deposits.--
(1) Paragraph (1) of section 9502(b) is amended--
(A) by striking ``(to the extent that the rate of
the tax on such gasoline exceeds 4.3 cents per gallon)''
in subparagraph (C),
(B) by striking ``to the extent attributable to the
Airport and Airway Trust Fund financing rate'' in
subparagraph (D), and
(C) by adding at the end the following flush
sentence:
``There shall not be taken into account under paragraph (1) so much of
the taxes imposed by sections 4081 and 4091 as are determined at the
rates specified in section 4081(a)(2)(B) or 4091(b)(2).''.
(2) Section 9502 is amended by striking subsection (f).
(e) Effective Dates.--
(1) <<NOTE: 26 USC 4041 note.>> Fuel taxes.--The amendments
made by subsection (a) shall apply take effect on October 1,
1997.
(2) <<NOTE: 26 USC 4261 note.>> Ticket taxes.--
(A) In general.--Except as otherwise provided in
this paragraph, the amendments made by subsections (b)
and (c) shall apply to transportation beginning on or
after October 1, 1997.
(B) Treatment of amounts paid for tickets purchased
before october 1, 1997.--The amendments made by
subsection (c) shall not apply to amounts paid before
October 1, 1997; except that--
(i) the amendment made to section 4261(c) of
the Internal Revenue Code of 1986 shall apply to
amounts paid more than 7 days after the date of
the enactment of this Act for transportation
beginning on or after October 1, 1997, and
(ii) the amendment made to section 4263(c) of
such Code shall apply to the extent related to
taxes imposed under the amendment made to such
section 4261(c) on the amounts described in clause
(i).
(C) Amounts paid for right to award mileage
awards.--
(i) In general.--Paragraph (3) of section
4261(e) of the Internal Revenue Code of 1986 (as
added by the amendment made by subsection (c))
shall apply to amounts paid (and other benefits
provided) after September 30, 1997.
(ii) Payments within controlled group.--For
purposes of clause (i), any amount paid after June
11, 1997, and before October 1, 1997, by 1 member
of a controlled group for a right which is
described in such section 4261(e)(3) and is
furnished by another member of such group after
September 30, 1997, shall
[[Page 111 STAT. 933]]
be treated as paid after September 30, 1997. For
purposes of the preceding sentence, all persons
treated as a single employer under subsection (a)
or (b) of section 52 of such Code shall be treated
as members of a controlled group.
(3) <<NOTE: 26 USC 9502 note.>> Increased deposits into
airport and airway trust fund.--The amendments made by
subsection (d) shall apply with respect to taxes received in the
Treasury on and after October 1, 1997.
(g) <<NOTE: 26 USC 6302 note.>> Delayed Deposits of Airport Trust
Fund Tax Revenues.--Notwithstanding section 6302 of the Internal Revenue
Code of 1986--
(1) in the case of deposits of taxes imposed by section 4261
of such Code, the due date for any such deposit which would (but
for this subsection) be required to be made after August 14,
1997, and before October 1, 1997, shall be October 10, 1997,
(2) in the case of deposits of taxes imposed by section 4261
of such Code, the due date for any such deposit which would (but
for this subsection) be required to be made after August 14,
1998, and before October 1, 1998, shall be October 5, 1998, and
(3) in the case of deposits of taxes imposed by sections
4081(a)(2)(A)(ii), 4091, and 4271 of such Code, the due date for
any such deposit which would (but for this subsection) be
required to be made after July 31, 1998, and before October 1,
1998, shall be October 5, 1998.
SEC. 1032. KEROSENE TAXED AS DIESEL FUEL.
(a) In General.--Subsection (a) of section 4083 (defining taxable
fuel) is amended by striking ``and'' at the end of subparagraph (A), by
striking the period at the end of subparagraph (B) and inserting ``,
and'', and by adding at the end the following new subparagraph:
``(C) kerosene.''.
(b) Rate of Tax.--Clause (iii) of section 4081(a)(2)(A) is amended
by inserting ``or kerosene'' after ``diesel fuel''.
(c) Exemptions From Tax; Refunds to Vendors.--
(1) In general.--Section 4082 (relating to exemptions for
diesel fuel) is amended by striking ``diesel fuel'' each place
it appears in subsections (a), (c), and (d) and inserting
``diesel fuel and kerosene''.
(2) Certain kerosene exempt from dyeing requirement.--
Section 4082 is amended by redesignating subsections (d) and (e)
as subsections (e) and (f), respectively, and by inserting after
subsection (c) the following new subsection:
``(d) Additional Exceptions to Dyeing Requirements for Kerosene.--
``(1) Aviation-grade kerosene.--Subsection
(a)(2) <<NOTE: Regulations.>> shall not apply to a removal,
entry, or sale of aviation-grade kerosene (as determined under
regulations prescribed by the Secretary) if the person receiving
the kerosene is registered under section 4101 with respect to
the tax imposed by section 4091.
``(2) Use for non-fuel feedstock purposes.--Subsection
(a)(2) shall not apply to kerosene--
``(A) received by pipeline or vessel for use by the
person receiving the kerosene in the manufacture or
production
[[Page 111 STAT. 934]]
of any substance (other than gasoline, diesel fuel, or
special fuels referred to in section 4041), or
``(B) to the extent provided in regulations, removed
or entered--
``(i) for such a use by the person removing or
entering the kerosene, or
``(ii) for resale by such person for such a
use by the purchaser,
but only if the person receiving, removing, or entering the
kerosene and such purchaser (if any) are registered under
section 4101 with respect to the tax imposed by section 4081.
``(3) Wholesale distributors.--To the extent provided in
regulations, subsection (a)(2) shall not apply to a removal,
entry, or sale of kerosene to a wholesale distributor of
kerosene if such distributor--
``(A) is registered under section 4101 with respect
to the tax imposed by section 4081 on kerosene, and
``(B) sells kerosene exclusively to ultimate vendors
described in section 6427(l)(5)(B) with respect to
kerosene.''.
(3) Refunds.--
(A) Subsection (l) of section 6427 is amended by
inserting ``or kerosene'' after ``diesel fuel'' each
place it appears in paragraphs (1), (2), and (5)
(including the heading for paragraph (5)).
(B) Paragraph (5) of section 6427(l) is amended by
redesignating subparagraph (B) as subparagraph (C) and
by inserting after subparagraph (A) the following new
subparagraph:
``(B) Sales of kerosene not for use in motor fuel.--
Paragraph (1)(A) shall not apply to kerosene sold by a
vendor--
``(i) for any use if such sale is from a pump
which (as determined under regulations prescribed
by the Secretary) is not suitable for use in
fueling any diesel-powered highway vehicle or
train, or
``(ii) to the extent provided by the
Secretary, for blending with heating oil to be
used during periods of extreme or unseasonable
cold.''.
(C) Subparagraph (C) of section 6427(l)(5), as
redesignated by subparagraph (B) of this paragraph, is
amended by striking ``subparagraph (A)'' and inserting
``subparagraph (A) or (B)''.
(D) The heading for subsection (l) of section 6427
is amended by inserting ``, Kerosene,'' after ``Diesel
Fuel''.
(E) Clause (i) of section 6427(i)(5)(A) is amended
by inserting ``($100 or more in the case of kerosene)''
after ``$200 or more''.
(d) Certain Approved Terminals of Registered Persons Required To
Offer Dyed Diesel Fuel and Kerosene for Nontaxable Purposes.--Section
4101 is amended by adding at the end the following new subsection:
``(e) Certain Approved Terminals of Registered Persons Required To
Offer Dyed Diesel Fuel and Kerosene for Nontaxable Purposes.--
``(1) In general.--A terminal for kerosene or diesel fuel
may not be an approved facility for storage of non-tax-paid
diesel fuel or kerosene under this section unless the operator
[[Page 111 STAT. 935]]
of such terminal offers dyed diesel fuel and kerosene for
removal for nontaxable use in accordance with section 4082(a).
``(2) Exception.--Paragraph (1) shall not apply to any
terminal exclusively providing aviation-grade kerosene by
pipeline to an airport.''.
(e) Conforming Amendments.--
(1) Paragraph (2) of section 4041(a), as amended by title
IX, is amended by striking ``kerosene,''.
(2) Paragraph (1) of section 4041(c) is amended by striking
``any liquid'' and inserting ``kerosene and any other liquid''.
(3)(A) The heading for section 4082 is amended by inserting
``and kerosene'' after ``diesel fuel''.
(B) The table of sections for subpart A of part III of
subchapter A of chapter 32 is amended by inserting ``and
kerosene'' after ``diesel fuel'' in the item relating to section
4082.
(4) Subsection (b) of section 4083 is amended by striking
``gasoline, diesel fuel,'' and inserting ``taxable fuels''.
(5) Subsection (a) of section 4093 is amended by striking
``any liquid'' and inserting ``kerosene and any other liquid''.
(6) The material following subparagraph (F) of section
6416(b)(2) is amended by inserting ``or kerosene'' after
``diesel fuel''.
(7) Paragraphs (1) and (3) of section 6427(f), and the
heading for section 6427(f), are each amended by inserting
``kerosene,'' after ``diesel fuel,''.
(8) Paragraph (2) of section 6427(f) is amended by striking
``or diesel fuel'' each place it appears and inserting ``,
diesel fuel, or kerosene''.
(9) Subparagraph (A) of section 6427(i)(3) is amended by
striking ``or diesel fuel'' and inserting ``, diesel fuel, or
kerosene''.
(10) The heading for paragraph (4) of section 6427(i) is
amended to read as follows:
``(4) Special rule for refunds under subsection
(l).--''.
(11) Paragraph (1) of section 6715(c) is amended by
inserting ``or kerosene'' after ``diesel fuel''.
(12)(A) The text of section 7232 is amended by striking
``gasoline, lubricating oil, diesel fuel'' and inserting ``any
taxable fuel (as defined in section 4083)''.
(B) The section heading for section 7232 is amended to read
as follows:
``SEC. 7232. FAILURE TO REGISTER UNDER SECTION 4101, FALSE
REPRESENTATIONS OF REGISTRATION STATUS, ETC.''.
(C) The table of sections for part II of subchapter A of
chapter 75 is amended by striking the item relating to section
7232 and inserting the following:
``Sec. 7232. Failure to register under section 4101,
false representations of registration
status, etc.''.
(13) Sections 9503(b)(1)(E) and 9508(b)(2) are each amended
by striking ``and diesel fuel'' and inserting ``, diesel fuel,
and kerosene''.
(14) Subparagraph (B) of section 9503(b)(5) is amended by
striking ``or diesel fuel'' and inserting ``, diesel fuel, or
kerosene''.
(f) <<NOTE: 26 USC 4041 note.>> Effective Date.--The amendments
made by this section shall take effect on July 1, 1998.
[[Page 111 STAT. 936]]
<<NOTE: 26 USC 4081 note.>> (g) Floor Stock Taxes.--
(1) Imposition of tax.--In the case of kerosene which is
held on July 1, 1998, by any person, there is hereby imposed a
floor stocks tax of 24.4 cents per gallon.
(2) Liability for tax and method of payment.--
(A) Liability for tax.--A person holding kerosene on
July 1, 1998, 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) shall be paid on or before August 31, 1998.
(3) Definitions.--For purposes of this subsection--
(A) Held by a person.--Kerosene 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).
(B) 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 kerosene held by any person exclusively
for any use to the extent a credit or refund of the tax imposed
by section 4081 of the Internal Revenue Code of 1986 is
allowable for such use.
(5) Exception for fuel held in vehicle tank.--No tax shall
be imposed by paragraph (1) on kerosene held in the tank of a
motor vehicle or motorboat.
(6) Exception for certain amounts of fuel.--
(A) In general.--No tax shall be imposed by
paragraph (1) on kerosene held on July 1, 1998, by any
person if the aggregate amount of kerosene 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) or (5).
(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
[[Page 111 STAT. 937]]
control where 1 or more of such persons is not a
corporation.
(7) Coordination with section 4081.--No tax shall be imposed
by paragraph (1) on kerosene to the extent that tax has been (or
will be) imposed on such kerosene under section 4081 or 4091 of
such Code.
(8) Other laws applicable.--All provisions of law, including
penalties, applicable with respect to the taxes imposed by
section 4081 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 4081.
SEC. 1033. RESTORATION OF LEAKING UNDERGROUND STORAGE TANK TRUST FUND
TAXES.
Paragraph (3) of section 4081(d) is amended by striking ``shall not
apply after December 31, 1995'' and inserting ``shall apply after
September 30, 1997, and before April 1, 2005''.
SEC. 1034. APPLICATION OF COMMUNICATIONS TAX TO PREPAID TELEPHONE CARDS.
(a) In General.--Section 4251 is amended by adding at the end the
following new subsection:
``(d) Treatment of Prepaid Telephone Cards.--
``(1) In general.--For purposes of this subchapter, in the
case of communications services acquired by means of a prepaid
telephone card--
``(A) the face amount of such card shall be treated
as the amount paid for such communications services, and
``(B) that amount shall be treated as paid when the
card is transferred by any telecommunications carrier to
any person who is not such a carrier.
``(2) Determination of face amount in absence of specified
dollar amount.--In the case of any prepaid telephone card which
entitles the user other than to a specified dollar amount of
use, the face amount shall be determined under regulations
prescribed by the Secretary.
``(3) Prepaid telephone card.--For purposes of this
subsection, the term `prepaid telephone card' means any card or
other similar arrangement which permits its holder to obtain
communications services and pay for such services in advance.''.
(b) <<NOTE: 26 USC 4251 note.>> Effective Date.--The amendments
made by this section shall apply to amounts paid in calendar months
beginning more than 60 days after the date of the enactment of this Act.
SEC. 1035. EXTENSION OF TEMPORARY UNEMPLOYMENT TAX.
Section 3301 (relating to rate of unemployment tax) is amended--
(1) by striking ``1998'' in paragraph (1) and inserting
``2007'', and
(2) by striking ``1999'' in paragraph (2) and inserting
``2008''.
[[Page 111 STAT. 938]]
Subtitle E--Provisions Relating to Tax-Exempt Entities
SEC. 1041. EXPANSION OF LOOK-THRU RULE FOR INTEREST, ANNUITIES,
ROYALTIES, AND RENTS DERIVED BY SUBSIDIARIES OF TAX-EXEMPT
ORGANIZATIONS.
(a) In General.--Paragraph (13) of section 512(b) is amended to read
as follows:
``(13) Special rules for certain amounts received from
controlled entities.--
``(A) In general.--If an organization (in this
paragraph referred to as the `controlling organization')
receives (directly or indirectly) a specified payment
from another entity which it controls (in this paragraph
referred to as the `controlled entity'), notwithstanding
paragraphs (1), (2), and (3), the controlling
organization shall include such payment as an item of
gross income derived from an unrelated trade or business
to the extent such payment reduces the net unrelated
income of the controlled entity (or increases any net
unrelated loss of the controlled entity). There shall be
allowed all deductions of the controlling organization
directly connected with amounts treated as derived from
an unrelated trade or business under the preceding
sentence.
``(B) Net unrelated income or loss.--For purposes of
this paragraph--
``(i) Net unrelated income.--The term `net
unrelated income' means--
``(I) in the case of a controlled
entity which is not exempt from tax
under section 501(a), the portion of
such entity's taxable income which would
be unrelated business taxable income if
such entity were exempt from tax under
section 501(a) and had the same exempt
purposes (as defined in section
513A(a)(5)(A)) as the controlling
organization, or
``(II) in the case of a controlled
entity which is exempt from tax under
section 501(a), the amount of the
unrelated business taxable income of the
controlled entity.
``(ii) Net unrelated loss.--The term `net
unrelated loss' means the net operating loss
adjusted under rules similar to the rules of
clause (i).
``(C) Specified payment.--For purposes of this
paragraph, the term `specified payment' means any
interest, annuity, royalty, or rent.
``(D) Definition of control.--For purposes of this
paragraph--
``(i) Control.--The term `control' means--
``(I) in the case of a corporation,
ownership (by vote or value) of more
than 50 percent of the stock in such
corporation,
``(II) in the case of a partnership,
ownership of more than 50 percent of the
profits interests or capital interests
in such partnership, or
[[Page 111 STAT. 939]]
``(III) in any other case, ownership
of more than 50 percent of the
beneficial interests in the entity.
``(ii) <<NOTE: Applicability.>> Constructive
ownership.--Section 318 (relating to constructive
ownership of stock) shall apply for purposes of
determining ownership of stock in a corporation.
Similar principles shall apply for purposes of
determining ownership of interests in any other
entity.
``(E) Related persons.--The Secretary shall
prescribe such rules as may be necessary or appropriate
to prevent avoidance of the purposes of this paragraph
through the use of related persons.''.
(b) <<NOTE: 26 USC 512 note.>> Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after the date of the enactment of this Act.
(2) Binding contracts.--The amendments made by this section
shall not apply to any payment made during the first 2 taxable
years beginning on or after the date of the enactment of this
Act if such payment is made pursuant to a written binding
contract in effect on June 8, 1997, and at all times thereafter
before such payment.
SEC. 1042. <<NOTE: 26 USC 833 note.>> TERMINATION OF CERTAIN EXCEPTIONS
FROM RULES RELATING TO EXEMPT ORGANIZATIONS WHICH PROVIDE
COMMERCIAL-TYPE INSURANCE.
(a) In General.--Subparagraphs (A) and (B) of section 1012(c)(4) of
the Tax Reform Act of 1986 shall not apply to any taxable year beginning
after December 31, 1997.
(b) Special Rules.--In the case of an organization to which section
501(m) of the Internal Revenue Code of 1986 applies solely by reason of
the amendment made by subsection (a)--
(1) no adjustment shall be made under section 481 (or any
other provision) of such Code on account of a change in its
method of accounting for its first taxable year beginning after
December 31, 1997, and
(2) for purposes of determining gain or loss, the adjusted
basis of any asset held on the 1st day of such taxable year
shall be treated as equal to its fair market value as of such
day.
(c) Reserve Weakening After June 8, 1997.--Any reserve weakening
after June 8, 1997, by an organization described in subsection (b) shall
be treated as occurring in such organization's 1st taxable year
beginning after December 31, 1997.
(d) Regulations.--The Secretary of the Treasury or his delegate may
prescribe rules for providing proper adjustments for organizations
described in subsection (b) with respect to short taxable years which
begin during 1998 by reason of section 843 of the Internal Revenue Code
of 1986.
[[Page 111 STAT. 940]]
Subtitle F--Foreign Provisions
SEC. 1051. DEFINITION OF FOREIGN PERSONAL HOLDING COMPANY INCOME.
(a) Income From Notional Principal Contracts and Payments in Lieu of
Dividends.--
(1) In general.--Paragraph (1) of section 954(c) (defining
foreign personal holding company income) is amended by adding at
the end the following new subparagraphs:
``(F) Income from notional principal contracts.--Net
income from notional principal contracts. Any item of
income, gain, deduction, or loss from a notional
principal contract entered into for purposes of hedging
any item described in any preceding subparagraph shall
not be taken into account for purposes of this
subparagraph but shall be taken into account under such
other subparagraph.
``(G) Payments in lieu of dividends.--Payments in
lieu of dividends which are made pursuant to an
agreement to which section 1058 applies.''.
(2) Conforming amendment.--Subparagraph (B) of section
954(c)(1) is amended--
(A) by striking the second sentence, and
(B) by striking ``also'' in the last sentence.
(b) Exception for Dealers.--Paragraph (2) of section 954(c) is
amended by adding at the end the following new subparagraph:
``(C) Exception for dealers.--Except as provided in
subparagraph (A), (E), or (G) of paragraph (1) or by
regulations, in the case of a regular dealer in property
(within the meaning of paragraph (1)(B)), forward
contracts, option contracts, or similar financial
instruments (including notional principal contracts and
all instruments referenced to commodities), there shall
not be taken into account in computing foreign personal
holding income any item of income, gain, deduction, or
loss from any transaction (including hedging
transactions) entered into in the ordinary course of
such dealer's trade or business as such a dealer.''.
(c) <<NOTE: 26 USC 954 note.>> Effective Date.--The amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 1052. PERSONAL PROPERTY USED PREDOMINANTLY IN THE UNITED STATES
TREATED AS NOT PROPERTY OF A LIKE KIND WITH RESPECT TO
PROPERTY USED PREDOMINANTLY OUTSIDE THE UNITED STATES.
(a) In General.--Subsection (h) of section 1031 (relating to
exchange of property held for productive use or investment) is amended
to read as follows:
``(h) Special Rules for Foreign Real and Personal Property.--For
purposes of this section--
``(1) Real property.--Real property located in the United
States and real property located outside the United States are
not property of a like kind.
``(2) Personal property.--
``(A) In general.--Personal property used
predominantly within the United States and personal
property
[[Page 111 STAT. 941]]
used predominantly outside the United States are not
property of a like kind.
``(B) Predominant use.--Except as provided in
subparagraph (C) and (D), the predominant use of any
property shall be determined based on--
``(i) in the case of the property relinquished
in the exchange, the 2-year period ending on the
date of such relinquishment, and
``(ii) in the case of the property acquired in
the exchange, the 2-year period beginning on the
date of such acquisition.
``(C) Property held for less than 2 years.--Except
in the case of an exchange which is part of a
transaction (or series of transactions) structured to
avoid the purposes of this subsection--
``(i) only the periods the property was held
by the person relinquishing the property (or any
related person) shall be taken into account under
subparagraph (B)(i), and
``(ii) only the periods the property was held
by the person acquiring the property (or any
related person) shall be taken into account under
subparagraph (B)(ii).
``(D) Special rule for certain property.--Property
described in any subparagraph of section 168(g)(4) shall
be treated as used predominantly in the United
States.''.
(b) <<NOTE: 26 USC 1031 note.>> Effective Date.--
(1) In general.--The amendment made by this section shall
apply to transfers after June 8, 1997, in taxable years ending
after such date.
(2) Binding contracts.--The amendment made by this section
shall not apply to any transfer pursuant to a written binding
contract in effect on June 8, 1997, and at all times thereafter
before the disposition of property. A contract shall not fail to
meet the requirements of the preceding sentence solely because--
(A) it provides for a sale in lieu of an exchange,
or
(B) the property to be acquired as replacement
property was not identified under such contract before
June 9, 1997.
SEC. 1053. HOLDING PERIOD REQUIREMENT FOR CERTAIN FOREIGN TAXES.
(a) In General.--Section 901 is amended by redesignating subsection
(k) as subsection (l) and by inserting after subsection (j) the
following new subsection:
``(k) Minimum Holding Period for Certain Taxes.--
``(1) Withholding taxes.--
``(A) In general.--In no event shall a credit be
allowed under subsection (a) for any withholding tax on
a dividend with respect to stock in a corporation if--
``(i) such stock is held by the recipient of
the dividend for 15 days or less during the 30-day
period beginning on the date which is 15 days
before the date on which such share becomes ex-
dividend with respect to such dividend, or
``(ii) to the extent that the recipient of the
dividend is under an obligation (whether pursuant
to a short
[[Page 111 STAT. 942]]
sale or otherwise) to make related payments with
respect to positions in substantially similar or
related property.
``(B) Withholding tax.--For purposes of this
paragraph, the term `withholding tax' includes any tax
determined on a gross basis; but does not include any
tax which is in the nature of a prepayment of a tax
imposed on a net basis.
``(2) Deemed paid taxes.--In the case of income, war
profits, or excess profits taxes deemed paid under section 853,
902, or 960 through a chain of ownership of stock in 1 or more
corporations, no credit shall be allowed under subsection (a)
for such taxes if--
``(A) any stock of any corporation in such chain
(the ownership of which is required to obtain credit
under subsection (a) for such taxes) is held for less
than the period described in paragraph (1)(A)(i), or
``(B) the corporation holding the stock is under an
obligation referred to in paragraph (1)(A)(ii).
``(3) 45-day rule in the case of certain preference
dividends.--In the case of stock having preference in dividends
and dividends with respect to such stock which are attributable
to a period or periods aggregating in excess of 366 days,
paragraph (1)(A)(i) shall be applied--
``(A) by substituting `45 days' for `15 days' each
place it appears, and
``(B) by substituting `90-day period' for `30-day
period'.
``(4) Exception for certain taxes paid by securities
dealers.--
``(A) In general.--Paragraphs (1) and (2) shall not
apply to any qualified tax with respect to any security
held in the active conduct in a foreign country of a
securities business of any person--
``(i) who is registered as a securities broker
or dealer under section 15(a) of the Securities
Exchange Act of 1934,
``(ii) who is registered as a Government
securities broker or dealer under section 15C(a)
of such Act, or
``(iii) who is licensed or authorized in such
foreign country to conduct securities activities
in such country and is subject to bona fide
regulation by a securities regulating authority of
such country.
``(B) Qualified tax.--For purposes of subparagraph
(A), the term `qualified tax' means a tax paid to a
foreign country (other than the foreign country referred
to in subparagraph (A)) if--
``(i) the dividend to which such tax is
attributable is subject to taxation on a net basis
by the country referred to in subparagraph (A),
and
``(ii) such country allows a credit against
its net basis tax for the full amount of the tax
paid to such other foreign country.
``(C) Regulations.--The Secretary may prescribe such
regulations as may be appropriate to carry out this
paragraph, including regulations to prevent the abuse of
the
[[Page 111 STAT. 943]]
exception provided by this paragraph and to treat other
taxes as qualified taxes.
``(5) Certain rules to apply.--For purposes of this
subsection, the rules of paragraphs (3) and (4) of section
246(c) shall apply.
``(6) Treatment of bona fide sales.--If a person's holding
period is reduced by reason of the application of the rules of
section 246(c)(4) to any contract for the bona fide sale of
stock, the determination of whether such person's holding period
meets the requirements of paragraph (2) with respect to taxes
deemed paid under section 902 or 960 shall be made as of the
date such contract is entered into.
``(7) Taxes allowed as deduction, etc.--Sections 275 and 78
shall not apply to any tax which is not allowable as a credit
under subsection (a) by reason of this subsection.''.
(b) Notice of Withholding Taxes Paid by Regulated Investment
Company.--Subsection (c) of section 853 (relating to foreign tax credit
allowed to shareholders) is amended by adding at the end the following
new sentence: ``Such notice shall also include the amount of such taxes
which (without regard to the election under this section) would not be
allowable as a credit under section 901(a) to the regulated investment
company by reason of section 901(k).''.
(c) <<NOTE: 26 USC 853 note.>> Effective Date.--The amendments made
by this section shall apply to dividends paid or accrued more than 30
days after the date of the enactment of this Act.
SEC. 1054. DENIAL OF TREATY BENEFITS FOR CERTAIN PAYMENTS THROUGH HYBRID
ENTITIES.
(a) In General.--Section 894 (relating to income affected by treaty)
is amended by inserting after subsection (b) the following new
subsection:
``(c) Denial of Treaty Benefits for Certain Payments Through Hybrid
Entities.--
``(1) Application to certain payments.--A foreign person
shall not be entitled under any income tax treaty of the United
States with a foreign country to any reduced rate of any
withholding tax imposed by this title on an item of income
derived through an entity which is treated as a partnership (or
is otherwise treated as fiscally transparent) for purposes of
this title if--
``(A) such item is not treated for purposes of the
taxation laws of such foreign country as an item of
income of such person,
``(B) the treaty does not contain a provision
addressing the applicability of the treaty in the case
of an item of income derived through a partnership, and
``(C) the foreign country does not impose tax on a
distribution of such item of income from such entity to
such person.
``(2) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to determine the
extent to which a taxpayer to which paragraph (1) does not apply
shall not be entitled to benefits under any income tax treaty of
the United States with respect to any payment received by, or
income attributable to any activities of, an entity organized in
any jurisdiction (including the United
[[Page 111 STAT. 944]]
States) that is treated as a partnership or is otherwise treated
as fiscally transparent for purposes of this title (including a
common investment trust under section 584, a grantor trust, or
an entity that is disregarded for purposes of this title) and is
treated as fiscally nontransparent for purposes of the tax laws
of the jurisdiction of residence of the taxpayer.''.
(b) <<NOTE: 26 USC 894 note.>> Effective Date.--The amendments made
by this section shall apply upon the date of enactment of this Act.
SEC. 1055. INTEREST ON UNDERPAYMENTS NOT REDUCED BY FOREIGN TAX CREDIT
CARRYBACKS.
(a) In General.--Subsection (d) of section 6601 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) Foreign tax credit carrybacks.--If any credit allowed
for any taxable year is increased by reason of a carryback of
tax paid or accrued to foreign countries or possessions of the
United States, such increase shall not affect the computation of
interest under this section for the period ending with the
filing date for the taxable year in which such taxes were in
fact paid or accrued, or, with respect to any portion of such
credit carryback from a taxable year attributable to a net
operating loss carryback or a capital loss carryback from a
subsequent taxable year, such increase shall not affect the
computation of interest under this section for the period ending
with the filing date for such subsequent taxable year.''.
(b) Conforming Amendment to Refunds Attributable to Foreign Tax
Credit Carrybacks.--
(1) In general.--Subsection (f) of section 6611 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) Foreign tax credit carrybacks.--For purposes of
subsection (a), if any overpayment of tax imposed by subtitle A
results from a carryback of tax paid or accrued to foreign
countries or possessions of the United States, such overpayment
shall be deemed not to have been made before the filing date for
the taxable year in which such taxes were in fact paid or
accrued, or, with respect to any portion of such credit
carryback from a taxable year attributable to a net operating
loss carryback or a capital loss carryback from a subsequent
taxable year, such overpayment shall be deemed not to have been
made before the filing date for such subsequent taxable year.''.
(2) Conforming amendments.--
(A) Paragraph (4) of section 6611(f) (as so
redesignated) is amended--
(i) by striking ``paragraphs (1) and (2)'' and
inserting ``paragraphs (1), (2), and (3)'', and
(ii) by striking ``paragraph (1) or (2)'' each
place it appears and inserting ``paragraph (1),
(2), or (3)''.
(B) Clause (ii) of section 6611(f)(4)(B) (as so
redesignated) is amended by striking ``and'' at the end
of subclause (I), by redesignating subclause (II) as
subclause (III), and by inserting after subclause (I)
the following new subclause:
[[Page 111 STAT. 945]]
``(II) in the case of a carryback of
taxes paid or accrued to foreign
countries or possessions of the United
States, the taxable year in which such
taxes were in fact paid or accrued (or,
with respect to any portion of such
carryback from a taxable year
attributable to a net operating loss
carryback or a capital loss carryback
from a subsequent taxable year, such
subsequent taxable year), and''.
(C) Subclause (III) of section 6611(f)(4)(B)(ii) (as
so redesignated) is amended by inserting ``(as defined
in paragraph (3)(B))'' after ``credit carryback'' the
first place it appears.
(D) Section 6611 is amended by striking subsection
(g) and by redesignating subsections (h) and (i) as
subsections (g) and (h), respectively.
(c) <<NOTE: 26 USC 6601 note.>> Effective Date.--The amendments
made by this section shall apply to foreign tax credit carrybacks
arising in taxable years beginning after the date of the enactment of
this Act.
SEC. 1056. CLARIFICATION OF PERIOD OF LIMITATIONS ON CLAIM FOR CREDIT OR
REFUND ATTRIBUTABLE TO FOREIGN TAX CREDIT CARRYFORWARD.
(a) In General.--Subparagraph (A) of section 6511(d)(3) is amended
by striking ``for the year with respect to which the claim is made'' and
inserting ``for the year in which such taxes were actually paid or
accrued''.
(b) <<NOTE: 26 USC 6511 note.>> Effective Date.--The amendment made
by subsection (a) shall apply to taxes paid or accrued in taxable years
beginning after the date of the enactment of this Act.
SEC. 1057. REPEAL OF EXCEPTION TO ALTERNATIVE MINIMUM FOREIGN TAX CREDIT
LIMIT.
(a) In General.--Section 59(a)(2) (relating to limitation to 90
percent of tax) is amended by striking subparagraph (C).
(b) <<NOTE: 26 USC 59 note.>> Effective Date.--The amendment made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
Subtitle G--Partnership Provisions
SEC. 1061. ALLOCATION OF BASIS AMONG PROPERTIES DISTRIBUTED BY
PARTNERSHIP.
(a) In General.--Subsection (c) of section 732 is amended to read as
follows:
``(c) Allocation of Basis.--
``(1) In general.--The basis of distributed properties to
which subsection (a)(2) or (b) is applicable shall be
allocated--
``(A)(i) first to any unrealized receivables (as
defined in section 751(c)) and inventory items (as
defined in section 751(d)(2)) in an amount equal to the
adjusted basis of each such property to the partnership,
and
``(ii) if the basis to be allocated is less than the
sum of the adjusted bases of such properties to the
partnership, then, to the extent any decrease is
required in order to have the adjusted bases of such
properties equal the basis to be allocated, in the
manner provided in paragraph (3), and
[[Page 111 STAT. 946]]
``(B) to the extent of any basis remaining after the
allocation under subparagraph (A), to other distributed
properties--
``(i) first by assigning to each such other
property such other property's adjusted basis to
the partnership, and
``(ii) then, to the extent any increase or
decrease in basis is required in order to have the
adjusted bases of such other distributed
properties equal such remaining basis, in the
manner provided in paragraph (2) or (3), whichever
is appropriate.
``(2) Method of allocating increase.--Any increase required
under paragraph (1)(B) shall be allocated among the properties--
``(A) first to properties with unrealized
appreciation in proportion to their respective amounts
of unrealized appreciation before such increase (but
only to the extent of each property's unrealized
appreciation), and
``(B) then, to the extent such increase is not
allocated under subparagraph (A), in proportion to their
respective fair market values.
``(3) Method of allocating decrease.--Any decrease required
under paragraph (1)(A) or (1)(B) shall be allocated--
``(A) first to properties with unrealized
depreciation in proportion to their respective amounts
of unrealized depreciation before such decrease (but
only to the extent of each property's unrealized
depreciation), and
``(B) then, to the extent such decrease is not
allocated under subparagraph (A), in proportion to their
respective adjusted bases (as adjusted under
subparagraph (A)).''.
(b) <<NOTE: 26 USC 732 note.>> Effective Date.--The amendment made
by subsection (a) shall apply to distributions after the date of the
enactment of this Act.
SEC. 1062. REPEAL OF REQUIREMENT THAT INVENTORY BE SUBSTANTIALLY
APPRECIATED WITH RESPECT TO SALE OR EXCHANGE OF PARTNERSHIP
INTEREST.
(a) In General.--Paragraph (2) of section 751(a) is amended to read
as follows:
``(2) inventory items of the partnership,''.
(b) Conforming Amendments.--
(1)(A) Paragraph (1) of section 751(b) is amended by
striking subparagraphs (A) and (B) and inserting the following
new subparagraphs:
``(A) partnership property which is--
``(i) unrealized receivables, or
``(ii) inventory items which have appreciated
substantially in value,
in exchange for all or a part of his interest in other
partnership property (including money), or
``(B) partnership property (including money) other
than property described in subparagraph (A)(i) or (ii)
in exchange for all or a part of his interest in
partnership property described in subparagraph (A)(i) or
(ii),''.
(B) Subsection (b) of section 751 is amended by adding at
the end the following new paragraph:
[[Page 111 STAT. 947]]
``(3) Substantial appreciation.--For purposes of paragraph
(1)--
``(A) In general.--Inventory items of the
partnership shall be considered to have appreciated
substantially in value if their fair market value
exceeds 120 percent of the adjusted basis to the
partnership of such property.
``(B) Certain property excluded.--For purposes of
subparagraph (A), there shall be excluded any inventory
property if a principal purpose for acquiring such
property was to avoid the provisions of this subsection
relating to inventory items.''.
(2) Subsection (d) of section 751 is amended to read as
follows:
``(d) Inventory Items.--For purposes of this subchapter, the term
`inventory items' means--
``(1) property of the partnership of the kind described in
section 1221(1),
``(2) any other property of the partnership which, on sale
or exchange by the partnership, would be considered property
other than a capital asset and other than property described in
section 1231,
``(3) any other property of the partnership which, if sold
or exchanged by the partnership, would result in a gain taxable
under subsection (a) of section 1246 (relating to gain on
foreign investment company stock), and
``(4) any other property held by the partnership which, if
held by the selling or distributee partner, would be considered
property of the type described in paragraph (1), (2), or (3).''.
(3) Sections 724(d)(2), 731(a)(2)(B), 731(c)(6),
732(c)(1)(A) (as amended by the preceding section), 735(a)(2),
and 735(c)(1) are each amended by striking ``section 751(d)(2)''
and inserting ``section 751(d)''.
(c) <<NOTE: 26 USC 724 note.>> Effective Date.--
(1) In general.--The amendments made by this section shall
apply to sales, exchanges, and distributions after the date of
the enactment of this Act.
(2) Binding contracts.--The amendments made by this section
shall not apply to any sale or exchange pursuant to a written
binding contract in effect on June 8, 1997, and at all times
thereafter before such sale or exchange.
SEC. 1063. EXTENSION OF TIME FOR TAXING PRECONTRIBUTION GAIN.
(a) In General.--Sections 704(c)(1)(B) and 737(b)(1) are each
amended by striking ``5 years'' and inserting ``7 years''.
(b) <<NOTE: 26 USC 704 note.>> Effective Date.--
(1) In general.--The amendment made by subsection (a) shall
apply to property contributed to a partnership after June 8,
1997.
(2) Binding contracts.--The amendment made by subsection (a)
shall not apply to any property contributed pursuant to a
written binding contract in effect on June 8, 1997, and at all
times thereafter before such contribution if such contract
provides for the contribution of a fixed amount of property.
[[Page 111 STAT. 948]]
Subtitle H--Pension Provisions
SEC. 1071. PENSION ACCRUED BENEFIT DISTRIBUTABLE WITHOUT CONSENT
INCREASED TO $5,000.
(a) Amendment to 1986 Code.--
(1) In general.--Subparagraph (A) of section 411(a)(11)
(relating to restrictions on certain mandatory distributions) is
amended by striking ``$3,500'' and inserting ``$5,000''.
(2) Conforming amendments.--
(A) Section 411(a)(7)(B), paragraphs (1) and (2) of
section 417(e), and section 457(e)(9) are each amended
by striking ``$3,500'' each place it appears (other than
the headings) and inserting ``the dollar limit under
section 411(a)(11)(A)''.
(B) The headings for paragraphs (1) and (2) of
section 417(e) and subparagraph (A) of section 457(e)(9)
are each amended by striking ``$3,500'' and inserting
``dollar limit''.
(b) Amendments to ERISA.--
(1) In general.--Section 203(e)(1) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1053(e)(1)) is
amended by striking ``$3,500'' and inserting ``$5,000''.
(2) Conforming amendments.--Sections 204(d)(1) and 205(g)
(1) and (2) (29 U.S.C. 1054(d)(1) and 1055(g) (1) and (2)) are
each amended by striking ``$3,500'' and inserting ``the dollar
limit under section 203(e)(1)''.
(c) <<NOTE: 26 USC 411 note.>> Effective Date.--The amendments made
by this section shall apply to plan years beginning after the date of
the enactment of this Act.
SEC. 1072. ELECTION TO RECEIVE TAXABLE CASH COMPENSATION IN LIEU OF
NONTAXABLE PARKING BENEFITS.
(a) In General.--Section 132(f)(4) (relating to benefits not in lieu
of compensation) is amended by adding at the end the following new
sentence: ``This paragraph shall not apply to any qualified parking
provided in lieu of compensation which otherwise would have been
includible in gross income of the employee, and no amount shall be
included in the gross income of the employee solely because the employee
may choose between the qualified parking and compensation.''.
(b) <<NOTE: 26 USC 132 note.>> Effective Date.--The amendment made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 1073. REPEAL OF EXCESS DISTRIBUTION AND EXCESS RETIREMENT
ACCUMULATION TAX.
(a) Repeal of Excess Distribution and Excess Retirement Accumulation
Tax.--Section 4980A (relating to excess distributions from qualified
retirement plans) is repealed.
(b) Conforming Amendments.--
(1) Section 691(c)(1) is amended by striking subparagraph
(C).
(2) Section 2013 is amended by striking subsection (g).
(3) Section 2053(c)(1)(B) is amended by striking the last
sentence.
(4) Section 6018(a) is amended by striking paragraph (4).
<<NOTE: 42 USC 4980A note.>> (c) Effective Dates.--
[[Page 111 STAT. 949]]
(1) <<NOTE: Applicability.>> Excess distribution tax
repeal.--Except as provided in paragraph (2), the repeal made by
subsection (a) shall apply to excess distributions received
after December 31, 1996.
(2) Excess retirement accumulation tax repeal.--The repeal
made by subsection (a) with respect to section 4980A(d) of the
Internal Revenue Code of 1986 and the amendments made by
subsection (b) shall apply to estates of decedents dying after
December 31, 1996.
SEC. 1074. INCREASE IN TAX ON PROHIBITED TRANSACTIONS.
(a) In General.--Section 4975(a) is amended by striking ``10
percent'' and inserting ``15 percent''.
(b) <<NOTE: 26 USC 4975 note.>> Effective Date.--The amendment made
by this section shall apply to prohibited transactions occurring after
the date of the enactment of this Act.
SEC. 1075. BASIS RECOVERY RULES FOR ANNUITIES OVER MORE THAN ONE LIFE.
(a) In General.--Section 72(d)(1)(B) is amended by adding at the end
the following new clause:
``(iv) Number of anticipated payments where
more than one life.--If the annuity is payable
over the lives of more than 1 individual, the
number of anticipated payments shall be determined
as follows:
``If the combined ages of annu-
itants are: The number is:
Not more than 110 410
More than 110 but not more than 120 360
More than 120 but not more than 130 310
More than 130 but not more than 140 260
More than 140 210.''.
(b) Conforming Amendment.--Section 72(d)(1)(B)(iii) is amended--
(1) by inserting ``If the annuity is payable over the life
of a single individual, the number of anticipated payments shall
be determined as follows:'' after the heading and before the
table, and
(2) by striking ``primary'' in the table.
(c) <<NOTE: 26 USC 72 note.>> Effective Date.--The amendments made
by this section shall apply with respect to annuity starting dates
beginning after December 31, 1997.
Subtitle I--Other Revenue Provisions
SEC. 1081. TERMINATION OF SUSPENSE ACCOUNTS FOR FAMILY CORPORATIONS
REQUIRED TO USE ACCRUAL METHOD OF ACCOUNTING.
(a) In General.--Subsection (i) of section 447 (relating to method
of accounting for corporations engaged in farming) is amended by
striking paragraphs (3) and (4), by redesignating paragraphs (5) and (6)
as paragraphs (3) and (4), respectively, and by adding at the end the
following new paragraph:
``(5) Termination.--
``(A) In general.--No suspense account may be
established under this subsection by any corporation
required by this section to change its method of
accounting for any taxable year ending after June 8,
1997.
[[Page 111 STAT. 950]]
``(B) Phaseout of existing suspense accounts.--
``(i) In general.--Each suspense account under
this subsection shall be reduced (but not below
zero) for each taxable year beginning after June
8, 1997, by an amount equal to the lesser of--
``(I) the applicable portion of such
account, or
``(II) 50 percent of the taxable
income of the corporation for the
taxable year, or, if the corporation has
no taxable income for such year, the
amount of any net operating loss (as
defined in section 172(c)) for such
taxable year.
For purposes of the preceding sentence, the amount
of taxable income and net operating loss shall be
determined without regard to this paragraph.
``(ii) Coordination with other reductions.--
The amount of the applicable portion for any
taxable year shall be reduced (but not below zero)
by the amount of any reduction required for such
taxable year under any other provision of this
subsection.
``(iv) Inclusion in income.--Any reduction in
a suspense account under this paragraph shall be
included in gross income for the taxable year of
the reduction.
``(C) Applicable portion.--For purposes of
subparagraph (B), the term `applicable portion' means,
for any taxable year, the amount which would ratably
reduce the amount in the account (after taking into
account prior reductions) to zero over the period
consisting of such taxable year and the remaining
taxable years in such first 20 taxable years.
``(D) Amounts after 20th year.--Any amount in the
account as of the close of the 20th year referred to in
subparagraph (C) shall be treated as the applicable
portion for each succeeding year thereafter to the
extent not reduced under this paragraph for any prior
taxable year after such 20th year.''.
(b) <<NOTE: 26 USC 447 note.>> Effective Date.--The amendments made
by this section shall apply to taxable years ending after June 8, 1997.
SEC. 1082. MODIFICATION OF TAXABLE YEARS TO WHICH NET OPERATING LOSSES
MAY BE CARRIED.
(a) In General.--Subparagraph (A) of section 172(b)(1) (relating to
years to which loss may be carried) is amended--
(1) by striking ``3'' in clause (i) and inserting ``2'', and
(2) by striking ``15'' in clause (ii) and inserting ``20''.
(b) Retention of 3-Year Carryback for Certain Losses.--Paragraph (1)
of section 172(b) is amended by adding at the end the following new
subparagraph:
``(F) Retention of 3-year carryback in certain
cases.--
``(i) In general.--Subparagraph (A)(i) shall
be applied by substituting `3 years' for `2 years'
with respect to the portion of the net operating
loss for the taxable year which is an eligible
loss with respect to the taxpayer.
``(ii) Eligible loss.--For purposes of clause
(i), the term `eligible loss' means--
[[Page 111 STAT. 951]]
``(I) in the case of an individual,
losses of property arising from fire,
storm, shipwreck, or other casualty, or
from theft,
``(II) in the case of a taxpayer
which is a small business, net operating
losses attributable to Presidentially
declared disasters (as defined in
section 1033(h)(3)), and
``(III) in the case of a taxpayer
engaged in the trade or business of
farming (as defined in section
263A(e)(4)), net operating losses
attributable to such Presidentially
declared disasters.
``(iii) Small business.--For purposes of this
subparagraph, the term `small business' means a
corporation or partnership which meets the gross
receipts test of section 448(c) for the taxable
year in which the loss arose (or, in the case of a
sole proprietorship, which would meet such test if
such proprietorship were a corporation).''.
(c) <<NOTE: 26 USC 172 note.>> Effective Date.--The amendments made
by this section shall apply to net operating losses for taxable years
beginning after the date of the enactment of this Act.
SEC. 1083. MODIFICATIONS TO TAXABLE YEARS TO WHICH UNUSED CREDITS MAY BE
CARRIED.
(a) In General.--Section 39(a) (relating to unused credits) is
amended--
(1) in paragraph (1), by striking ``3'' each place it
appears and inserting ``1'' and by striking ``15'' each place it
appears and inserting ``20''; and
(2) in paragraph (2), by striking ``18'' each place it
appears and inserting ``22'' and by striking ``17'' each place
it appears and inserting ``21''.
(b) <<NOTE: 26 USC 39 note.>> Effective Date.--The amendments made
by this section shall apply to credits arising in taxable years
beginning after December 31, 1997.
SEC. 1084. EXPANSION OF DENIAL OF DEDUCTION FOR CERTAIN AMOUNTS PAID IN
CONNECTION WITH INSURANCE.
(a) Denial of Deduction for Premiums.--
(1) In general.--Paragraph (1) of section 264(a) is amended
to read as follows:
``(1) Premiums on any life insurance policy, or endowment or
annuity contract, if the taxpayer is directly or indirectly a
beneficiary under the policy or contract.''.
(2) Exceptions.--Section 264 is amended by redesignating
subsections (b), (c), and (d) as subsections (c), (d), and (e),
respectively, and by inserting after subsection (a) the
following new subsection:
``(b) Exceptions to Subsection (a)(1).--Subsection (a)(1) shall not
apply to--
``(1) any annuity contract described in section 72(s)(5),
and
``(2) any annuity contract to which section 72(u)
applies.''.
(b) Interest on Policy Loans.--
(1) In general.--Paragraph (4) of section 264(a) is amended
by striking ``individual, who'' and all that follows and
inserting ``individual.''.
[[Page 111 STAT. 952]]
(2) Coordination with transfers for value.--Paragraph (2) of
section 101(a) is amended by adding at the end the following new
flush sentence:
``The term `other amounts' in the first sentence of this
paragraph includes interest paid or accrued by the transferee on
indebtedness with respect to such contract or any interest
therein if such interest paid or accrued is not allowable as a
deduction by reason of section 264(a)(4).''.
(c) Pro Rata Allocation of Interest Expense to Policy Cash Values.--
Section 264 is amended by adding at the end the following new
subsection:
``(f) Pro Rata Allocation of Interest Expense to Policy Cash
Values.--
``(1) In general.--No deduction shall be allowed for that
portion of the taxpayer's interest expense which is allocable to
unborrowed policy cash values.
``(2) Allocation.--For purposes of paragraph (1), the
portion of the taxpayer's interest expense which is allocable to
unborrowed policy cash values is an amount which bears the same
ratio to such interest expense as--
``(A) the taxpayer's average unborrowed policy cash
values of life insurance policies, and annuity and
endowment contracts, issued after June 8, 1997, bears to
``(B) the sum of--
``(i) in the case of assets of the taxpayer
which are life insurance policies or annuity or
endowment contracts, the average unborrowed policy
cash values of such policies and contracts, and
``(ii) in the case of assets of the taxpayer
not described in clause (i), the average adjusted
bases (within the meaning of section 1016) of such
assets.
``(3) Unborrowed policy cash value.--For purposes of this
subsection, the term `unborrowed policy cash value' means, with
respect to any life insurance policy or annuity or endowment
contract, the excess of--
``(A) the cash surrender value of such policy or
contract determined without regard to any surrender
charge, over
``(B) the amount of any loan with respect to such
policy or contract.
``(4) Exception for certain policies and contracts.--
``(A) Policies and contracts covering 20-percent
owners, officers, directors, and employees.--Paragraph
(1) shall not apply to any policy or contract owned by
an entity engaged in a trade or business if such policy
or contract covers only 1 individual and if such
individual is (at the time first covered by the policy
or contract)--
``(i) a 20-percent owner of such entity, or
``(ii) an individual (not described in clause
(i)) who is an officer, director, or employee of
such trade or business.
A policy or contract covering a 20-percent owner of such
entity shall not be treated as failing to meet the
requirements of the preceding sentence by reason of
covering the joint lives of such owner and such owner's
spouse.
``(B) Contracts subject to current income
inclusion.--Paragraph (1) shall not apply to any annuity
contract to which section 72(u) applies.
[[Page 111 STAT. 953]]
``(C) Coordination with paragraph (2).--Any policy
or contract to which paragraph (1) does not apply by
reason of this paragraph shall not be taken into account
under paragraph (2).
``(D) 20-percent owner.--For purposes of
subparagraph (A), the term `20-percent owner' has the
meaning given such term by subsection (e)(4).
``(5) Exception for policies and contracts held by natural
persons; treatment of partnerships and s corporations.--
``(A) Policies and contracts held by natural
persons.--
``(i) In general.--This subsection shall not
apply to any policy or contract held by a natural
person.
``(ii) Exception where business is
beneficiary.--If a trade or business is directly
or indirectly the beneficiary under any policy or
contract, such policy or contract shall be treated
as held by such trade or business and not by a
natural person.
``(iii) Special rules.--
``(I) Certain trades or businesses
not taken into account.--Clause (ii)
shall not apply to any trade or business
carried on as a sole proprietorship and
to any trade or business performing
services as an employee.
``(II) Limitation on unborrowed cash
value.--The amount of the unborrowed
cash value of any policy or contract
which is taken into account by reason of
clause (ii) shall not exceed the benefit
to which the trade or business is
directly or indirectly entitled under
the policy or contract.
``(iv) Reporting.--The Secretary shall require
such reporting from policyholders and issuers as
is necessary to carry out clause (ii). Any report
required under the preceding sentence shall be
treated as a statement referred to in section
6724(d)(1).
``(B) Treatment of partnerships and s
corporations.--In the case of a partnership or S
corporation, this subsection shall be applied at the
partnership and corporate levels.
``(6) Special rules.--
``(A) Coordination with subsection (a) and section
265.--If interest on any indebtedness is disallowed
under subsection (a) or section 265--
``(i) such disallowed interest shall not be
taken into account for purposes of applying this
subsection, and
``(ii) the amount otherwise taken into account
under paragraph (2)(B) shall be reduced (but not
below zero) by the amount of such indebtedness.
``(B) Coordination with section 263a.--This
subsection shall be applied before the application of
section 263A (relating to capitalization of certain
expenses where taxpayer produces property).
``(7) Interest expense.--The term `interest expense' means
the aggregate amount allowable to the taxpayer as a deduction
[[Page 111 STAT. 954]]
for interest (within the meaning of section 265(b)(4)) for the
taxable year (determined without regard to this subsection,
section 265(b), and section 291).
``(8) Aggregation rules.--
``(A) In general.--All members of a controlled group
(within the meaning of subsection (d)(5)(B)) shall be
treated as 1 taxpayer for purposes of this subsection.
``(B) Treatment of insurance companies.--This
subsection shall not apply to an insurance company
subject to tax under subchapter L, and subparagraph (A)
shall be applied without regard to any member of an
affiliated group which is an insurance company.''.
(b) Treatment of Insurance Companies.--
(1)(A) Clause (ii) of section 805(a)(4)(C) is amended by
inserting ``, or out of the increase for the taxable year in
policy cash values (within the meaning of subparagraph (F)) of
life insurance policies and annuity and endowment contracts to
which section 264(f) applies,'' after ``tax-exempt interest''.
(B) Clause (iii) of section 805(a)(4)(D) is amended by
striking ``and'' and inserting ``, the increase for the taxable
year in policy cash values (within the meaning of subparagraph
(F)) of life insurance policies and annuity and endowment
contracts to which section 264(f) applies, and''.
(C) Paragraph (4) of section 805(a) is amended by adding at
the end the following new subparagraph:
``(F) Increase in policy cash values.--For purposes
of subparagraphs (C) and (D)--
``(i) In general.--The increase in the policy
cash value for any taxable year with respect to
policy or contract is the amount of the increase
in the adjusted cash value during such taxable
year determined without regard to--
``(I) gross premiums paid during
such taxable year, and
``(II) distributions (other than
amounts includible in the policyholder's
gross income) during such taxable year
to which section 72(e) applies.
``(ii) Adjusted cash value.--For purposes of
clause (i), the term `adjusted cash value' means
the cash surrender value of the policy or contract
increased by the sum of--
``(I) commissions payable with
respect to such policy or contract for
the taxable year, and
``(II) asset management fees,
surrender charges, mortality and expense
charges, and any other fees or charges
specified in regulations prescribed by
the Secretary which are imposed (or
which would be imposed were the policy
or contract canceled) with respect to
such policy or contract for the taxable
year.''.
(2)(A) Subparagraph (B) of section 807(a)(2) is amended by
striking ``interest,'' and inserting ``interest and the amount
of the policyholder's share of the increase for the taxable year
in policy cash values (within the meaning of section
805(a)(4)(F)) of life insurance policies and annuity and
endowment contracts to which section 264(f) applies,''.
[[Page 111 STAT. 955]]
(B) Subparagraph (B) of section 807(b)(1) is amended by
striking ``interest,'' and inserting ``interest and the amount
of the policyholder's share of the increase for the taxable year
in policy cash values (within the meaning of section
805(a)(4)(F)) of life insurance policies and annuity and
endowment contracts to which section 264(f) applies,''.
(3) Paragraph (1) of section 812(d) 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 at the end the following new subparagraph:
``(D) the increase for any taxable year in the
policy cash values (within the meaning of section
805(a)(4)(F)) of life insurance policies and annuity and
endowment contracts to which section 264(f) applies.''.
(4) Subparagraph (B) of section 832(b)(5) 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) the increase for the taxable year in
policy cash values (within the meaning of section
805(a)(4)(F)) of life insurance policies and
annuity and endowment contracts to which section
264(f) applies.''.
(c) Conforming Amendment.--Subparagraph (A) of section 265(b)(4) is
amended by inserting ``, section 264,'' before ``and section 291''.
(d) <<NOTE: 26 USC 101 note.>> Effective Date.--The amendments made
by this section shall apply to contracts issued after June 8, 1997, in
taxable years ending after such date. For purposes of the preceding
sentence, any material increase in the death benefit or other material
change in the contract shall be treated as a new contract but the
addition of covered lives shall be treated as a new contract only with
respect to such additional covered lives. For purposes of this
subsection, an increase in the death benefit under a policy or contract
issued in connection with a lapse described in section 501(d)(2) of the
Health Insurance Portability and Accountability Act of 1996 shall not be
treated as a new contract.
SEC. 1085. IMPROVED ENFORCEMENT OF THE APPLICATION OF THE EARNED INCOME
CREDIT.
(a) Restrictions on Availability of Earned Income Credit for
Taxpayers who Improperly Claimed Credit in Prior Year.--
(1) In general.--Section 32 is amended by redesignating
subsections (k) and (l) as subsections (l) and (m),
respectively, and by inserting after subsection (j) the
following new subsection:
``(k) Restrictions on Taxpayers Who Improperly Claimed Credit in
Prior Year.--
``(1) Taxpayers making prior fraudulent or reckless
claims.--
``(A) In general.--No credit shall be allowed under
this section for any taxable year in the disallowance
period.
``(B) Disallowance period.--For purposes of
paragraph (1), the disallowance period is--
``(i) the period of 10 taxable years after the
most recent taxable year for which there was a
final determination that the taxpayer's claim of
credit under this section was due to fraud, and
[[Page 111 STAT. 956]]
``(ii) the period of 2 taxable years after the
most recent taxable year for which there was a
final determination that the taxpayer's claim of
credit under this section was due to reckless or
intentional disregard of rules and regulations
(but not due to fraud).
``(2) Taxpayers making improper prior claims.--In the case
of a taxpayer who is denied credit under this section for any
taxable year as a result of the deficiency procedures under
subchapter B of chapter 63, no credit shall be allowed under
this section for any subsequent taxable year unless the taxpayer
provides such information as the Secretary may require to
demonstrate eligibility for such credit.''.
(2) Due diligence requirement on income tax return
preparers.--Section 6695 is amended by adding at the end the
following new subsection:
``(g) Failure To Be Diligent in Determining Eligibility for Earned
Income Credit.--Any person who is an income tax return preparer with
respect to any return or claim for refund who fails to comply with due
diligence requirements imposed by the Secretary by regulations with
respect to determining eligibility for, or the amount of, the credit
allowable by section 32 shall pay a penalty of $100 for each such
failure.''.
(3) Extension procedures applicable to mathematical or
clerical errors.--Paragraph (2) of section 6213(g) (relating to
the definition of mathematical or clerical errors) is amended by
striking ``and'' at the end of subparagraph (H), by striking the
period at the end of subparagraph (I) and inserting ``, and'',
and by inserting after subparagraph (I) the following new
subparagraph:
``(J) an omission of information required by section
32(k)(2) (relating to taxpayers making improper prior
claims of earned income credit).''.
(b) Increase in Net Loss Disregarded for Modified Adjusted gross
Income.--Section 32(c)(5)(B)(iv) is amended by striking ``50 percent''
and inserting ``75 percent''.
(c) Workfare Payments Not Included in Earned Income.--Section
32(c)(2)(B) is amended by striking ``and'' at the end of clause (iii),
by striking the period at the end of clause (iv) and inserting ``,
and'', and by adding at the end the following new clause:
``(v) no amount described in subparagraph (A)
received for service performed in work activities
as defined in paragraph (4) or (7) of section
407(d) of the Social Security Act to which the
taxpayer is assigned under any State program under
part A of title IV of such Act, but only to the
extent such amount is subsidized under such State
program.''.
(d) Certain Nontaxable Income Included in Modified Adjusted Gross
Income.--Section 32(c)(5)(B) is amended--
(1) by striking ``and'' at the end of clause (iii),
(2) by striking the period at the end of clause (iv)(III),
(3) by inserting after clause (iv)(III) the following new
clauses:
``(v) interest received or accrued during the
taxable year which is exempt from tax imposed by
this chapter, and
[[Page 111 STAT. 957]]
``(vi) amounts received as a pension or
annuity, and any distributions or payments
received from an individual retirement plan, by
the taxpayer during the taxable year to the extent
not included in gross income.'', and
(4) by adding at the end the following new sentence:
``Clause (vi) shall not include any amount which is not
includible in gross income by reason of section 402(c),
403(a)(4), 403(b), 408(d) (3), (4), or (5), or 457(e)(10).''.
(e) <<NOTE: 26 USC 32 note.>> Effective Dates.--
(1) The amendments made by subsection (a) shall apply to
taxable years beginning after December 31, 1996.
(2) The amendments made by subsections (b), (c), and (d)
shall apply to taxable years beginning after December 31, 1997.
SEC. 1086. LIMITATION ON PROPERTY FOR WHICH INCOME FORECAST METHOD MAY
BE USED.
(a) Limitation.--Subsection (g) of section 167 is amended by adding
at the end the following new paragraph:
``(6) Limitation on property for which income forecast
method may be used.--The depreciation deduction allowable under
this section may be determined under the income forecast method
or any similar method only with respect to--
``(A) property described in paragraph (3) or (4) of
section 168(f),
``(B) copyrights,
``(C) books,
``(D) patents, and
``(E) other property specified in regulations.
Such methods may not be used with respect to any amortizable
section 197 intangible (as defined in section 197(c)).''.
(b) Depreciation Period for Rent-To-own Property.--
(1) In general.--Subparagraph (A) of section 168(e)(3)
(relating to 3-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 qualified rent-to-own property.''.
(2) 4-year class life.--The table contained in section
168(g)(3)(B) is amended by inserting before the first item the
following new item:
``(A)(iii).................................................4 ''.
(3) Definition of qualified rent-to-own property.--
Subsection (i) of section 168 is amended by adding at the end
the following new paragraph:
``(14) Qualified rent-to-own property.--
``(A) In general.--The term `qualified rent-to-own
property' means property held by a rent-to-own dealer
for purposes of being subject to a rent-to-own contract.
``(B) Rent-to-own dealer.--The term `rent-to-own
dealer' means a person that, in the ordinary course of
business, regularly enters into rent-to-own contracts
with customers for the use of consumer property, if a
substantial portion of those contracts terminate and the
property is returned to such person before the receipt
of all payments
[[Page 111 STAT. 958]]
required to transfer ownership of the property from such
person to the customer.
``(C) Consumer property.--The term `consumer
property' means tangible personal property of a type
generally used within the home for personal use.
``(D) Rent-to-own contract.--The term `rent-to-own
contract' means any lease for the use of consumer
property between a rent-to-own dealer and a customer who
is an individual which--
``(i) is titled `Rent-to-Own Agreement' or
`Lease Agreement with Ownership Option,' or uses
other similar language,
``(ii) provides for level (or decreasing where
no payment is less than 40 percent of the largest
payment), regular periodic payments (for a payment
period which is a week or month),
``(iii) provides that legal title to such
property remains with the rent-to-own dealer until
the customer makes all the payments described in
clause (ii) or early purchase payments required
under the contract to acquire legal title to the
item of property,
``(iv) provides a beginning date and a maximum
period of time for which the contract may be in
effect that does not exceed 156 weeks or 36 months
from such beginning date (including renewals or
options to extend),
``(v) provides for payments within the 156-
week or 36-month period that, in the aggregate,
generally exceed the normal retail price of the
consumer property plus interest,
``(vi) provides for payments under the
contract that, in the aggregate, do not exceed
$10,000 per item of consumer property,
``(vii) provides that the customer does not
have any legal obligation to make all the payments
referred to in clause (ii) set forth under the
contract, and that at the end of each payment
period the customer may either continue to use the
consumer property by making the payment for the
next payment period or return such property to the
rent-to-own dealer in good working order, in which
case the customer does not incur any further
obligations under the contract and is not entitled
to a return of any payments previously made under
the contract, and
``(viii) provides that the customer has no
right to sell, sublease, mortgage, pawn, pledge,
encumber, or otherwise dispose of the consumer
property until all the payments stated in the
contract have been made.''.
(c) <<NOTE: 26 USC 167 note.>> Effective Date.--The amendment made
by this section shall apply to property placed in service after the date
of the enactment of this Act.
[[Page 111 STAT. 959]]
SEC. 1087. EXPANSION OF REQUIREMENT THAT INVOLUNTARILY CONVERTED
PROPERTY BE REPLACED WITH PROPERTY ACQUIRED FROM AN
UNRELATED PERSON.
(a) In General.--Subsection (i) of section 1033 is amended to read
as follows:
``(i) Replacement Property Must Be Acquired From Unrelated Person in
Certain Cases.--
``(1) In general.--If the property which is involuntarily
converted is held by a taxpayer to which this subsection
applies, subsection (a) shall not apply if the replacement
property or stock is acquired from a related person. The
preceding sentence shall not apply to the extent that the
related person acquired the replacement property or stock from
an unrelated person during the period applicable under
subsection (a)(2)(B).
``(2) Taxpayers to which subsection applies.--This
subsection shall apply to--
``(A) a C corporation,
``(B) a partnership in which 1 or more C
corporations own, directly or indirectly (determined in
accordance with section 707(b)(3)), more than 50 percent
of the capital interest, or profits interest, in such
partnership at the time of the involuntary conversion,
and
``(C) any other taxpayer if, with respect to
property which is involuntarily converted during the
taxable year, the aggregate of the amount of realized
gain on such property on which there is realized gain
exceeds $100,000.
In <<NOTE: Applicability.>> the case of a partnership,
subparagraph (C) shall apply with respect to the partnership and
with respect to each partner. A similar rule shall apply in the
case of an S corporation and its shareholders.
``(3) Related person.--For purposes of this subsection, a
person is related to another person if the person bears a
relationship to the other person described in section 267(b) or
707(b)(1).''.
(b) <<NOTE: 26 USC 1003 note.>> Effective Date.--The amendment made
by this section shall apply to involuntary conversions occurring after
June 8, 1997.
SEC. 1088. TREATMENT OF EXCEPTION FROM INSTALLMENT SALES RULES FOR SALES
OF PROPERTY BY A MANUFACTURER TO A DEALER.
(a) In General.--Paragraph (2) of section 811(c) of the Tax Reform
Act of 1986 <<NOTE: 26 USC 453C note.>> is hereby repealed.
(b) <<NOTE: 26 USC 453C note.>> Effective Date.--
(1) In general.--The amendment made by this section shall
apply to taxable years beginning more than 1 year after the date
of the enactment of this Act.
(2) Coordination with section 481.--In the case of any
taxpayer required by this section to change its method of
accounting for any taxable year--
(A) such changes shall be treated as initiated by
the taxpayer,
(B) such changes shall be treated as made with the
consent of the Secretary of the Treasury, and
(C) the net amount of the adjustments required to be
taken into account under section 481(a) of the Internal
Revenue Code of 1986 shall be taken into account ratably
over the 4 taxable year period beginning with the first
[[Page 111 STAT. 960]]
taxable year beginning after the date of the enactment
of this Act.
SEC. 1089. LIMITATIONS ON CHARITABLE REMAINDER TRUST ELIGIBILITY FOR
CERTAIN TRUSTS.
(a) Limitation on Noncharitable Distributions.--
(1) In general.--Paragraphs (1)(A) and (2)(A) of section
664(d) (relating to charitable remainder trusts) are each
amended by inserting ``nor more than 50 percent'' after ``not
less than 5 percent''.
(2) <<NOTE: 26 USC 664 note.>> Effective date.--The
amendment made by paragraph (1) shall apply to transfers in
trust after June 18, 1997.
(b) Minimum Charitable Benefit.--
(1) Charitable remainder annuity trusts.--Paragraph (1) of
section 664(d) is amended by striking ``and'' at the end of
subparagraph (B), by striking the period at the end of
subparagraph (C), and by adding at the end the following new
subparagraph:
``(D) the value (determined under section 7520) of
such remainder interest is at least 10 percent of the
initial net fair market value of all property placed in
the trust.''
(2) Charitable remainder unitrusts.--Paragraph (2) of
section 664(d) is amended by striking ``and'' at the end of
subparagraph (B), by striking the period at the end of
subparagraph (C), and by adding at the end the following new
subparagraph:
``(D) with respect to each contribution of property
to the trust, the value (determined under section 7520)
of such remainder interest in such property is at least
10 percent of the net fair market value of such property
as of the date such property is contributed to the
trust.''.
(3) Void or reformed trust.--Paragraph (3) of section
2055(e) is amended by adding at the end the following new
subparagraph:
``(J) Void or reformed trust in cases of
insufficient remainder interests.--In the case of a
trust that would qualify (or could be reformed to
qualify pursuant to subparagraph (B)) but for failure to
satisfy the requirement of paragraph (1)(D) or (2)(D) of
section 664(d), such trust may be--
``(i) declared null and void ab initio, or
``(ii) changed by reformation, amendment, or
otherwise to meet such requirement by reducing the
payout rate or the duration (or both) of any
noncharitable beneficiary's interest to the extent
necessary to satisfy such requirement,
pursuant to a proceeding that is commenced within the
period required in subparagraph (C)(iii). In a case
described in clause (i), no deduction shall be allowed
under this title for any transfer to the trust and any
transactions entered into by the trust prior to being
declared void shall be treated as entered into by the
transferor.''.
(4) Severance of certain additional contributions.--
Subsection (d) of section 664 is amended by adding at
the end the following new paragraph:
``(4) <<NOTE: Regulations.>> Severance of certain
additional contributions.--If--
[[Page 111 STAT. 961]]
``(A) any contribution is made to a trust which
before the contribution is a charitable remainder
unitrust, and
``(B) such contribution would (but for this
paragraph) result in such trust ceasing to be a
charitable unitrust by reason of paragraph (2)(D),
such contribution shall be treated as a transfer to a separate
trust under regulations prescribed by the Secretary.''.
(5) Conforming amendment.--Section 2055(e)(3)(G) is amended
by inserting ``(or other proceeding pursuant to subparagraph
(J)'' after ``reformation''.
(6) <<NOTE: 26 USC 664 note.>> Effective dates.--
(A) In general.--Except as otherwise provided in
this paragraph, the amendments made by this subsection
shall apply to transfers in trust after July 28, 1997.
(B) Special rule for certain decedents.--The
amendments made by this subsection shall not apply to
transfers in trust under the terms of a will (or other
testamentary instrument) executed on or before July 28,
1997, if the decedent--
(i) dies before January 1, 1999, without
having republished the will (or amended such
instrument) by codicil or otherwise, or
(ii) was on July 28, 1997, under a mental
disability to change the disposition of his
property and did not regain his competence to
dispose of such property before the date of his
death.
SEC. 1090. EXPANDED SSA RECORDS FOR TAX ENFORCEMENT.
(a) Expansion of Coordinated Enforcement Efforts of IRS and HHS
Office of Child Support Enforcement.--
(1) State reporting of ssn of child.--Section 454A(e)(4)(D)
of the Social Security Act (42 U.S.C. 654a(e)(4)(D)) is amended
by striking ``the birth date of any child'' and inserting ``the
birth date and, beginning not later than October 1, 1999, the
social security number, of any child''.
(2) Federal case registry of child support orders.--Section
453(h) of such Act (42 U.S.C. 653(h)) is amended--
(A) in paragraph (2), by adding at the end the
following: ``Beginning not later than October 1, 1999,
the information referred to in paragraph (1) shall
include the names and social security numbers of the
children of such individuals.''; and
(B) by adding at the end the following:
``(3) Administration of federal tax laws.--The Secretary of
the Treasury shall have access to the information described in
paragraph (2) for the purpose of administering those sections of
the Internal Revenue Code of 1986 which grant tax benefits based
on support or residence of children.''.
(3) <<NOTE: 42 USC 653 note.>> Coordination between
secretaries.--The Secretary of the Treasury and the Secretary of
Health and Human Services shall consult regarding the
implementation issues resulting from the amendments made by this
subsection, including interim deadlines for States that may be
able before October 1, 1999, to provide the data required by
such amendments. The Secretaries <<NOTE: Reports.>> shall
report to Congress on the results of such consultation.
[[Page 111 STAT. 962]]
(4) <<NOTE: 42 USC 653 note.>> Effective date.--The
amendments made by this subsection shall take effect on October
1, 1998.
(b) Required Submission of SSN's on Applications.--
(1) In general.--Section 205(c)(2) of the Social Security
Act (42 U.S.C. 405(c)(2)) is amended--
(A) in subparagraph (B)(ii), by adding at the end
the following new sentence: ``With respect to an
application for a social security account number for an
individual who has not attained the age of 18 before
such application, such evidence shall include the
information described in subparagraph (C)(ii).'',
(B) in the second sentence of subparagraph (C)(ii),
insert ``the Commissioner of Social Security and'' after
``available to'', and
(C) by adding at the end the following new
subparagraph:
``(H) The Commissioner of Social Security shall share with the
Secretary of the Treasury the information obtained by the Commissioner
pursuant to the second sentence of subparagraph (B)(ii) and to
subparagraph (C)(ii) for the purpose of administering those sections of
the Internal Revenue Code of 1986 which grant tax benefits based on
support or residence of children.''.
(2) <<NOTE: 42 USC 405 note.>> Effective dates.--
(A) The amendment made by paragraph (1)(A) shall
apply to applications made after the date which is 180
days after the date of the enactment of this Act.
(B) The amendments made by subparagraphs (B) and (C)
of paragraph (1) shall apply to information obtained on,
before, or after the date of the enactment of this Act.
SEC. 1091. MODIFICATION OF ESTIMATED TAX SAFE HARBORS.
(a) In General.--Clause (i) of section 6654(d)(1)(C) (relating to
limitation on use of preceding year's tax) is amended to read as
follows:
``(i) In general.--If the adjusted gross
income shown on the return of the individual for
the preceding taxable year beginning in any
calendar year exceeds $150,000, clause (ii) of
subparagraph (B) shall be applied by substituting
the applicable percentage for `100 percent'. For
purposes of the preceding sentence, the applicable
percentage shall be determined in accordance with
the following table:
The.......................................
applicable................................
``If the preceding taxable yeapercentage is:............................
in:
1998, 1999, or 2000 105
2001 112
2002 or thereafter 110.
This clause shall not apply in the case of a
preceding taxable year beginning in calendar year
1997.''.
(b) <<NOTE: 26 USC 6654 note.>> Effective Date.--The amendment made
by this section shall apply with respect to any installment payment for
taxable years beginning after December 31, 1997.
[[Page 111 STAT. 963]]
TITLE XI--SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS
Subtitle A--General Provisions
SEC. 1101. CERTAIN INDIVIDUALS EXEMPT FROM FOREIGN TAX CREDIT
LIMITATION.
(a) General Rule.--Section 904 (relating to limitations on foreign
tax credit) is amended by redesignating subsection (j) as subsection (k)
and by inserting after subsection (i) the following new subsection:
``(j) Certain Individuals Exempt.--
``(1) In general.--In the case of an individual to whom this
subsection applies for any taxable year--
``(A) the limitation of subsection (a) shall not
apply,
``(B) no taxes paid or accrued by the individual
during such taxable year may be deemed paid or accrued
under subsection (c) in any other taxable year, and
``(C) no taxes paid or accrued by the individual
during any other taxable year may be deemed paid or
accrued under subsection (c) in such taxable year.
``(2) Individuals to whom subsection applies.--This
subsection shall apply to an individual for any taxable year
if--
``(A) the entire amount of such individual's gross
income for the taxable year from sources without the
United States consists of qualified passive income,
``(B) the amount of the creditable foreign taxes
paid or accrued by the individual during the taxable
year does not exceed $300 ($600 in the case of a joint
return), and
``(C) such individual elects to have this subsection
apply for the taxable year.
``(3) Definitions.--For purposes of this subsection--
``(A) Qualified passive income.--The term `qualified
passive income' means any item of gross income if--
``(i) such item of income is passive income
(as defined in subsection (d)(2)(A) without regard
to clause (iii) thereof), and
``(ii) such item of income is shown on a payee
statement furnished to the individual.
``(B) Creditable foreign taxes.--The term
`creditable foreign taxes' means any taxes for which a
credit is allowable under section 901; except that such
term shall not include any tax unless such tax is shown
on a payee statement furnished to such individual.
``(C) Payee statement.--The term `payee statement'
has the meaning given to such term by section
6724(d)(2).
``(D) Estates and trusts not eligible.--This
subsection shall not apply to any estate or trust.''.
(b) <<NOTE: 26 USC 904 note.>> Effective Date.--The amendment made
by subsection (a) shall apply to taxable years beginning after December
31, 1997.
SEC. 1102. EXCHANGE RATE USED IN TRANSLATING FOREIGN TAXES.
(a) Accrued Taxes Translated by Using Average Rate for Year to Which
Taxes Relate.--
[[Page 111 STAT. 964]]
(1) In general.--Subsection (a) of section 986 (relating to
translation of foreign taxes) is amended to read as follows:
``(a) Foreign Income Taxes.--
``(1) Translation of accrued taxes.--
``(A) In general.--For purposes of determining the
amount of the foreign tax credit, in the case of a
taxpayer who takes foreign income taxes into account
when accrued, the amount of any foreign income taxes
(and any adjustment thereto) shall be translated into
dollars by using the average exchange rate for the
taxable year to which such taxes relate.
``(B) Exception for certain taxes.--Subparagraph (A)
shall not apply to any foreign income taxes--
``(i) paid after the date 2 years after the
close of the taxable year to which such taxes
relate, or
``(ii) paid before the beginning of the
taxable year to which such taxes relate.
``(C) Exception for inflationary currencies.--
Subparagraph (A) shall not apply to any foreign income
taxes the liability for which is denominated in any
inflationary currency (as determined under regulations).
``(D) Cross reference.--
``For adjustments where tax is not paid within 2
years, see section 905(c).
``(2) Translation of taxes to which paragraph (1) does not
apply.--For purposes of determining the amount of the foreign
tax credit, in the case of any foreign income taxes to which
subparagraph (A) of paragraph (1) does not apply--
``(A) such taxes shall be translated into dollars
using the exchange rates as of the time such taxes were
paid to the foreign country or possession of the United
States, and
``(B) any adjustment to the amount of such taxes
shall be translated into dollars using--
``(i) except as provided in clause (ii), the
exchange rate as of the time when such adjustment
is paid to the foreign country or possession, or
``(ii) in the case of any refund or credit of
foreign income taxes, using the exchange rate as
of the time of the original payment of such
foreign income taxes.
``(3) Foreign income taxes.--For purposes of this
subsection, the term `foreign income taxes' means any income,
war profits, or excess profits taxes paid or accrued to any
foreign country or to any possession of the United States.''.
(2) Adjustment when not paid within 2 years after year to
which taxes relate.--Subsection (c) of section 905 is amended to
read as follows:
``(c) Adjustments to Accrued Taxes.--
``(1) In general.--If--
``(A) accrued taxes when paid differ from the
amounts claimed as credits by the taxpayer,
``(B) accrued taxes are not paid before the date 2
years after the close of the taxable year to which such
taxes relate, or
``(C) <<NOTE: Notification.>> any tax paid is
refunded in whole or in part,
the taxpayer shall notify the Secretary, who shall redetermine
the amount of the tax for the year or years affected. The
[[Page 111 STAT. 965]]
Secretary may prescribe adjustments to the pools of post-1986
foreign income taxes and the pools of post-1986 undistributed
earnings under sections 902 and 960 in lieu of the
redetermination under the preceding sentence.
``(2) Special rule for taxes not paid within 2 years.--
``(A) In general.--Except as provided in
subparagraph (B), in making the redetermination under
paragraph (1), no credit shall be allowed for accrued
taxes not paid before the date referred to in
subparagraph (B) of paragraph (1).
``(B) Taxes subsequently paid.--Any such taxes if
subsequently paid--
``(i) shall be taken into account--
``(I) in the case of taxes deemed
paid under section 902 or section 960,
for the taxable year in which paid (and
no redetermination shall be made under
this section by reason of such payment),
and
``(II) in any other case, for the
taxable year to which such taxes relate,
and
``(ii) shall be translated as provided in
section 986(a)(2)(A).
``(3) Adjustments.--The amount of tax (if any) due on any
redetermination under paragraph (1) shall be paid by the
taxpayer on notice and demand by the Secretary, and the amount
of tax overpaid (if any) shall be credited or refunded to the
taxpayer in accordance with subchapter B of chapter 66 (section
6511 et seq.).
``(4) Bond requirements.--In the case of any tax accrued but
not paid, the Secretary, as a condition precedent to the
allowance of the credit provided in this subpart, may require
the taxpayer to give a bond, with sureties satisfactory to and
approved by the Secretary, in such sum as the Secretary may
require, conditioned on the payment by the taxpayer of any
amount of tax found due on any such redetermination. Any such
bond shall contain such further conditions as the Secretary may
require.
``(5) Other special rules.--In any redetermination under
paragraph (1) by the Secretary of the amount of tax due from the
taxpayer for the year or years affected by a refund, the amount
of the taxes refunded for which credit has been allowed under
this section shall be reduced by the amount of any tax described
in section 901 imposed by the foreign country or possession of
the United States with respect to such refund; but no credit
under this subpart, or deduction under section 164, shall be
allowed for any taxable year with respect to any such tax
imposed on the refund. No interest shall be assessed or
collected on any amount of tax due on any redetermination by the
Secretary, resulting from a refund to the taxpayer, for any
period before the receipt of such refund, except to the extent
interest was paid by the foreign country or possession of the
United States on such refund for such period.''.
(b) Authority To Use Average Rates.--
(1) In general.--Subsection (a) of section 986 (as amended
by subsection (a)) is amended by redesignating paragraph (3)
[[Page 111 STAT. 966]]
as paragraph (4) and inserting after paragraph (2) the following
new paragraph:
``(3) <<NOTE: Regulations.>> Authority to permit use of
average rates.--To the extent prescribed in regulations, the
average exchange rate for the period (specified in such
regulations) during which the taxes or adjustment is paid may be
used instead of the exchange rate as of the time of such
payment.''.
(2) Determination of average rates.--Subsection (c) of
section 989 is amended by striking ``and'' at the end of
paragraph (4), by striking the period at the end of paragraph
(5) and inserting ``, and'', and by adding at the end thereof
the following new paragraph:
``(6) setting forth procedures for determining the average
exchange rate for any period.''.
(3) Conforming amendments.--Subsection (b) of section 989 is
amended by striking ``weighted'' each place it appears.
(c) Effective Dates.--
(1) <<NOTE: 26 USC 986 note.>> In general.--The amendments
made by subsections (a)(1) and (b) shall apply to taxes paid or
accrued in taxable years beginning after December 31, 1997.
(2) <<NOTE: 26 USC 905 note.>> Subsection (a)(2).--The
amendment made by subsection (a)(2) shall apply to taxes which
relate to taxable years beginning after December 31, 1997.
SEC. 1103. ELECTION TO USE SIMPLIFIED SECTION 904 LIMITATION FOR
ALTERNATIVE MINIMUM TAX.
(a) General Rule.--Subsection (a) of section 59 (relating to
alternative minimum tax foreign tax credit) is amended by adding at the
end thereof the following new paragraph:
``(3) Election to use simplified section 904 limitation.--
``(A) In general.--In determining the alternative
minimum tax foreign tax credit for any taxable year to
which an election under this paragraph applies--
``(i) subparagraph (B) of paragraph (1) shall
not apply, and
``(ii) the limitation of section 904 shall be
based on the proportion which--
``(I) the taxpayer's taxable income
(as determined for purposes of the
regular tax) from sources without the
United States (but not in excess of the
taxpayer's entire alternative minimum
taxable income), bears to
``(II) the taxpayer's entire
alternative minimum taxable income for
the taxable year.
``(B) Election.--
``(i) In general.--An election under this
paragraph may be made only for the taxpayer's
first taxable year which begins after December 31,
1997, and for which the taxpayer claims an
alternative minimum tax foreign tax credit.
``(ii) <<NOTE: Applicability.>> Election
revocable only with consent.--An election under
this paragraph, once made, shall apply to the
taxable year for which made and all subsequent
taxable years unless revoked with the consent of
the Secretary.''.
(b) <<NOTE: 26 USC 59 note.>> Effective Date.--The amendment made
by this section shall apply to taxable years beginning after December
31, 1997.
[[Page 111 STAT. 967]]
SEC. 1104. TREATMENT OF PERSONAL TRANSACTIONS BY INDIVIDUALS UNDER
FOREIGN CURRENCY RULES.
(a) General Rule.--Subsection (e) of section 988 (relating to
application to individuals) is amended to read as follows:
``(e) Application to Individuals.--
``(1) In general.--The preceding provisions of this section
shall not apply to any section 988 transaction entered into by
an individual which is a personal transaction.
``(2) Exclusion for certain personal transactions.--If--
``(A) nonfunctional currency is disposed of by an
individual in any transaction, and
``(B) such transaction is a personal transaction,
no gain shall be recognized for purposes of this subtitle by
reason of changes in exchange rates after such currency was
acquired by such individual and before such disposition. The
preceding sentence shall not apply if the gain which would
otherwise be recognized on the transaction exceeds $200.
``(3) Personal transactions.--For purposes of this
subsection, the term `personal transaction' means any
transaction entered into by an individual, except that such term
shall not include any transaction to the extent that expenses
properly allocable to such transaction meet the requirements
of--
``(A) section 162 (other than traveling expenses
described in subsection (a)(2) thereof), or
``(B) section 212 (other than that part of section
212 dealing with expenses incurred in connection with
taxes).''.
(b) <<NOTE: 26 USC 988 note.>> Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 1105. FOREIGN TAX CREDIT TREATMENT OF DIVIDENDS FROM NONCONTROLLED
SECTION 902 CORPORATIONS.
(a) Separate Basket Only To Apply to Pre-2003 Earnings.--
(1) In general.--Subparagraph (E) of section 904(d)(1) is
amended to read as follows:
``(E) in the case of a corporation, dividends from
noncontrolled section 902 corporations out of earnings
and profits accumulated in taxable years beginning
before January 1, 2003,''.
(2) Aggregation of non-pfics.--Subparagraph (E) of section
904(d)(2) (relating to noncontrolled section 902 corporations)
is amended by adding at the end the following new clause:
``(iv) All non-pfics treated as one.--All
noncontrolled section 902 corporations which are
not passive foreign investment companies (as
defined in section 1297) shall be treated as one
noncontrolled section 902 corporation for purposes
of paragraph (1).''.
(3) Conforming amendments.--Subparagraphs (C)(iii)(II) and
(D) of section 904(d)(2) are each amended by inserting ``out of
earnings and profits accumulated in taxable years beginning
before January 1, 2003'' after ``corporation''.
(b) Application of Look-Thru Rules to Dividends of Noncontrolled
Section 902 Corporations Attributable to Post-2002 Earnings.--Section
904(d) is amended by redesignating paragraphs (4) and (5) as paragraphs
(5) and (6), respectively, and by inserting after paragraph (3) the
following new paragraph:
[[Page 111 STAT. 968]]
``(4) Look-thru applies to dividends from noncontrolled
section 902 corporations.--
``(A) In general.--For purposes of this subsection,
any applicable dividend shall be treated as income in a
separate category in proportion to the ratio of--
``(i) the portion of the earnings and profits
described in subparagraph (B)(ii) attributable to
income in such category, to
``(ii) the total amount of such earnings and
profits.
``(B) Applicable dividend.--For purposes of
subparagraph (A), the term `applicable dividend' means
any dividend--
``(i) from a noncontrolled section 902
corporation with respect to the taxpayer, and
``(ii) paid out of earnings and profits
accumulated in taxable years beginning after
December 31, 2002.
``(C) <<NOTE: Applicability.>> Special rules.--
``(i) In general.--Rules similar to the rules
of paragraph (3)(F) shall apply for purposes of
this paragraph.
``(ii) Earnings and profits.--For purposes of
this paragraph and paragraph (1)(E)--
``(I) In general.--The rules of
section 316 shall apply.
``(II) Regulations.--The Secretary
may prescribe regulations regarding the
treatment of distributions out of
earnings and profits for periods prior
to the taxpayer's acquisition of such
stock.''.
(c) <<NOTE: 26 USC 904 note.>> Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 2002.
Subtitle B--Treatment of Controlled Foreign Corporations
SEC. 1111. GAIN ON CERTAIN STOCK SALES BY CONTROLLED FOREIGN
CORPORATIONS TREATED AS DIVIDENDS.
(a) General Rule.--Section 964 (relating to miscellaneous
provisions) is amended by adding at the end thereof the following new
subsection:
``(e) Gain on Certain Stock Sales by Controlled Foreign Corporations
Treated as Dividends.--
``(1) In general.--If a controlled foreign corporation sells
or exchanges stock in any other foreign corporation, gain
recognized on such sale or exchange shall be included in the
gross income of such controlled foreign corporation as a
dividend to the same extent that it would have been so included
under section 1248(a) if such controlled foreign corporation
were a United States person. For purposes of determining the
amount which would have been so includible, the determination of
whether such other foreign corporation was a controlled foreign
corporation shall be made without regard to the preceding
sentence.
``(2) Same country exception not applicable.--Clause (i) of
section 954(c)(3)(A) shall not apply to any amount treated as a
dividend by reason of paragraph (1).
[[Page 111 STAT. 969]]
``(3) Clarification of deemed sales.--For purposes of this
subsection, a controlled foreign corporation shall be treated as
having sold or exchanged any stock if, under any provision of
this subtitle, such controlled foreign corporation is treated as
having gain from the sale or exchange of such stock.''.
(b) Amendment of Section 904(d).--Clause (i) of section 904(d)(2)(E)
is amended by striking ``and except as provided in regulations, the
taxpayer was a United States shareholder in such corporation''.
(c) Effective Dates.--
(1) <<NOTE: 26 USC 964 note.>> The amendment made by
subsection (a) shall apply to gain recognized on transactions
occurring after the date of the enactment of this Act.
(2) <<NOTE: 26 USC 904 note.>> The amendment made by
subsection (b) shall apply to distributions after the date of
the enactment of this Act.
SEC. 1112. MISCELLANEOUS MODIFICATIONS TO SUBPART F.
(a) Section 1248 Gain Taken Into Account in Determining Pro Rata
Share.--
(1) In general.--Paragraph (2) of section 951(a) (defining
pro rata share of subpart F income) is amended by adding at the
end thereof the following new sentence: ``For purposes of
subparagraph (B), any gain included in the gross income of any
person as a dividend under section 1248 shall be treated as a
distribution received by such person with respect to the stock
involved.''.
(2) <<NOTE: 26 USC 951 note.>> Effective date.--The
amendment made by paragraph (1) shall apply to dispositions
after the date of the enactment of this Act.
(b) Basis Adjustments in Stock Held by Foreign Corporation.--
(1) In general.--Section 961 (relating to adjustments to
basis of stock in controlled foreign corporations and of other
property) is amended by adding at the end thereof the following
new subsection:
``(c) <<NOTE: Regulations.>> Basis Adjustments in Stock Held by
Foreign Corporation.--Under regulations prescribed by the Secretary, if
a United States shareholder is treated under section 958(a)(2) as owning
any stock in a controlled foreign corporation which is actually owned by
another controlled foreign corporation, adjustments similar to the
adjustments provided by subsections (a) and (b) shall be made to the
basis of such stock in the hands of such other controlled foreign
corporation, but only for the purposes of determining the amount
included under section 951 in the gross income of such United States
shareholder (or any other United States shareholder who acquires from
any person any portion of the interest of such United States shareholder
by reason of which such shareholder was treated as owning such stock,
but only to the extent of such portion, and subject to such proof of
identity of such interest as the Secretary may prescribe by
regulations).''.
(2) <<NOTE: 26 USC 961 note.>> Effective date.--The
amendment made by paragraph (1) shall apply for purposes of
determining inclusions for taxable years of United States
shareholders beginning after December 31, 1997.
(c) Clarification of Treatment of Branch Tax Exemptions or
Reductions.--
[[Page 111 STAT. 970]]
(1) In general.--Subsection (b) of section 952 is amended by
adding at the end thereof the following new sentence: ``For
purposes of this subsection, any exemption (or reduction) with
respect to the tax imposed by section 884 shall not be taken
into account.''.
(2) <<NOTE: 26 USC 952 note.>> Effective date.--The
amendment made by paragraph (1) shall apply to taxable years
beginning after December 31, 1986.
SEC. 1113. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR CERTAIN LOWER TIER
COMPANIES.
(a) Section 902 Credit.--
(1) In general.--Subsection (b) of section 902 (relating to
deemed taxes increased in case of certain 2nd and 3rd tier
foreign corporations) is amended to read as follows:
``(b) Deemed Taxes Increased in Case of Certain Lower Tier
Corporations.--
``(1) In general.--If--
``(A) any foreign corporation is a member of a
qualified group, and
``(B) such foreign corporation owns 10 percent or
more of the voting stock of another member of such group
from which it receives dividends in any taxable year,
such foreign corporation shall be deemed to have paid the same
proportion of such other member's post-1986 foreign income taxes
as would be determined under subsection (a) if such foreign
corporation were a domestic corporation.
``(2) Qualified group.--For purposes of paragraph (1), the
term `qualified group' means--
``(A) the foreign corporation described in
subsection (a), and
``(B) any other foreign corporation if--
``(i) the domestic corporation owns at least 5
percent of the voting stock of such other foreign
corporation indirectly through a chain of foreign
corporations connected through stock ownership of
at least 10 percent of their voting stock,
``(ii) the foreign corporation described in
subsection (a) is the first tier corporation in
such chain, and
``(iii) such other corporation is not below
the sixth tier in such chain.
The term `qualified group' shall not include any foreign
corporation below the third tier in the chain referred to in
clause (i) unless such foreign corporation is a controlled
foreign corporation (as defined in section 957) and the domestic
corporation is a United States shareholder (as defined in
section 951(b)) in such foreign corporation. Paragraph (1) shall
apply to those taxes paid by a member of the qualified group
below the third tier only with respect to periods during which
it was a controlled foreign corporation.''.
(2) Conforming amendments.--
(A) Subparagraph (B) of section 902(c)(3) is amended
by adding ``or'' at the end of clause (i) and by
striking clauses (ii) and (iii) and inserting the
following new clause:
``(ii) the requirements of subsection (b)(2)
are met with respect to such foreign
corporation.''.
[[Page 111 STAT. 971]]
(B) Subparagraph (B) of section 902(c)(4) is amended
by striking ``3rd foreign corporation'' and inserting
``sixth tier foreign corporation''.
(C) The heading for paragraph (3) of section 902(c)
is amended by striking ``where domestic corporation
acquires 10 percent of foreign corporation'' and
inserting ``where foreign corporation first qualifies''.
(D) Paragraph (3) of section 902(c) is amended by
striking ``ownership'' each place it appears.
(b) Section 960 Credit.--Paragraph (1) of section 960(a) (relating
to special rules for foreign tax credits) is amended to read as follows:
``(1) <<NOTE: Applicability.>> Deemed paid credit.--For
purposes of subpart A of this part, if there is included under
section 951(a) in the gross income of a domestic corporation any
amount attributable to earnings and profits of a foreign
corporation which is a member of a qualified group (as defined
in section 902(b)) with respect to the domestic corporation,
then, except to the extent provided in regulations, section 902
shall be applied as if the amount so included were a dividend
paid by such foreign corporation (determined by applying section
902(c) in accordance with section 904(d)(3)(B)).''.
(c) <<NOTE: 26 USC 902 note.>> Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxes of foreign corporations for taxable years of such
corporations beginning after the date of enactment of this Act.
(2) Special rule.--In the case of any chain of foreign
corporations described in clauses (i) and (ii) of section
902(b)(2)(B) of the Internal Revenue Code of 1986 (as amended by
this section), no liquidation, reorganization, or similar
transaction in a taxable year beginning after the date of the
enactment of this Act shall have the effect of permitting taxes
to be taken into account under section 902 of the Internal
Revenue Code of 1986 which could not have been taken into
account under such section but for such transaction.
Subtitle C--Treatment of Passive Foreign Investment Companies
SEC. 1121. UNITED STATES SHAREHOLDERS OF CONTROLLED FOREIGN CORPORATIONS
NOT SUBJECT TO PFIC INCLUSION.
Section 1296 is amended by adding at the end the following new
subsection:
``(e) Exception for United States Shareholders of Controlled Foreign
Corporations.--
``(1) In general.--For purposes of this part, a corporation
shall not be treated with respect to a shareholder as a passive
foreign investment company during the qualified portion of such
shareholder's holding period with respect to stock in such
corporation.
``(2) Qualified portion.--For purposes of this subsection,
the term `qualified portion' means the portion of the
shareholder's holding period--
``(A) which is after December 31, 1997, and
[[Page 111 STAT. 972]]
``(B) during which the shareholder is a United
States shareholder (as defined in section 951(b)) of the
corporation and the corporation is a controlled foreign
corporation.
``(3) New holding period if qualified portion ends.--
``(A) In general.--Except as provided in
subparagraph (B), if the qualified portion of a
shareholder's holding period with respect to any stock
ends after December 31, 1997, solely for purposes of
this part, the shareholder's holding period with respect
to such stock shall be treated as beginning as of the
first day following such period.
``(B) Exception.--Subparagraph (A) shall not apply
if such stock was, with respect to such shareholder,
stock in a passive foreign investment company at any
time before the qualified portion of the shareholder's
holding period with respect to such stock and no
election under section 1298(b)(1) is made.''.
SEC. 1122. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK IN PASSIVE
FOREIGN INVESTMENT COMPANY.
(a) In General.--Part VI of subchapter P of chapter 1 is amended by
redesignating subpart C as subpart D, by redesignating sections 1296 and
1297 as sections 1297 and 1298, respectively, and by inserting after
subpart B the following new subpart:
``Subpart C--Election of Mark to Market For Marketable Stock
``Sec. 1296. Election of mark to market for marketable
stock.
``SEC. 1296. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK.
``(a) General Rule.--In the case of marketable stock in a passive
foreign investment company which is owned (or treated under subsection
(g) as owned) by a United States person at the close of any taxable year
of such person, at the election of such person--
``(1) If the fair market value of such stock as of the close
of such taxable year exceeds its adjusted basis, such United
States person shall include in gross income for such taxable
year an amount equal to the amount of such excess.
``(2) If the adjusted basis of such stock exceeds the fair
market value of such stock as of the close of such taxable year,
such United States person shall be allowed a deduction for such
taxable year equal to the lesser of--
``(A) the amount of such excess, or
``(B) the unreversed inclusions with respect to such
stock.
``(b) Basis Adjustments.--
``(1) In general.--The adjusted basis of stock in a passive
foreign investment company--
``(A) shall be increased by the amount included in
the gross income of the United States person under
subsection (a)(1) with respect to such stock, and
``(B) shall be decreased by the amount allowed as a
deduction to the United States person under subsection
(a)(2) with respect to such stock.
``(2) Special rule for stock constructively owned.--In the
case of stock in a passive foreign investment company
[[Page 111 STAT. 973]]
which the United States person is treated as owning under
subsection (g)--
``(A) <<NOTE: Applicability.>> the adjustments
under paragraph (1) shall apply to such stock in the
hands of the person actually holding such stock but only
for purposes of determining the subsequent treatment
under this chapter of the United States person with
respect to such stock, and
``(B) similar adjustments shall be made to the
adjusted basis of the property by reason of which the
United States person is treated as owning such stock.
``(c) Character and Source Rules.--
``(1) Ordinary treatment.--
``(A) Gain.--Any amount included in gross income
under subsection (a)(1), and any gain on the sale or
other disposition of marketable stock in a passive
foreign investment company (with respect to which an
election under this section is in effect), shall be
treated as ordinary income.
``(B) Loss.--Any--
``(i) amount allowed as a deduction under
subsection (a)(2), and
``(ii) loss on the sale or other disposition
of marketable stock in a passive foreign
investment company (with respect to which an
election under this section is in effect) to the
extent that the amount of such loss does not
exceed the unreversed inclusions with respect to
such stock,
shall be treated as an ordinary loss. The amount so
treated shall be treated as a deduction allowable in
computing adjusted gross income.
``(2) Source.--The source of any amount included in gross
income under subsection (a)(1) (or allowed as a deduction under
subsection (a)(2)) shall be determined in the same manner as if
such amount were gain or loss (as the case may be) from the sale
of stock in the passive foreign investment company.
``(d) Unreversed Inclusions.--For purposes of this section, the term
`unreversed inclusions' means, with respect to any stock in a passive
foreign investment company, the excess (if any) of--
``(1) the amount included in gross income of the taxpayer
under subsection (a)(1) with respect to such stock for prior
taxable years, over
``(2) the amount allowed as a deduction under subsection
(a)(2) with respect to such stock for prior taxable years.
The amount referred to in paragraph (1) shall include any amount which
would have been included in gross income under subsection (a)(1) with
respect to such stock for any prior taxable year but for section 1291.
``(e) Marketable Stock.--For purposes of this section--
``(1) In general.--The term `marketable stock' means--
``(A) any stock which is regularly traded on--
``(i) a national securities exchange which is
registered with the Securities and Exchange
Commission or the national market system
established pursuant to section 11A of the
Securities and Exchange Act of 1934, or
[[Page 111 STAT. 974]]
``(ii) any exchange or other market which the
Secretary determines has rules adequate to carry
out the purposes of this part,
``(B) to the extent provided in regulations, stock
in any foreign corporation which is comparable to a
regulated investment company and which offers for sale
or has outstanding any stock of which it is the issuer
and which is redeemable at its net asset value, and
``(C) to the extent provided in regulations, any
option on stock described in subparagraph (A) or (B).
``(2) Special rule for regulated investment companies.--In
the case of any regulated investment company which is offering
for sale or has outstanding any stock of which it is the issuer
and which is redeemable at its net asset value, all stock in a
passive foreign investment company which it owns directly or
indirectly shall be treated as marketable stock for purposes of
this section. <<NOTE: Applicability.>> Except as provided in
regulations, similar treatment as marketable stock shall apply
in the case of any other regulated investment company which
publishes net asset valuations at least annually.
``(f) Treatment of Controlled Foreign Corporations Which are
Shareholders in Passive Foreign Investment Companies.--In the case of a
foreign corporation which is a controlled foreign corporation and which
owns (or is treated under subsection (g) as owning) stock in a passive
foreign investment company--
``(1) <<NOTE: Applicability.>> this section (other than
subsection (c)(2)) shall apply to such foreign corporation in
the same manner as if such corporation were a United States
person, and
``(2) for purposes of subpart F of part III of subchapter
N--
``(A) any amount included in gross income under
subsection (a)(1) shall be treated as foreign personal
holding company income described in section
954(c)(1)(A), and
``(B) any amount allowed as a deduction under
subsection (a)(2) shall be treated as a deduction
allocable to foreign personal holding company income so
described.
``(g) Stock Owned Through Certain Foreign Entities.--Except as
provided in regulations--
``(1) In general.--For purposes of this section, stock
owned, directly or indirectly, by or for a foreign partnership
or foreign trust or foreign estate shall be considered as being
owned proportionately by its partners or beneficiaries. Stock
considered to be owned by a person by reason of the application
of the preceding sentence shall, for purposes of applying such
sentence, be treated as actually owned by such person.
``(2) Treatment of certain dispositions.--In any case in
which a United States person is treated as owning stock in a
passive foreign investment company by reason of paragraph (1)--
``(A) any disposition by the United States person or
by any other person which results in the United States
person being treated as no longer owning such stock, and
``(B) any disposition by the person owning such
stock,
shall be treated as a disposition by the United States person of
the stock in the passive foreign investment company.
[[Page 111 STAT. 975]]
``(h) Coordination With Section 851(b).--For purposes of paragraphs
(2) and (3) of section 851(b), any amount included in gross income under
subsection (a) shall be treated as a dividend.
``(i) Stock Acquired From a Decedent.--In the case of stock of a
passive foreign investment company which is acquired by bequest, devise,
or inheritance (or by the decedent's estate) and with respect to which
an election under this section was in effect as of the date of the
decedent's death, notwithstanding section 1014, the basis of such stock
in the hands of the person so acquiring it shall be the adjusted basis
of such stock in the hands of the decedent immediately before his death
(or, if lesser, the basis which would have been determined under section
1014 without regard to this subsection).
``(j) Coordination With Section 1291 for First Year of Election.--
``(1) Taxpayers other than regulated investment companies.--
``(A) In general.--If the taxpayer elects the
application of this section with respect to any
marketable stock in a corporation after the beginning of
the taxpayer's holding period in such stock, and if the
requirements of subparagraph (B) are not satisfied,
section 1291 shall apply to--
``(i) any distributions with respect to, or
disposition of, such stock in the first taxable
year of the taxpayer for which such election is
made, and
``(ii) any amount which, but for section 1291,
would have been included in gross income under
subsection (a) with respect to such stock for such
taxable year in the same manner as if such amount
were gain on the disposition of such stock.
``(B) Requirements.--The requirements of this
subparagraph are met if, with respect to each of such
corporation's taxable years for which such corporation
was a passive foreign investment company and which begin
after December 31, 1986, and included any portion of the
taxpayer's holding period in such stock, such
corporation was treated as a qualified electing fund
under this part with respect to the taxpayer.
``(2) Special rules for regulated investment companies.--
``(A) In general.--If a regulated investment company
elects the application of this section with respect to
any marketable stock in a corporation after the
beginning of the taxpayer's holding period in such
stock, then, with respect to such company's first
taxable year for which such company elects the
application of this section with respect to such stock--
``(i) section 1291 shall not apply to such
stock with respect to any distribution or
disposition during, or amount included in gross
income under this section for, such first taxable
year, but
``(ii) such regulated investment company's tax
under this chapter for such first taxable year
shall be increased by the aggregate amount of
interest which would have been determined under
section 1291(c)(3) if section 1291 were applied
without regard to this subparagraph.
[[Page 111 STAT. 976]]
Clause (ii) shall not apply if for the preceding taxable
year the company elected to mark to market the stock
held by such company as of the last day of such
preceding taxable year.
``(B) Disallowance of deduction.--No deduction shall
be allowed to any regulated investment company for the
increase in tax under subparagraph (A)(ii).
``(k) <<NOTE: Applicability.>> Election.--This section shall apply
to marketable stock in a passive foreign investment company which is
held by a United States person only if such person elects to apply this
section with respect to such stock. Such an election shall apply to the
taxable year for which made and all subsequent taxable years unless--
``(1) such stock ceases to be marketable stock, or
``(2) the Secretary consents to the revocation of such
election.
``(l) Transition Rule for Individuals Becoming Subject to United
States Tax.--If any individual becomes a United States person in a
taxable year beginning after December 31, 1997, solely for purposes of
this section, the adjusted basis (before adjustments under subsection
(b)) of any marketable stock in a passive foreign investment company
owned by such individual on the first day of such taxable year shall be
treated as being the greater of its fair market value on such first day
or its adjusted basis on such first day.''.
(b) Coordination With Interest Charge, Etc.--
(1) Paragraph (1) of section 1291(d) is amended by adding at
the end the following new flush sentence:
``Except as provided in section 1296(j), this section also shall
not apply if an election under section 1296(k) is in effect for
the taxpayer's taxable year.''.
(2) The subsection heading for subsection (d) of section
1291 is amended by striking ``Subpart B'' and inserting
``Subparts B and C''.
(3) Subparagraph (A) of section 1291(a)(3) is amended to
read as follows:
``(A) Holding period.--The taxpayer's holding period
shall be determined under section 1223; except that--
``(i) for purposes of applying this section to
an excess distribution, such holding period shall
be treated as ending on the date of such
distribution, and
``(ii) if section 1296 applied to such stock
with respect to the taxpayer for any prior taxable
year, such holding period shall be treated as
beginning on the first day of the first taxable
year beginning after the last taxable year for
which section 1296 so applied.''.
(c) Treatment of Mark-to-Market Gain Under Section 4982.--
(1) Subsection (e) of section 4982 is amended by adding at
the end thereof the following new paragraph:
``(6) Treatment of gain recognized under section 1296.--For
purposes of determining a regulated investment company's
ordinary income--
``(A) <<NOTE: Applicability.>> notwithstanding
paragraph (1)(C), section 1296 shall be applied as if
such company's taxable year ended on October 31, and
[[Page 111 STAT. 977]]
``(B) any ordinary gain or loss from an actual
disposition of stock in a passive foreign investment
company during the portion of the calendar year after
October 31 shall be taken into account in determining
such regulated investment company's ordinary income for
the following calendar year.
In the case of a company making an election under paragraph (4),
the preceding sentence shall be applied by substituting the last
day of the company's taxable year for October 31.''.
(2) Subsection (b) of section 852 is amended by adding at
the end thereof the following new paragraph:
``(10) Special rule for certain losses on stock in passive
foreign investment company.--To the extent provided in
regulations, the taxable income of a regulated investment
company (other than a company to which an election under section
4982(e)(4) applies) shall be computed without regard to any net
reduction in the value of any stock of a passive foreign
investment company with respect to which an election under
section 1296(k) is in effect occurring after October 31 of the
taxable year, and any such reduction shall be treated as
occurring on the first day of the following taxable year.''.
(3) Subsection (c) of section 852 is amended by inserting
after ``October 31 of such year'' the following: ``, without
regard to any net reduction in the value of any stock of a
passive foreign investment company with respect to which an
election under section 1296(k) is in effect occurring after
October 31 of such year,''.
(d) Conforming Amendments.--
(1) Sections 532(b)(4) and 542(c)(10) are each amended by
striking ``section 1296'' and inserting ``section 1297''.
(2) Subsection (f) of section 551 is amended by striking
``section 1297(b)(5)'' and inserting ``section 1298(b)(5)''.
(3) Subsections (a)(1) and (d) of section 1293 are each
amended by striking ``section 1297(a)'' and inserting ``section
1298(a)''.
(4) Paragraph (3) of section 1297(b), as redesignated by
subsection (a), is hereby repealed.
(5) The table of sections for subpart D of part VI of
subchapter P of chapter 1, as redesignated by subsection (a), is
amended to read as follows:
``Sec. 1297. Passive foreign investment company.
``Sec. 1298. Special rules.''.
(6) The table of subparts for part VI of subchapter P of
chapter 1 is amended by striking the last item and inserting the
following new items:
``Subpart C. Election of mark to market for marketable
stock.
``Subpart D. General provisions.''.
(e) Clarification of Gain Recognition Election.--The last sentence
of section 1298(b)(1), as so redesignated, is amended by inserting
``(determined without regard to the preceding sentence)'' after
``investment company''.
SEC. 1123. VALUATION OF ASSETS FOR PASSIVE FOREIGN INVESTMENT COMPANY
DETERMINATION.
(a) In General.--Section 1297, as redesignated by section 1122, is
amended by adding at the end the following new subsection:
``(e) Methods for Measuring Assets.--
[[Page 111 STAT. 978]]
``(1) Determination using value.--The determination under
subsection (a)(2) shall be made on the basis of the value of the
assets of a foreign corporation if--
``(A) such corporation is a publicly traded
corporation for the taxable year, or
``(B) paragraph (2) does not apply to such
corporation for the taxable year.
``(2) Determination using adjusted bases.--The determination
under subsection (a)(2) shall be based on the adjusted bases (as
determined for the purposes of computing earnings and profits)
of the assets of a foreign corporation if such corporation is
not described in paragraph (1)(A) and such corporation--
``(A) is a controlled foreign corporation, or
``(B) elects the application of this paragraph.
An election under subparagraph (B), once made, may be revoked
only with the consent of the Secretary.
``(3) Publicly traded corporation.--For purposes of this
subsection, a foreign corporation shall be treated as a publicly
traded corporation if the stock in the corporation is regularly
traded on--
``(A) a national securities exchange which is
registered with the Securities and Exchange Commission
or the national market system established pursuant to
section 11A of the Securities and Exchange Act of 1934,
or
``(B) any exchange or other market which the
Secretary determines has rules adequate to carry out the
purposes of this subsection.''.
(b) Conforming Amendments.--Section 1297(a), as redesignated by
section 1122, is amended--
(1) by striking ``(by value)'' and inserting ``(as
determined in accordance with subsection (e))'', and
(2) by striking the last two sentences.
SEC. 1124. <<NOTE: 26 USC 532 note.>> EFFECTIVE DATE.
The amendments made by this subtitle shall apply to--
(1) taxable years of United States persons beginning after
December 31, 1997, and
(2) taxable years of foreign corporations ending with or
within such taxable years of United States persons.
Subtitle D--Repeal of Excise Tax on Transfers to Foreign Entities
SEC. 1131. REPEAL OF EXCISE TAX ON TRANSFERS TO FOREIGN ENTITIES;
RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO FOREIGN TRUSTS
AND ESTATES.
(a) Repeal of Excise Tax.--Chapter 5 (relating to transfers to avoid
income tax) is hereby repealed.
(b) Recognition of Gain on Certain Transfers to Foreign Trusts and
Estates.--Subpart F of part I of subchapter J of chapter 1 is amended by
adding at the end the following new section:
[[Page 111 STAT. 979]]
``SEC. 684. RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO CERTAIN FOREIGN
TRUSTS AND ESTATES.
``(a) In General.--Except as provided in regulations, in the case of
any transfer of property by a United States person to a foreign estate
or trust, for purposes of this subtitle, such transfer shall be treated
as a sale or exchange for an amount equal to the fair market value of
the property transferred, and the transferor shall recognize as gain the
excess of--
``(1) the fair market value of the property so transferred,
over
``(2) the adjusted basis (for purposes of determining gain)
of such property in the hands of the transferor.
``(b) Exception.--Subsection (a) shall not apply to a transfer to a
trust by a United States person to the extent that any person is treated
as the owner of such trust under section 671.
``(c) Treatment of Trusts Which Become Foreign Trusts.--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.''.
(b) Other Anti-Avoidance Provisions Replacing Repealed Excise Tax.--
(1) Gain recognition on exchanges involving foreign
persons.--Section 1035 is amended by redesignating subsection
(c) as subsection (d) and by inserting after subsection (b) the
following new subsection:
``(c) Exchanges Involving Foreign Persons.--To the extent provided
in regulations, subsection (a) shall not apply to any exchange having
the effect of transferring property to any person other than a United
States person.''.
(2) Transfers to foreign corporations.--Section 367 is
amended by adding at the end the following new subsection:
``(f) Other Transfers.--To the extent provided in regulations, if a
United States person transfers property to a foreign corporation as
paid-in surplus or as a contribution to capital (in a transaction not
otherwise described in this section), such transfer shall be treated as
a sale or exchange for an amount equal to the fair market value of the
property transferred, and the transferor shall recognize as gain the
excess of--
``(1) the fair market value of the property so transferred,
over
``(2) the adjusted basis (for purposes of determining gain)
of such property in the hands of the transferor.''.
(3) Certain transfers to partnerships.--Section 721 is
amended by adding at the end the following new subsection:
``(c) Regulations Relating to Certain Transfers to Partnerships.--
The Secretary may provide by regulations that subsection (a) shall not
apply to gain realized on the transfer of property to a partnership if
such gain, when recognized, will be includible in the gross income of a
person other than a United States person.''.
(4) Repeal of u.s. source treatment of deemed royalties.--
Subparagraph (C) of section 367(d)(2) is amended to read as
follows:
``(C) Amounts received treated as ordinary income.--
For purposes of this chapter, any amount included in
gross income by reason of this subsection shall be
treated as ordinary income.''.
[[Page 111 STAT. 980]]
(5) Transfers of intangibles to partnerships.--
(A) Subsection (d) of section 367 is amended by
adding at the end the following new paragraph:
``(3) Regulations relating to transfers of intangibles to
partnerships.--The Secretary may provide by regulations that the
rules of paragraph (2) also apply to the transfer of intangible
property by a United States person to a partnership in
circumstances consistent with the purposes of this
subsection.''.
(B) Section 721 is amended by adding at the end the
following new subsection:
``(d) Transfers of Intangibles.--
``For regulatory authority to treat intangibles
transferred to a partnership as sold, see section
367(d)(3).''.
(c) Technical and Conforming Amendments.--
(1) Subsection (h) of section 814 is amended by striking
``or 1491''.
(2) Section 1057 (relating to election to treat transfer to
foreign trust, etc., as taxable exchange) is hereby repealed.
(3) Section 6422 is amended by striking paragraph (5) and by
redesignating paragraphs (6) through (13) as paragraphs (5)
through (12), respectively.
(4) The table of chapters for subtitle A is amended by
striking the item relating to chapter 5.
(5) The table of sections for part IV of subchapter O of
chapter 1 is amended by striking the item relating to section
1057.
(6) The table of sections for subpart F of part I of
subchapter J of chapter 1 is amended by adding at the end the
following new item:
``Sec. 684. Recognition of gain on certain transfers to
certain foreign trusts and estates.''.
(d) <<NOTE: 26 USC 367 note.>> Effective Date.--The amendments made
by this section shall take effect on the date of the enactment of this
Act.
Subtitle E--Information Reporting
SEC. 1141. CLARIFICATION OF APPLICATION OF RETURN REQUIREMENT TO FOREIGN
PARTNERSHIPS.
(a) In General.--Section 6031 (relating to return of partnership
income) is amended by adding at the end the following new subsection:
``(e) Foreign Partnerships.--
``(1) Exception for foreign partnership.--Except as provided
in paragraph (2), the preceding provisions of this section shall
not apply to a foreign partnership.
``(2) Certain foreign partnerships required to file
return.--Except as provided in regulations prescribed by the
Secretary, this section shall apply to a foreign partnership for
any taxable year if for such year, such partnership has--
``(A) gross income derived from sources within the
United States, or
``(B) gross income which is effectively connected
with the conduct of a trade or business within the
United States.
[[Page 111 STAT. 981]]
The Secretary may provide simplified filing procedures for
foreign partnerships to which this section applies.''.
(b) Sanction for Failure by Foreign Partnership To Comply With
Section 6031 To Include Denial of Deductions.--Subsection (f) of section
6231 is amended--
(1) by striking ``Losses and'' in the heading and inserting
``Deductions, Losses, and'', and
(2) by striking ``loss or'' each place it appears and
inserting ``deduction, loss, or''.
(c) <<NOTE: 26 USC 6031 note.>> Effective Date.--The amendments
made by this section shall apply to taxable years beginning after the
date of the enactment of this Act.
SEC. 1142. CONTROLLED FOREIGN PARTNERSHIPS SUBJECT TO INFORMATION
REPORTING COMPARABLE TO INFORMATION REPORTING FOR CONTROLLED
FOREIGN CORPORATIONS.
(a) In General.--So much of section 6038 (relating to information
with respect to certain foreign corporations) as precedes paragraph (2)
of subsection (a) is amended to read as follows:
``SEC. 6038. INFORMATION REPORTING WITH RESPECT TO CERTAIN FOREIGN
CORPORATIONS AND PARTNERSHIPS.
``(a) Requirement.--
``(1) In general.--Every United States person shall furnish,
with respect to any foreign business entity which such person
controls, such information as the Secretary may prescribe
relating to--
``(A) the name, the principal place of business, and
the nature of business of such entity, and the country
under whose laws such entity is incorporated (or
organized in the case of a partnership);
``(B) in the case of a foreign corporation, its
post-1986 undistributed earnings (as defined in section
902(c));
``(C) a balance sheet for such entity listing
assets, liabilities, and capital;
``(D) transactions between such entity and--
``(i) such person,
``(ii) any corporation or partnership which
such person controls, and
``(iii) any United States person owning, at
the time the transaction takes place--
``(I) in the case of a foreign
corporation, 10 percent or more of the
value of any class of stock outstanding
of such corporation, and
``(II) in the case of a foreign
partnership, at least a 10-percent
interest in such partnership; and
``(E)(i) in the case of a foreign corporation, a
description of the various classes of stock outstanding,
and a list showing the name and address of, and number
of shares held by, each United States person who is a
shareholder of record owning at any time during the
annual accounting period 5 percent or more in value of
any class of stock outstanding of such foreign
corporation, and
``(ii) information comparable to the information
described in clause (i) in the case of a foreign
partnership.
[[Page 111 STAT. 982]]
The Secretary may also require the furnishing of any other
information which is similar or related in nature to that
specified in the preceding sentence or which the Secretary
determines to be appropriate to carry out the provisions of this
title.''.
(b) Definitions.--
(1) In general.--Subsection (e) of section 6038 (relating to
definitions) is amended--
(A) by redesignating paragraphs (1) and (2) as
paragraphs (2) and (4), respectively,
(B) by inserting before paragraph (2) (as so
redesignated) the following new paragraph:
``(1) Foreign business entity.--The term `foreign business
entity' means a foreign corporation and a foreign
partnership.'', and
(C) by inserting after paragraph (2) (as so
redesignated) the following new paragraph:
``(3) Partnership-related definitions.--
``(A) Control.--A person is in control of a
partnership if such person owns directly or indirectly
more than a 50 percent interest in such partnership.
``(B) 50-percent interest.--For purposes of
subparagraph (A), a 50-percent interest in a partnership
is--
``(i) an interest equal to 50 percent of the
capital interest, or 50 percent of the profits
interest, in such partnership, or
``(ii) to the extent provided in regulations,
an interest to which 50 percent of the deductions
or losses of such partnership are allocated.
For purposes of the preceding sentence, rules similar to
the rules of section 267(c) (other than paragraph (3))
shall apply.
``(C) 10-percent interest.--A 10-percent interest in
a partnership is an interest which would be described in
subparagraph (B) if `10 percent' were substituted for
`50 percent' each place it appears.''.
(2) Clerical amendment.--The paragraph heading for paragraph
(2) of section 6038(e) (as so redesignated) is amended by
inserting ``of corporation'' after ``Control''.
(c) Modification of Sanctions on Partnerships and Corporations for
Failure To Furnish Information.--
(1) In general.--Subsection (b) of section 6038 is amended--
(A) by striking ``$1,000'' each place it appears and
inserting ``$10,000'', and
(B) by striking ``$24,000'' in paragraph (2) and
inserting ``$50,000''.
(d) Reporting by 10-Percent Partners.--Subsection (a) of section
6038 is amended by adding at the end the following new paragraph:
``(5) Information required from 10-percent partner of
controlled foreign partnership.--In the case of a foreign
partnership which is controlled by United States persons holding
at least 10-percent interests (but not by any one United States
person), the Secretary may require each United States person who
holds a 10-percent interest in such partnership to furnish
information relating to such partnership, including
[[Page 111 STAT. 983]]
information relating to such partner's ownership interests in
the partnership and allocations to such partner of partnership
items.''.
(e) Technical Amendments.--
(1) The following provisions of section 6038 are each
amended by striking ``foreign corporation'' each place it
appears and inserting ``foreign business entity'':
(A) Paragraphs (2) and (3) of subsection (a).
(B) Subsection (b).
(C) Subsection (c) other than paragraph (1)(B)
thereof.
(D) Subsection (d).
(E) Subsection (e)(4) (as redesignated by subsection
(b)).
(2) Subparagraph (B) of section 6038(c)(1) is amended by
inserting ``in the case of a foreign business entity which is a
foreign corporation,'' after ``(B)''.
(3) Paragraph (8) of section 318(b) is amended by striking
``6038(d)(1)'' and inserting ``6038(d)(2)''.
(4) Paragraph (4) of section 901(k) is amended by striking
``foreign corporation'' and inserting ``foreign corporation or
partnership''.
(5) The table of sections for subpart A of part III of
subchapter A of chapter 61 is amended by striking the item
relating to section 6038 and inserting the following new item:
``Sec. 6038. Information reporting with respect to
certain foreign corporations and
partnerships.''.
(f) <<NOTE: 26 USC 318 note.>> Effective Date.--The amendments made
by this section shall apply to annual accounting periods beginning after
the date of the enactment of this Act.
SEC. 1143. MODIFICATIONS RELATING TO RETURNS REQUIRED TO BE FILED BY
REASON OF CHANGES IN OWNERSHIP INTERESTS IN FOREIGN
PARTNERSHIP.
(a) No Return Required Unless Changes Involve 10-Percent Interest in
Partnership.--
(1) In general.--Subsection (a) of section 6046A (relating
to returns as to interests in foreign partnerships) is amended
by adding at the end the following new
sentence: <<NOTE: Applicability.>> ``Paragraphs (1) and (2)
shall apply to any acquisition or disposition only if the United
States person directly or indirectly holds at least a 10-percent
interest in such partnership either before or after such
acquisition or disposition, and paragraph (3) shall apply to any
change only if the change is equivalent to at least a 10-percent
interest in such partnership.''.
(2) 10-percent interest.--Section 6046A is amended by
redesignating subsection (d) as subsection (e) and by inserting
after subsection (c) the following new subsection:
``(d) 10-Percent Interest.--For purposes of subsection (a), a 10-
percent interest in a partnership is an interest described in section
6038(e)(3)(C).''.
(b) Modification of Penalty on Failure to Report Changes in
Ownership Interests in Foreign Corporations and Partnerships.--
Subsection (a) of section 6679 (relating to failure to file returns,
etc., with respect to foreign corporations or foreign partnerships) is
amended to read as follows:
``(a) Civil Penalty.--
[[Page 111 STAT. 984]]
``(1) In general.--In addition to any criminal penalty
provided by law, any person required to file a return under
section 6035, 6046, or 6046A who fails to file such return at
the time provided in such section, or who files a return which
does not show the information required pursuant to such section,
shall pay a penalty of $10,000, unless it is shown that such
failure is due to reasonable cause.
``(2) Increase in penalty where failure continues after
notification.--If any failure described in paragraph (1)
continues for more than 90 days after the day on which the
Secretary mails notice of such failure to the United States
person, such person shall pay a penalty (in addition to the
amount required under paragraph (1)) of $10,000 for each 30-day
period (or fraction thereof) during which such failure continues
after the expiration of such 90-day period. The increase in any
penalty under this paragraph shall not exceed $50,000.
``(3) Reduced penalty for returns relating to foreign
personal holding companies.--In the case of a return required
under section 6035, paragraph (1) shall be applied by
substituting `$1,000' for `$10,000', and paragraph (2) shall not
apply.''.
(c) <<NOTE: 26 USC 6046A note.>> Effective Date.--The amendments
made by this section shall apply to transfers and changes after the date
of the enactment of this Act.
SEC. 1144. TRANSFERS OF PROPERTY TO FOREIGN PARTNERSHIPS SUBJECT TO
INFORMATION REPORTING COMPARABLE TO INFORMATION REPORTING
FOR SUCH TRANSFERS TO FOREIGN CORPORATIONS.
(a) In General.--Paragraph (1) of section 6038B(a) (relating to
notice of certain transfers to foreign corporations) is amended to read
as follows:
``(1) transfers property to--
``(A) a foreign corporation in an exchange described
in section 332, 351, 354, 355, 356, or 361, or
``(B) a foreign partnership in a contribution
described in section 721 or in any other contribution
described in regulations prescribed by the Secretary,''.
(b) Exceptions.--Section 6038B is amended by redesignating
subsection (b) as subsection (c) and by inserting after subsection (a)
the following new subsection:
``(b) Exceptions for Certain Transfers to Foreign Partnerships;
Special Rule.--
``(1) <<NOTE: Applicability.>> Exceptions.--Subsection
(a)(1)(B) shall apply to a transfer by a United States person to
a foreign partnership only if--
``(A) the United States person holds (immediately
after the transfer) directly or indirectly at least a
10-percent interest (as defined in section 6046A(d)) in
the partnership, or
``(B) the value of the property transferred (when
added to the value of the property transferred by such
person or any related person to such partnership or a
related partnership during the 12-month period ending on
the date of the transfer) exceeds $100,000.
[[Page 111 STAT. 985]]
For purposes of the preceding sentence, the value of any
transferred property is its fair market value at the time of its
transfer.
``(2) Special rule.--If by reason of an adjustment under
section 482 or otherwise, a contribution described in subsection
(a)(1) is deemed to have been made, such contribution shall be
treated for purposes of this section as having been made not
earlier than the date specified by the Secretary.''.
(c) Modification of Penalty Applicable to Foreign Corporations and
Partnerships.--
(1) In general.--Paragraph (1) of section 6038B(b) is
amended by striking ``equal to'' and all that follows and
inserting ``equal to 10 percent of the fair market value of the
property at the time of the exchange (and, in the case of a
contribution described in subsection (a)(1)(B), such person
shall recognize gain as if the contributed property had been
sold for such value at the time of such contribution).''.
(2) Limit on penalty.--Section 6038B(b) is amended by adding
at the end the following new paragraph:
``(3) Limit on penalty.--The penalty under paragraph (1)
with respect to any exchange shall not exceed $100,000 unless
the failure with respect to such exchange was due to intentional
disregard.''.
(d) <<NOTE: 26 USC 6038B note.>> Effective Date.--
(1) In general.--The amendments made by this section shall
apply to transfers made after the date of the enactment of this
Act.
(2) Election of retroactive effect.--Section 1494(c) of the
Internal Revenue Code of 1986 shall not apply to any transfer
after August 20, 1996, if all applicable reporting requirements
under section 6038B of such Code (as amended by this section)
are satisfied. The Secretary of the Treasury or his delegate may
prescribe simplified reporting requirements under the preceding
sentence.
SEC. 1145. EXTENSION OF STATUTE OF LIMITATIONS FOR FOREIGN TRANSFERS.
(a) In General.--Paragraph (8) of section 6501(c) (relating to
failure to notify Secretary under section 6038B) is amended to read as
follows:
``(8) Failure to notify secretary of certain foreign
transfers.--In the case of any information which is required to
be reported to the Secretary under section 6038, 6038A, 6038B,
6046, 6046A, or 6048, the time for assessment of any tax imposed
by this title with respect to any event or period to which such
information relates shall not expire before the date which is 3
years after the date on which the Secretary is furnished the
information required to be reported under such section.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to information the due date for the reporting of which is after
the date of the enactment of this Act.
[[Page 111 STAT. 986]]
SEC. 1146. INCREASE IN FILING THRESHOLDS FOR RETURNS AS TO ORGANIZATION
OF FOREIGN CORPORATIONS AND ACQUISITIONS OF STOCK IN SUCH
CORPORATIONS.
(a) In General.--Subsection (a) of section 6046 (relating to returns
as to organization or reorganization of foreign corporations and as to
acquisitions of their stock) is amended to read as follows:
``(a) Requirement of return.--
``(1) In general.--A return complying with the requirements
of subsection (b) shall be made by--
``(A) each United States citizen or resident who
becomes an officer or director of a foreign corporation
if a United States person (as defined in section
7701(a)(30)) meets the stock ownership requirements of
paragraph (2) with respect to such corporation,
``(B) each United States person--
``(i) who acquires stock which, when added to
any stock owned on the date of such acquisition,
meets the stock ownership requirements of
paragraph (2) with respect to a foreign
corporation, or
``(ii) who acquires stock which, without
regard to stock owned on the date of such
acquisition, meets the stock ownership
requirements of paragraph (2) with respect to a
foreign corporation,
``(C) each person (not described in subparagraph
(B)) who is treated as a United States shareholder under
section 953(c) with respect to a foreign corporation,
and
``(D) each person who becomes a United States person
while meeting the stock ownership requirements of
paragraph (2) with respect to stock of a foreign
corporation.
In the case of a foreign corporation with respect to which any
person is treated as a United States shareholder under section
953(c), subparagraph (A) shall be treated as including a
reference to each United States person who is an officer or
director of such corporation.
``(2) Stock ownership requirements.--A person meets the
stock ownership requirements of this paragraph with respect to
any corporation if such person owns 10 percent or more of--
``(A) the total combined voting power of all classes
of stock of such corporation entitled to vote, or
``(B) the total value of the stock of such
corporation.''.
(b) <<NOTE: 26 USC 6046 note.>> Effective Date.--The amendment made
by this section shall take effect on January 1, 1998.
Subtitle F--Determination of Foreign or Domestic Status of Partnerships
SEC. 1151. DETERMINATION OF FOREIGN OR DOMESTIC STATUS OF PARTNERSHIPS.
(a) In General.--Paragraph (4) of section 7701(a) is amended by
inserting before the period ``unless, in the case of a partnership, the
Secretary provides otherwise by regulations''.
(b) <<NOTE: 26 USC 7701 note.>> Effective Date.--Any regulations
issued with respect to the amendment made by subsection (a) shall apply
to partnerships created or organized after the date determined under
section 7805(b)
[[Page 111 STAT. 987]]
of the Internal Revenue Code of 1986 (without regard to paragraph (2)
thereof) with respect to such regulations.
Subtitle G--Other Simplification Provisions
SEC. 1161. TRANSITION RULE FOR CERTAIN TRUSTS.
(a) In General.--Paragraph (3) of section 1907(a) of the Small
Business Job Protection Act of 1996 <<NOTE: 26 USC 7701 note.>> is
amended by adding at the end the following flush sentence:
``To the extent prescribed in regulations by the Secretary of
the Treasury or his delegate, a trust which was in existence on
August 20, 1996 (other than a trust treated as owned by the
grantor under subpart E of part I of subchapter J of chapter 1
of the Internal Revenue Code of 1986), and which was treated as
a United States person on the day before the date of the
enactment of this Act may elect to continue to be treated as a
United States person notwithstanding section 7701(a)(30)(E) of
such Code.''.
(b) <<NOTE: 26 USC 7701 note.>> Effective Date.--The amendment made
by subsection (a) shall take effect as if included in the amendments
made by section 1907(a) of the Small Business Job Protection Act of
1996.
SEC. 1162. REPEAL OF STOCK AND SECURITIES SAFE HARBOR REQUIREMENT THAT
PRINCIPAL OFFICE BE OUTSIDE THE UNITED STATES.
(a) In General.--The last sentence of clause (ii) of section
864(b)(2)(A) (relating to stock or securities) is amended by striking
``, or in the case of a corporation'' and all that follows and inserting
a period.
(b) <<NOTE: 26 USC 864 note.>> Effective Date.--The amendment made
by subsection (a) shall apply to taxable years beginning after December
31, 1997.
SEC. 1163. MISCELLANEOUS CLARIFICATIONS.
(a) Attribution of Deemed Paid Foreign Taxes to Prior
Distributions.--Subparagraph (B) of section 902(c)(2) is amended by
striking ``deemed paid with respect to'' and inserting ``attributable
to''.
(b) Financial Services Income Determined Without Regard to High-
Taxed Income.--Subclause (II) of section 904(d)(2)(C)(i) is amended by
striking ``subclause (I)'' and inserting ``subclauses (I) and (III)''.
(c) <<NOTE: 26 USC 902 note.>> Effective Date.--The amendments made
by this section shall take effect on the date of the enactment of this
Act.
Subtitle H--Other Provisions
SEC. 1171. TREATMENT OF COMPUTER SOFTWARE AS FSC EXPORT PROPERTY.
(a) In General.--Subparagraph (B) of section 927(a)(2) (relating to
property excluded from eligibility as FSC export property) is amended by
inserting ``, and other than computer software (whether or not
patented)'' before ``, for commercial or home use''.
[[Page 111 STAT. 988]]
<<NOTE: 26 USC 927 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall apply to gross receipts attributable to periods
after December 31, 1997, in taxable years ending after such date.
SEC. 1172. ADJUSTMENT OF DOLLAR LIMITATION ON SECTION 911 EXCLUSION.
(a) General Rule.--Paragraph (2) of section 911(b) is amended by--
(1) by striking ``of $70,000'' in subparagraph (A) and
inserting ``equal to the exclusion amount for the calendar year
in which such taxable year begins'', and
(2) by adding at the end the following new subparagraph:
``(D) Exclusion amount.--
``(i) In general.--The exclusion amount for
any calendar year is the exclusion amount
determined in accordance with the following table
(as adjusted by clause (ii)):
``For calendar year-- The exclusion.............................
amount is--...............................
1998 $72,000
1999 74,000
2000 76,000
2001 78,000
2002 and thereafter 80,000.
``(ii) Inflation adjustment.--In the case of
any taxable year beginning in a calendar year
after 2007, the $80,000 amount in clause (i) shall
be increased by an amount equal to the product
of--
``(I) such dollar amount, and
``(II) the cost-of-living adjustment
determined under section 1(f)(3) for the
calendar year in which the taxable year
begins, determined by substituting
`2006' for `1992' in subparagraph (B)
thereof.
If any increase determined under the preceding
sentence is not a multiple of $100, such increase
shall be rounded to the next lowest multiple of
$100.''.
<<NOTE: 26 USC 911 note.>> (b) Effective Date.--The amendment made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 1173. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN ASSETS ACQUIRED
BY DEALERS IN ORDINARY COURSE OF TRADE OR BUSINESS.
(a) In General.--Section 956(c)(2) is amended by striking ``and'' at
the end of subparagraph (H), by striking the period at the end of
subparagraph (I) and inserting a semicolon, and by adding at the end the
following new subparagraphs:
``(J) deposits of cash or securities made or
received on commercial terms in the ordinary course of a
United States or foreign person's business as a dealer
in securities or in commodities, but only to the extent
such deposits are made or received as collateral or
margin for (i) a securities loan, notional principal
contract, options contract, forward contract, or futures
contract, or (ii) any other financial transaction in
which the Secretary determines that it is customary to
post collateral or margin; and
``(K) an obligation of a United States person to the
extent the principal amount of the obligation does not
[[Page 111 STAT. 989]]
exceed the fair market value of readily marketable
securities sold or purchased pursuant to a sale and
repurchase agreement or otherwise posted or received as
collateral for the obligation in the ordinary course of
its business by a United States or foreign person which
is a dealer in securities or commodities.
For purposes of subparagraphs (J) and (K), the term `dealer in
securities' has the meaning given such term by section
475(c)(1), and the term `dealer in commodities' has the meaning
given such term by section 475(e), except that such term shall
include a futures commission merchant.''.
<<NOTE: 26 USC 956 note.>> (b) Effective Date.--The amendments made
by this section shall apply to taxable years of foreign corporations
beginning after December 31, 1997, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.
SEC. 1174. TREATMENT OF NONRESIDENT ALIENS ENGAGED IN INTERNATIONAL
TRANSPORTATION SERVICES.
(a) Sourcing Rules.--
(1) In general.--Section 861(a)(3) is amended by adding at
the end the following new flush sentence:
``In addition, except for purposes of sections 79 and 105 and
subchapter D, compensation for labor or services performed in
the United States shall not be deemed to be income from sources
within the United States if the labor or services are performed
by a nonresident alien individual in connection with the
individual's temporary presence in the United States as a
regular member of the crew of a foreign vessel engaged in
transportation between the United States and a foreign country
or a possession of the United States.''.
(2) Transportation income.--Subparagraph (B) of section
863(c)(2) is amended by adding at the end the following flush
sentence:
``In the case of transportation income derived from, or
in connection with, a vessel, this subparagraph shall
only apply if the taxpayer is a citizen or resident
alien.''.
(b) Presence in United States.--
(1) In general.--Paragraph (7) of section 7701(b) is amended
by adding at the end the following new subparagraph:
``(D) Crew members temporarily present.--An
individual who is temporarily present in the United
States on any day as a regular member of the crew of a
foreign vessel engaged in transportation between the
United States and a foreign country or a possession of
the United States shall not be treated as present in the
United States on such day unless such individual
otherwise engages in any trade or business in the United
States on such day.''.
(2) Conforming amendment.--Subparagraph (A) of section
7701(b)(7) is amended by striking ``or (C)'' and inserting ``,
(C), or (D)''.
<<NOTE: 26 USC 7701 note.>> (c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to remuneration for services performed in taxable years
beginning after December 31, 1997.
(2) Presence.--The amendment made by subsection (b) shall
apply to taxable years beginning after December 31, 1997.
[[Page 111 STAT. 990]]
SEC. 1175. EXEMPTION FOR ACTIVE FINANCING INCOME.
(a) Exemption From Foreign Personal Holding Company Income.--Section
954 is amended by adding at the end the following new subsection:
``(h) Special Rule for Income Derived in the Active Conduct of
Banking, Financing, or Similar Businesses.--
``(1) In general.--For purposes of subsection (c)(1),
foreign personal holding company income shall not include income
which is--
``(A) derived in the active conduct by a controlled
foreign corporation of a banking, financing, or similar
business, but only if the corporation is predominantly
engaged in the active conduct of such business,
``(B) received from a person other than a related
person (within the meaning of subsection (d)(3)) and
derived from the investments made by a qualifying
insurance company of its reserves or of 80 percent of
its unearned premiums (as both are determined in the
manner prescribed under paragraph (4)), or
``(C) received from a person other than a related
person (within the meaning of subsection (d)(3)) and
derived from investments made by a qualifying insurance
company of an amount of its assets equal to--
``(i) in the case of contracts regulated in
the country in which sold as property, casualty,
or health insurance contracts, one-third of its
premiums earned on such insurance contracts during
the taxable year (as defined in section
832(b)(4)), and
``(ii) in the case of contracts regulated in
the country in which sold as life insurance or
annuity contracts, the greater of--
``(I) 10 percent of the reserves
described in subparagraph (B) for such
contracts, or
``(II) in the case of a qualifying
insurance company which is a start-up
company, $10,000,000.
``(2) Principles for determining applicable income.--
``(A) Banking and financing income.--The
determination as to whether income is described in
paragraph (1)(A) shall be made--
``(i) except as provided in clause (ii), in
accordance with the applicable principles of
section 904(d)(2)(C)(ii), except that such income
shall include income from all leases entered into
in the ordinary course of the active conduct of a
banking, financing, or similar business, and
``(ii) in the case of a corporation described
in paragraph (3)(B), in accordance with the
applicable principles of section 1296(b) (as in
effect on the day before the enactment of the
Taxpayer Relief Act of 1997) for determining what
is not passive income.
``(B) Insurance income.--Under rules prescribed by
the Secretary, for purposes of paragraphs (1) (B) and
(C)--
``(i) in the case of contracts which are
separate account-type contracts (including
variable contracts not meeting the requirements of
section 817), only income specifically allocable
to such contracts shall be taken into account, and
[[Page 111 STAT. 991]]
``(ii) in the case of other contracts, income
not allocable under clause (i) shall be allocated
ratably among such contracts.
<<NOTE: Regulations.>> ``(C) Look-thru rules.--The
Secretary shall prescribe regulations consistent with
the principles of section 904(d)(3) which provide that
dividends, interest, income equivalent to interest,
rents, or royalties received or accrued from a related
person (within the meaning of subsection (d)(3)) shall
be subject to look-thru treatment for purposes of this
subsection.
``(3) Predominantly engaged.--For purposes of paragraph
(1)(A), a corporation shall be deemed predominantly engaged in
the active conduct of a banking, financing, or similar business
only if--
``(A) more than 70 percent of its gross income is
derived from such business from transactions with
persons which are not related persons (as defined in
subsection (d)(3)) and which are located within the
country under the laws of which the controlled foreign
corporation is created or organized, or
``(B) the corporation is--
``(i) engaged in the active conduct of a
banking or securities business (within the meaning
of section 1296(b), as in effect before the
enactment of the Taxpayer Relief Act of 1997), or
``(ii) a qualified bank affiliate or a
qualified securities affiliate (within the meaning
of the proposed regulations under such section
1296(b)).
``(4) Methods for determining unearned premiums and
reserves.--For purposes of paragraph (1)(B)--
``(A) Property and casualty contracts.--The unearned
premiums and reserves of a qualifying insurance company
with respect to property, casualty, or health insurance
contracts shall be determined using the same methods and
interest rates which would be used if such company were
subject to tax under subchapter L.
``(B) Life insurance and annuity contracts.--The
reserves of a qualifying insurance company with respect
to life insurance or annuity contracts shall be
determined under the method described in paragraph (5)
which such company elects to apply for purposes of this
paragraph. Such election shall be made at such time and
in such manner as the Secretary may prescribe and, once
made, shall be irrevocable without the consent of the
Secretary.
``(C) Limitation on reserves.--In no event shall the
reserve determined under this paragraph for any contract
as of any time exceed the amount which would be taken
into account with respect to such contract as of such
time in determining foreign annual statement reserves
(less any catastrophe or deficiency reserves).
``(5) Methods.--The methods described in this paragraph are
as follows:
``(A) U.S. method.--The method which would apply if
the qualifying insurance company were subject to tax
under subchapter L, except that the interest rate used
shall be an interest rate determined for the foreign
country in which such company is created or organized
and which
[[Page 111 STAT. 992]]
is calculated in the same manner as the Federal mid-term
rate under section 1274(d).
``(B) Foreign method.--A preliminary term method,
except that the interest rate used shall be the interest
rate determined for the foreign country in which such
company is created or organized and which is calculated
in the same manner as the Federal mid-term rate under
section 1274(d). If a qualifying insurance company uses
such a preliminary term method with respect to contracts
insuring risks located in such foreign country, such
method shall apply if such company elects the method
under this clause.
``(C) Cash surrender value.--A method under which
reserves are equal to the net surrender value (as
defined in section 807(e)(1)(A)) of the contract.
``(6) Definitions.--For purposes of this subsection--
``(A) Terms relating to insurance companies.--
``(i) Qualifying insurance company.--The term
`qualifying insurance company' means any entity
which--
``(I) is subject to regulation as an
insurance company under the laws of its
country of incorporation,
``(II) realizes at least 50 percent
of its net written premiums from the
insurance or reinsurance of risks
located within the country in which such
entity is created or organized, and
``(III) is engaged in the active
conduct of an insurance business and
would be subject to tax under subchapter
L if it were a domestic corporation.
``(ii) Start-up company.--A qualifying
insurance company shall be treated as a start-up
company if such company (and any predecessor) has
not been engaged in the active conduct of an
insurance business for more than 5 years as of the
beginning of the taxable year of such company.
``(B) Located.--For purposes of paragraph (3)(A)--
``(i) In general.--A person shall be treated
as located--
``(I) except as provided in
subclause (II), within the country in
which it maintains an office or other
fixed place of business through which it
engages in a trade or business and by
which the transaction is effected, or
``(II) in the case of a natural
person, within the country in which such
person is physically located when such
person enters into a transaction.
``(ii) Special rule for qualified business
units.--Gross income derived by a corporation's
qualified business unit (within the meaning of
section 989(a)) from transactions with persons
which are not related persons (as defined in
subsection (d)(3)) and which are located in the
country in which the qualified business unit both
maintains its principal office and conducts
substantial business activity shall be treated as
derived from transactions with persons which are
[[Page 111 STAT. 993]]
not related persons (as defined in subsection
(d)(3)) and which are located within the country
under the laws of which the controlled foreign
corporation is created or organized.
``(7) Anti-abuse rules.--For purposes of applying this
subsection, there shall be disregarded any item of income, gain,
loss, or deduction with respect to any transaction or series of
transactions one of the principal purposes of which is
qualifying income or gain for the exclusion under this section,
including any change in the method of computing reserves or any
other transaction or series of transactions a principal purpose
of which is the acceleration or deferral of any item in order to
claim the benefits of such exclusion through the application of
this subsection.
``(8) Coordination with section 953.--This subsection shall
not apply to investment income allocable to contracts that
insure related party risks or risks located in a foreign country
other than the country in which the qualifying insurance comapny
is created or organized.
``(9) Application.--This subsection shall apply to the first
full taxable year of a foreign corporation beginning after
December 31, 1997, and before January 1, 1999, and to taxable
years of United States shareholders with or within which such
taxable year of such foreign corporation ends.''.
(b) Exemption From Foreign Base Company Services Income.--Paragraph
(2) of section 954(e) 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 adding at the end the following:
``(C) in the case of taxable years described in
subsection (h)(8), the active conduct by a controlled
foreign corporation of a banking, financing, insurance,
or similar business, but only if the corporation is
predominantly engaged in the active conduct of such
business (within the meaning of subsection (h)(3)) or is
a qualifying insurance company.''.
<<NOTE: 26 USC 954 note.>> (c) Effective Date.--The amendments made
by this section shall apply to the first full taxable year of a foreign
corporation beginning after December 31, 1997, and before January 1,
1999, and to taxable years of United States shareholders with or within
which such taxable year of such foreign corporation ends.
TITLE XII--SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND
BUSINESSES
Subtitle A--Provisions Relating to Individuals
SEC. 1201. BASIC STANDARD DEDUCTION AND MINIMUM TAX EXEMPTION AMOUNT FOR
CERTAIN DEPENDENTS.
(a) Basic Standard Deduction.--
(1) In general.--Paragraph (5) of section 63(c) (relating to
limitation on basic standard deduction in the case of certain
dependents) is amended by striking ``shall not exceed'' and
[[Page 111 STAT. 994]]
all that follows and inserting ``shall not exceed the greater
of--
``(A) $500, or
``(B) the sum of $250 and such individual's earned
income.''.
(2) Conforming amendment.--Paragraph (4) of section 63(c) is
amended--
(A) by striking ``(5)(A)'' in the material preceding
subparagraph (A) and inserting ``(5)'', and
(B) by striking ``by substituting'' and all that
follows in subparagraph (B) and inserting ``by
substituting for `calendar year 1992' in subparagraph
(B) thereof--
``(i) `calendar year 1987' in the case of the
dollar amounts contained in paragraph (2) or
(5)(A) or subsection (f), and
``(ii) `calendar year 1997' in the case of the
dollar amount contained in paragraph (5)(B).''.
(b) Minimum Tax Exemption Amount.--
(1) In general.--Subsection (j) of section 59 is amended to
read as follows:
``(j) Treatment of Unearned Income of Minor Children.--
``(1) In general.--In the case of a child to whom section
1(g) applies, the exemption amount for purposes of section 55
shall not exceed the sum of--
``(A) such child's earned income (as defined in
section 911(d)(2)) for the taxable year, plus
``(B) $5,000.
``(2) Inflation adjustment.--In the case of any taxable year
beginning in a calendar year after 1998, the dollar amount in
paragraph (1)(B) shall be increased by an amount equal to the
product of--
``(A) such dollar amount, and
``(B) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which the
taxable year begins, determined by substituting `1997'
for `1992' in subparagraph (B) thereof.
If any increase determined under the preceding sentence is not a
multiple of $50, such increase shall be rounded to the nearest
multiple of $50.''.
(2) Conforming amendment.--Clause (iv) of section
6103(e)(1)(A) is amended by striking ``or 59(j)''.
<<NOTE: 26 USC 59 note.>> (c) Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 1202. INCREASE IN AMOUNT OF TAX EXEMPT FROM ESTIMATED TAX
REQUIREMENTS.
(a) In General.--Paragraph (1) of section 6654(e) (relating to
exception where tax is small amount) is amended by striking ``$500'' and
inserting ``$1,000''.
<<NOTE: 26 USC 6654 note.>> (b) Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 1203. TREATMENT OF CERTAIN REIMBURSED EXPENSES OF RURAL MAIL
CARRIERS.
(a) In General.--Section 162 (relating to trade or business
expenses) is amended by redesignating subsection (o) as subsection (p)
and by inserting after subsection (n) the following new subsection:
[[Page 111 STAT. 995]]
``(o) Treatment of Certain Reimbursed Expenses of Rural Mail
Carriers.--
``(1) General rule.--In the case of any employee of the
United States Postal Service who performs services involving the
collection and delivery of mail on a rural route and who
receives qualified reimbursements for the expenses incurred by
such employee for the use of a vehicle in performing such
services--
``(A) the amount allowable as a deduction under this
chapter for the use of a vehicle in performing such
services shall be equal to the amount of such qualified
reimbursements; and
``(B) such qualified reimbursements shall be treated
as paid under a reimbursement or other expense allowance
arrangement for purposes of section 62(a)(2)(A) (and
section 62(c) shall not apply to such qualified
reimbursements).
``(2) Definition of qualified reimbursements.--For purposes
of this subsection, the term `qualified reimbursements' means
the amounts paid by the United States Postal Service to
employees as an equipment maintenance allowance under the 1991
collective bargaining agreement between the United States Postal
Service and the National Rural Letter Carriers' Association.
Amounts paid as an equipment maintenance allowance by such
Postal Service under later collective bargaining agreements that
supersede the 1991 agreement shall be considered qualified
reimbursements if such amounts do not exceed the amounts that
would have been paid under the 1991 agreement, adjusted for
changes in the Consumer Price Index (as defined in section
1(f)(5)) since 1991.''.
(b) Technical Amendment.--Section 6008 of the Technical and
Miscellaneous Revenue Act of 1988 <<NOTE: 26 USC 162 note.>> is hereby
repealed.
<<NOTE: 26 USC 162 note.>> (c) Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 1204. TREATMENT OF TRAVELING EXPENSES OF CERTAIN FEDERAL EMPLOYEES
ENGAGED IN CRIMINAL INVESTIGATIONS.
(a) In General.--Subsection (a) of section 162 is amended by adding
at the end the following new sentence: ``The preceding sentence shall
not apply to any Federal employee during any period for which such
employee is certified by the Attorney General (or the designee thereof)
as traveling on behalf of the United States in temporary duty status to
investigate, or provide support services for the investigation of, a
Federal crime.''.
<<NOTE: 26 USC 162 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall apply to amounts paid or incurred with respect
to taxable years ending after the date of the enactment of this Act.
SEC. 1205. PAYMENT OF TAX BY COMMERCIALLY ACCEPTABLE MEANS.
(a) General Rule.--Section 6311 is amended to read as follows:
``SEC. 6311. PAYMENT OF TAX BY COMMERCIALLY ACCEPTABLE MEANS.
``(a) Authority To Receive.--It shall be lawful for the Secretary to
receive for internal revenue taxes (or in payment for internal revenue
stamps) any commercially acceptable means that the Secretary deems
appropriate to the extent and under the conditions provided in
regulations prescribed by the Secretary.
[[Page 111 STAT. 996]]
``(b) Ultimate Liability.--If a check, money order, or other method
of payment, including payment by credit card, debit card, or charge card
so received is not duly paid, or is paid and subsequently charged back
to the Secretary, the person by whom such check, or money order, or
other method of payment has been tendered shall remain liable for the
payment of the tax or for the stamps, and for all legal penalties and
additions, to the same extent as if such check, money order, or other
method of payment had not been tendered.
``(c) Liability of Banks and Others.--If any certified, treasurer's,
or cashier's check (or other guaranteed draft), or any money order, or
any other means of payment that has been guaranteed by a financial
institution (such as a credit card, debit card, or charge card
transaction which has been guaranteed expressly by a financial
institution) so received is not duly paid, the United States shall, in
addition to its right to exact payment from the party originally
indebted therefor, have a lien for--
``(1) the amount of such check (or draft) upon all assets of
the financial institution on which drawn,
``(2) the amount of such money order upon all the assets of
the issuer thereof, or
``(3) the guaranteed amount of any other transaction upon
all the assets of the institution making such guarantee,
and such amount shall be paid out of such assets in preference to any
other claims whatsoever against such financial institution, issuer, or
guaranteeing institution, except the necessary costs and expenses of
administration and the reimbursement of the United States for the amount
expended in the redemption of the circulating notes of such financial
institution.
``(d) Payment by Other Means.--
``(1) Authority to prescribe regulations.--The Secretary
shall prescribe such regulations as the Secretary deems
necessary to receive payment by commercially acceptable means,
including regulations that--
``(A) specify which methods of payment by
commercially acceptable means will be acceptable,
``(B) specify when payment by such means will be
considered received,
``(C) identify types of nontax matters related to
payment by such means that are to be resolved by persons
ultimately liable for payment and financial
intermediaries, without the involvement of the
Secretary, and
``(D) ensure that tax matters will be resolved by
the Secretary, without the involvement of financial
intermediaries.
``(2) Authority to enter into contracts.--Notwithstanding
section 3718(f) of title 31, United States Code, the Secretary
is authorized to enter into contracts to obtain services related
to receiving payment by other means where cost beneficial to the
Government. The Secretary may not pay any fee or provide any
other consideration under such contracts.
``(3) Special provisions for use of credit cards.--If use of
credit cards is accepted as a method of payment of taxes
pursuant to subsection (a)--
``(A) a payment of internal revenue taxes (or a
payment for internal revenue stamps) by a person by use
of a credit card shall not be subject to section 161 of
the Truth in
[[Page 111 STAT. 997]]
Lending Act (15 U.S.C. 1666), or to any similar
provisions of State law, if the error alleged by the
person is an error relating to the underlying tax
liability, rather than an error relating to the credit
card account such as a computational error or numerical
transposition in the credit card transaction or an issue
as to whether the person authorized payment by use of
the credit card,
``(B) a payment of internal revenue taxes (or a
payment for internal revenue stamps) shall not be
subject to section 170 of the Truth in Lending Act (15
U.S.C. 1666i), or to any similar provisions of State
law,
``(C) a payment of internal revenue taxes (or a
payment for internal revenue stamps) by a person by use
of a debit card shall not be subject to section 908 of
the Electronic Fund Transfer Act (15 U.S.C. 1693f), or
to any similar provisions of State law, if the error
alleged by the person is an error relating to the
underlying tax liability, rather than an error relating
to the debit card account such as a computational error
or numerical transposition in the debit card transaction
or an issue as to whether the person authorized payment
by use of the debit card,
``(D) the term `creditor' under section 103(f) of
the Truth in Lending Act (15 U.S.C. 1602(f)) shall not
include the Secretary with respect to credit card
transactions in payment of internal revenue taxes (or
payment for internal revenue stamps), and
``(E) notwithstanding any other provision of law to
the contrary, in the case of payment made by credit card
or debit card transaction of an amount owed to a person
as the result of the correction of an error under
section 161 of the Truth in Lending Act (15 U.S.C. 1666)
or section 908 of the Electronic Fund Transfer Act (15
U.S.C. 1693f), the Secretary is authorized to provide
such amount to such person as a credit to that person's
credit card or debit card account through the applicable
credit card or debit card system.
``(e) Confidentiality of Information.--
``(1) In general.--Except as otherwise authorized by this
subsection, no person may use or disclose any information
relating to credit or debit card transactions obtained pursuant
to section 6103(k)(8) other than for purposes directly related
to the processing of such transactions, or the billing or
collection of amounts charged or debited pursuant thereto.
``(2) Exceptions.--
``(A) Debit or credit card issuers or others acting
on behalf of such issuers may also use and disclose such
information for purposes directly related to servicing
an issuer's accounts.
``(B) Debit or credit card issuers or others
directly involved in the processing of credit or debit
card transactions or the billing or collection of
amounts charged or debited thereto may also use and
disclose such information for purposes directly related
to--
``(i) statistical risk and profitability
assessment;
``(ii) transferring receivables, accounts, or
interest therein;
``(iii) auditing the account information;
[[Page 111 STAT. 998]]
``(iv) complying with Federal, State, or local
law; and
``(v) properly authorized civil, criminal, or
regulatory investigation by Federal, State, or
local authorities.
``(3) Procedures.--Use and disclosure of information under
this paragraph shall be made only to the extent authorized by
written procedures promulgated by the Secretary.
``(4) Cross reference.--
``For provision providing for civil damages for
violation of paragraph (1), see section 7431.''.
(b) Clerical Amendment.--The table of sections for subchapter B of
chapter 64 is amended by striking the item relating to section 6311 and
inserting the following:
``Sec. 6311. Payment of tax by commercially acceptable
means.''.
(c) Amendments to Sections 6103 and 7431 With Respect to Disclosure
Authorization.--
(1) Subsection (k) of section 6103 (relating to
confidentiality and disclosure of returns and return
information) is amended by adding at the end the following new
paragraph:
``(8) Disclosure of information to administer section
6311.--The Secretary may disclose returns or return information
to financial institutions and others to the extent the Secretary
deems necessary for the administration of section 6311.
Disclosures of information for purposes other than to accept
payments by checks or money orders shall be made only to the
extent authorized by written procedures promulgated by the
Secretary.''.
(2) Section 7431 (relating to civil damages for unauthorized
disclosure of returns and return information) is amended by
adding at the end the following new subsection:
``(g) Special Rule for Information Obtained Under Section
6103(k)(8).--For purposes of this section, any reference to section 6103
shall be treated as including a reference to section 6311(e).''.
(3) Section 6103(p)(3)(A) is amended by striking ``or (6)''
and inserting ``(6), or (8)''.
<<NOTE: 26 USC 6103 note.>> (d) Effective Date.--The amendments made
by this section shall take effect on the day 9 months after the date of
the enactment of this Act.
Subtitle B--Provisions Relating to Businesses Generally
SEC. 1211. MODIFICATIONS TO LOOK-BACK METHOD FOR LONG-TERM CONTRACTS.
(a) Look-Back Method Not To Apply in Certain Cases.--Subsection (b)
of section 460 (relating to percentage of completion method) is amended
by adding at the end the following new paragraph:
``(6) Election to have look-back method not apply in de
minimis cases.--
``(A) Amounts taken into account after completion of
contract.--Paragraph (1)(B) shall not apply with respect
to any taxable year (beginning after the taxable year in
which the contract is completed) if--
[[Page 111 STAT. 999]]
``(i) the cumulative taxable income (or loss)
under the contract as of the close of such taxable
year, is within
``(ii) 10 percent of the cumulative look-back
taxable income (or loss) under the contract as of
the close of the most recent taxable year to which
paragraph (1)(B) applied (or would have applied
but for subparagraph (B)).
``(B) De minimis discrepancies.--Paragraph (1)(B)
shall not apply in any case to which it would otherwise
apply if--
``(i) the cumulative taxable income (or loss)
under the contract as of the close of each prior
contract year, is within
``(ii) 10 percent of the cumulative look-back
income (or loss) under the contract as of the
close of such prior contract year.
``(C) Definitions.--For purposes of this paragraph--
``(i) Contract year.--The term `contract year'
means any taxable year for which income is taken
into account under the contract.
``(ii) Look-back income or loss.--The look-
back income (or loss) is the amount which would be
the taxable income (or loss) under the contract if
the allocation method set forth in paragraph
(2)(A) were used in determining taxable income.
``(iii) Discounting not applicable.--The
amounts taken into account after the completion of
the contract shall be determined without regard to
any discounting under the 2nd sentence of
paragraph (2).
``(D) Contracts to which paragraph applies.--This
paragraph shall only apply if the taxpayer makes an
election under this subparagraph. Unless revoked with
the consent of the Secretary, such an election shall
apply to all long-term contracts completed during the
taxable year for which election is made or during any
subsequent taxable year.''.
(b) Modification of Interest Rate.--
(1) In general.--Subparagraph (C) of section 460(b)(2) is
amended by striking ``the overpayment rate established by
section 6621'' and inserting ``the adjusted overpayment rate (as
defined in paragraph (7))''.
(2) Adjusted overpayment rate.--Subsection (b) of section
460 is amended by adding at the end the following new paragraph:
``(7) Adjusted overpayment rate.--
``(A) In general.--The adjusted overpayment rate for
any interest accrual period is the overpayment rate in
effect under section 6621 for the calendar quarter in
which such interest accrual period begins.
``(B) Interest accrual period.--For purposes of
subparagraph (A), the term `interest accrual period'
means the period--
``(i) beginning on the day after the return
due date for any taxable year of the taxpayer, and
``(ii) ending on the return due date for the
following taxable year.
[[Page 111 STAT. 1000]]
For purposes of the preceding sentence, the term `return
due date' means the date prescribed for filing the
return of the tax imposed by this chapter (determined
without regard to extensions).''.
<<NOTE: 26 USC 460 note.>> (c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to contracts
completed in taxable years ending after the date of the
enactment of this Act.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply for purposes of section 167(g) of the Internal
Revenue Code of 1986 to property placed in service after
September 13, 1995.
SEC. 1212. MINIMUM TAX TREATMENT OF CERTAIN PROPERTY AND CASUALTY
INSURANCE COMPANIES.
(a) In General.--Clause (i) of section 56(g)(4)(B) (relating to
inclusion of items included for purposes of computing earnings and
profits) is amended by adding at the end the following new sentence:
``In the case of any insurance company taxable under section 831(b),
this clause shall not apply to any amount not described in section
834(b).''.
<<NOTE: 26 USC 56 note.>> (b) Effective Date.--The amendment made by
subsection (a) shall apply to taxable years beginning after December 31,
1997.
SEC. 1213. QUALIFIED LESSEE CONSTRUCTION ALLOWANCES FOR SHORT-TERM
LEASES.
(a) In General.--Part III of subchapter B of chapter 1 is amended by
inserting after section 109 the following new section:
``SEC. 110. QUALIFIED LESSEE CONSTRUCTION ALLOWANCES FOR SHORT-TERM
LEASES.
``(a) In General.--Gross income of a lessee does not include any
amount received in cash (or treated as a rent reduction) by a lessee
from a lessor--
``(1) under a short-term lease of retail space, and
``(2) for the purpose of such lessee's constructing or
improving qualified long-term real property for use in such
lessee's trade or business at such retail space,
but only to the extent that such amount does not exceed the amount
expended by the lessee for such construction or improvement.
``(b) Consistent Treatment by Lessor.--Qualified long-term real
property constructed or improved in connection with any amount excluded
from a lessee's income by reason of subsection (a) shall be treated as
nonresidential real property of the lessor (including for purposes of
section 168(i)(8)(B)).
``(c) Definitions.--For purposes of this section--
``(1) Qualified long-term real property.--The term
`qualified long-term real property' means nonresidential real
property which is part of, or otherwise present at, the retail
space referred to in subsection (a) and which reverts to the
lessor at the termination of the lease.
``(2) Short-term lease.--The term `short-term lease' means a
lease (or other agreement for occupancy or use) of retail space
for 15 years or less (as determined under the rules of section
168(i)(3)).
[[Page 111 STAT. 1001]]
``(3) Retail space.--The term `retail space' means real
property leased, occupied, or otherwise used by a lessee in its
trade or business of selling tangible personal property or
services to the general public.
<<NOTE: Regulations.>> ``(d) Information Required To Be Furnished to
Secretary.--Under regulations, the lessee and lessor described in
subsection (a) shall, at such times and in such manner as may be
provided in such regulations, furnish to the Secretary--
``(1) information concerning the amounts received (or
treated as a rent reduction) and expended as described in
subsection (a), and
``(2) any other information which the Secretary deems
necessary to carry out the provisions of this section.''.
(b) Treatment as Information Return.--Subparagraph (A) of section
6724(d)(1)(A) is amended by striking ``or'' at the end of clause (vii),
by adding ``or'' at the end of clause (viii), and by adding at the end
the following new clause:
``(ix) section 110(d) (relating to qualified
lessee construction allowances for short-term
leases),''.
(c) Cross Reference.--Paragraph (8) of section 168(i) (relating to
treatment of leasehold improvements) is amended by adding at the end the
following new subparagraph:
``(C) Cross reference.--
``For treatment of qualified long-term real property
constructed or improved in connection with cash or rent
reduction from lessor to lessee, see section 110(b).''.
(d) Clerical Amendment.--The table of sections for part III of
subchapter B of chapter 1 is amended by inserting after the item
relating to section 109 the following new item:
``Sec. 110. Qualified lessee construction allowances for
short-term leases.''.
<<NOTE: 26 USC 110 note.>> (e) Effective Date.--The amendments made
by this section shall apply to leases entered into after the date of the
enactment of this Act.
Subtitle C--Simplification Relating to Electing Large Partnerships
PART I--GENERAL PROVISIONS
SEC. 1221. SIMPLIFIED FLOW-THROUGH FOR ELECTING LARGE PARTNERSHIPS.
(a) General Rule.--Subchapter K (relating to partners and
partnerships) is amended by adding at the end the following new part:
``PART IV--SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
``Sec. 771. Application of subchapter to electing large
partnerships.
``Sec. 772. Simplified flow-through.
``Sec. 773. Computations at partnership level.
``Sec. 774. Other modifications.
``Sec. 775. Electing large partnership defined.
``Sec. 776. Special rules for partnerships holding oil
and gas properties.
``Sec. 777. Regulations.
[[Page 111 STAT. 1002]]
``SEC. 771. APPLICATION OF SUBCHAPTER TO ELECTING LARGE PARTNERSHIPS.
``The preceding provisions of this subchapter to the extent
inconsistent with the provisions of this part shall not apply to an
electing large partnership and its partners.
``SEC. 772. SIMPLIFIED FLOW-THROUGH.
``(a) General Rule.--In determining the income tax of a partner of
an electing large partnership, such partner shall take into account
separately such partner's distributive share of the partnership's--
``(1) taxable income or loss from passive loss limitation
activities,
``(2) taxable income or loss from other activities,
``(3) net capital gain (or net capital loss)--
``(A) to the extent allocable to passive loss
limitation activities, and
``(B) to the extent allocable to other activities,
``(4) tax-exempt interest,
``(5) applicable net AMT adjustment separately computed
for--
``(A) passive loss limitation activities, and
``(B) other activities,
``(6) general credits,
``(7) low-income housing credit determined under section 42,
``(8) rehabilitation credit determined under section 47,
``(9) foreign income taxes,
``(10) the credit allowable under section 29, and
``(11) other items to the extent that the Secretary
determines that the separate treatment of such items is
appropriate.
``(b) Separate Computations.--In determining the amounts required
under subsection (a) to be separately taken into account by any partner,
this section and section 773 shall be applied separately with respect to
such partner by taking into account such partner's distributive share of
the items of income, gain, loss, deduction, or credit of the
partnership.
<<NOTE: Applicability.>> ``(c) Treatment at Partner Level.--
``(1) In general.--Except as provided in this subsection,
rules similar to the rules of section 702(b) shall apply to any
partner's distributive share of the amounts referred to in
subsection (a).
``(2) Income or loss from passive loss limitation
activities.--For purposes of this chapter, any partner's
distributive share of any income or loss described in subsection
(a)(1) shall be treated as an item of income or loss (as the
case may be) from the conduct of a trade or business which is a
single passive activity (as defined in section 469). A similar
rule shall apply to a partner's distributive share of amounts
referred to in paragraphs (3)(A) and (5)(A) of subsection (a).
``(3) Income or loss from other activities.--
``(A) In general.--For purposes of this chapter, any
partner's distributive share of any income or loss
described in subsection (a)(2) shall be treated as an
item of income or expense (as the case may be) with
respect to property held for investment.
[[Page 111 STAT. 1003]]
``(B) Deductions for loss not subject to section
67.--The deduction under section 212 for any loss
described in subparagraph (A) shall not be treated as a
miscellaneous itemized deduction for purposes of section
67.
``(4) Treatment of net capital gain or loss.--For purposes
of this chapter, any partner's distributive share of any gain or
loss described in subsection (a)(3) shall be treated as a long-
term capital gain or loss, as the case may be.
``(5) Minimum tax treatment.--In determining the alternative
minimum taxable income of any partner, such partner's
distributive share of any applicable net AMT adjustment shall be
taken into account in lieu of making the separate adjustments
provided in sections 56, 57, and 58 with respect to the items of
the partnership. Except as provided in regulations, the
applicable net AMT adjustment shall be treated, for purposes of
section 53, as an adjustment or item of tax preference not
specified in section 53(d)(1)(B)(ii).
``(6) General credits.--A partner's distributive share of
the amount referred to in paragraph (6) of subsection (a) shall
be taken into account as a current year business credit.
``(d) Operating Rules.--For purposes of this section--
``(1) Passive loss limitation activity.--The term `passive
loss limitation activity' means--
``(A) any activity which involves the conduct of a
trade or business, and
``(B) any rental activity.
For purposes of the preceding sentence, the term `trade or
business' includes any activity treated as a trade or business
under paragraph (5) or (6) of section 469(c).
``(2) Tax-exempt interest.--The term `tax-exempt interest'
means interest excludable from gross income under section 103.
``(3) Applicable net amt adjustment.--
``(A) In general.--The applicable net AMT adjustment
is--
``(i) with respect to taxpayers other than
corporations, the net adjustment determined by
using the adjustments applicable to individuals,
and
``(ii) with respect to corporations, the net
adjustment determined by using the adjustments
applicable to corporations.
``(B) Net adjustment.--The term `net adjustment'
means the net adjustment in the items attributable to
passive loss activities or other activities (as the case
may be) which would result if such items were determined
with the adjustments of sections 56, 57, and 58.
``(4) Treatment of certain separately stated items.--
``(A) Exclusion for certain purposes.--In
determining the amounts referred to in paragraphs (1)
and (2) of subsection (a), any net capital gain or net
capital loss (as the case may be), and any item referred
to in subsection (a)(11), shall be excluded.
``(B) Allocation rules.--The net capital gain shall
be treated--
``(i) as allocable to passive loss limitation
activities to the extent the net capital gain does
not exceed the net capital gain determined by only
taking into
[[Page 111 STAT. 1004]]
account gains and losses from sales and exchanges
of property used in connection with such
activities, and
``(ii) as allocable to other activities to the
extent such gain exceeds the amount allocated
under clause (i).
<<NOTE: Applicability.>> A similar rule shall apply for
purposes of allocating any net capital loss.
``(C) Net capital loss.--The term `net capital loss'
means the excess of the losses from sales or exchanges
of capital assets over the gains from sales or exchange
of capital assets.
``(5) General credits.--The term `general credits' means any
credit other than the low-income housing credit, the
rehabilitation credit, the foreign tax credit, and the credit
allowable under section 29.
``(6) Foreign income taxes.--The term `foreign income taxes'
means taxes described in section 901 which are paid or accrued
to foreign countries and to possessions of the United States.
``(e) Special Rule for Unrelated Business Tax.--In the case of a
partner which is an organization subject to tax under section 511, such
partner's distributive share of any items shall be taken into account
separately to the extent necessary to comply with the provisions of
section 512(c)(1).
``(f) Special Rules for Applying Passive Loss Limitations.--If any
person holds an interest in an electing large partnership other than as
a limited partner--
``(1) paragraph (2) of subsection (c) shall not apply to
such partner, and
``(2) such partner's distributive share of the partnership
items allocable to passive loss limitation activities shall be
taken into account separately to the extent necessary to comply
with the provisions of section 469.
The preceding sentence shall not apply to any items allocable to an
interest held as a limited partner.
``SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.
``(a) General Rule.--
``(1) Taxable income.--The taxable income of an electing
large partnership shall be computed in the same manner as in the
case of an individual except that--
``(A) the items described in section 772(a) shall be
separately stated, and
<<NOTE: Applicability.>> ``(B) the modifications of
subsection (b) shall apply.
``(2) Elections.--All elections affecting the computation of
the taxable income of an electing large partnership or the
computation of any credit of an electing large partnership shall
be made by the partnership; except that the election under
section 901, and any election under section 108, shall be made
by each partner separately.
``(3) Limitations, etc.--
``(A) In general.--Except as provided in
subparagraph (B), all limitations and other provisions
affecting the computation of the taxable income of an
electing large partnership or the computation of any
credit of an electing large
[[Page 111 STAT. 1005]]
partnership shall be applied at the partnership level
(and not at the partner level).
``(B) Certain limitations applied at partner
level.--The following provisions shall be applied at the
partner level (and not at the partnership level):
``(i) Section 68 (relating to overall
limitation on itemized deductions).
``(ii) Sections 49 and 465 (relating to at
risk limitations).
``(iii) Section 469 (relating to limitation on
passive activity losses and credits).
``(iv) Any other provision specified in
regulations.
<<NOTE: Applicability.>> ``(4) Coordination with other
provisions.--Paragraphs (2) and (3) shall apply notwithstanding
any other provision of this chapter other than this part.
``(b) Modifications to Determination of Taxable Income.--In
determining the taxable income of an electing large partnership--
``(1) Certain deductions not allowed.--The following
deductions shall not be allowed:
``(A) The deduction for personal exemptions provided
in section 151.
``(B) The net operating loss deduction provided in
section 172.
``(C) The additional itemized deductions for
individuals provided in part VII of subchapter B (other
than section 212 thereof).
``(2) Charitable deductions.--In determining the amount
allowable under section 170, the limitation of section 170(b)(2)
shall apply.
``(3) Coordination with section 67.--In lieu of applying
section 67, 70 percent of the amount of the miscellaneous
itemized deductions shall be disallowed.
``(c) Special Rules for Income From Discharge of Indebtedness.--If
an electing large partnership has income from the discharge of any
indebtedness--
``(1) such income shall be excluded in determining the
amounts referred to in section 772(a), and
``(2) in determining the income tax of any partner of such
partnership--
``(A) such income shall be treated as an item
required to be separately taken into account under
section 772(a), and
``(B) the provisions of section 108 shall be applied
without regard to this part.
``SEC. 774. OTHER MODIFICATIONS.
``(a) Treatment of Certain Optional Adjustments, Etc.--In the case
of an electing large partnership--
``(1) computations under section 773 shall be made without
regard to any adjustment under section 743(b) or 108(b), but
``(2) a partner's distributive share of any amount referred
to in section 772(a) shall be appropriately adjusted to take
into account any adjustment under section 743(b) or 108(b) with
respect to such partner.
``(b) Credit Recapture Determined at Partnership Level.--
``(1) In general.--In the case of an electing large
partnership--
[[Page 111 STAT. 1006]]
``(A) any credit recapture shall be taken into
account by the partnership, and
``(B) the amount of such recapture shall be
determined as if the credit with respect to which the
recapture is made had been fully utilized to reduce tax.
``(2) Method of taking recapture into account.--An electing
large partnership shall take into account a credit recapture by
reducing the amount of the appropriate current year credit to
the extent thereof, and if such recapture exceeds the amount of
such current year credit, the partnership shall be liable to pay
such excess.
``(3) Dispositions not to trigger recapture.--No credit
recapture shall be required by reason of any transfer of an
interest in an electing large partnership.
``(4) Credit recapture.--For purposes of this subsection,
the term `credit recapture' means any increase in tax under
section 42(j) or 50(a).
``(c) Partnership Not Terminated by Reason of Change in Ownership.--
Subparagraph (B) of section 708(b)(1) shall not apply to an electing
large partnership.
``(d) Partnership Entitled to Certain Credits.--The following shall
be allowed to an electing large partnership and shall not be taken into
account by the partners of such partnership:
``(1) The credit provided by section 34.
``(2) Any credit or refund under section 852(b)(3)(D).
``(e) Treatment of REMIC Residuals.--For purposes of applying
section 860E(e)(6) to any electing large partnership--
``(1) all interests in such partnership shall be treated as
held by disqualified organizations,
``(2) in lieu of applying subparagraph (C) of section
860E(e)(6), the amount subject to tax under section 860E(e)(6)
shall be excluded from the gross income of such partnership, and
``(3) subparagraph (D) of section 860E(e)(6) shall not
apply.
``(f) Special Rules for Applying Certain Installment Sale Rules.--In
the case of an electing large partnership--
``(1) the provisions of sections 453(l)(3) and 453A shall be
applied at the partnership level, and
``(2) in determining the amount of interest payable under
such sections, such partnership shall be treated as subject to
tax under this chapter at the highest rate of tax in effect
under section 1 or 11.
``SEC. 775. ELECTING LARGE PARTNERSHIP DEFINED.
``(a) General Rule.--For purposes of this part--
``(1) In general.--The term `electing large partnership'
means, with respect to any partnership taxable year, any
partnership if--
``(A) the number of persons who were partners in
such partnership in the preceding partnership taxable
year equaled or exceeded 100, and
``(B) such partnership elects the application of
this part.
To the extent provided in regulations, a partnership shall cease
to be treated as an electing large partnership for any
partnership taxable year if in such taxable year fewer than 100
persons were partners in such partnership.
[[Page 111 STAT. 1007]]
<<NOTE: Applicability.>> ``(2) Election.--The election under
this subsection shall apply to the taxable year for which made
and all subsequent taxable years unless revoked with the consent
of the Secretary.
``(b) Special Rules for Certain Service Partnerships.--
``(1) Certain partners not counted.--For purposes of this
section, the term `partner' does not include any individual
performing substantial services in connection with the
activities of the partnership and holding an interest in such
partnership, or an individual who formerly performed substantial
services in connection with such activities and who held an
interest in such partnership at the time the individual
performed such services.
``(2) Exclusion.--For purposes of this part, an election
under subsection (a) shall not be effective with respect to any
partnership if substantially all the partners of such
partnership--
``(A) are individuals performing substantial
services in connection with the activities of such
partnership or are personal service corporations (as
defined in section 269A(b)) the owner-employees (as
defined in section 269A(b)) of which perform such
substantial services,
``(B) are retired partners who had performed such
substantial services, or
``(C) are spouses of partners who are performing (or
had previously performed) such substantial services.
``(3) Special rule for lower tier partnerships.--For
purposes of this subsection, the activities of a partnership
shall include the activities of any other partnership in which
the partnership owns directly an interest in the capital and
profits of at least 80 percent.
``(c) Exclusion of Commodity Pools.--For purposes of this part, an
election under subsection (a) shall not be effective with respect to any
partnership the principal activity of which is the buying and selling of
commodities (not described in section 1221(1)), or options, futures, or
forwards with respect to such commodities.
``(d) Secretary May Rely on Treatment on Return.--If, on the
partnership return of any partnership, such partnership is treated as an
electing large partnership, such treatment shall be binding on such
partnership and all partners of such partnership but not on the
Secretary.
``SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING OIL AND GAS
PROPERTIES.
``(a) Computation of Percentage Depletion.--In the case of an
electing large partnership, except as provided in subsection (b)--
``(1) the allowance for depletion under section 611 with
respect to any partnership oil or gas property shall be computed
at the partnership level without regard to any provision of
section 613A requiring such allowance to be computed separately
by each partner,
``(2) such allowance shall be determined without regard to
the provisions of section 613A(c) limiting the amount of
production for which percentage depletion is allowable and
without regard to paragraph (1) of section 613A(d), and
``(3) paragraph (3) of section 705(a) shall not apply.
``(b) Treatment of Certain Partners.--
[[Page 111 STAT. 1008]]
``(1) In general.--In the case of a disqualified person, the
treatment under this chapter of such person's distributive share
of any item of income, gain, loss, deduction, or credit
attributable to any partnership oil or gas property shall be
determined without regard to this part. Such person's
distributive share of any such items shall be excluded for
purposes of making determinations under sections 772 and 773.
``(2) Disqualified person.--For purposes of paragraph (1),
the term `disqualified person' means, with respect to any
partnership taxable year--
``(A) any person referred to in paragraph (2) or (4)
of section 613A(d) for such person's taxable year in
which such partnership taxable year ends, and
``(B) any other person if such person's average
daily production of domestic crude oil and natural gas
for such person's taxable year in which such partnership
taxable year ends exceeds 500 barrels.
``(3) Average daily production.--For purposes of paragraph
(2), a person's average daily production of domestic crude oil
and natural gas for any taxable year shall be computed as
provided in section 613A(c)(2)--
``(A) by taking into account all production of
domestic crude oil and natural gas (including such
person's proportionate share of any production of a
partnership),
``(B) by treating 6,000 cubic feet of natural gas as
a barrel of crude oil, and
``(C) by treating as 1 person all persons treated as
1 taxpayer under section 613A(c)(8) or among whom
allocations are required under such section.
``SEC. 777. REGULATIONS.
``The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this part.''.
(b) Clerical Amendment.--The table of parts for subchapter K of
chapter 1 is amended by adding at the end the following new item:
``Part IV. Special rules for electing large
partnerships.''.
<<NOTE: 26 USC 771 note.>> (c) Effective Date.--The amendments made
by this section shall apply to partnership taxable years beginning after
December 31, 1997.
SEC. 1222. SIMPLIFIED AUDIT PROCEDURES FOR ELECTING LARGE PARTNERSHIPS.
(a) General Rule.--Chapter 63 is amended by adding at the end
thereof the following new subchapter:
``Subchapter D--Treatment of electing large partnerships
``Part I. Treatment of partnership items and
adjustments.
``Part II. Partnership level adjustments.
``Part III. Definitions and special rules.
``PART I--TREATMENT OF PARTNERSHIP ITEMS AND ADJUSTMENTS
``Sec. 6240. Application of subchapter.
``Sec. 6241. Partner's return must be consistent with
partnership return.
``Sec. 6242. Procedures for taking partnership
adjustments into account.
[[Page 111 STAT. 1009]]
``SEC. 6240. APPLICATION OF SUBCHAPTER.
``(a) General Rule.--This subchapter shall only apply to electing
large partnerships and partners in such partnerships.
``(b) Coordination With Other Partnership Audit Procedures.--
``(1) In general.--Subchapter C of this chapter shall not
apply to any electing large partnership other than in its
capacity as a partner in another partnership which is not an
electing large partnership.
``(2) Treatment where partner in other partnership.--If an
electing large partnership is a partner in another partnership
which is not an electing large partnership--
``(A) subchapter C of this chapter shall apply to
items of such electing large partnership which are
partnership items with respect to such other
partnership, but
``(B) any adjustment under such subchapter C shall
be taken into account in the manner provided by section
6242.
``SEC. 6241. PARTNER'S RETURN MUST BE CONSISTENT WITH PARTNERSHIP
RETURN.
``(a) General Rule.--A partner of any electing large partnership
shall, on the partner's return, treat each partnership item attributable
to such partnership in a manner which is consistent with the treatment
of such partnership item on the partnership return.
``(b) Underpayment Due to Inconsistent Treatment Assessed as Math
Error.--Any underpayment of tax by a partner by reason of failing to
comply with the requirements of subsection (a) shall be assessed and
collected in the same manner as if such underpayment were on account of
a mathematical or clerical error appearing on the partner's return.
Paragraph (2) of section 6213(b) shall not apply to any assessment of an
underpayment referred to in the preceding sentence.
``(c) Adjustments Not To Affect Prior Year of Partners.--
``(1) In general.--Except as provided in paragraph (2),
subsections (a) and (b) shall apply without regard to any
adjustment to the partnership item under part II.
``(2) Certain changes in distributive share taken into
account by partner.--
``(A) In general.--To the extent that any adjustment
under part II involves a change under section 704 in a
partner's distributive share of the amount of any
partnership item shown on the partnership return, such
adjustment shall be taken into account in applying this
title to such partner for the partner's taxable year for
which such item was required to be taken into account.
``(B) Coordination with deficiency procedures.--
``(i) In general.--Subchapter B shall not
apply to the assessment or collection of any
underpayment of tax attributable to an adjustment
referred to in subparagraph (A).
``(ii) Adjustment not precluded.--
Notwithstanding any other law or rule of law,
nothing in subchapter B (or in any proceeding
under subchapter B) shall preclude the assessment
or collection of any underpayment of tax (or the
allowance of any credit or refund
[[Page 111 STAT. 1010]]
of any overpayment of tax) attributable to an
adjustment referred to in subparagraph (A) and
such assessment or collection or allowance (or any
notice thereof) shall not preclude any notice,
proceeding, or determination under subchapter B.
``(C) Period of limitations.--The period for--
``(i) assessing any underpayment of tax, or
``(ii) filing a claim for credit or refund of
any overpayment of tax,
attributable to an adjustment referred to in
subparagraph (A) shall not expire before the close of
the period prescribed by section 6248 for making
adjustments with respect to the partnership taxable year
involved.
``(D) Tiered structures.--If the partner referred to
in subparagraph (A) is another partnership or an S
corporation, the rules of this paragraph shall also
apply to persons holding interests in such partnership
or S corporation (as the case may be); except that, if
such partner is an electing large partnership, the
adjustment referred to in subparagraph (A) shall be
taken into account in the manner provided by section
6242.
``(d) Addition to Tax for Failure to Comply With Section.--
``For addition to tax in case of partner's disregard
of requirements of this section, see part II of
subchapter A of chapter 68.
``SEC. 6242. PROCEDURES FOR TAKING PARTNERSHIP ADJUSTMENTS INTO ACCOUNT.
``(a) Adjustments Flow Through To Partners for Year in Which
Adjustment Takes Effect.--
``(1) In general.--If any partnership adjustment with
respect to any partnership item takes effect (within the meaning
of subsection (d)(2)) during any partnership taxable year and if
an election under paragraph (2) does not apply to such
adjustment, such adjustment shall be taken into account in
determining the amount of such item for the partnership taxable
year in which such adjustment takes effect. In applying this
title to any person who is (directly or indirectly) a partner in
such partnership during such partnership taxable year, such
adjustment shall be treated as an item actually arising during
such taxable year.
``(2) Partnership liable in certain cases.--If--
``(A) a partnership elects under this paragraph to
not take an adjustment into account under paragraph (1),
``(B) a partnership does not make such an election
but in filing its return for any partnership taxable
year fails to take fully into account any partnership
adjustment as required under paragraph (1), or
``(C) any partnership adjustment involves a
reduction in a credit which exceeds the amount of such
credit determined for the partnership taxable year in
which the adjustment takes effect,
the partnership shall pay to the Secretary an amount determined
by applying the rules of subsection (b)(4) to the adjustments
not so taken into account and any excess referred to in
subparagraph (C).
``(3) Offsetting adjustments taken into account.--If a
partnership adjustment requires another adjustment in a
[[Page 111 STAT. 1011]]
taxable year after the adjusted year and before the partnership
taxable year in which such partnership adjustment takes effect,
such other adjustment shall be taken into account under this
subsection for the partnership taxable year in which such
partnership adjustment takes effect.
``(4) Coordination with part ii.--Amounts taken into account
under this subsection for any partnership taxable year shall
continue to be treated as adjustments for the adjusted year for
purposes of determining whether such amounts may be readjusted
under part II.
``(b) Partnership Liable for Interest and Penalties.--
``(1) In general.--If a partnership adjustment takes effect
during any partnership taxable year and such adjustment results
in an imputed underpayment for the adjusted year, the
partnership--
``(A) shall pay to the Secretary interest computed
under paragraph (2), and
``(B) shall be liable for any penalty, addition to
tax, or additional amount as provided in paragraph (3).
``(2) Determination of amount of interest.--The interest
computed under this paragraph with respect to any partnership
adjustment is the interest which would be determined under
chapter 67--
``(A) on the imputed underpayment determined under
paragraph (4) with respect to such adjustment,
``(B) for the period beginning on the day after the
return due date for the adjusted year and ending on the
return due date for the partnership taxable year in
which such adjustment takes effect (or, if earlier, in
the case of any adjustment to which subsection (a)(2)
applies, the date on which the payment under subsection
(a)(2) is made).
Proper adjustments in the amount determined under the preceding
sentence shall be made for adjustments required for partnership
taxable years after the adjusted year and before the year in
which the partnership adjustment takes effect by reason of such
partnership adjustment.
``(3) Penalties.--A partnership shall be liable for any
penalty, addition to tax, or additional amount for which it
would have been liable if such partnership had been an
individual subject to tax under chapter 1 for the adjusted year
and the imputed underpayment determined under paragraph (4) were
an actual underpayment (or understatement) for such year.
``(4) Imputed underpayment.--For purposes of this
subsection, the imputed underpayment determined under this
paragraph with respect to any partnership adjustment is the
underpayment (if any) which would result--
``(A) by netting all adjustments to items of income,
gain, loss, or deduction and by treating any net
increase in income as an underpayment equal to the
amount of such net increase multiplied by the highest
rate of tax in effect under section 1 or 11 for the
adjusted year, and
``(B) by taking adjustments to credits into account
as increases or decreases (whichever is appropriate) in
the amount of tax.
[[Page 111 STAT. 1012]]
For purposes of the preceding sentence, any net decrease in a
loss shall be treated as an increase in income and a similar
rule shall apply to a net increase in a loss.
``(c) Administrative Provisions.--
``(1) In general.--Any payment required by subsection (a)(2)
or (b)(1)(A)--
``(A) shall be assessed and collected in the same
manner as if it were a tax imposed by subtitle C, and
``(B) shall be paid on or before the return due date
for the partnership taxable year in which the
partnership adjustment takes effect.
``(2) Interest.--For purposes of determining interest, any
payment required by subsection (a)(2) or (b)(1)(A) shall be
treated as an underpayment of tax.
``(3) Penalties.--
``(A) In general.--In the case of any failure by any
partnership to pay on the date prescribed therefor any
amount required by subsection (a)(2) or (b)(1)(A), there
is hereby imposed on such partnership a penalty of 10
percent of the underpayment. For purposes of the
preceding sentence, the term `underpayment' means the
excess of any payment required under this section over
the amount (if any) paid on or before the date
prescribed therefor.
``(B) Accuracy-related and fraud penalties made
applicable.--For purposes of part II of subchapter A of
chapter 68, any payment required by subsection (a)(2)
shall be treated as an underpayment of tax.
``(d) Definitions and Special Rules.--For purposes of this section--
``(1) Partnership adjustment.--The term `partnership
adjustment' means any adjustment in the amount of any
partnership item of an electing large partnership.
``(2) When adjustment takes effect.--A partnership
adjustment takes effect--
``(A) in the case of an adjustment pursuant to the
decision of a court in a proceeding brought under part
II, when such decision becomes final,
``(B) in the case of an adjustment pursuant to any
administrative adjustment request under section 6251,
when such adjustment is allowed by the Secretary, or
``(C) in any other case, when such adjustment is
made.
``(3) Adjusted year.--The term `adjusted year' means the
partnership taxable year to which the item being adjusted
relates.
``(4) Return due date.--The term `return due date' means,
with respect to any taxable year, the date prescribed for filing
the partnership return for such taxable year (determined without
regard to extensions).
``(5) Adjustments involving changes in character.--Under
regulations, appropriate adjustments in the application of this
section shall be made for purposes of taking into account
partnership adjustments which involve a change in the character
of any item of income, gain, loss, or deduction.
``(e) Payments Nondeductible.--No deduction shall be allowed under
subtitle A for any payment required to be made by an electing large
partnership under this section.
[[Page 111 STAT. 1013]]
``PART II--PARTNERSHIP LEVEL ADJUSTMENTS
``Subpart A. Adjustments by Secretary.
``Subpart B. Claims for adjustments by partnership.
``Subpart A--Adjustments by Secretary
``Sec. 6245. Secretarial authority.
``Sec. 6246. Restrictions on partnership adjustments.
``Sec. 6247. Judicial review of partnership adjustment.
``Sec. 6248. Period of limitations for making
adjustments.
``SEC. 6245. SECRETARIAL AUTHORITY.
``(a) General Rule.--The Secretary is authorized and directed to
make adjustments at the partnership level in any partnership item to the
extent necessary to have such item be treated in the manner required.
``(b) Notice of Partnership Adjustment.--
``(1) In general.--If the Secretary determines that a
partnership adjustment is required, the Secretary is authorized
to send notice of such adjustment to the partnership by
certified mail or registered mail. Such notice shall be
sufficient if mailed to the partnership at its last known
address even if the partnership has terminated its existence.
``(2) Further notices restricted.--If the Secretary mails a
notice of a partnership adjustment to any partnership for any
partnership taxable year and the partnership files a petition
under section 6247 with respect to such notice, in the absence
of a showing of fraud, malfeasance, or misrepresentation of a
material fact, the Secretary shall not mail another such notice
to such partnership with respect to such taxable year.
``(3) Authority to rescind notice with partnership
consent.--The Secretary may, with the consent of the
partnership, rescind any notice of a partnership adjustment
mailed to such partnership. Any notice so rescinded shall not be
treated as a notice of a partnership adjustment, for purposes of
this section, section 6246, and section 6247, and the taxpayer
shall have no right to bring a proceeding under section 6247
with respect to such notice. Nothing in this subsection shall
affect any suspension of the running of any period of
limitations during any period during which the rescinded notice
was outstanding.
``SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUSTMENTS.
``(a) General Rule.--Except as otherwise provided in this chapter,
no adjustment to any partnership item may be made (and no levy or
proceeding in any court for the collection of any amount resulting from
such adjustment may be made, begun or prosecuted) before--
``(1) the close of the 90th day after the day on which a
notice of a partnership adjustment was mailed to the
partnership, and
``(2) if a petition is filed under section 6247 with respect
to such notice, the decision of the court has become final.
``(b) Premature Action May Be Enjoined.--Notwithstanding section
7421(a), any action which violates subsection (a) may be
[[Page 111 STAT. 1014]]
enjoined in the proper court, including the Tax Court. The Tax Court
shall have no jurisdiction to enjoin any action under this subsection
unless a timely petition has been filed under section 6247 and then only
in respect of the adjustments that are the subject of such petition.
``(c) Exceptions to Restrictions on Adjustments.--
``(1) Adjustments arising out of math or clerical errors.--
<<NOTE: Applicability.>> ``(A) In general.--If the
partnership is notified that, on account of a
mathematical or clerical error appearing on the
partnership return, an adjustment to a partnership item
is required, rules similar to the rules of paragraphs
(1) and (2) of section 6213(b) shall apply to such
adjustment.
``(B) Special rule.--If an electing large
partnership is a partner in another electing large
partnership, any adjustment on account of such
partnership's failure to comply with the requirements of
section 6241(a) with respect to its interest in such
other partnership shall be treated as an adjustment
referred to in subparagraph (A), except that paragraph
(2) of section 6213(b) shall not apply to such
adjustment.
``(2) Partnership may waive restrictions.--The partnership
shall at any time (whether or not a notice of partnership
adjustment has been issued) have the right, by a signed notice
in writing filed with the Secretary, to waive the restrictions
provided in subsection (a) on the making of any partnership
adjustment.
``(d) Limit Where No Proceeding Begun.--If no proceeding under
section 6247 is begun with respect to any notice of a partnership
adjustment during the 90-day period described in subsection (a), the
amount for which the partnership is liable under section 6242 (and any
increase in any partner's liability for tax under chapter 1 by reason of
any adjustment under section 6242(a)) shall not exceed the amount
determined in accordance with such notice.
``SEC. 6247. JUDICIAL REVIEW OF PARTNERSHIP ADJUSTMENT.
``(a) General Rule.--Within 90 days after the date on which a notice
of a partnership adjustment is mailed to the partnership with respect to
any partnership taxable year, the partnership may file a petition for a
readjustment of the partnership items for such taxable year with--
``(1) the Tax Court,
``(2) the district court of the United States for the
district in which the partnership's principal place of business
is located, or
``(3) the Claims Court.
``(b) Jurisdictional Requirement for Bringing Action in District
Court or Claims Court.--
``(1) In general.--A readjustment petition under this
section may be filed in a district court of the United States or
the Claims Court only if the partnership filing the petition
deposits with the Secretary, on or before the date the petition
is filed, the amount for which the partnership would be liable
under section 6242(b) (as of the date of the filing of the
petition) if the partnership items were adjusted as provided by
the
[[Page 111 STAT. 1015]]
notice of partnership adjustment. The court may by order provide
that the jurisdictional requirements of this paragraph are
satisfied where there has been a good faith attempt to satisfy
such requirement and any shortfall of the amount required to be
deposited is timely corrected.
``(2) Interest payable.--Any amount deposited under
paragraph (1), while deposited, shall not be treated as a
payment of tax for purposes of this title (other than chapter
67).
``(c) Scope of Judicial Review.--A court with which a petition is
filed in accordance with this section shall have jurisdiction to
determine all partnership items of the partnership for the partnership
taxable year to which the notice of partnership adjustment relates and
the proper allocation of such items among the partners (and the
applicability of any penalty, addition to tax, or additional amount for
which the partnership may be liable under section 6242(b)).
``(d) Determination of Court Reviewable.--Any determination by a
court under this section shall have the force and effect of a decision
of the Tax Court or a final judgment or decree of the district court or
the Claims Court, as the case may be, and shall be reviewable as such.
The date of any such determination shall be treated as being the date of
the court's order entering the decision.
``(e) Effect of Decision Dismissing Action.--If an action brought
under this section is dismissed other than by reason of a rescission
under section 6245(b)(3), the decision of the court dismissing the
action shall be considered as its decision that the notice of
partnership adjustment is correct, and an appropriate order shall be
entered in the records of the court.
``SEC. 6248. PERIOD OF LIMITATIONS FOR MAKING ADJUSTMENTS.
``(a) General Rule.--Except as otherwise provided in this section,
no adjustment under this subpart to any partnership item for any
partnership taxable year may be made after the date which is 3 years
after the later of--
``(1) the date on which the partnership return for such
taxable year was filed, or
``(2) the last day for filing such return for such year
(determined without regard to extensions).
``(b) Extension by Agreement.--The period described in subsection
(a) (including an extension period under this subsection) may be
extended by an agreement entered into by the Secretary and the
partnership before the expiration of such period.
``(c) Special Rule in Case of Fraud, Etc.--
``(1) False return.--In the case of a false or fraudulent
partnership return with intent to evade tax, the adjustment may
be made at any time.
``(2) Substantial omission of income.--If any partnership
omits from gross income an amount properly includible therein
which is in excess of 25 percent of the amount of gross income
stated in its return, subsection (a) shall be applied by
substituting `6 years' for `3 years'.
``(3) No return.--In the case of a failure by a partnership
to file a return for any taxable year, the adjustment may be
made at any time.
``(4) Return filed by secretary.--For purposes of this
section, a return executed by the Secretary under subsection
[[Page 111 STAT. 1016]]
(b) of section 6020 on behalf of the partnership shall not be
treated as a return of the partnership.
``(d) Suspension When Secretary Mails Notice of Adjustment.--If
notice of a partnership adjustment with respect to any taxable year is
mailed to the partnership, the running of the period specified in
subsection (a) (as modified by the other provisions of this section)
shall be suspended--
``(1) for the period during which an action may be brought
under section 6247 (and, if a petition is filed under section
6247 with respect to such notice, until the decision of the
court becomes final), and
``(2) for 1 year thereafter.
``Subpart B--Claims for Adjustments by Partnership
``Sec. 6251. Administrative adjustment requests.
``Sec. 6252. Judicial review where administrative
adjustment request is not allowed in
full.
``SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.
``(a) General Rule.--A partnership may file a request for an
administrative adjustment of partnership items for any partnership
taxable year at any time which is--
``(1) within 3 years after the later of--
``(A) the date on which the partnership return for
such year is filed, or
``(B) the last day for filing the partnership return
for such year (determined without regard to extensions),
and
``(2) before the mailing to the partnership of a notice of a
partnership adjustment with respect to such taxable year.
``(b) Secretarial Action.--If a partnership files an administrative
adjustment request under subsection (a), the Secretary may allow any
part of the requested adjustments.
``(c) Special Rule in Case of Extension Under Section 6248.--If the
period described in section 6248(a) is extended pursuant to an agreement
under section 6248(b), the period prescribed by subsection (a)(1) shall
not expire before the date 6 months after the expiration of the
extension under section 6248(b).
``SEC. 6252. JUDICIAL REVIEW WHERE ADMINISTRATIVE ADJUSTMENT REQUEST IS
NOT ALLOWED IN FULL.
``(a) In General.--If any part of an administrative adjustment
request filed under section 6251 is not allowed by the Secretary, the
partnership may file a petition for an adjustment with respect to the
partnership items to which such part of the request relates with--
``(1) the Tax Court,
``(2) the district court of the United States for the
district in which the principal place of business of the
partnership is located, or
``(3) the Claims Court.
``(b) Period for Filing Petition.--A petition may be filed under
subsection (a) with respect to partnership items for a partnership
taxable year only--
``(1) after the expiration of 6 months from the date of
filing of the request under section 6251, and
[[Page 111 STAT. 1017]]
``(2) before the date which is 2 years after the date of
such request.
The 2-year period set forth in paragraph (2) shall be extended for such
period as may be agreed upon in writing by the partnership and the
Secretary.
``(c) Coordination With Subpart A.--
``(1) Notice of partnership adjustment before filing of
petition.--No petition may be filed under this section after the
Secretary mails to the partnership a notice of a partnership
adjustment for the partnership taxable year to which the request
under section 6251 relates.
``(2) Notice of partnership adjustment after filing but
before hearing of petition.--If the Secretary mails to the
partnership a notice of a partnership adjustment for the
partnership taxable year to which the request under section 6251
relates after the filing of a petition under this subsection but
before the hearing of such petition, such petition shall be
treated as an action brought under section 6247 with respect to
such notice, except that subsection (b) of section 6247 shall
not apply.
``(3) Notice must be before expiration of statute of
limitations.--A notice of a partnership adjustment for the
partnership taxable year shall be taken into account under
paragraphs (1) and (2) only if such notice is mailed before the
expiration of the period prescribed by section 6248 for making
adjustments to partnership items for such taxable year.
``(d) Scope of Judicial Review.--Except in the case described in
paragraph (2) of subsection (c), a court with which a petition is filed
in accordance with this section shall have jurisdiction to determine
only those partnership items to which the part of the request under
section 6251 not allowed by the Secretary relates and those items with
respect to which the Secretary asserts adjustments as offsets to the
adjustments requested by the partnership.
``(e) Determination of Court Reviewable.--Any determination by a
court under this section shall have the force and effect of a decision
of the Tax Court or a final judgment or decree of the district court or
the Claims Court, as the case may be, and shall be reviewable as such.
The date of any such determination shall be treated as being the date of
the court's order entering the decision.
``PART III--DEFINITIONS AND SPECIAL RULES
``Sec. 6255. Definitions and special rules.
``SEC. 6255. DEFINITIONS AND SPECIAL RULES.
``(a) Definitions.--For purposes of this subchapter--
``(1) Electing large partnership.--The term `electing large
partnership' has the meaning given to such term by section 775.
``(2) Partnership item.--The term `partnership item' has the
meaning given to such term by section 6231(a)(3).
``(b) Partners Bound by Actions of Partnership, Etc.--
``(1) Designation of partner.--Each electing large
partnership shall designate (in the manner prescribed by the
Secretary) a partner (or other person) who shall have the sole
[[Page 111 STAT. 1018]]
authority to act on behalf of such partnership under this
subchapter. In any case in which such a designation is not in
effect, the Secretary may select any partner as the partner with
such authority.
``(2) Binding effect.--An electing large partnership and all
partners of such partnership shall be bound--
``(A) by actions taken under this subchapter by the
partnership, and
``(B) by any decision in a proceeding brought under
this subchapter.
``(c) Partnerships Having Principal Place of Business Outside the
United States.--For purposes of sections 6247 and 6252, a principal
place of business located outside the United States shall be treated as
located in the District of Columbia.
``(d) Treatment Where Partnership Ceases To Exist.--If a partnership
ceases to exist before a partnership adjustment under this subchapter
takes effect, such adjustment shall be taken into account by the former
partners of such partnership under regulations prescribed by the
Secretary.
``(e) Date Decision Becomes Final.--For purposes of this subchapter,
the principles of section 7481(a) shall be applied in determining the
date on which a decision of a district court or the Claims Court becomes
final.
``(f) Partnerships in Cases Under Title 11 of the United States
Code.--
``(1) Suspension of period of limitations on making
adjustment, assessment, or collection.--The running of any
period of limitations provided in this subchapter on making a
partnership adjustment (or provided by section 6501 or 6502 on
the assessment or collection of any amount required to be paid
under section 6242) shall, in a case under title 11 of the
United States Code, be suspended during the period during which
the Secretary is prohibited by reason of such case from making
the adjustment (or assessment or collection) and--
``(A) for adjustment or assessment, 60 days
thereafter, and
``(B) for collection, 6 months thereafter.
<<NOTE: Applicability.>> A rule similar to the rule of section
6213(f)(2) shall apply for purposes of section 6246.
``(2) Suspension of period of limitation for filing for
judicial review.--The running of the period specified in section
6247(a) or 6252(b) shall, in a case under title 11 of the United
States Code, be suspended during the period during which the
partnership is prohibited by reason of such case from filing a
petition under section 6247 or 6252 and for 60 days thereafter.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary to carry out the provisions of this subchapter,
including regulations--
``(1) to prevent abuse through manipulation of the
provisions of this subchapter, and
``(2) providing that this subchapter shall not apply to any
case described in section 6231(c)(1) (or the regulations
prescribed thereunder) where the application of this subchapter
to such a case would interfere with the effective and efficient
enforcement of this title.
[[Page 111 STAT. 1019]]
<<NOTE: Applicability.>> In any case to which this subchapter does not
apply by reason of paragraph (2), rules similar to the rules of sections
6229(f) and 6255(f) shall apply.''.
(b) Conforming Amendments.--
(1) Subsection (a) of section 7421 is amended by inserting
``6246(b),'' after ``6213(a),''.
(2) Subsection (c) of section 7459 is amended by striking
``or section 6228(a)'' and inserting ``, 6228(a), 6247, or
6252''.
(3) Subparagraph (E) of section 7482(b)(1) is amended by
striking ``or 6228(a)'' and inserting ``, 6228(a), 6247, or
6252''.
(4)(A) The text of section 7485(b) is amended by striking
``or 6228(a)'' and inserting ``, 6228(a), 6247, or 6252''.
(B) The subsection heading for section 7485(b) is amended to
read as follows:
``(b) Bond in Case of Appeal of Certain Partnership-Related
Decisions.--''.
(c) Clerical Amendment.--The table of subchapters for chapter 63 is
amended by adding at the end thereof the following new item:
``Subchapter D. Treatment of electing large
partnerships.''.
SEC. 1223. DUE DATE FOR FURNISHING INFORMATION TO PARTNERS OF ELECTING
LARGE PARTNERSHIPS.
(a) General Rule.--Subsection (b) of section 6031 (relating to
copies to partners) is amended by adding at the end the following new
sentence: ``In the case of an electing large partnership (as defined in
section 775), such information shall be furnished on or before the first
March 15 following the close of such taxable year.''.
(b) Treatment as Information Return.--Section 6724 is amended by
adding at the end the following new subsection:
``(e) Special Rule for Certain Partnership Returns.--If any
partnership return under section 6031(a) is required under section
6011(e) to be filed on magnetic media or in other machine-readable form,
for purposes of this part, each schedule required to be included with
such return with respect to each partner shall be treated as a separate
information return.''.
SEC. 1224. RETURNS REQUIRED ON MAGNETIC MEDIA.
Paragraph (2) of section 6011(e) (relating to returns on magnetic
media) is amended by adding at the end thereof the following new
sentence:
``Notwithstanding the preceding sentence, the Secretary shall
require partnerships having more than 100 partners to file
returns on magnetic media.''.
SEC. 1225. TREATMENT OF PARTNERSHIP ITEMS OF INDIVIDUAL RETIREMENT
ACCOUNTS.
Subsection (b) of section 6012 is amended by adding at the end
thereof the following new paragraph:
``(6) IRA share of partnership income.--In the case of a
trust which is exempt from taxation under section 408(e), for
purposes of this section, the trust's distributive share of
items of gross income and gain of any partnership to which
subchapter C or D of chapter 63 applies shall be treated as
equal to the trust's distributive share of the taxable income of
such partnership.''.
[[Page 111 STAT. 1020]]
<<NOTE: 26 USC 6011 note.>> SEC. 1226. EFFECTIVE DATE.
The amendments made by this part shall apply to partnership taxable
years ending on or after December 31, 1997.
PART II--PROVISIONS RELATED TO TEFRA PARTNERSHIP PROCEEDINGS
SEC. 1231. TREATMENT OF PARTNERSHIP ITEMS IN DEFICIENCY PROCEEDINGS.
(a) In General.--Subchapter C of chapter 63 is amended by adding at
the end the following new section:
``SEC. 6234. DECLARATORY JUDGMENT RELATING TO TREATMENT OF ITEMS OTHER
THAN PARTNERSHIP ITEMS WITH RESPECT TO AN OVERSHELTERED
RETURN.
<<NOTE: Notice.>> ``(a) General Rule.--If--
``(1) a taxpayer files an oversheltered return for a taxable
year,
``(2) the Secretary makes a determination with respect to
the treatment of items (other than partnership items) of such
taxpayer for such taxable year, and
``(3) the adjustments resulting from such determination do
not give rise to a deficiency (as defined in section 6211) but
would give rise to a deficiency if there were no net loss from
partnership items,
the Secretary is authorized to send a notice of adjustment reflecting
such determination to the taxpayer by certified or registered mail.
``(b) Oversheltered Return.--For purposes of this section, the term
`oversheltered return' means an income tax return which--
``(1) shows no taxable income for the taxable year, and
``(2) shows a net loss from partnership items.
``(c) Judicial Review in the Tax Court.--Within 90 days, or 150 days
if the notice is addressed to a person outside the United States, after
the day on which the notice of adjustment authorized in subsection (a)
is mailed to the taxpayer, the taxpayer may file a petition with the Tax
Court for redetermination of the adjustments. Upon the filing of such a
petition, the Tax Court shall have jurisdiction to make a declaration
with respect to all items (other than partnership items and affected
items which require partner level determinations as described in section
6230(a)(2)(A)(i)) for the taxable year to which the notice of adjustment
relates, in accordance with the principles of section 6214(a). Any such
declaration shall have the force and effect of a decision of the Tax
Court and shall be reviewable as such.
``(d) Failure To File Petition.--
``(1) In general.--Except as provided in paragraph (2), if
the taxpayer does not file a petition with the Tax Court within
the time prescribed in subsection (c), the determination of the
Secretary set forth in the notice of adjustment that was mailed
to the taxpayer shall be deemed to be correct.
``(2) Exception.--Paragraph (1) shall not apply after the
date that the taxpayer--
``(A) files a petition with the Tax Court within the
time prescribed in subsection (c) with respect to a
subsequent notice of adjustment relating to the same
taxable year, or
[[Page 111 STAT. 1021]]
``(B) files a claim for refund of an overpayment of
tax under section 6511 for the taxable year involved.
If a claim for refund is filed by the taxpayer, then solely for
purposes of determining (for the taxable year involved) the
amount of any computational adjustment in connection with a
partnership proceeding under this subchapter (other than under
this section) or the amount of any deficiency attributable to
affected items in a proceeding under section 6230(a)(2), the
items that are the subject of the notice of adjustment shall be
presumed to have been correctly reported on the taxpayer's
return during the pendency of the refund claim (and, if within
the time prescribed by section 6532 the taxpayer commences a
civil action for refund under section 7422, until the decision
in the refund action becomes final).
``(e) Limitations Period.--
``(1) In general.--Any notice to a taxpayer under subsection
(a) shall be mailed before the expiration of the period
prescribed by section 6501 (relating to the period of
limitations on assessment).
``(2) Suspension when secretary mails notice of
adjustment.--If the Secretary mails a notice of adjustment to
the taxpayer for a taxable year, the period of limitations on
the making of assessments shall be suspended for the period
during which the Secretary is prohibited from making the
assessment (and, in any event, if a proceeding in respect of the
notice of adjustment is placed on the docket of the Tax Court,
until the decision of the Tax Court becomes final), and for 60
days thereafter.
``(3) Restrictions on assessment.--Except as otherwise
provided in section 6851, 6852, or 6861, no assessment of a
deficiency with respect to any tax imposed by subtitle A
attributable to any item (other than a partnership item or any
item affected by a partnership item) shall be made--
``(A) until the expiration of the applicable 90-day
or 150-day period set forth in subsection (c) for filing
a petition with the Tax Court, or
``(B) if a petition has been filed with the Tax
Court, until the decision of the Tax Court has become
final.
``(f) Further Notices of Adjustment Restricted.--If the Secretary
mails a notice of adjustment to the taxpayer for a taxable year and the
taxpayer files a petition with the Tax Court within the time prescribed
in subsection (c), the Secretary may not mail another such notice to the
taxpayer with respect to the same taxable year in the absence of a
showing of fraud, malfeasance, or misrepresentation of a material fact.
``(g) Coordination With Other Proceedings Under This Subchapter.--
``(1) In general.--The treatment of any item that has been
determined pursuant to subsection (c) or (d) shall be taken into
account in determining the amount of any computational
adjustment that is made in connection with a partnership
proceeding under this subchapter (other than under this
section), or the amount of any deficiency attributable to
affected items in a proceeding under section 6230(a)(2), for the
taxable year involved. Notwithstanding any other law or rule of
law pertaining to the period of limitations on the making of
assessments, for purposes of the preceding sentence, any
adjustment
[[Page 111 STAT. 1022]]
made in accordance with this section shall be taken into account
regardless of whether any assessment has been made with respect
to such adjustment.
``(2) Special rule in case of computational adjustment.--In
the case of a computational adjustment that is made in
connection with a partnership proceeding under this subchapter
(other than under this section), the provisions of paragraph (1)
shall apply only if the computational adjustment is made within
the period prescribed by section 6229 for assessing any tax
under subtitle A which is attributable to any partnership item
or affected item for the taxable year involved.
``(3) Conversion to deficiency proceeding.--If--
``(A) after the notice referred to in subsection (a)
is mailed to a taxpayer for a taxable year but before
the expiration of the period for filing a petition with
the Tax Court under subsection (c) (or, if a petition is
filed with the Tax Court, before the Tax Court makes a
declaration for that taxable year), the treatment of any
partnership item for the taxable year is finally
determined, or any such item ceases to be a partnership
item pursuant to section 6231(b), and
``(B) as a result of that final determination or
cessation, a deficiency can be determined with respect
to the items that are the subject of the notice of
adjustment,
the notice of adjustment shall be treated as a notice of
deficiency under section 6212 and any petition filed in respect
of the notice shall be treated as an action brought under
section 6213.
``(4) Finally determined.--For purposes of this subsection,
the treatment of partnership items shall be treated as finally
determined if--
``(A) the Secretary enters into a settlement
agreement (within the meaning of section 6224) with the
taxpayer regarding such items,
``(B) a notice of final partnership administrative
adjustment has been issued and--
``(i) no petition has been filed under section
6226 and the time for doing so has expired, or
``(ii) a petition has been filed under section
6226 and the decision of the court has become
final, or
``(C) the period within which any tax attributable
to such items may be assessed against the taxpayer has
expired.
``(h) Special Rules if Secretary Incorrectly Determines Applicable
Procedure.--
``(1) Special rule if secretary erroneously mails notice of
adjustment.--If the Secretary erroneously determines that
subchapter B does not apply to a taxable year of a taxpayer and
consistent with that determination timely mails a notice of
adjustment to the taxpayer pursuant to subsection (a) of this
section, the notice of adjustment shall be treated as a notice
of deficiency under section 6212 and any petition that is filed
in respect of the notice shall be treated as an action brought
under section 6213.
``(2) Special rule if secretary erroneously mails notice of
deficiency.--If the Secretary erroneously determines that
subchapter B applies to a taxable year of a taxpayer
[[Page 111 STAT. 1023]]
and consistent with that determination timely mails a notice of
deficiency to the taxpayer pursuant to section 6212, the notice
of deficiency shall be treated as a notice of adjustment under
subsection (a) and any petition that is filed in respect of the
notice shall be treated as an action brought under subsection
(c).''.
(b) Treatment of Partnership Items in Deficiency Proceedings.--
Section 6211 (defining deficiency) is amended by adding at the end the
following new subsection:
``(c) Coordination With Subchapter C.--In determining the amount of
any deficiency for purposes of this subchapter, adjustments to
partnership items shall be made only as provided in subchapter C.''.
(c) Clerical Amendment.--The table of sections for subchapter C of
chapter 63 is amended by adding at the end the following new item:
``Sec. 6234. Declaratory judgment relating to treatment
of items other than partnership items
with respect to an oversheltered
return.''.
<<NOTE: 26 USC 6211 note.>> (d) Effective Date.--The amendments made
by this section shall apply to partnership taxable years ending after
the date of the enactment of this Act.
SEC. 1232. PARTNERSHIP RETURN TO BE DETERMINATIVE OF AUDIT PROCEDURES TO
BE FOLLOWED.
(a) In General.--Section 6231 (relating to definitions and special
rules) is amended by adding at the end the following new subsection:
``(g) Partnership Return To Be Determinative of Whether Subchapter
Applies.--
``(1) Determination that subchapter applies.--If, on the
basis of a partnership return for a taxable year, the Secretary
reasonably determines that this subchapter applies to such
partnership for such year but such determination is erroneous,
then the provisions of this subchapter are hereby extended to
such partnership (and its items) for such taxable year and to
partners of such partnership.
``(2) Determination that subchapter does not apply.--If, on
the basis of a partnership return for a taxable year, the
Secretary reasonably determines that this subchapter does not
apply to such partnership for such year but such determination
is erroneous, then the provisions of this subchapter shall not
apply to such partnership (and its items) for such taxable year
or to partners of such partnership.''.
<<NOTE: 26 USC 6231 note.>> (b) Effective Date.--The amendment made
by this section shall apply to partnership taxable years ending after
the date of the enactment of this Act.
SEC. 1233. PROVISIONS RELATING TO STATUTE OF LIMITATIONS.
(a) Suspension of Statute Where Untimely Petition Filed.--Paragraph
(1) of section 6229(d) (relating to suspension where Secretary makes
administrative adjustment) is amended by striking all that follows
``section 6226'' and inserting the following: ``(and, if a petition is
filed under section 6226 with respect to such administrative adjustment,
until the decision of the court becomes final), and''.
[[Page 111 STAT. 1024]]
(b) Suspension of Statute During Bankruptcy Proceeding.--Section
6229 is amended by adding at the end the following new subsection:
``(h) Suspension During Pendency of Bankruptcy Proceeding.--If a
petition is filed naming a partner as a debtor in a bankruptcy
proceeding under title 11 of the United States Code, the running of the
period of limitations provided in this section with respect to such
partner shall be suspended--
``(1) for the period during which the Secretary is
prohibited by reason of such bankruptcy proceeding from making
an assessment, and
``(2) for 60 days thereafter.''.
(c) Tax Matters Partner in Bankruptcy.--Section 6229(b) is amended
by redesignating paragraph (2) as paragraph (3) and by inserting after
paragraph (1) the following new paragraph:
``(2) Special rule with respect to debtors in title 11
cases.--Notwithstanding any other law or rule of law, if an
agreement is entered into under paragraph (1)(B) and the
agreement is signed by a person who would be the tax matters
partner but for the fact that, at the time that the agreement is
executed, the person is a debtor in a bankruptcy proceeding
under title 11 of the United States Code, such agreement shall
be binding on all partners in the partnership unless the
Secretary has been notified of the bankruptcy proceeding in
accordance with regulations prescribed by the Secretary.''.
<<NOTE: 26 USC 6229 note.>> (d) Effective Dates.--
(1) Subsections (a) and (b).--The amendments made by
subsections (a) and (b) shall apply to partnership taxable years
with respect to which the period under section 6229 of the
Internal Revenue Code of 1986 for assessing tax has not expired
on or before the date of the enactment of this Act.
(2) Subsection (c).--The amendment made by subsection (c)
shall apply to agreements entered into after the date of the
enactment of this Act.
SEC. 1234. EXPANSION OF SMALL PARTNERSHIP EXCEPTION.
(a) In General.--Clause (i) of section 6231(a)(1)(B) (relating to
exception for small partnerships) is amended to read as follows:
``(i) In general.--The term `partnership'
shall not include any partnership having 10 or
fewer partners each of whom is an individual
(other than a nonresident alien), a C corporation,
or an estate of a deceased partner. For purposes
of the preceding sentence, a husband and wife (and
their estates) shall be treated as 1 partner.''.
<<NOTE: 26 USC 6231 note.>> (b) Effective Date.--The amendment made
by this section shall apply to partnership taxable years ending after
the date of the enactment of this Act.
SEC. 1235. EXCLUSION OF PARTIAL SETTLEMENTS FROM 1-YEAR LIMITATION ON
ASSESSMENT.
(a) In General.--Subsection (f) of section 6229 (relating to items
becoming nonpartnership items) is amended--
(1) by striking ``(f) Items Becoming Nonpartnership Items.--
If'' and inserting the following:
``(f) Special Rules.--
``(1) Items becoming nonpartnership items.--If'',
[[Page 111 STAT. 1025]]
(2) by moving the text of such subsection 2 ems to the
right, and
(3) by adding at the end the following new paragraph:
``(2) Special rule for partial settlement agreements.--If a
partner enters into a settlement agreement with the Secretary
with respect to the treatment of some of the partnership items
in dispute for a partnership taxable year but other partnership
items for such year remain in dispute, the period of limitations
for assessing any tax attributable to the settled items shall be
determined as if such agreement had not been entered into.''.
<<NOTE: 26 USC 6229 note.>> (b) Effective Date.--The amendment made
by this section shall apply to settlements entered into after the date
of the enactment of this Act.
SEC. 1236. EXTENSION OF TIME FOR FILING A REQUEST FOR ADMINISTRATIVE
ADJUSTMENT.
(a) In General.--Section 6227 (relating to administrative adjustment
requests) is amended by redesignating subsections (b) and (c) as
subsections (c) and (d), respectively, and by inserting after subsection
(a) the following new subsection:
``(b) Special Rule in Case of Extension of Period of Limitations
Under Section 6229.--The period prescribed by subsection (a)(1) for
filing of a request for an administrative adjustment shall be extended--
``(1) for the period within which an assessment may be made
pursuant to an agreement (or any extension thereof) under
section 6229(b), and
``(2) for 6 months thereafter.''.
<<NOTE: 26 USC 6227 note.>> (b) Effective Date.--The amendment made
by this section shall take effect as if included in the amendments made
by section 402 of the Tax Equity and Fiscal Responsibility Act of 1982.
SEC. 1237. AVAILABILITY OF INNOCENT SPOUSE RELIEF IN CONTEXT OF
PARTNERSHIP PROCEEDINGS.
(a) In General.--Subsection (a) of section 6230 is amended by adding
at the end the following new paragraph:
``(3) Special rule in case of assertion by partner's spouse
of innocent spouse relief.--
``(A) Notwithstanding section 6404(b), if the spouse
of a partner asserts that section 6013(e) applies with
respect to a liability that is attributable to any
adjustment to a partnership item, then such spouse may
file with the Secretary within 60 days after the notice
of computational adjustment is mailed to the spouse a
request for abatement of the assessment specified in
such notice. Upon receipt of such request, the Secretary
shall abate the assessment. Any reassessment of the tax
with respect to which an abatement is made under this
subparagraph shall be subject to the deficiency
procedures prescribed by subchapter B. The period for
making any such reassessment shall not expire before the
expiration of 60 days after the date of such abatement.
``(B) If the spouse files a petition with the Tax
Court pursuant to section 6213 with respect to the
request for abatement described in subparagraph (A), the
Tax Court shall only have jurisdiction pursuant to this
section to determine whether the requirements of section
6013(e)
[[Page 111 STAT. 1026]]
have been satisfied. For purposes of such determination,
the treatment of partnership items under the settlement,
the final partnership administrative adjustment, or the
decision of the court (whichever is appropriate) that
gave rise to the liability in question shall be
conclusive.
<<NOTE: Applicability.>> ``(C) Rules similar to the
rules contained in subparagraphs (B) and (C) of
paragraph (2) shall apply for purposes of this
paragraph.''.
(b) Claims for Refund.--Subsection (c) of section 6230 is amended by
adding at the end the following new paragraph:
``(5) Rules for seeking innocent spouse relief.--
``(A) In general.--The spouse of a partner may file
a claim for refund on the ground that the Secretary
failed to relieve the spouse under section 6013(e) from
a liability that is attributable to an adjustment to a
partnership item.
``(B) Time for filing claim.--Any claim under
subparagraph (A) shall be filed within 6 months after
the day on which the Secretary mails to the spouse the
notice of computational adjustment referred to in
subsection (a)(3)(A).
``(C) Suit if claim not allowed.--If the claim under
subparagraph (B) is not allowed, the spouse may bring
suit with respect to the claim within the period
specified in paragraph (3).
``(D) Prior determinations are binding.--For
purposes of any claim or suit under this paragraph, the
treatment of partnership items under the settlement, the
final partnership administrative adjustment, or the
decision of the court (whichever is appropriate) that
gave rise to the liability in question shall be
conclusive.''.
(c) Technical Amendments.--
(1) Paragraph (1) of section 6230(a) is amended by striking
``paragraph (2)'' and inserting ``paragraph (2) or (3)''.
(2) Subsection (a) of section 6503 is amended by striking
``section 6230(a)(2)(A)'' and inserting ``paragraph (2)(A) or
(3) of section 6230(a)''.
<<NOTE: 26 USC 6230 note.>> (d) Effective Date.--The amendments made
by this section shall take effect as if included in the amendments made
by section 402 of the Tax Equity and Fiscal Responsibility Act of 1982.
SEC. 1238. DETERMINATION OF PENALTIES AT PARTNERSHIP LEVEL.
(a) In General.--Section 6221 (relating to tax treatment determined
at partnership level) is amended by striking ``item'' and inserting
``item (and the applicability of any penalty, addition to tax, or
additional amount which relates to an adjustment to a partnership
item)''.
(b) Conforming Amendments.--
(1) Subsection (f) of section 6226 is amended--
(A) by striking ``relates and'' and inserting
``relates,'', and
(B) by inserting before the period ``, and the
applicability of any penalty, addition to tax, or
additional amount which relates to an adjustment to a
partnership item''.
(2) Clause (i) of section 6230(a)(2)(A) is amended to read
as follows:
[[Page 111 STAT. 1027]]
``(i) affected items which require partner
level determinations (other than penalties,
additions to tax, and additional amounts that
relate to adjustments to partnership items), or''.
(3)(A) Subparagraph (A) of section 6230(a)(3), as added by
section 1237, is amended by inserting ``(including any liability
for any penalties, additions to tax, or additional amounts
relating to such adjustment)'' after ``partnership item''.
(B) Subparagraph (B) of such section is amended by inserting
``(and the applicability of any penalties, additions to tax, or
additional amounts)'' after ``partnership items''.
(C) Subparagraph (A) of section 6230(c)(5), as added by
section 1237, is amended by inserting before the period
``(including any liability for any penalties, additions to tax,
or additional amounts relating to such adjustment)''.
(D) Subparagraph (D) of section 6230(c)(5), as added by
section 1237, is amended by inserting ``(and the applicability
of any penalties, additions to tax, or additional amounts)''
after ``partnership items''.
(4) Paragraph (1) of section 6230(c) 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
adding at the end the following new subparagraph:
``(C) the Secretary erroneously imposed any penalty,
addition to tax, or additional amount which relates to
an adjustment to a partnership item.''.
(5) So much of subparagraph (A) of section 6230(c)(2) as
precedes ``shall be filed'' is amended to read as follows:
``(A) Under paragraph (1) (a) or (c).--Any claim
under subparagraph (A) or (C) of paragraph (1)''.
(6) Paragraph (4) of section 6230(c) is amended by adding at
the end the following: ``In addition, the determination under
the final partnership administrative adjustment or under the
decision of the court (whichever is appropriate) concerning the
applicability of any penalty, addition to tax, or additional
amount which relates to an adjustment to a partnership item
shall also be conclusive. Notwithstanding the preceding
sentence, the partner shall be allowed to assert any partner
level defenses that may apply or to challenge the amount of the
computational adjustment.''.
<<NOTE: 26 USC 6221 note.>> (c) Effective Date.--The amendments made
by this section shall apply to partnership taxable years ending after
the date of the enactment of this Act.
SEC. 1239. PROVISIONS RELATING TO COURT JURISDICTION, ETC.
(a) Tax Court Jurisdiction To Enjoin Premature Assessments of
Deficiencies Attributable to Partnership Items.--Subsection (b) of
section 6225 is amended by striking ``the proper court.'' and inserting
``the proper court, including the Tax Court. The Tax Court shall have no
jurisdiction to enjoin any action or proceeding under this subsection
unless a timely petition for a readjustment of the partnership items for
the taxable year has been filed and then only in respect of the
adjustments that are the subject of such petition.''.
(b) Jurisdiction To Consider Statute of Limitations With Respect to
Partners.--Paragraph (1) of section 6226(d) is amended by adding at the
end the following new sentence:
[[Page 111 STAT. 1028]]
``Notwithstanding subparagraph (B), any person treated under
subsection (c) as a party to an action shall be permitted to
participate in such action (or file a readjustment petition
under subsection (b) or paragraph (2) of this subsection) solely
for the purpose of asserting that the period of limitations for
assessing any tax attributable to partnership items has expired
with respect to such person, and the court having jurisdiction
of such action shall have jurisdiction to consider such
assertion.''.
(c) Tax Court Jurisdiction To Determine Overpayments Attributable to
Affected Items.--
(1) Paragraph (6) of section 6230(d) is amended by striking
``(or an affected item)''.
(2) Paragraph (3) of section 6512(b) is amended by adding at
the end the following new sentence:
``In the case of a credit or refund relating to an affected item
(within the meaning of section 6231(a)(5)), the preceding
sentence shall be applied by substituting the periods under
sections 6229 and 6230(d) for the periods under section
6511(b)(2), (c), and (d).''.
(d) Venue on Appeal.--
(1) Paragraph (1) of section 7482(b) is amended by striking
``or'' at the end of subparagraph (D), by striking the period at
the end of subparagraph (E) and inserting ``, or'', and by
inserting after subparagraph (E) the following new subparagraph:
``(F) in the case of a petition under section
6234(c)--
``(i) the legal residence of the petitioner if
the petitioner is not a corporation, and
``(ii) the place or office applicable under
subparagraph (B) if the petitioner is a
corporation.''.
(2) The last sentence of section 7482(b)(1) is amended by
striking ``or 6228(a)'' and inserting ``, 6228(a), or 6234(c)''.
(e) Other Provisions.--
(1) Subsection (c) of section 7459 is amended by striking
``or section 6228(a)'' and inserting ``, 6228(a), or 6234(c)''.
(2) Subsection (o) of section 6501 is amended by adding at
the end the following new paragraph:
``(3) For declaratory judgment relating to treatment of
items other than partnership items with respect to an
oversheltered return, see section 6234.''.
(3) Subsection (a) of section 7421, as amended by section
1222, is amended by inserting ``6225(b),'' after ``6213(a),''.
<<NOTE: 26 USC 6225 note.>> (f) Effective Date.--The amendments made
by this section shall apply to partnership taxable years ending after
the date of the enactment of this Act.
SEC. 1240. TREATMENT OF PREMATURE PETITIONS FILED BY NOTICE PARTNERS OR
5-PERCENT GROUPS.
(a) In General.--Subsection (b) of section 6226 (relating to
judicial review of final partnership administrative adjustments) is
amended by redesignating paragraph (5) as paragraph (6) and by inserting
after paragraph (4) the following new paragraph:
``(5) Treatment of premature petitions.--If--
``(A) a petition for a readjustment of partnership
items for the taxable year involved is filed by a notice
partner (or a 5-percent group) during the 90-day period
described in subsection (a), and
[[Page 111 STAT. 1029]]
``(B) no action is brought under paragraph (1)
during the 60-day period described therein with respect
to such taxable year which is not dismissed,
such petition shall be treated for purposes of paragraph (1) as
filed on the last day of such 60-day period.''.
<<NOTE: 26 USC 6226 note.>> (b) Effective Date.--The amendment made
by this section shall apply to petitions filed after the date of the
enactment of this Act.
SEC. 1241. BONDS IN CASE OF APPEALS FROM CERTAIN PROCEEDING.
(a) In General.--Subsection (b) of section 7485 (relating to bonds
to stay assessment of collection) is amended--
(1) by inserting ``penalties,'' after ``any interest,'', and
(2) by striking ``aggregate of such deficiencies'' and
inserting ``aggregate liability of the parties to the action''.
<<NOTE: 26 USC 7485 note.>> (b) Effective Date.--The amendment made
by this section shall take effect as if included in the amendments made
by section 402 of the Tax Equity and Fiscal Responsibility Act of 1982.
SEC. 1242. SUSPENSION OF INTEREST WHERE DELAY IN COMPUTATIONAL
ADJUSTMENT RESULTING FROM CERTAIN SETTLEMENTS.
(a) In General.--Subsection (c) of section 6601 (relating to
interest on underpayment, nonpayment, or extension of time for payment,
of tax) is amended by adding at the end the following new sentence: ``In
the case of a settlement under section 6224(c) which results in the
conversion of partnership items to nonpartnership items pursuant to
section 6231(b)(1)(C), the preceding sentence shall apply to a
computational adjustment resulting from such settlement in the same
manner as if such adjustment were a deficiency and such settlement were
a waiver referred to in the preceding sentence.''.
<<NOTE: 26 USC 6601 note.>> (b) Effective Date.--The amendment made
by this section shall apply to adjustments with respect to partnership
taxable years beginning after the date of the enactment of this Act.
SEC. 1243. SPECIAL RULES FOR ADMINISTRATIVE ADJUSTMENT REQUESTS WITH
RESPECT TO BAD DEBTS OR WORTHLESS SECURITIES.
(a) General Rule.--Section 6227 (relating to administrative
adjustment requests) is amended by adding at the end the following new
subsection:
``(e) Requests With Respect to Bad Debts or Worthless Securities.--
In the case of that portion of any request for an administrative
adjustment which relates to the deductibility by the partnership under
section 166 of a debt as a debt which became worthless, or under section
165(g) of a loss from worthlessness of a security, the period prescribed
in subsection (a)(1) shall be 7 years from the last day for filing the
partnership return for the year with respect to which such request is
made (determined without regard to extensions).''.
<<NOTE: 26 USC 6227 note.>> (b) Effective Date.--
(1) In general.--The amendment made by subsection (a) shall
take effect as if included in the amendments made by section 402
of the Tax Equity and Fiscal Responsibility Act of 1982.
(2) Treatment of requests filed before date of enactment.--
In the case of that portion of any request (filed before
[[Page 111 STAT. 1030]]
the date of the enactment of this Act) for an administrative
adjustment which relates to the deductibility of a debt as a
debt which became worthless or the deductibility of a loss from
the worthlessness of a security--
(A) paragraph (2) of section 6227(a) of the Internal
Revenue Code of 1986 shall not apply,
(B) the period for filing a petition under section
6228 of the Internal Revenue Code of 1986 with respect
to such request shall not expire before the date 6
months after the date of the enactment of this Act, and
(C) such a petition may be filed without regard to
whether there was a notice of the beginning of an
administrative proceeding or a final partnership
administrative adjustment.
PART III--PROVISION RELATING TO CLOSING OF PARTNERSHIP TAXABLE YEAR WITH
RESPECT TO DECEASED PARTNER, ETC.
SEC. 1246. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH RESPECT TO DECEASED
PARTNER, ETC.
(a) General Rule.--Subparagraph (A) of section 706(c)(2) (relating
to disposition of entire interest) is amended to read as follows:
``(A) Disposition of entire interest.--The taxable
year of a partnership shall close with respect to a
partner whose entire interest in the partnership
terminates (whether by reason of death, liquidation, or
otherwise).''.
(b) Clerical Amendment.--The paragraph heading for paragraph (2) of
section 706(c) is amended to read as follows:
``(2) Treatment of dispositions.--''.
<<NOTE: 26 USC 706 note.>> (c) Effective Date.--The amendments made
by this section shall apply to partnership taxable years beginning after
December 31, 1997.
Subtitle D--Provisions Relating to Real Estate Investment Trusts
SEC. 1251. CLARIFICATION OF LIMITATION ON MAXIMUM NUMBER OF
SHAREHOLDERS.
(a) Rules Relating to Determination of Ownership.--
(1) Failure to issue shareholder demand letter not to
disqualify reit.--Section 857(a) (relating to requirements
applicable to real estate investment trusts) is amended by
striking paragraph (2) and by redesignating paragraph (3) as
paragraph (2).
(2) Shareholder demand letter requirement; penalty.--Section
857 (relating to taxation of real estate investment trusts and
their beneficiaries) is amended by redesignating subsection (f)
as subsection (g) and by inserting after subsection (e) the
following new subsection:
``(f) Real Estate Investment Trusts To Ascertain Ownership.--
``(1) In general.--Each real estate investment trust shall
each taxable year comply with regulations prescribed by the
[[Page 111 STAT. 1031]]
Secretary for the purposes of ascertaining the actual ownership
of the outstanding shares, or certificates of beneficial
interest, of such trust.
``(2) Failure to comply.--
``(A) In general.--If a real estate investment trust
fails to comply with the requirements of paragraph (1)
for a taxable year, such trust shall pay (on notice and
demand by the Secretary and in the same manner as tax) a
penalty of $25,000.
``(B) Intentional disregard.--If any failure under
paragraph (1) is due to intentional disregard of the
requirement under paragraph (1), the penalty under
subparagraph (A) shall be $50,000.
``(C) Failure to comply after notice.--The Secretary
may require a real estate investment trust to take such
actions as the Secretary determines appropriate to
ascertain actual ownership if the trust fails to meet
the requirements of paragraph (1). If the trust fails to
take such actions, the trust shall pay (on notice and
demand by the Secretary and in the same manner as tax)
an additional penalty equal to the penalty determined
under subparagraph (A) or (B), whichever is applicable.
``(D) Reasonable cause.--No penalty shall be imposed
under this paragraph with respect to any failure if it
is shown that such failure is due to reasonable cause
and not to willful neglect.''.
(b) Compliance With Closely Held Prohibition.--
(1) In general.--Section 856 (defining real estate
investment trust) is amended by adding at the end the following
new subsection:
``(k) Requirement That Entity Not Be Closely Held Treated as Met in
Certain Cases.--A corporation, trust, or association--
``(1) which for a taxable year meets the requirements of
section 857(f)(1), and
``(2) which does not know, or exercising reasonable
diligence would not have known, whether the entity failed to
meet the requirement of subsection (a)(6),
shall be treated as having met the requirement of subsection (a)(6) for
the taxable year.''.
(2) Conforming amendment.--Paragraph (6) of section 856(a)
is amended by inserting ``subject to the provisions of
subsection (k),'' before ``which is not''.
SEC. 1252. DE MINIMIS RULE FOR TENANT SERVICES INCOME.
(a) In General.--Paragraph (2) of section 856(d) (defining rents
from real property) is amended by striking subparagraph (C) and the last
sentence and inserting:
``(C) any impermissible tenant service income (as
defined in paragraph (7)).''.
(b) Impermissible Tenant Service Income.--Section 856(d) is amended
by adding at the end the following new paragraph:
``(7) Impermissible tenant service income.--For purposes of
paragraph (2)(C)--
``(A) In general.--The term `impermissible tenant
service income' means, with respect to any real or
personal
[[Page 111 STAT. 1032]]
property, any amount received or accrued directly or
indirectly by the real estate investment trust for--
``(i) services furnished or rendered by the
trust to the tenants of such property, or
``(ii) managing or operating such property.
``(B) Disqualification of all amounts where more
than de minimis amount.--If the amount described in
subparagraph (A) with respect to a property for any
taxable year exceeds 1 percent of all amounts received
or accrued during such taxable year directly or
indirectly by the real estate investment trust with
respect to such property, the impermissible tenant
service income of the trust with respect to the property
shall include all such amounts.
``(C) Exceptions.--For purposes of subparagraph
(A)--
``(i) services furnished or rendered, or
management or operation provided, through an
independent contractor from whom the trust itself
does not derive or receive any income shall not be
treated as furnished, rendered, or provided by the
trust, and
``(ii) there shall not be taken into account
any amount which would be excluded from unrelated
business taxable income under section 512(b)(3) if
received by an organization described in section
511(a)(2).
``(D) Amount attributable to impermissible
services.--For purposes of subparagraph (A), the amount
treated as received for any service (or management or
operation) shall not be less than 150 percent of the
direct cost of the trust in furnishing or rendering the
service (or providing the management or operation).
``(E) Coordination with limitations.--For purposes
of paragraphs (2) and (3) of subsection (c), amounts
described in subparagraph (A) shall be included in the
gross income of the corporation, trust, or
association.''.
SEC. 1253. ATTRIBUTION RULES APPLICABLE TO STOCK OWNERSHIP.
Section 856(d)(5) (relating to constructive ownership of stock) is
amended by striking ``except that'' and all that follows and inserting
``except that--
``(A) `10 percent' shall be substituted for `50
percent' in subparagraph (C) of paragraphs (2) and (3)
of section 318(a), and
``(B) section 318(a)(3)(A) shall be applied in the
case of a partnership by taking into account only
partners who own (directly or indirectly) 25 percent or
more of the capital interest, or the profits interest,
in the partnership.''.
SEC. 1254. CREDIT FOR TAX PAID BY REIT ON RETAINED CAPITAL GAINS.
(a) General Rule.--Paragraph (3) of section 857(b) (relating to
capital gains) is amended by redesignating subparagraph (D) as
subparagraph (E) and by inserting after subparagraph (C) the following
new subparagraph:
``(D) Treatment by shareholders of undistributed
capital gains.--
``(i) Every shareholder of a real estate
investment trust at the close of the trust's
taxable year shall include, in computing his long-
term capital gains in his return for his taxable
year in which the last day
[[Page 111 STAT. 1033]]
of the trust's taxable year falls, such amount as
the trust shall designate in respect of such
shares in a written notice mailed to its
shareholders at any time prior to the expiration
of 60 days after the close of its taxable year (or
mailed to its shareholders or holders of
beneficial interests with its annual report for
the taxable year), but the amount so includible by
any shareholder shall not exceed that part of the
amount subjected to tax in subparagraph (A)(ii)
which he would have received if all of such amount
had been distributed as capital gain dividends by
the trust to the holders of such shares at the
close of its taxable year.
``(ii) For purposes of this title, every such
shareholder shall be deemed to have paid, for his
taxable year under clause (i), the tax imposed by
subparagraph (A)(ii) on the amounts required by
this subparagraph to be included in respect of
such shares in computing his long-term capital
gains for that year; and such shareholders shall
be allowed credit or refund as the case may be,
for the tax so deemed to have been paid by him.
``(iii) The adjusted basis of such shares in
the hands of the holder shall be increased with
respect to the amounts required by this
subparagraph to be included in computing his long-
term capital gains, by the difference between the
amount of such includible gains and the tax deemed
paid by such shareholder in respect of such shares
under clause (ii).
``(iv) In the event of such designation, the
tax imposed by subparagraph (A)(ii) shall be paid
by the real estate investment trust within 30 days
after the close of its taxable year.
``(v) The earnings and profits of such real
estate investment trust, and the earnings and
profits of any such shareholder which is a
corporation, shall be appropriately adjusted in
accordance with regulations prescribed by the
Secretary.
``(vi) As used in this subparagraph, the terms
`shares' and `shareholders' shall include
beneficial interests and holders of beneficial
interests, respectively.''.
(b) Conforming Amendments.--
(1) Clause (i) of section 857(b)(7)(A) is amended by
striking ``subparagraph (B)'' and inserting ``subparagraph (B)
or (D)''.
(2) Clause (iii) of section 852(b)(3)(D) is amended by
striking ``by 65 percent'' and all that follows and inserting
``by the difference between the amount of such includible gains
and the tax deemed paid by such shareholder in respect of such
shares under clause (ii).''.
SEC. 1255. REPEAL OF 30-PERCENT GROSS INCOME REQUIREMENT.
(a) General Rule.--Subsection (c) of section 856 (relating to
limitations) is amended--
(1) by adding ``and'' at the end of paragraph (3),
(2) by striking paragraphs (4) and (8), and
[[Page 111 STAT. 1034]]
(3) by redesignating paragraphs (5), (6), and (7) as
paragraphs (4), (5), and (6), respectively.
(b) Conforming Amendments.--
(1) Subparagraph (G) of section 856(c)(5), as redesignated
by subsection (a), is amended by striking ``and such agreement
shall be treated as a security for purposes of paragraph
(4)(A)''.
(2) Paragraph (5) of section 857(b) is amended by striking
``section 856(c)(7)'' and inserting ``section 856(c)(6)''.
(3) Subparagraph (C) of section 857(b)(6) is amended by
striking ``section 856(c)(6)(B)'' and inserting ``section
856(c)(5)(B)''.
SEC. 1256. MODIFICATION OF EARNINGS AND PROFITS RULES FOR DETERMINING
WHETHER REIT HAS EARNINGS AND PROFITS FROM NON-REIT YEAR.
Subsection (d) of section 857 is amended by adding at the end the
following new paragraph:
``(3) Distributions to meet requirements of subsection
(a)(2)(B).--Any distribution which is made in order to comply
with the requirements of subsection (a)(2)(B)--
``(A) shall be treated for purposes of this
subsection and subsection (a)(2)(B) as made from the
earliest accumulated earnings and profits (other than
earnings and profits to which subsection (a)(2)(A)
applies) rather than the most recently accumulated
earnings and profits, and
``(B) to the extent treated under subparagraph (A)
as made from accumulated earnings and profits, shall not
be treated as a distribution for purposes of subsection
(b)(2)(B).''.
SEC. 1257. TREATMENT OF FORECLOSURE PROPERTY.
(a) Grace Periods.--
(1) Initial period.--Paragraph (2) of section 856(e)
(relating to special rules for foreclosure property) is amended
by striking ``on the date which is 2 years after the date the
trust acquired such property'' and inserting ``as of the close
of the 3d taxable year following the taxable year in which the
trust acquired such property''.
(2) Extension.--Paragraph (3) of section 856(e) is amended--
(A) by striking ``or more extensions'' and inserting
``extension'', and
(B) by striking the last sentence and inserting:
``Any such extension shall not extend the grace period
beyond the close of the 3d taxable year following the
last taxable year in the period under paragraph (2).''.
(b) Revocation of Election.--Paragraph (5) of section 856(e) is
amended by striking the last sentence and inserting: ``A real estate
investment trust may revoke any such election for a taxable year by
filing the revocation (in the manner provided by the Secretary) on or
before the due date (including any extension of time) for filing its
return of tax under this chapter for the taxable year. If a trust
revokes an election for any property, no election may be made by the
trust under this paragraph with respect to the property for any
subsequent taxable year.''.
(c) Certain Activities Not To Disqualify Property.--Paragraph (4) of
section 856(e) is amended by adding at the end the following new flush
sentence:
[[Page 111 STAT. 1035]]
``For purposes of subparagraph (C), property shall not be
treated as used in a trade or business by reason of any
activities of the real estate investment trust with respect to
such property to the extent that such activities would not
result in amounts received or accrued, directly or indirectly,
with respect to such property being treated as other than rents
from real property.''.
SEC. 1258. PAYMENTS UNDER HEDGING INSTRUMENTS.
Section 856(c)(5)(G) (relating to treatment of certain interest rate
agreements), as redesignated by section 1255, is amended to read as
follows:
``(G) Treatment of certain hedging instruments.--
Except to the extent provided by regulations, any--
``(i) payment to a real estate investment
trust under an interest rate swap or cap
agreement, option, futures contract, forward rate
agreement, or any similar financial instrument,
entered into by the trust in a transaction to
reduce the interest rate risks with respect to any
indebtedness incurred or to be incurred by the
trust to acquire or carry real estate assets, and
``(ii) gain from the sale or other disposition
of any such investment,
shall be treated as income qualifying under paragraph
(2).''.
SEC. 1259. EXCESS NONCASH INCOME.
Section 857(e)(2) (relating to determination of amount of excess
noncash income) is amended--
(1) by striking subparagraph (B),
(2) by striking the period at the end of subparagraph (C)
and inserting a comma,
(3) by redesignating subparagraph (C) (as amended by
paragraph (2)) as subparagraph (B), and
(4) by adding at the end the following new subparagraphs:
``(C) the amount (if any) by which--
``(i) the amounts includible in gross income
with respect to instruments to which section
860E(a) or 1272 applies, exceed
``(ii) the amount of money and the fair market
value of other property received during the
taxable year under such instruments, and
``(D) amounts includible in income by reason of
cancellation of indebtedness.''.
SEC. 1260. PROHIBITED TRANSACTION SAFE HARBOR.
Clause (iii) of section 857(b)(6)(C) (relating to certain sales not
to constitute prohibited transactions) is amended by striking ``(other
than foreclosure property)'' in subclauses (I) and (II) and inserting
``(other than sales of foreclosure property or sales to which section
1033 applies)''.
SEC. 1261. SHARED APPRECIATION MORTGAGES.
(a) Bankruptcy Safe Harbor.--Section 856(j) (relating to treatment
of shared appreciation mortgages) is amended by redesignating paragraph
(4) as paragraph (5) and by inserting after paragraph (3) the following
new paragraph:
``(4) Coordination with 4-year holding period.--
[[Page 111 STAT. 1036]]
``(A) In general.--For purposes of section
857(b)(6)(C), if a real estate investment trust is
treated as having sold secured property under paragraph
(3)(A), the trust shall be treated as having held such
property for at least 4 years if--
``(i) the secured property is sold or
otherwise disposed of pursuant to a case under
title 11 of the United States Code,
``(ii) the seller is under the jurisdiction of
the court in such case, and
``(iii) the disposition is required by the
court or is pursuant to a plan approved by the
court.
``(B) Exception.--Subparagraph (A) shall not apply
if--
``(i) the secured property was acquired by the
seller with the intent to evict or foreclose, or
``(ii) the trust knew or had reason to know
that default on the obligation described in
paragraph (5)(A) would occur.''.
(b) Clarification of Definition of Shared Appreciation Provision.--
Clause (ii) of section 856(j)(5)(A) is amended by inserting before the
period ``or appreciation in value as of any specified date''.
SEC. 1262. WHOLLY OWNED SUBSIDIARIES.
Section 856(i)(2) (defining qualified REIT subsidiary) is amended by
striking ``at all times during the period such corporation was in
existence''.
<<NOTE: 26 USC 852 note.>> SEC. 1263. EFFECTIVE DATE.
The amendments made by this part shall apply to taxable years
beginning after the date of the enactment of this Act.
Subtitle E--Provisions Relating to Regulated Investment Companies
SEC. 1271. REPEAL OF 30-PERCENT GROSS INCOME LIMITATION.
(a) General Rule.--Subsection (b) of section 851 (relating to
limitations) is amended by striking paragraph (3), by adding ``and'' at
the end of paragraph (2), and by redesignating paragraph (4) as
paragraph (3).
(b) Technical Amendments.--
(1) The material following paragraph (3) of section 851(b)
(as redesignated by subsection (a)) is amended--
(A) by striking out ``paragraphs (2) and (3)'' and
inserting ``paragraph (2)'', and
(B) by striking out the last sentence thereof.
(2) Subsection (c) of section 851 is amended by striking
``subsection (b)(4)'' each place it appears (including the
heading) and inserting ``subsection (b)(3)''.
(3) Subsection (d) of section 851 is amended by striking
``subsections (b)(4)'' and inserting ``subsections (b)(3)''.
(4) Paragraph (1) of section 851(e) is amended by striking
``subsection (b)(4)'' and inserting ``subsection (b)(3)''.
(5) Paragraph (4) of section 851(e) is amended by striking
``subsections (b)(4)'' and inserting ``subsections (b)(3)''.
[[Page 111 STAT. 1037]]
(6) Section 851 is amended by striking subsection (g) and
redesignating subsection (h) as subsection (g).
(7) Subsection (g) of section 851 (as redesignated by
paragraph (6)) is amended by striking paragraph (3).
(8) Section 817(h)(2) is amended--
(A) by striking ``851(b)(4)'' in subparagraph (A)
and inserting ``851(b)(3)'', and
(B) by striking ``851(b)(4)(A)(i)'' in subparagraph
(B) and inserting ``851(b)(3)(A)(i)''.
(9) Section 1092(f)(2) is amended by striking ``Except for
purposes of section 851(b)(3), the'' and inserting ``The''.
<<NOTE: 26 USC 817 note.>> (c) Effective Date.--The amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
Subtitle F--Taxpayer Protections
SEC. 1281. REASONABLE CAUSE EXCEPTION FOR CERTAIN PENALTIES.
(a) Information on Deductible Employee Contributions.--Subsection
(g) of section 6652 (relating to information required in connection with
deductible employee contributions) is amended by adding at the end the
following new sentence: ``No penalty shall be imposed under this
subsection on any failure which is shown to be due to reasonable cause
and not willful neglect.''.
(b) Reports on Status as Qualified Small Business.--Subsection (k)
of section 6652 (relating to failure to make reports required under
section 1202) is amended by adding at the end the following new
sentence: ``No penalty shall be imposed under this subsection on any
failure which is shown to be due to reasonable cause and not willful
neglect.''.
(c) Returns of Personal Holding Company Tax by Foreign
Corporations.--Section 6683 (relating to failure of foreign corporation
to file return of personal holding company tax) is amended by adding at
the end the following new sentence: ``No penalty shall be imposed under
this section on any failure which is shown to be due to reasonable cause
and not willful neglect.''.
(d) Failure To Make Required Payments.--Subparagraph (A) of section
7519(f)(4) is amended by adding at the end the following new sentence:
``No penalty shall be imposed under this subparagraph on any failure
which is shown to be due to reasonable cause and not willful neglect.''.
<<NOTE: 26 USC 6652 note.>> (e) Effective Date.--The amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 1282. CLARIFICATION OF PERIOD FOR FILING CLAIMS FOR REFUNDS.
(a) In General.--Paragraph (3) of section 6512(b) (relating to
overpayment determined by Tax Court) is amended by adding at the end the
following flush sentence:
``In a case described in subparagraph (B) where the date of the
mailing of the notice of deficiency is during the third year
after the due date (with extensions) for filing the return of
tax and no return was filed before such date, the applicable
period under subsections (a) and (b)(2) of section 6511 shall be
3 years.''.
[[Page 111 STAT. 1038]]
<<NOTE: 26 USC 6512 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall apply to claims for credit or refund for taxable
years ending after the date of the enactment of this Act.
SEC. 1283. REPEAL OF AUTHORITY TO DISCLOSE WHETHER PROSPECTIVE JUROR HAS
BEEN AUDITED.
(a) In General.--Subsection (h) of section 6103 (relating to
disclosure to certain Federal officers and employees for purposes of tax
administration, etc.) is amended by striking paragraph (5) and by
redesignating paragraph (6) as paragraph (5).
(b) Conforming Amendment.--Paragraph (4) of section 6103(p) is
amended by striking ``(h)(6)'' each place it appears and inserting
``(h)(5)''.
<<NOTE: 26 USC 6103 note.>> (c) Effective Date.--The amendments made
by this section shall apply to judicial proceedings commenced after the
date of the enactment of this Act.
SEC. 1284. CLARIFICATION OF STATUTE OF LIMITATIONS.
(a) In General.--Subsection (a) of section 6501 (relating to
limitations on assessment and collection) is amended by adding at the
end thereof the following new sentence: ``For purposes of this chapter,
the term `return' means the return required to be filed by the taxpayer
(and does not include a return of any person from whom the taxpayer has
received an item of income, gain, loss, deduction, or credit).''.
<<NOTE: 26 USC 6501 note.>> (b) Effective Date.--The amendment made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 1285. AWARDING OF ADMINISTRATIVE COSTS.
(a) Right to Appeal Tax Court Decision.--Subsection (f) of section
7430 (relating to right of appeal) is amended by adding at the end the
following new paragraph:
``(3) Appeal of tax court decision.--An order of the Tax
Court disposing of a petition under paragraph (2) shall be
reviewable in the same manner as a decision of the Tax Court,
but only with respect to the matters determined in such
order.''.
(b) Period for Applying to IRS for Costs.--Subsection (b) of section
7430 (relating to limitations) is amended by adding at the end the
following new paragraph:
``(5) Period for applying to irs for administrative costs.--
An award may be made under subsection (a) by the Internal
Revenue Service for reasonable administrative costs only if the
prevailing party files an application with the Internal Revenue
Service for such costs before the 91st day after the date on
which the final decision of the Internal Revenue Service as to
the determination of the tax, interest, or penalty is mailed to
such party.''.
(c) Period for Petitioning of Tax Court for Review of Denial of
Costs.--Paragraph (2) of section 7430(f) (relating to right of appeal)
is amended--
(1) by striking ``appeal to'' and inserting ``the filing of
a petition for review with'', and
<<NOTE: Notice.>> (2) by adding at the end the following new
sentence: ``If the Secretary sends by certified or registered
mail a notice of such decision to the petitioner, no proceeding
in the Tax Court may be initiated under this paragraph unless
such petition is filed before the 91st day after the date of
such mailing.''.
[[Page 111 STAT. 1039]]
<<NOTE: 26 USC 7430 note.>> (d) Effective Date.--The amendments made
by this section shall apply to civil actions or proceedings commenced
after the date of the enactment of this Act.
TITLE XIII--SIMPLIFICATION PROVISIONS RELATING TO ESTATE AND GIFT TAXES
SEC. 1301. GIFTS TO CHARITIES EXEMPT FROM GIFT TAX FILING REQUIREMENTS.
(a) In General.--Section 6019 is amended by striking ``or'' at the
end of paragraph (1), by adding ``or'' at the end of paragraph (2), and
by inserting after paragraph (2) the following new paragraph:
``(3) a transfer with respect to which a deduction is
allowed under section 2522 but only if--
``(A)(i) such transfer is of the donor's entire
interest in the property transferred, and
``(ii) no other interest in such property is or has
been transferred (for less than adequate and full
consideration in money or money's worth) from the donor
to a person, or for a use, not described in subsection
(a) or (b) of section 2522, or
``(B) such transfer is described in section
2522(d),''.
<<NOTE: 26 USC 6019 note.>> (b) Effective Date.--The amendment made
by this section shall apply to gifts made after the date of the
enactment of this Act.
SEC. 1302. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS OF RECOVERY.
(a) Amendment to Section 2207A.--Paragraph (2) of section 2207A(a)
(relating to right of recovery in the case of certain marital deduction
property) is amended to read as follows:
``(2) Decedent may otherwise direct.--Paragraph (1) shall
not apply with respect to any property to the extent that the
decedent in his will (or a revocable trust) specifically
indicates an intent to waive any right of recovery under this
subchapter with respect to such property.''.
(b) Amendment to Section 2207B.--Paragraph (2) of section 2207B(a)
(relating to right of recovery where decedent retained interest) is
amended to read as follows:
``(2) Decedent may otherwise direct.--Paragraph (1) shall
not apply with respect to any property to the extent that the
decedent in his will (or a revocable trust) specifically
indicates an intent to waive any right of recovery under this
subchapter with respect to such property.''.
<<NOTE: 26 USC 2207A note.>> (c) Effective Date.--The amendments
made by this section shall apply with respect to the estates of
decedents dying after the date of the enactment of this Act.
<<NOTE: 26 USC 2056A note.>> SEC. 1303. TRANSITIONAL RULE UNDER SECTION
2056A.
(a) General Rule.--In the case of any trust created under an
instrument executed before the date of the enactment of the Revenue
Reconciliation Act of 1990, such trust shall be treated as meeting the
requirements of paragraph (1) of section 2056A(a)
[[Page 111 STAT. 1040]]
of the Internal Revenue Code of 1986 if the trust instrument requires
that all trustees of the trust be individual citizens of the United
States or domestic corporations.
(b) Effective Date.--The provisions of subsection (a) shall take
effect as if included in the provisions of section 11702(g) of the
Revenue Reconciliation Act of 1990.
SEC. 1304. TREATMENT FOR ESTATE TAX PURPOSES OF SHORT-TERM OBLIGATIONS
HELD BY NONRESIDENT ALIENS.
(a) In General.--Subsection (b) of section 2105 is amended by
striking ``and'' at the end of paragraph (2), by striking the period at
the end of paragraph (3) and inserting ``, and'', and by inserting after
paragraph (3) the following new paragraph:
``(4) obligations which would be original issue discount
obligations as defined in section 871(g)(1) but for subparagraph
(B)(i) thereof, if any interest thereon (were such interest
received by the decedent at the time of his death) would not be
effectively connected with the conduct of a trade or business
within the United States.''.
<<NOTE: 26 USC 2105 note.>> (b) Effective Date.--The amendment made
by this section shall apply to estates of decedents dying after the date
of the enactment of this Act.
SEC. 1305. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF ESTATE.
(a) In General.--Subpart A of part I of subchapter J (relating to
estates, trusts, beneficiaries, and decedents) is amended by adding at
the end the following new section:
``SEC. 646. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF ESTATE.
``(a) General Rule.--For purposes of this subtitle, if both the
executor (if any) of an estate and the trustee of a qualified revocable
trust elect the treatment provided in this section, such trust shall be
treated and taxed as part of such estate (and not as a separate trust)
for all taxable years of the estate ending after the date of the
decedent's death and before the applicable date.
``(b) Definitions.--For purposes of subsection (a)--
``(1) Qualified revocable trust.--The term `qualified
revocable trust' means any trust (or portion thereof) which was
treated under section 676 as owned by the decedent of the estate
referred to in subsection (a) by reason of a power in the
grantor (determined without regard to section 672(e)).
``(2) Applicable date.--The term `applicable date' means--
``(A) if no return of tax imposed by chapter 11 is
required to be filed, the date which is 2 years after
the date of the decedent's death, and
``(B) if such a return is required to be filed, the
date which is 6 months after the date of the final
determination of the liability for tax imposed by
chapter 11.
``(c) Election.--The election under subsection (a) shall be made not
later than the time prescribed for filing the return of tax imposed by
this chapter for the first taxable year of the estate (determined with
regard to extensions) and, once made, shall be irrevocable.''.
(b) Comparable Treatment Under Generation-Skipping Tax.--Paragraph
(1) of section 2652(b) is amended by adding at
[[Page 111 STAT. 1041]]
the end the following new sentence: ``Such term shall not include any
trust during any period the trust is treated as part of an estate under
section 646.''.
(c) Clerical Amendment.--The table of sections for such subpart A is
amended by adding at the end the following new item:
``Sec. 646. Certain revocable trusts treated as part of
estate.''.
<<NOTE: 26 USC 646 note.>> (d) Effective Date.--The amendments made
by this section shall apply with respect to estates of decedents dying
after the date of the enactment of this Act.
SEC. 1306. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAXABLE YEAR OF ESTATE.
(a) In General.--Subsection (b) of section 663 (relating to
distributions in first 65 days of taxable year) is amended by inserting
``an estate or'' before ``a trust'' each place it appears.
(b) Conforming Amendment.--Paragraph (2) of section 663(b) is
amended by striking ``the fiduciary of such trust'' and inserting ``the
executor of such estate or the fiduciary of such trust (as the case may
be)''.
<<NOTE: 26 USC 663 note.>> (c) Effective Date.--The amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 1307. SEPARATE SHARE RULES AVAILABLE TO ESTATES.
(a) In General.--Subsection (c) of section 663 (relating to separate
shares treated as separate trusts) is amended--
(1) by inserting before the last sentence the following new
sentence: ``Rules similar to the rules of the preceding
provisions of this subsection shall apply to treat substantially
separate and independent shares of different beneficiaries in an
estate having more than 1 beneficiary as separate estates.'',
and
(2) by inserting ``or estates'' after ``trusts'' in the last
sentence.
(b) Conforming Amendment.--The subsection heading of section 663(c)
is amended by inserting ``Estates or'' before ``Trusts''.
<<NOTE: 26 USC 663 note.>> (c) Effective Date.--The amendments made
by this section shall apply to estates of decedents dying after the date
of the enactment of this Act.
SEC. 1308. EXECUTOR OF ESTATE AND BENEFICIARIES TREATED AS RELATED
PERSONS FOR DISALLOWANCE OF LOSSES, ETC.
(a) Disallowance of Losses.--Subsection (b) of section 267 (relating
to losses, expenses, and interest with respect to transactions between
related taxpayers) is amended by striking ``or'' at the end of paragraph
(11), by striking the period at the end of paragraph (12) and inserting
``; or'', and by adding at the end the following new paragraph:
``(13) Except in the case of a sale or exchange in
satisfaction of a pecuniary bequest, an executor of an estate
and a beneficiary of such estate.''.
(b) Ordinary Income From Gain From Sale of Depreciable Property.--
Subsection (b) of section 1239 is amended by striking the period at the
end of paragraph (2) and inserting ``, and'' and by adding at the end
the following new paragraph:
[[Page 111 STAT. 1042]]
``(3) except in the case of a sale or exchange in
satisfaction of a pecuniary bequest, an executor of an estate
and a beneficiary of such estate.''.
<<NOTE: 26 USC 267 note.>> (c) Effective Date.--The amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 1309. TREATMENT OF FUNERAL TRUSTS.
(a) In General.--Subpart F of part I of subchapter J of chapter 1 is
amended by adding at the end the following new section:
``SEC. 685. TREATMENT OF FUNERAL TRUSTS.
``(a) In General.--In the case of a qualified funeral trust--
``(1) subparts B, C, D, and E shall not apply, and
``(2) no deduction shall be allowed by section 642(b).
``(b) Qualified Funeral Trust.--For purposes of this subsection, the
term `qualified funeral trust' means any trust (other than a foreign
trust) if--
``(1) the trust arises as a result of a contract with a
person engaged in the trade or business of providing funeral or
burial services or property necessary to provide such services,
``(2) the sole purpose of the trust is to hold, invest, and
reinvest funds in the trust and to use such funds solely to make
payments for such services or property for the benefit of the
beneficiaries of the trust,
``(3) the only beneficiaries of such trust are individuals
with respect to whom such services or property are to be
provided at their death under contracts described in paragraph
(1),
``(4) the only contributions to the trust are contributions
by or for the benefit of such beneficiaries,
``(5) the trustee elects the application of this subsection,
and
``(6) the trust would (but for the election described in
paragraph (5)) be treated as owned under subpart E by the
purchasers of the contracts described in paragraph (1).
``(c) Dollar Limitation on Contributions.--
``(1) In general.--The term `qualified funeral trust' shall
not include any trust which accepts aggregate contributions by
or for the benefit of an individual in excess of $7,000.
``(2) Related trusts.--For purposes of paragraph (1), all
trusts having trustees which are related persons shall be
treated as 1 trust. For purposes of the preceding sentence,
persons are related if--
``(A) the relationship between such persons is
described in section 267 or 707(b),
``(B) such persons are treated as a single employer
under subsection (a) or (b) of section 52, or
``(C) the Secretary determines that treating such
persons as related is necessary to prevent avoidance of
the purposes of this section.
``(3) Inflation adjustment.--In the case of any contract
referred to in subsection (b)(1) which is entered into during
any calendar year after 1998, the dollar amount referred to
paragraph (1) shall be increased by an amount equal to--
``(A) such dollar amount, multiplied by
[[Page 111 STAT. 1043]]
``(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year, by substituting
`calendar year 1997' for `calendar year 1992' in
subparagraph (B) thereof.
If any dollar amount after being increased under the preceding
sentence is not a multiple of $100, such dollar amount shall be
rounded to the nearest multiple of $100.
``(d) Application of Rate Schedule.--Section 1(e) shall be applied
to each qualified funeral trust by treating each beneficiary's interest
in each such trust as a separate trust.
``(e) Treatment of Amounts Refunded to Purchaser on Cancellation.--
No gain or loss shall be recognized to a purchaser of a contract
described in subsection (b)(1) by reason of any payment from such trust
to such purchaser by reason of cancellation of such contract. If any
payment referred to in the preceding sentence consists of property other
than money, the basis of such property in the hands of such purchaser
shall be the same as the trust's basis in such property immediately
before the payment.
``(f) Simplified Reporting.--The Secretary may prescribe rules for
simplified reporting of all trusts having a single trustee.''.
(b) Clerical Amendment.--The table of sections for subpart F of part
I of subchapter J of chapter 1 is amended by adding at the end the
following new item:
``Sec. 685. Treatment of funeral trusts.''.
<<NOTE: 26 USC 685 note.>> (c) Effective Date.--The amendments made
by this section shall apply to taxable years ending after the date of
the enactment of this Act.
SEC. 1310. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF DECEDENT'S DEATH.
(a) General Rule.--Section 2035 is amended to read as follows:
``SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE WITHIN 3 YEARS OF
DECEDENT'S DEATH.
``(a) Inclusion of Certain Property in Gross Estate.--If--
``(1) the decedent made a transfer (by trust or otherwise)
of an interest in any property, or relinquished a power with
respect to any property, during the 3-year period ending on the
date of the decedent's death, and
``(2) the value of such property (or an interest therein)
would have been included in the decedent's gross estate under
section 2036, 2037, 2038, or 2042 if such transferred interest
or relinquished power had been retained by the decedent on the
date of his death,
the value of the gross estate shall include the value of any property
(or interest therein) which would have been so included.
``(b) Inclusion of Gift Tax on Gifts Made During 3 Years Before
Decedent's Death.--The amount of the gross estate (determined without
regard to this subsection) shall be increased by the amount of any tax
paid under chapter 12 by the decedent or his estate on any gift made by
the decedent or his spouse during the 3-year period ending on the date
of the decedent's death.
``(c) Other Rules Relating to Transfers Within 3 Years of Death.--
``(1) In general.--For purposes of--
[[Page 111 STAT. 1044]]
``(A) section 303(b) (relating to distributions in
redemption of stock to pay death taxes),
``(B) section 2032A (relating to special valuation
of certain farms, etc., real property), and
``(C) subchapter C of chapter 64 (relating to lien
for taxes),
the value of the gross estate shall include the value of all
property to the extent of any interest therein of which the
decedent has at any time made a transfer, by trust or otherwise,
during the 3-year period ending on the date of the decedent's
death.
``(2) Coordination with section 6166.--An estate shall be
treated as meeting the 35 percent of adjusted gross estate
requirement of section 6166(a)(1) only if the estate meets such
requirement both with and without the application of paragraph
(1).
``(3) Marital and small transfers.--Paragraph (1) shall not
apply to any transfer (other than a transfer with respect to a
life insurance policy) made during a calendar year to any donee
if the decedent was not required by section 6019 (other than by
reason of section 6019(2)) to file any gift tax return for such
year with respect to transfers to such donee.
``(d) Exception.--Subsection (a) shall not apply to any bona fide
sale for an adequate and full consideration in money or money's worth.
``(e) Treatment of Certain Transfers From Revocable Trusts.--For
purposes of this section and section 2038, any transfer from any portion
of a trust during any period that such portion was treated under section
676 as owned by the decedent by reason of a power in the grantor
(determined without regard to section 672(e)) shall be treated as a
transfer made directly by the decedent.''.
(b) Clerical Amendment.--The table of sections for part III of
subchapter A of chapter 11 is amended by striking ``gifts'' in the item
relating to section 2035 and inserting ``certain gifts''.
<<NOTE: 26 USC 2035 note.>> (c) Effective Date.--The amendments made
by this section shall apply to the estates of decedents dying after the
date of the enactment of this Act.
SEC. 1311. CLARIFICATION OF TREATMENT OF SURVIVOR ANNUITIES UNDER
QUALIFIED TERMINABLE INTEREST RULES.
(a) In General.--Subparagraph (C) of section 2056(b)(7) is amended
by inserting ``(or, in the case of an interest in an annuity arising
under the community property laws of a State, included in the gross
estate of the decedent under section 2033)'' after ``section 2039''.
<<NOTE: 26 USC 2056 note.>> (b) Effective Date.--The amendment made
by this section shall apply to estates of decedents dying after the date
of the enactment of this Act.
SEC. 1312. TREATMENT UNDER QUALIFIED DOMESTIC TRUST RULES OF FORMS OF
OWNERSHIP WHICH ARE NOT TRUSTS.
(a) In General.--Subsection (c) of section 2056A (defining qualified
domestic trust) is amended by adding at the end the following new
paragraph:
``(3) Trust.--To the extent provided in regulations
prescribed by the Secretary, the term `trust' includes other
arrangements which have substantially the same effect as a
trust.''.
[[Page 111 STAT. 1045]]
<<NOTE: 26 USC 2056A note.>> (b) Effective Date.--The amendment made
by this section shall apply to estates of decedents dying after the date
of the enactment of this Act.
SEC. 1313. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER SECTION 2032A.
(a) General Rule.--Paragraph (3) of section 2032A(d) (relating to
modification of election and agreement to be permitted) is amended to
read as follows:
<<NOTE: Regulations.>> ``(3) Modification of election and
agreement to be permitted.--The Secretary shall prescribe
procedures which provide that in any case in which the executor
makes an election under paragraph (1) (and submits the agreement
referred to in paragraph (2)) within the time prescribed
therefor, but--
``(A) the notice of election, as filed, does not
contain all required information, or
``(B) signatures of 1 or more persons required to
enter into the agreement described in paragraph (2) are
not included on the agreement as filed, or the agreement
does not contain all required information,
the executor will have a reasonable period of time (not
exceeding 90 days) after notification of such failures to
provide such information or signatures.''.
<<NOTE: 26 USC 2032A note.>> (b) Effective Date.--The amendment made
by subsection (a) shall apply to the estates of decedents dying after
the date of the enactment of this Act.
SEC. 1314. AUTHORITY TO WAIVE REQUIREMENT OF UNITED STATES TRUSTEE FOR
QUALIFIED DOMESTIC TRUSTS.
(a) In General.--Subparagraph (A) of section 2056A(a)(1) is amended
by inserting ``except as provided in regulations prescribed by the
Secretary,'' before ``requires''.
<<NOTE: 26 USC 2056A note.>> (b) Effective Date.--The amendment made
by this section shall apply to estates of decedents dying after the date
of the enactment of this Act.
TITLE XIV--SIMPLIFICATION PROVISIONS RELATING TO EXCISE TAXES, TAX-
EXEMPT BONDS, AND OTHER MATTERS
Subtitle A--Excise Tax Simplification
PART I--EXCISE TAXES ON HEAVY TRUCKS AND LUXURY CARS
SEC. 1401. INCREASE IN DE MINIMIS LIMIT FOR AFTER-MARKET ALTERATIONS FOR
HEAVY TRUCKS AND LUXURY CARS.
(a) In General.--Sections 4003(a)(3)(C) and 4051(b)(2)(B) (relating
to exceptions) are each amended by striking ``$200'' and inserting
``$1,000''.
[[Page 111 STAT. 1046]]
<<NOTE: 26 USC 4003 note.>> (b) Effective Date.--The amendments made
by subsection (a) shall apply to installations on vehicles sold after
the date of the enactment of this Act.
SEC. 1402. CREDIT FOR TIRE TAX IN LIEU OF EXCLUSION OF VALUE OF TIRES IN
COMPUTING PRICE.
(a) In General.--Subsection (e) of section 4051 is amended to read
as follows:
``(e) Credit Against Tax for Tire Tax.--If--
``(1) tires are sold on or in connection with the sale of
any article, and
``(2) tax is imposed by this subchapter on the sale of such
tires,
there shall be allowed as a credit against the tax imposed by this
subchapter an amount equal to the tax (if any) imposed by section 4071
on such tires.''.
(b) Conforming Amendment.--Subparagraph (B) of section 4052(b)(1) is
amended by striking clause (iii), by adding ``and'' at the end of clause
(ii), and by redesignating clause (iv) as clause (iii).
<<NOTE: 26 USC 4051 note.>> (c) Effective Date.--The amendments made
by this section shall take effect on January 1, 1998.
PART II--PROVISIONS RELATED TO DISTILLED SPIRITS, WINES, AND BEER
SEC. 1411. CREDIT OR REFUND FOR IMPORTED BOTTLED DISTILLED SPIRITS
RETURNED TO DISTILLED SPIRITS PLANT.
(a) In General.--Section 5008(c)(1) (relating to distilled spirits
returned to bonded premises) is amended by striking ``withdrawn from
bonded premises on payment or determination of tax'' and inserting ``on
which tax has been determined or paid''.
<<NOTE: 26 USC 5008 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall take effect on the 1st day of the 1st calendar
quarter that begins at least 180 days after the date of the enactment of
this Act.
SEC. 1412. AUTHORITY TO CANCEL OR CREDIT EXPORT BONDS WITHOUT SUBMISSION
OF RECORDS.
(a) In General.--Section 5175(c) (relating to cancellation of credit
of export bonds) is amended by striking ``on the submission of'' and all
that follows and inserting ``if there is such proof of exportation as
the Secretary may by regulations require.''.
<<NOTE: 26 USC 5175 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall take effect on the 1st day of the 1st calendar
quarter that begins at least 180 days after the date of the enactment of
this Act.
SEC. 1413. REPEAL OF REQUIRED MAINTENANCE OF RECORDS ON PREMISES OF
DISTILLED SPIRITS PLANT.
(a) In General.--Section 5207(c) (relating to preservation and
inspection) is amended by striking ``shall be kept on the premises where
the operations covered by the record are carried on and''.
<<NOTE: 26 USC 5207 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall take effect on the 1st day of the 1st calendar
quarter that begins at least 180 days after the date of the enactment of
this Act.
[[Page 111 STAT. 1047]]
SEC. 1414. FERMENTED MATERIAL FROM ANY BREWERY MAY BE RECEIVED AT A
DISTILLED SPIRITS PLANT.
(a) In General.--Section 5222(b)(2) (relating to receipt) is amended
to read as follows:
``(2) beer conveyed without payment of tax from brewery
premises, beer which has been lawfully removed from brewery
premises upon determination of tax, or''.
(b) Clarification of Authority To Permit Removal of Beer Without
Payment of Tax for Use as Distilling Material.--Section 5053 (relating
to exemptions) is amended by redesignating subsection (f) as subsection
(i) and by inserting after subsection (e) the following new subsection:
``(f) Removal for Use as Distilling Material.--Subject to such
regulations as the Secretary may prescribe, beer may be removed from a
brewery without payment of tax to any distilled spirits plant for use as
distilling material.''.
(c) Clarification of Refund and Credit of Tax.--Section 5056
(relating to refund and credit of tax, or relief from liability) is
amended--
(1) by redesignating subsection (c) as subsection (d) and by
inserting after subsection (b) the following new subsection:
``(c) Beer Received at a Distilled Spirits Plant.--Any tax paid by
any brewer on beer produced in the United States may be refunded or
credited to the brewer, without interest, or if the tax has not been
paid, the brewer may be relieved of liability therefor, under
regulations as the Secretary may prescribe, if such beer is received on
the bonded premises of a distilled spirits plant pursuant to the
provisions of section 5222(b)(2), for use in the production of distilled
spirits.'', and
(2) by striking ``or rendering unmerchantable'' in
subsection (d) (as so redesignated) and inserting ``rendering
unmerchantable, or receipt on the bonded premises of a distilled
spirits plant''.
<<NOTE: 26 USC 5053 note.>> (d) Effective Date.--The amendments made
by this section shall take effect on the 1st day of the 1st calendar
quarter that begins at least 180 days after the date of the enactment of
this Act.
SEC. 1415. REPEAL OF REQUIREMENT FOR WHOLESALE DEALERS IN LIQUORS TO
POST SIGN.
(a) In General.--Section 5115 (relating to sign required on
premises) is hereby repealed.
(b) Conforming Amendments.--
(1) Section 5681(a) is amended by striking ``, and every
wholesale dealer in liquors,'' and by striking ``section 5115(a)
or''.
(2) Section 5681(c) is amended--
(A) by striking ``or wholesale liquor establishment,
on which no sign required by section 5115(a) or'' and
inserting ``on which no sign required by'', and
(B) by striking ``or wholesale liquor establishment,
or who'' and inserting ``or who''.
(3) The table of sections for subpart D of part II of
subchapter A of chapter 51 is amended by striking the item
relating to section 5115.
<<NOTE: 26 USC 5681 note.>> (c) Effective Date.--The amendments made
by this section shall take effect on the date of the enactment of this
Act.
[[Page 111 STAT. 1048]]
SEC. 1416. REFUND OF TAX TO WINE RETURNED TO BOND NOT LIMITED TO
UNMERCHANTABLE WINE.
(a) In General.--Section 5044(a) (relating to refund of tax on
unmerchantable wine) is amended by striking ``as unmerchantable''.
(b) Conforming Amendments.--
(1) Section 5361 is amended by striking ``unmerchantable''.
(2) The section heading for section 5044 is amended by
striking ``unmerchantable''.
(3) The item relating to section 5044 in the table of
sections for subpart C of part I of subchapter A of chapter 51
is amended by striking ``unmerchantable''.
<<NOTE: 26 USC 5044 note.>> (c) Effective Date.--The amendments made
by this section shall take effect on the 1st day of the 1st calendar
quarter that begins at least 180 days after the date of the enactment of
this Act.
SEC. 1417. USE OF ADDITIONAL AMELIORATING MATERIAL IN CERTAIN WINES.
(a) In General.--Section 5384(b)(2)(D) (relating to ameliorated
fruit and berry wines) is amended by striking ``loganberries, currants,
or gooseberries,'' and inserting ``any fruit or berry with a natural
fixed acid of 20 parts per thousand or more (before any correction of
such fruit or berry)''.
<<NOTE: 26 USC 5384 note.>> (b) Effective Date.--The amendment made
by this section shall take effect on the 1st day of the 1st calendar
quarter that begins at least 180 days after the date of the enactment of
this Act.
SEC. 1418. DOMESTICALLY PRODUCED BEER MAY BE WITHDRAWN FREE OF TAX FOR
USE OF FOREIGN EMBASSIES, LEGATIONS, ETC.
(a) In General.--Section 5053 (relating to exemptions), as amended
by section 1414(b), is amended by inserting after subsection (f) the
following new subsection:
``(g) Removals for Use of Foreign Embassies, Legations, Etc.--
``(1) In general.--Subject to such regulations as the
Secretary may prescribe--
``(A) beer may be withdrawn from the brewery without
payment of tax for transfer to any customs bonded
warehouse for entry pending withdrawal therefrom as
provided in subparagraph (B), and
``(B) beer entered into any customs bonded warehouse
under subparagraph (A) may be withdrawn for consumption
in the United States by, and for the official and family
use of, such foreign governments, organizations, and
individuals as are entitled to withdraw imported beer
from such warehouses free of tax.
Beer transferred to any customs bonded warehouse under
subparagraph (A) shall be entered, stored, and accounted for in
such warehouse under such regulations and bonds as the Secretary
may prescribe, and may be withdrawn therefrom by such
governments, organizations, and individuals free of tax under
the same conditions and procedures as imported beer.
[[Page 111 STAT. 1049]]
``(2) Other rules to apply.--Rules similar to the rules of
paragraphs (2) and (3) of section 5362(e) shall apply for
purposes of this subsection.''.
<<NOTE: 26 USC 5053 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall take effect on the 1st day of the 1st calendar
quarter that begins at least 180 days after the date of the enactment of
this Act.
SEC. 1419. BEER MAY BE WITHDRAWN FREE OF TAX FOR DESTRUCTION.
(a) In General.--Section 5053 (relating to exemptions), as amended
by section 1418(a), is amended by inserting after subsection (g) the
following new subsection:
``(h) Removals for Destruction.--Subject to such regulations as the
Secretary may prescribe, beer may be removed from the brewery without
payment of tax for destruction.''.
<<NOTE: 26 USC 5053 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall take effect on the 1st day of the 1st calendar
quarter that begins at least 180 days after the date of the enactment of
this Act.
SEC. 1420. AUTHORITY TO ALLOW DRAWBACK ON EXPORTED BEER WITHOUT
SUBMISSION OF RECORDS.
(a) In General.--The first sentence of section 5055 (relating to
drawback of tax on beer) is amended by striking ``found to have been
paid'' and all that follows and inserting ``paid on such beer if there
is such proof of exportation as the Secretary may by regulations
require.''.
<<NOTE: 26 USC 5055 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall take effect on the 1st day of the 1st calendar
quarter that begins at least 180 days after the date of the enactment of
this Act.
SEC. 1421. TRANSFER TO BREWERY OF BEER IMPORTED IN BULK WITHOUT PAYMENT
OF TAX.
(a) In General.--Part II of subchapter G of chapter 51 is amended by
adding at the end the following new section:
``SEC. 5418. BEER IMPORTED IN BULK.
``Beer imported or brought into the United States in bulk containers
may, under such regulations as the Secretary may prescribe, be withdrawn
from customs custody and transferred in such bulk containers to the
premises of a brewery without payment of the internal revenue tax
imposed on such beer. The proprietor of a brewery to which such beer is
transferred shall become liable for the tax on the beer withdrawn from
customs custody under this section upon release of the beer from customs
custody, and the importer, or the person bringing such beer into the
United States, shall thereupon be relieved of the liability for such
tax.''.
(b) Clerical Amendment.--The table of sections for such part II is
amended by adding at the end the following new item:
``Sec. 5418. Beer imported in bulk.''.
<<NOTE: 26 USC 5418 note.>> (c) Effective Date.--The amendments made
by this section shall take effect on the 1st day of the 1st calendar
quarter that begins at least 180 days after the date of the enactment of
this Act.
[[Page 111 STAT. 1050]]
SEC. 1422. TRANSFER TO BONDED WINE CELLARS OF WINE IMPORTED IN BULK
WITHOUT PAYMENT OF TAX.
(a) In General.--Part II of subchapter F of chapter 51 is amended by
inserting after section 5363 the following new section:
``SEC. 5364. WINE IMPORTED IN BULK.
``Wine imported or brought into the United States in bulk containers
may, under such regulations as the Secretary may prescribe, be withdrawn
from customs custody and transferred in such bulk containers to the
premises of a bonded wine cellar without payment of the internal revenue
tax imposed on such wine. The proprietor of a bonded wine cellar to
which such wine is transferred shall become liable for the tax on the
wine withdrawn from customs custody under this section upon release of
the wine from customs custody, and the importer, or the person bringing
such wine into the United States, shall thereupon be relieved of the
liability for such tax.''.
(b) Clerical Amendment.--The table of sections for such part II is
amended by inserting after the item relating to section 5363 the
following new item:
``Sec. 5364. Wine imported in bulk.''.
<<NOTE: 26 USC 5364 note.>> (c) Effective Date.--The amendments made
by this section shall take effect on the 1st day of the 1st calendar
quarter that begins at least 180 days after the date of the enactment of
this Act.
PART III--OTHER EXCISE TAX PROVISIONS
SEC. 1431. AUTHORITY TO GRANT EXEMPTIONS FROM REGISTRATION REQUIREMENTS.
(a) In General.--Section 4222(b)(2) (relating to export) is
amended--
(1) by striking ``in the case of any sale or resale for
export,'', and
(2) by striking ``Export'' and inserting ``Under
regulations''.
<<NOTE: 26 USC 4222 note.>> (b) Effective Date.--The amendments made
by subsection (a) shall take effect on the date of the enactment of this
Act.
SEC. 1432. REPEAL OF EXPIRED PROVISIONS.
(a) Piggy-Back Trailers.--Section 4051 (relating to imposition of
tax on heavy trucks and trailers sold at retail) is amended by striking
subsection (d) and by redesignating subsection (e) as subsection (d).
(b) Deep Seabed Mining.--
(1) In general.--Subchapter F of chapter 36 (relating to tax
on removal of hard mineral resources from deep seabed) is hereby
repealed.
(2) Conforming amendment.--The table of subchapters for
chapter 36 is amended by striking the item relating to
subchapter F.
(c) Ozone-Depleting Chemicals.--
(1) Paragraph (1) of section 4681(b) is amended by striking
subparagraphs (B) and (C) and inserting the following new
subparagraph:
``(B) Base tax amount.--The base tax amount for
purposes of subparagraph (A) with respect to any sale or
[[Page 111 STAT. 1051]]
use during any calendar year after 1995 shall be $5.35
increased by 45 cents for each year after 1995.''.
(2) Subsection (g) of section 4682 is amended to read as
follows:
``(g) Chemicals Used as Propellants in Metered-Dose Inhalers.--
``(1) Exemption from tax.--
``(A) 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.
``(B) Qualified sale.--For purposes of subparagraph
(A), 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.
<<NOTE: Applicability.>> 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.
``(2) 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 paragraph.''.
SEC. 1433. SIMPLIFICATION OF IMPOSITION OF EXCISE TAX ON ARROWS.
(a) In General.--Subsection (b) of section 4161 (relating to
imposition of tax) is amended to read as follows:
``(b) Bows and Arrows, Etc.--
``(1) Bows.--
``(A) In general.--There is hereby imposed on the
sale by the manufacturer, producer, or importer of any
bow which has a draw weight of 10 pounds or more, a tax
equal to 11 percent of the price for which so sold.
``(B) Parts and accessories.--There is hereby
imposed upon the sale by the manufacturer, producer, or
importer--
``(i) of any part of accessory suitable for
inclusion in or attachment to a bow described in
subparagraph (A), and
``(ii) of any quiver suitable for use with
arrows described in paragraph (2),
a tax equivalent to 11 percent of the price for which so
sold.
``(2) Arrows.--There is hereby imposed on the sale by the
manufacturer, producer, or importer of any shaft, point, nock,
or vane of a type used in the manufacture of any arrow which
after its assembly--
[[Page 111 STAT. 1052]]
``(A) measures 18 inches overall or more in length,
or
``(B) measures less than 18 inches overall in length
but is suitable for use with a bow described in
paragraph (1)(A),
a tax equal to 12.4 percent of the price for which so sold.
``(3) Coordination with subsection (a).--No tax shall be
imposed under this subsection with respect to any article
taxable under subsection (a).''.
<<NOTE: 26 USC 4161 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall apply to articles sold by the manufacturer,
producer, or importer after September 30, 1997.
SEC. 1434. MODIFICATIONS TO RETAIL TAX ON HEAVY TRUCKS.
(a) Certain Repairs and Modifications Not Treated as Manufacture.--
Section 4052 is amended by redesignating the subsection defining a long-
term lease as subsection (e) and by adding at the end the following new
subsection:
``(f) Certain Repairs and Modifications Not Treated as
Manufacture.--
``(1) In general.--An article described in section
4051(a)(1) shall not be treated as manufactured or produced
solely by reason of repairs or modifications to the article
(including any modification which changes the transportation
function of the article or restores a wrecked article to a
functional condition) if the cost of such repairs and
modifications does not exceed 75 percent of the retail price of
a comparable new article.
``(2) Exception.--Paragraph (1) shall not apply if the
article (as repaired or modified) would, if new, be taxable
under section 4051 and the article when new was not taxable
under this section or the corresponding provision of prior
law.''.
(b) Simplification of Certification Procedures With Respect to Sales
of Taxable Articles.--
(1) Repeal of registration requirement.--Subsection (d) of
section 4052 is amended by striking ``rules of--'' and all that
follows through ``shall apply'' and inserting ``rules of
subsections (c) and (d) of section 4216 (relating to partial
payments) shall apply''.
(2) Requirement to modify regulations.--Section 4052 is
amended by adding at the end the following new subsection:
``(g) Regulations.--The Secretary shall prescribe regulations which
permit, in lieu of any other certification, persons who are purchasing
articles taxable under this subchapter for resale or leasing in a long-
term lease to execute a statement (made under penalties of perjury) on
the sale invoice that such sale is for resale. The Secretary shall not
impose any registration requirement as a condition of using such
procedure.''.
<<NOTE: 26 USC 4052 note.>> (c) Effective Date.--The amendments made
by this section shall take effect on January 1, 1998.
SEC. 1435. SKYDIVING FLIGHTS EXEMPT FROM TAX ON TRANSPORTATION OF
PERSONS BY AIR.
(a) In General.--Section 4261 (relating to imposition of tax on
transportation of persons by air), as previously amended by this Act, is
amended by redesignating subsection (h) as subsection (i) and by
inserting after subsection (g) the following new subsection:
[[Page 111 STAT. 1053]]
``(h) Exemption for Skydiving Uses.--No tax shall be imposed by this
section or section 4271 on any air transportation exclusively for the
purpose of skydiving.''.
(b) Transportation Treated as Noncommercial Aviation.--The last
sentence of section 4041(c)(2) is amended by inserting before the period
``or by reason of section 4261(h)''.
(c) Effective Dates.--
<<NOTE: 26 USC 4261 note.>> (1) Subsection (a).--The
amendment made by subsection (a) shall apply to amounts paid
after September 30, 1997.
<<NOTE: 26 USC 4041 note.>> (2) Subsection (b).--The
amendment made by subsection (b) shall take effect on October 1,
1997.
SEC. 1436. ALLOWANCE OR CREDIT OF REFUND FOR TAX-PAID AVIATION FUEL
PURCHASED BY REGISTERED PRODUCER OF AVIATION FUEL.
(a) In General.--Section 4091 (relating to aviation fuel) is amended
by adding at the end the following new subsection:
``(d) Refund of Tax-Paid Aviation Fuel to Registered Producer of
Fuel.--If--
``(1) a producer of aviation fuel is registered under
section 4101, and
``(2) such producer establishes to the satisfaction of the
Secretary that a prior tax was paid (and not credited or
refunded) on aviation fuel held by such producer,
then an amount equal to the tax so paid shall be allowed as a refund
(without interest) to such producer in the same manner as if it were an
overpayment of tax imposed by this section.''.
(b) Conforming Amendment.--The last sentence of section 6416(d) is
amended by inserting before the period ``or to the tax imposed by
section 4091 in the case of refunds described in section 4091(d)''.
<<NOTE: 26 USC 4091 note.>> (c) Effective Date.--The amendments made
by this section shall apply to fuel acquired by the producer after
September 30, 1997.
Subtitle B--Tax-Exempt Bond Provisions
SEC. 1441. REPEAL OF $100,000 LIMITATION ON UNSPENT PROCEEDS UNDER 1-
YEAR EXCEPTION FROM REBATE.
Subclause (I) of section 148(f)(4)(B)(ii) (relating to additional
period for certain bonds) is amended by striking ``the lesser of 5
percent of the proceeds of the issue or $100,000'' and inserting ``5
percent of the proceeds of the issue''.
SEC. 1442. EXCEPTION FROM REBATE FOR EARNINGS ON BONA FIDE DEBT SERVICE
FUND UNDER CONSTRUCTION BOND RULES.
Subparagraph (C) of section 148(f)(4) is amended by adding at the
end the following new clause:
``(xvii) Treatment of bona fide debt service
funds.--If the spending requirements of clause
(ii) are met with respect to the available
construction proceeds of a construction issue,
then paragraph (2) shall not apply to earnings on
a bona fide debt service fund for such issue.''.
[[Page 111 STAT. 1054]]
SEC. 1443. REPEAL OF DEBT SERVICE-BASED LIMITATION ON INVESTMENT IN
CERTAIN NONPURPOSE INVESTMENTS.
Subsection (d) of section 148 (relating to special rules for
reasonably required reserve or replacement fund) is amended by striking
paragraph (3).
SEC. 1444. REPEAL OF EXPIRED PROVISIONS.
(a) Paragraph (2) of section 148(c) is amended by striking
subparagraph (B) and by redesignating subparagraphs (C), (D), and (E) as
subparagraphs (B), (C), and (D), respectively.
(b) Paragraph (4) of section 148(f) is amended by striking
subparagraph (E).
<<NOTE: 26 USC 148 note.>> SEC. 1445. EFFECTIVE DATE.
The amendments made by this subtitle shall apply to bonds issued
after the date of the enactment of this Act.
Subtitle C--Tax Court Procedures
SEC. 1451. OVERPAYMENT DETERMINATIONS OF TAX COURT.
(a) Appeal of Order.--Paragraph (2) of section 6512(b) (relating to
jurisdiction to enforce) is amended by adding at the end the following
new sentence: ``An order of the Tax Court disposing of a motion under
this paragraph shall be reviewable in the same manner as a decision of
the Tax Court, but only with respect to the matters determined in such
order.''.
(b) Denial of Jurisdiction Regarding Certain Credits and
Reductions.--Subsection (b) of section 6512 (relating to overpayment
determined by Tax Court) is amended by adding at the end the following
new paragraph:
``(4) Denial of jurisdiction regarding certain credits and
reductions.--The Tax Court shall have no jurisdiction under this
subsection to restrain or review any credit or reduction made by
the Secretary under section 6402.''.
<<NOTE: 26 USC 6512 note.>> (c) Effective Date.--The amendments made
by this section shall take effect on the date of the enactment of this
Act.
SEC. 1452. REDETERMINATION OF INTEREST PURSUANT TO MOTION.
(a) In General.--Subsection (c) of section 7481 (relating to
jurisdiction over interest determinations) is amended to read as
follows:
``(c) Jurisdiction Over Interest Determinations.--
``(1) In general.--Notwithstanding subsection (a), if,
within 1 year after the date the decision of the Tax Court
becomes final under subsection (a) in a case to which this
subsection applies, the taxpayer files a motion in the Tax Court
for a redetermination of the amount of interest involved, then
the Tax Court may reopen the case solely to determine whether
the taxpayer has made an overpayment of such interest or the
Secretary has made an underpayment of such interest and the
amount thereof.
``(2) Cases to which this subsection applies.--This
subsection shall apply where--
``(A)(i) an assessment has been made by the
Secretary under section 6215 which includes interest as
imposed by this title, and
[[Page 111 STAT. 1055]]
``(ii) the taxpayer has paid the entire amount of
the deficiency plus interest claimed by the Secretary,
and
``(B) the Tax Court finds under section 6512(b) that
the taxpayer has made an overpayment.
``(3) Special rules.--If the Tax Court determines under this
subsection that the taxpayer has made an overpayment of interest
or that the Secretary has made an underpayment of interest, then
that determination shall be treated under section 6512(b)(1) as
a determination of an overpayment of tax. An order of the Tax
Court redetermining interest, when entered upon the records of
the court, shall be reviewable in the same manner as a decision
of the Tax Court.''.
<<NOTE: 26 USC 7481 note.>> (b) Effective Date.--The amendment made
by this section shall take effect on the date of the enactment of this
Act.
SEC. 1453. APPLICATION OF NET WORTH REQUIREMENT FOR AWARDS OF LITIGATION
COSTS.
(a) In General.--Paragraph (4) of section 7430(c) (defining
prevailing party) is amended by adding at the end thereof the following
new subparagraph:
``(D) Special rules for applying net worth
requirement.--In applying the requirements of section
2412(d)(2)(B) of title 28, United States Code, for
purposes of subparagraph (A)(iii) of this paragraph--
``(i) the net worth limitation in clause (i)
of such section shall apply to--
``(I) an estate but shall be
determined as of the date of the
decedent's death, and
``(II) a trust but shall be
determined as of the last day of the
taxable year involved in the proceeding,
and
``(ii) individuals filing a joint return shall
be treated as separate individuals for purposes of
clause (i) of such section.''.
<<NOTE: 26 USC 7430 note.>> (b) Effective Date.--The amendment made
by this section shall apply to proceedings commenced after the date of
the enactment of this Act.
SEC. 1454. PROCEEDINGS FOR DETERMINATION OF EMPLOYMENT STATUS.
(a) In General.--Subchapter B of chapter 76 (relating to proceedings
by taxpayers and third parties) is amended by redesignating section 7436
as section 7437 and by inserting after section 7435 the following new
section:
``SEC. 7436. PROCEEDINGS FOR DETERMINATION OF EMPLOYMENT STATUS.
``(a) Creation of Remedy.--If, in connection with an audit of any
person, there is an actual controversy involving a determination by the
Secretary as part of an examination that--
``(1) one or more individuals performing services for such
person are employees of such person for purposes of subtitle C,
or
``(2) such person is not entitled to the treatment under
subsection (a) of section 530 of the Revenue Act of 1978 with
respect to such an individual,
upon the filing of an appropriate pleading, the Tax Court may determine
whether such a determination by the Secretary is correct.
[[Page 111 STAT. 1056]]
Any such redetermination by the Tax Court shall have the force and
effect of a decision of the Tax Court and shall be reviewable as such.
``(b) Limitations.--
``(1) Petitioner.--A pleading may be filed under this
section only by the person for whom the services are performed.
``(2) Time for filing action.--If the Secretary sends by
certified or registered mail notice to the petitioner of a
determination by the Secretary described in subsection (a), no
proceeding may be initiated under this section with respect to
such determination unless the pleading is filed before the 91st
day after the date of such mailing.
``(3) No adverse inference from treatment while action is
pending.--If, during the pendency of any proceeding brought
under this section, the petitioner changes his treatment for
employment tax purposes of any individual whose employment
status as an employee is involved in such proceeding (or of any
individual holding a substantially similar position) to
treatment as an employee, such change shall not be taken into
account in the Tax Court's determination under this section.
``(c) Small Case Procedures.--
``(1) In general.--At the option of the petitioner,
concurred in by the Tax Court or a division thereof before the
hearing of the case, proceedings under this section may
(notwithstanding the provisions of section 7453) be conducted
subject to the rules of evidence, practice, and procedure
applicable under section 7463 if the amount of employment taxes
placed in dispute is $10,000 or less for each calendar quarter
involved.
``(2) Finality of decisions.--A decision entered in any
proceeding conducted under this subsection shall not be reviewed
in any other court and shall not be treated as a precedent for
any other case not involving the same petitioner and the same
determinations.
``(3) Certain rules to apply.--Rules similar to the rules of
the last sentence of subsection (a), and subsections (c), (d),
and (e), of section 7463 shall apply to proceedings conducted
under this subsection.
<<NOTE: Applicability.>> ``(d) Special Rules.--
``(1) Restrictions on assessment and collection pending
action, etc.--The principles of subsections (a), (b), (c), (d),
and (f) of section 6213, section 6214(a), section 6215, section
6503(a), section 6512, and section 7481 shall apply to
proceedings brought under this section in the same manner as if
the Secretary's determination described in subsection (a) were a
notice of deficiency.
``(2) Awarding of costs and certain fees.--Section 7430
shall apply to proceedings brought under this section.
``(e) Employment Tax.--The term `employment tax' means any tax
imposed by subtitle C.''.
(b) Conforming Amendments.--
(1) Subsection (d) of section 6511 is amended by adding at
the end the following new paragraph:
``(7) Special period of limitation with respect to self-
employment tax in certain cases.--If--
``(A) the claim for credit or refund relates to an
overpayment of the tax imposed by chapter 2 (relating to
the
[[Page 111 STAT. 1057]]
tax on self-employment income) attributable to Tax Court
determination in a proceeding under section 7436, and
``(B) the allowance of a credit or refund of such
overpayment is otherwise prevented by the operation of
any law or rule of law other than section 7122 (relating
to compromises),
such credit or refund may be allowed or made if claim therefor
is filed on or before the last day of the second year after the
calendar year in which such determination becomes final.''.
(2) Subsection (a) of section 7421 is amended by striking
``and 7429(b)'' and inserting ``7429(b), and 7436''.
(3) Sections 7453 and 7481(b) are each amended by striking
``section 7463'' and inserting ``section 7436(c) or 7463''.
(4) The table of sections for subchapter B of chapter 76 is
amended by striking the last item and inserting the following:
``Sec. 7436. Proceedings for determination of employment
status.
``Sec. 7437. Cross references.''.
<<NOTE: 26 USC 6511 note.>> (c) Effective Date.--The amendments made
by this section shall take effect on the date of the enactment of this
Act.
Subtitle D--Other Provisions
SEC. 1461. EXTENSION OF DUE DATE OF FIRST QUARTER ESTIMATED TAX PAYMENT
BY PRIVATE FOUNDATIONS.
(a) In General.--Paragraph (3) of section 6655(g) is amended by
adding at the end the following new sentence: ``In the case of a private
foundation, subsection (c)(2) shall be applied by substituting `May 15'
for `April 15'.''.
<<NOTE: 26 USC 6655 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall apply for purposes of determining underpayments
of estimated tax for taxable years beginning after the date of the
enactment of this Act.
SEC. 1462. CLARIFICATION OF AUTHORITY TO WITHHOLD PUERTO RICO INCOME
TAXES FROM SALARIES OF FEDERAL EMPLOYEES.
(a) In General.--Subsection (c) of section 5517 of title 5, United
States Code, is amended by striking ``or territory or possession'' and
inserting ``, territory, possession, or commonwealth''.
<<NOTE: 5 USC 5517 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall take effect on January 1, 1998.
SEC. 1463. CERTAIN NOTICES DISREGARDED UNDER PROVISION INCREASING
INTEREST RATE ON LARGE CORPORATE UNDERPAYMENTS.
(a) General Rule.--Subparagraph (B) of section 6621(c)(2) (defining
applicable date) is amended by adding at the end the following new
clause:
``(iii) Exception for letters or notices
involving small amounts.--For purposes of this
paragraph, any letter or notice shall be
disregarded if the amount of the deficiency or
proposed deficiency (or the assessment or proposed
assessment) set forth in such letter or notice is
not greater than $100,000 (determined by not
taking into account any interest, penalties, or
additions to tax).''.
[[Page 111 STAT. 1058]]
<<NOTE: 26 USC 6621 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall apply for purposes of determining interest for
periods after December 31, 1997.
TITLE XV--PENSIONS AND EMPLOYEE BENEFITS
Subtitle A--Simplification
SEC. 1501. MATCHING CONTRIBUTIONS OF SELF-EMPLOYED INDIVIDUALS NOT
TREATED AS ELECTIVE EMPLOYER CONTRIBUTIONS.
(a) In General.--Section 402(g) (relating to limitation on exclusion
for elective deferrals) is amended by adding at the end the following:
``(9) Matching contributions on behalf of self-employed
individuals not treated as elective employer contributions.--
Except as provided in section 401(k)(3)(D)(ii), any matching
contribution described in section 401(m)(4)(A) which is made on
behalf of a self-employed individual (as defined in section
401(c)) shall not be treated as an elective employer
contribution under a qualified cash or deferred arrangement (as
defined in section 401(k)) for purposes of this title.''.
(b) Conforming Amendment for Simple Retirement Accounts.--Section
408(p) (relating to simple retirement accounts) is amended by adding at
the end the following:
``(8) Matching contributions on behalf of self-employed
individuals not treated as elective employer contributions.--Any
matching contribution described in paragraph (2)(A)(iii) which
is made on behalf of a self-employed individual (as defined in
section 401(c)) shall not be treated as an elective employer
contribution to a simple retirement account for purposes of this
title.''.
(c) Effective Dates.--
<<NOTE: 26 USC 402 note.>> (1) Elective deferrals.--The
amendment made by subsection (a) shall apply to years beginning
after December 31, 1997.
<<NOTE: 26 USC 408 note.>> (2) Simple retirement accounts.--
The amendment made by subsection (b) shall apply to years
beginning after December 31, 1996.
SEC. 1502. MODIFICATION OF PROHIBITION OF ASSIGNMENT OR ALIENATION.
(a) Amendment to ERISA.--Section 206(d) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1056(d)) is amended by adding at
the end the following:
``(4) Paragraph (1) shall not apply to any offset of a participant's
benefits provided under an employee pension benefit plan against an
amount that the participant is ordered or required to pay to the plan
if--
``(A) the order or requirement to pay arises--
``(i) under a judgment of conviction for a crime
involving such plan,
[[Page 111 STAT. 1059]]
``(ii) under a civil judgment (including a consent
order or decree) entered by a court in an action brought
in connection with a violation (or alleged violation) of
part 4 of this subtitle, or
``(iii) pursuant to a settlement agreement between
the Secretary and the participant, or a settlement
agreement between the Pension Benefit Guaranty
Corporation and the participant, in connection with a
violation (or alleged violation) of part 4 of this
subtitle by a fiduciary or any other person,
``(B) the judgment, order, decree, or settlement agreement
expressly provides for the offset of all or part of the amount
ordered or required to be paid to the plan against the
participant's benefits provided under the plan, and
``(C) in a case in which the survivor annuity requirements
of section 205 apply with respect to distributions from the plan
to the participant, if the participant has a spouse at the time
at which the offset is to be made--
``(i) either--
``(I) such spouse has consented in writing to
such offset and such consent is witnessed by a
notary public or representative of the plan (or it
is established to the satisfaction of a plan
representative that such consent may not be
obtained by reason of circumstances described in
section 205(c)(2)(B)), or
``(II) an election to waive the right of the
spouse to a qualified joint and survivor annuity
or a qualified preretirement survivor annuity is
in effect in accordance with the requirements of
section 205(c),
``(ii) such spouse is ordered or required in such
judgment, order, decree, or settlement to pay an amount
to the plan in connection with a violation of part 4 of
this subtitle, or
``(iii) in such judgment, order, decree, or
settlement, such spouse retains the right to receive the
survivor annuity under a qualified joint and survivor
annuity provided pursuant to section 205(a)(1) and under
a qualified preretirement survivor annuity provided
pursuant to section 205(a)(2), determined in accordance
with paragraph (5).
A plan shall not be treated as failing to meet the requirements of
section 205 solely by reason of an offset under this paragraph.
``(5)(A) The survivor annuity described in paragraph (4)(C)(iii)
shall be determined as if--
``(i) the participant terminated employment on the date of
the offset,
``(ii) there was no offset,
``(iii) the plan permitted commencement of benefits only on
or after normal retirement age,
``(iv) the plan provided only the minimum-required qualified
joint and survivor annuity, and
``(v) the amount of the qualified preretirement survivor
annuity under the plan is equal to the amount of the survivor
annuity payable under the minimum-required qualified joint and
survivor annuity.
``(B) For purposes of this paragraph, the term `minimum-required
qualified joint and survivor annuity' means the qualified joint and
survivor annuity which is the actuarial equivalent of
[[Page 111 STAT. 1060]]
the participant's accrued benefit (within the meaning of section 3(23))
and under which the survivor annuity is 50 percent of the amount of the
annuity which is payable during the joint lives of the participant and
the spouse.''.
(b) Amendment to 1986 Code.--Section 401(a)(13) (relating to
assignment and alienation) is amended by adding at the end the
following:
``(C) Special rule for certain judgments and
settlements.--Subparagraph (A) shall not apply to any
offset of a participant's benefits provided under a plan
against an amount that the participant is ordered or
required to pay to the plan if--
``(i) the order or requirement to pay arises--
``(I) under a judgment of conviction
for a crime involving such plan,
``(II) under a civil judgment
(including a consent order or decree)
entered by a court in an action brought
in connection with a violation (or
alleged violation) of part 4 of subtitle
B of title I of the Employee Retirement
Income Security Act of 1974, or
``(III) pursuant to a settlement
agreement between the Secretary of Labor
and the participant, or a settlement
agreement between the Pension Benefit
Guaranty Corporation and the
participant, in connection with a
violation (or alleged violation) of part
4 of such subtitle by a fiduciary or any
other person,
``(ii) the judgment, order, decree, or
settlement agreement expressly provides for the
offset of all or part of the amount ordered or
required to be paid to the plan against the
participant's benefits provided under the plan,
and
``(iii) in a case in which the survivor
annuity requirements of section 401(a)(11) apply
with respect to distributions from the plan to the
participant, if the participant has a spouse at
the time at which the offset is to be made--
``(I) either such spouse has
consented in writing to such offset and
such consent is witnessed by a notary
public or representative of the plan (or
it is established to the satisfaction of
a plan representative that such consent
may not be obtained by reason of
circumstances described in section
417(a)(2)(B)), or an election to waive
the right of the spouse to either a
qualified joint and survivor annuity or
a qualified preretirement survivor
annuity is in effect in accordance with
the requirements of section 417(a),
``(II) such spouse is ordered or
required in such judgment, order,
decree, or settlement to pay an amount
to the plan in connection with a
violation of part 4 of such subtitle, or
``(III) in such judgment, order,
decree, or settlement, such spouse
retains the right to receive the
survivor annuity under a qualified joint
and survivor annuity provided pursuant
to section
[[Page 111 STAT. 1061]]
401(a)(11)(A)(i) and under a qualified
preretirement survivor annuity provided
pursuant to section 401(a)(11)(A)(ii),
determined in accordance with
subparagraph (D).
A plan shall not be treated as failing to meet the
requirements of this subsection, subsection (k), section
403(b), or section 409(d) solely by reason of an offset
described in this subparagraph.
``(D) Survivor annuity.--
``(i) In general.--The survivor annuity
described in subparagraph (C)(iii)(III) shall be
determined as if--
``(I) the participant terminated
employment on the date of the offset,
``(II) there was no offset,
``(III) the plan permitted
commencement of benefits only on or
after normal retirement age,
``(IV) the plan provided only the
minimum-required qualified joint and
survivor annuity, and
``(V) the amount of the qualified
preretirement survivor annuity under the
plan is equal to the amount of the
survivor annuity payable under the
minimum-required qualified joint and
survivor annuity.
``(ii) Definition.--For purposes of this
subparagraph, the term `minimum-required qualified
joint and survivor annuity' means the qualified
joint and survivor annuity which is the actuarial
equivalent of the participant's accrued benefit
(within the meaning of section 411(a)(7)) and
under which the survivor annuity is 50 percent of
the amount of the annuity which is payable during
the joint lives of the participant and the
spouse.''.
<<NOTE: 26 USC 401 note.>> (c) Effective Date.--The amendments made
by this section shall apply to judgments, orders, and decrees issued,
and settlement agreements entered into, on or after the date of the
enactment of this Act.
SEC. 1503. ELIMINATION OF PAPERWORK BURDENS ON PLANS.
(a) Elimination of Unnecessary Filing Requirements.--Section 101(b)
of the Employee Retirement Income Security Act of 1974 (29 U.S.C.
1021(b)) is amended by striking paragraphs (1), (2), and (3) and by
redesignating paragraphs (4) and (5) as paragraphs (1) and (2),
respectively.
(b) Elimination of Plan Description.--
(1) In general.--Section 102(a) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1022(a)) is amended--
(A) by striking paragraph (2), and
(B) by striking ``(a)(1)'' and inserting ``(a)''.
(2) Conforming amendments.--
(A) Section 102(b) of such Act (29 U.S.C. 1022(b))
is amended by striking ``The plan description and
summary plan description shall contain'' and inserting
``The summary plan description shall contain''.
(B) The heading for section 102 of such Act is
amended by striking ``plan description and''.
[[Page 111 STAT. 1062]]
(c) Furnishing of Reports.--
(1) In general.--Section 104(a)(1) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1024(a)(1)) is
amended to read as follows:
``Sec. 104. (a)(1) The administrator of any employee benefit plan
subject to this part shall file with the Secretary the annual report for
a plan year within 210 days after the close of such year (or within such
time as may be required by regulations promulgated by the Secretary in
order to reduce duplicative filing). <<NOTE: Public information.>> The
Secretary shall make copies of such annual reports available for
inspection in the public document room of the Department of Labor.''.
(2) Secretary may request documents.--
(A) In general.--Section 104(a) of such Act (29
U.S.C. 1024(a)) is amended by adding at the end the
following:
``(6) The administrator of any employee benefit plan subject to this
part shall furnish to the Secretary, upon request, any documents
relating to the employee benefit plan, including but not limited to, the
latest summary plan description (including any summaries of plan changes
not contained in the summary plan description), and the bargaining
agreement, trust agreement, contract, or other instrument under which
the plan is established or operated.''.
(B) Penalty.--Section 502(c) of such Act (29 U.S.C.
1132(c)) is amended by redesignating paragraph (6) as
paragraph (7) and by inserting after paragraph (5) the
following:
``(6) If, within 30 days of a request by the Secretary to a plan
administrator for documents under section 104(a)(6), the plan
administrator fails to furnish the material requested to the Secretary,
the Secretary may assess a civil penalty against the plan administrator
of up to $100 a day from the date of such failure (but in no event in
excess of $1,000 per request). No penalty shall be imposed under this
paragraph for any failure resulting from matters reasonably beyond the
control of the plan administrator.''.
(d) Conforming Amendments.--
(1) Section 104(b)(1) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1024(b)(1)) is amended by
striking ``section 102(a)(1)'' each place it appears and
inserting ``section 102(a)''.
(2) Section 104(b)(2) of such Act (29 U.S.C. 1024(b)(2)) is
amended by striking ``the plan description and'' and inserting
``the latest updated summary plan description and''.
(3) Section 104(b)(4) of such Act (29 U.S.C. 1024(b)(4)) is
amended by striking ``plan description''.
(4) Section 106(a) of such Act (29 U.S.C. 1026(a)) is
amended by striking ``descriptions,''.
(5) Section 107 of such Act (29 U.S.C. 1027) is amended by
striking ``description or''.
(6) Section 108(2)(B) of such Act (29 U.S.C. 1028(2)(B)) is
amended by striking ``plan descriptions, annual reports,'' and
inserting ``annual reports''.
(7) Section 502(a)(6) of such Act (29 U.S.C. 1132(a)(6)) is
amended by striking ``or (5)'' and inserting ``(5), or (6)''.
[[Page 111 STAT. 1063]]
(e) Technical Correction.--Section 1144(c) of the Social Security
Act (42 U.S.C. 1320b-14(c)) is amended by redesignating paragraph (9) as
paragraph (8).
SEC. 1504. MODIFICATION OF 403(b) EXCLUSION ALLOWANCE TO CONFORM TO 415
MODIFICATIONS.
(a) Definition of Compensation.--
(1) In general.--Section 403(b)(3) (defining includible
compensation) is amended by adding at the end the following:
``Such term includes--
``(A) any elective deferral (as defined in section
402(g)(3)), and
``(B) 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.''.
<<NOTE: 26 USC 403 note.>> (2) Effective date.--The
amendment made by this subsection shall apply to years beginning
after December 31, 1997.
(b) Repeal of Rules in Section 415(e).--The Secretary of the
Treasury shall modify the regulations regarding the exclusion allowance
under section 403(b)(2) of the Internal Revenue Code of 1986 to reflect
the amendment made by section 1452(a) of the Small Business Job
Protection Act of 1996. <<NOTE: Effective date.>> Such modification
shall take effect for years beginning after December 31, 1999.
SEC. 1505. EXTENSION OF MORATORIUM ON APPLICATION OF CERTAIN
NONDISCRIMINATION RULES TO STATE AND LOCAL GOVERNMENTS.
(a) General Nondiscrimination and Participation Rules.--
(1) Nondiscrimination requirements.--Section 401(a)(5)
(relating to qualified pension, profit-sharing, and stock bonus
plans) is amended by adding at the end the following:
``(G) State and local governmental plans.--
Paragraphs (3) and (4) shall not apply to a governmental
plan (within the meaning of section 414(d)) maintained
by a State or local government or political subdivision
thereof (or agency or instrumentality thereof).''.
(2) Additional participation requirements.--Section
401(a)(26)(H) (relating to additional participation
requirements) is amended to read as follows:
``(H) Exception for state and local governmental
plans.--This paragraph shall not apply to a governmental
plan (within the meaning of section 414(d)) maintained
by a State or local government or political subdivision
thereof (or agency or instrumentality thereof).''.
(3) Minimum participation standards.--Section 410(c)(2)
(relating to application of participation standards to certain
plans) is amended to read as follows:
``(2) A plan described in paragraph (1) shall be treated as
meeting the requirements of this section for purposes of section
401(a), except that in the case of a plan described in
subparagraph (B), (C), or (D) of paragraph (1), this paragraph
shall apply only if such plan meets the requirements of section
401(a)(3) (as in effect on September 1, 1974).''.
(b) Participation and Discrimination Standards for Qualified Cash or
Deferred Arrangements.--Section 401(k)(3) (relating to application of
participation and discrimination standards) is amended by adding at the
end the following:
[[Page 111 STAT. 1064]]
``(G) A governmental plan (within the meaning of
section 414(d)) maintained by a State or local
government or political subdivision thereof (or agency
or instrumentality thereof) shall be treated as meeting
the requirements of this paragraph.''.
(c) Nondiscrimination Rules for Section 403(b) Plans.--Section
403(b)(12) (relating to nondiscrimination requirements) is amended by
adding at the end the following:
``(C) State and local governmental plans.--For
purposes of paragraph (1)(D), the requirements of
subparagraph (A)(i) (other than those relating to
section 401(a)(17)) shall not apply to a governmental
plan (within the meaning of section 414(d)) maintained
by a State or local government or political subdivision
thereof (or agency or instrumentality thereof).''.
<<NOTE: 26 USC 401 note.>> (d) Effective Dates.--
(1) In general.--The amendments made by this section apply
to taxable years beginning on or after the date of enactment of
this Act.
(2) Treatment for years beginning before date of
enactment.--A governmental plan (within the meaning of section
414(d) of the Internal Revenue Code of 1986) maintained by a
State or local government or political subdivision thereof (or
agency or instrumentality thereof) shall be treated as
satisfying the requirements of sections 401(a)(3), 401(a)(4),
401(a)(26), 401(k), 401(m), 403 (b)(1)(D) and (b)(12), and 410
of such Code for all taxable years beginning before the date of
enactment of this Act.
SEC. 1506. CLARIFICATION OF CERTAIN RULES RELATING TO EMPLOYEE STOCK
OWNERSHIP PLANS OF S CORPORATIONS.
(a) Certain Cash Distributions Permitted.--
(1) Paragraph (2) of section 409(h) is amended by adding at
the end the following new subparagraph:
``(B) Exception for certain plans restricted from
distributing securities.--
``(i) In general.--A plan to which this
subparagraph applies shall not be treated as
failing to meet the requirements of this
subsection or section 401(a) merely because it
does not permit a participant to exercise the
right described in paragraph (1)(A) if such plan
provides that the participant entitled to a
distribution has a right to receive the
distribution in cash, except that such plan may
distribute employer securities subject to a
requirement that such securities may be resold to
the employer under terms which meet the
requirements of paragraph (1)(B).
``(ii) Applicable plans.--This subparagraph
shall apply to a plan which otherwise meets the
requirements of this subsection or section
4975(e)(7) and which is established and maintained
by--
``(I) an employer whose charter or
bylaws restrict the ownership of
substantially all outstanding employer
securities to employees or to a trust
described in section 401(a), or
``(II) an S corporation.''.
[[Page 111 STAT. 1065]]
(2) Paragraph (2) of section 409(h), as in effect before the
amendment made by paragraph (1), is amended--
(A) by striking ``A plan which'' in the first
sentence and inserting the following:
``(A) In general.--A plan which'', and
(B) by striking the last sentence.
(b) Certain Shareholder-Employees Not Treated as Owner-Employees.--
(1) Amendment to 1986 code.--
(A) In general.--Section 4975(f) is amended by
adding at the end the following new paragraph:
``(6) Exemptions not to apply to certain transactions.--
``(A) In general.--In the case of a trust described
in section 401(a) which is part of a plan providing
contributions or benefits for employees some or all of
whom are owner-employees (as defined in section
401(c)(3)), the exemptions provided by subsection (d)
(other than paragraphs (9) and (12)) shall not apply to
a transaction in which the plan directly or indirectly--
``(i) lends any part of the corpus or income
of the plan to,
``(ii) pays any compensation for personal
services rendered to the plan to, or
``(iii) acquires for the plan any property
from, or sells any property to,
any such owner-employee, a member of the family (as
defined in section 267(c)(4)) of any such owner-
employee, or any corporation in which any such owner-
employee owns, directly or indirectly, 50 percent or
more of the total combined voting power of all classes
of stock entitled to vote or 50 percent or more of the
total value of shares of all classes of stock of the
corporation.
``(B) Special rules for shareholder-employees,
etc.--
``(i) In general.--For purposes of
subparagraph (A), the following shall be treated
as owner-employees:
``(I) A shareholder-employee.
``(II) A participant or beneficiary
of an individual retirement plan (as
defined in section 7701(a)(37)).
``(III) An employer or association
of employees which establishes such an
individual retirement plan under section
408(c).
``(ii) Exception for certain transactions
involving shareholder-employees.--Subparagraph
(A)(iii) shall not apply to a transaction which
consists of a sale of employer securities to an
employee stock ownership plan (as defined in
subsection (e)(7)) by a shareholder-employee, a
member of the family (as defined in section
267(c)(4)) of such shareholder-employee, or a
corporation in which such a shareholder-employee
owns stock representing a 50 percent or greater
interest described in subparagraph (A).
``(C) Shareholder-employee.--For purposes of
subparagraph (B), the term `shareholder-employee' means
an employee or officer of an S corporation who owns (or
[[Page 111 STAT. 1066]]
is considered as owning within the meaning of section
318(a)(1)) more than 5 percent of the outstanding stock
of the corporation on any day during the taxable year of
such corporation.''.
(B) Conforming amendments.--Section 4975(d) is
amended--
(i) by striking ``The prohibitions'' and
inserting ``Except as provided in subsection
(f)(6), the prohibitions'', and
(ii) by striking the last two sentences
thereof.
(2) Amendment to erisa.--Section 408(d) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)) is
amended to read as follows:
``(d)(1) Section 407(b) and subsections (b), (c), and (e) of this
section shall not apply to a transaction in which a plan directly or
indirectly--
``(A) lends any part of the corpus or income of the plan to,
``(B) pays any compensation for personal services rendered
to the plan to, or
``(C) acquires for the plan any property from, or sells any
property to,
any person who is with respect to the plan an owner-employee (as defined
in section 401(c)(3) of the Internal Revenue Code of 1986), a member of
the family (as defined in section 267(c)(4) of such Code) of any such
owner-employee, or any corporation in which any such owner-employee
owns, directly or indirectly, 50 percent or more of the total combined
voting power of all classes of stock entitled to vote or 50 percent or
more of the total value of shares of all classes of stock of the
corporation.
``(2)(A) For purposes of paragraph (1), the following shall be
treated as owner-employees:
``(i) A shareholder-employee.
``(ii) A participant or beneficiary of an individual
retirement plan (as defined in section 7701(a)(37) of the
Internal Revenue Code of 1986).
``(iii) An employer or association of employees which
establishes such an individual retirement plan under section
408(c) of such Code.
``(B) Paragraph (1)(C) shall not apply to a transaction which
consists of a sale of employer securities to an employee stock ownership
plan (as defined in section 407(d)(6)) by a shareholder-employee, a
member of the family (as defined in section 267(c)(4) of such Code) of
any such owner-employee, or a corporation in which such a shareholder-
employee owns stock representing a 50 percent or greater interest
described in paragraph (1).
``(3) For purposes of paragraph (2), the term `shareholder-employee'
means an employee or officer of an S corporation (as defined in section
1361(a)(1) of such Code) who owns (or is considered as owning within the
meaning of section 318(a)(1) of such Code) more than 5 percent of the
outstanding stock of the corporation on any day during the taxable year
of such corporation.''.
<<NOTE: 26 USC 409 note.>> (c) Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
[[Page 111 STAT. 1067]]
SEC. 1507. MODIFICATION OF 10-PERCENT TAX FOR NONDEDUCTIBLE
CONTRIBUTIONS.
(a) In General.--Section 4972(c)(6)(B) (relating to exceptions) is
amended to read as follows:
``(B) so much of the contributions to 1 or more
defined contribution plans which are not deductible when
contributed solely because of section 404(a)(7) as does
not exceed the greater of--
``(i) the amount of contributions not in
excess of 6 percent of compensation (within the
meaning of section 404(a)) paid or accrued (during
the taxable year for which the contributions were
made) to beneficiaries under the plans, or
``(ii) the sum of--
``(I) the amount of contributions
described in section 401(m)(4)(A), plus
``(II) the amount of contributions
described in section 402(g)(3)(A).''.
<<NOTE: 26 USC 4972 note.>> (b) Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 1508. MODIFICATION OF FUNDING REQUIREMENTS FOR CERTAIN PLANS.
(a) Funding Rules for Certain Plans.--Section 769 of the Retirement
Protection Act of 1994 <<NOTE: 26 USC 412 note.>> is amended by adding
at the end the following new subsection:
<<NOTE: Applicability.>> ``(c) Transition Rules for Certain Plans.--
``(1) In general.--In the case of a plan that--
``(A) was not required to pay a variable rate
premium for the plan year beginning in 1996;
``(B) has not, in any plan year beginning after 1995
and before 2009, merged with another plan (other than a
plan sponsored by an employer that was in 1996 within
the controlled group of the plan sponsor); and
``(C) is sponsored by a company that is engaged
primarily in the interurban or interstate passenger bus
service,
the transition rules described in paragraph (2) shall apply for
any plan year beginning after 1996 and before 2010.
``(2) Transition rules.--The transition rules described in
this paragraph are as follows:
``(A) For purposes of section 412(l)(9)(A) of the
Internal Revenue Code of 1986 and section 302(d)(9)(A)
of the Employee Retirement Income Security Act of 1974--
``(i) the funded current liability percentage
for any plan year beginning after 1996 and before
2005 shall be treated as not less than 90 percent
if for such plan year the funded current liability
percentage is at least 85 percent, and
``(ii) the funded current liability percentage
for any plan year beginning after 2004 and before
2010 shall be treated as not less than 90 percent
if for such plan year the funded current liability
percentage satisfies the minimum percentage
determined according to the following table:
[[Page 111 STAT. 1068]]
``In the case of a The minimum percentage is:
plan year beginning
in:
2005.............. 86 percent
2006.............. 87 percent
2007.............. 88 percent
2008.............. 89 percent
2009 and 90 percent.
thereafter.
``(B) Sections 412(c)(7)(E)(i)(I) of such Code and
302(c)(7)(E)(i)(I) of such Act shall be applied--
``(i) by substituting `85 percent' for `90
percent' for plan years beginning after 1996 and
before 2005, and
``(ii) by substituting the minimum percentage
specified in the table contained in subparagraph
(A)(ii) for `90 percent' for plan years beginning
after 2004 and before 2010.
``(C) In the event the funded current liability
percentage of a plan is less than 85 percent for any
plan year beginning after 1996 and before 2005, the
transition rules under subparagraphs (A) and (B) shall
continue to apply to the plan if contributions for such
a plan year are made to the plan in an amount equal to
the lesser of--
``(i) the amount necessary to result in a
funded current liability percentage of 85 percent,
or
``(ii) the greater of--
``(I) 2 percent of the plan's
current liability as of the beginning of
such plan year, or
``(II) the amount necessary to
result in a funded current liability
percentage of 80 percent as of the end
of such plan year.
<<NOTE: Applicability.>> For the plan year beginning in
2005 and for each of the 3 succeeding plan years, the
transition rules under subparagraphs (A) and (B) shall
continue to apply to the plan for such plan year only if
contributions to the plan for such plan year equal at
least the expected increase in current liability due to
benefits accruing during such plan year.''.
<<NOTE: 26 USC 412 note.>> (b) Effective Date.--The amendment made
by this section shall apply to plan years beginning after December 31,
1996.
<<NOTE: 26 USC 402 note.>> SEC. 1509. CLARIFICATION OF DISQUALIFICATION
RULES RELATING TO ACCEPTANCE OF ROLLOVER CONTRIBUTIONS.
The Secretary of the Treasury or his delegate shall clarify that,
under the Internal Revenue Service regulations protecting pension plans
from disqualification by reason of the receipt of invalid rollover
contributions under section 402(c) of the Internal Revenue Code of 1986,
in order for the administrator of the plan receiving any such
contribution to reasonably conclude that the contribution is a valid
rollover contribution it is not necessary for the distributing plan to
have a determination letter with respect to its status as a qualified
plan under section 401 of such Code.
SEC. 1510. NEW TECHNOLOGIES IN RETIREMENT PLANS.
<<NOTE: Regulations. 26 USC 401 note.>> (a) In General.--Not later
than December 31, 1998, the Secretary of the Treasury and the Secretary
of Labor shall each issue guidance which is designed to--
(1) interpret the notice, election, consent, disclosure, and
time requirements (and related recordkeeping requirements)
[[Page 111 STAT. 1069]]
under the Internal Revenue Code of 1986 and the Employee
Retirement Income Security Act of 1974 relating to retirement
plans as applied to the use of new technologies by plan sponsors
and administrators while maintaining the protection of the
rights of participants and beneficiaries, and
(2) clarify the extent to which writing requirements under
the Internal Revenue Code of 1986 relating to retirement plans
shall be interpreted to permit paperless transactions.
(b) Applicability of Final Regulations.--Final regulations
applicable to the guidance regarding new technologies described in
subsection (a) shall not be effective until the first plan year
beginning at least 6 months after the issuance of such final
regulations.
Subtitle B--Other Provisions Relating to Pensions and Employee Benefits
SEC. 1521. INCREASE IN CURRENT LIABILITY FUNDING LIMIT.
(a) Amendment to 1986 Code.--Section 412(c)(7) (relating to full-
funding limitation) is amended--
(A) by striking ``150 percent'' in subparagraph
(A)(i)(I) and inserting ``the applicable percentage'',
and
(B) by adding at the end the following:
``(F) Applicable percentage.--For purposes of
subparagraph (A)(i)(I), the applicable percentage shall
be determined in accordance with the following table:
``In the case of any plan The applicable percentage is--
beginning in--
1999 or 2000 155
2001 or 2002 160
2003 or 2004 165
2005 and succeeding years 170.''.
(b) Amendment to ERISA.--Section 302(c)(7) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is
amended--
(A) by striking ``150 percent'' in subparagraph
(A)(i)(I) and inserting ``the applicable percentage'',
and
(B) by adding at the end the following:
``(F) Applicable percentage.--For purposes of subparagraph
(A)(i)(I), the applicable percentage shall be determined in
accordance with the following table:
``In the case of any plan The applicable percentage is--
beginning in--
1999 or 2000 155
2001 or 2002 160
2003 or 2004 165
2005 and succeeding years 170.''.
(c) Special Amortization Rule.--
(1) Code amendment.--Section 412(b)(2) 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 after subparagraph (D) the following:
``(E) the amount necessary to amortize in equal
annual installments (until fully amortized) over a
period of 20 years the contributions which would be
required to be
[[Page 111 STAT. 1070]]
made under the plan but for the provisions of subsection
(c)(7)(A)(i)(I).''.
(2) ERISA amendment.--Section 302(b)(2) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1082(b)(2)) 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 after subparagraph (D) the
following:
``(E) the amount necessary to amortize in equal annual
installments (until fully amortized) over a period of 20 years
the contributions which would be required to be made under the
plan but for the provisions of subsection (c)(7)(A)(i)(I).''.
(3) Conforming amendments.--
(A) Section 412(c)(7)(D) is amended by adding
``and'' at the end of clause (i), by striking ``, and''
at the end of clause (ii) and inserting a period, and by
striking clause (iii).
(B) Section 302(c)(7)(D) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1082(c)(7)(D)) is
amended by adding ``and'' at the end of clause (i), by
striking ``, and'' at the end of clause (ii) and
inserting a period, and by striking clause (iii).
<<NOTE: 26 USC 412 note.>> (d) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to plan years beginning after December 31, 1998.
(2) Special rule for unamortized balances under existing
law.--The unamortized balance (as of the close of the plan year
preceding the plan's first year beginning in 1999) of any
amortization base established under section 412(c)(7)(D)(iii) of
such Code and section 302(c)(7)(D)(iii) of such Act (as repealed
by subsection (c)(3)) for any plan year beginning before 1999
shall be amortized in equal annual installments (until fully
amortized) over a period of years equal to the excess of--
(A) 20 years, over
(B) the number of years since the amortization base
was established.
SEC. 1522. SPECIAL RULES FOR CHURCH PLANS.
(a) In General.--Section 414(e)(5) (relating to special rules for
chaplains and self-employed ministers) is amended--
(1) by striking ``not eligible to participate'' in
subparagraph (C) and inserting ``not otherwise participating'',
and
(2) by adding at the end the following new subparagraph:
``(E) Exclusion.--In the case of a contribution to a
church plan made on behalf of a minister described in
subparagraph (A)(i)(II), such contribution shall not be
included in the gross income of the minister to the
extent that such contribution would not be so included
if the minister was an employee of a church.''.
<<NOTE: 26 USC 414 note.>> (b) Effective Date.--The amendments made
by this section shall apply to years beginning after December 31, 1997.
SEC. 1523. REPEAL OF APPLICATION OF UNRELATED BUSINESS INCOME TAX TO
ESOPS.
(a) In General.--Section 512(e) is amended by adding at the end the
following new paragraph:
[[Page 111 STAT. 1071]]
``(3) Exception for esops.--This subsection shall not apply
to employer securities (within the meaning of section 409(l))
held by an employee stock ownership plan described in section
4975(e)(7).''.
<<NOTE: 26 USC 512 note.>> (b) Effective Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1997.
SEC. 1524. DIVERSIFICATION OF SECTION 401(k) PLAN INVESTMENTS.
(a) Limitations on Investment in Employer Securities and Employer
Real Property by Cash or Deferred Arrangements.--Section 407(b) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1107(b)) is
amended by redesignating paragraph (2) as paragraph (3) and by inserting
after paragraph (1) the following new paragraph:
``(2)(A) If this paragraph applies to an eligible individual
account plan, the portion of such plan which consists of
applicable elective deferrals (and earnings allocable thereto)
shall be treated as a separate plan--
``(i) which is not an eligible individual account
plan, and
``(ii) to which the requirements of this section
apply.
<<NOTE: Applicability.>> ``(B)(i) This paragraph shall apply
to any eligible individual account plan if any portion of the
plan's applicable elective deferrals (or earnings allocable
thereto) are required to be invested in qualifying employer
securities or qualifying employer real property or both--
``(I) pursuant to the terms of the plan, or
``(II) at the direction of a person other than the
participant on whose behalf such elective deferrals are
made to the plan (or a beneficiary).
``(ii) This paragraph shall not apply to an individual
account plan for a plan year if, on the last day of the
preceding plan year, the fair market value of the assets of all
individual account plans maintained by the employer equals not
more than 10 percent of the fair market value of the assets of
all pension plans (other than multiemployer plans) maintained by
the employer.
``(iii) This paragraph shall not apply to an individual
account plan that is an employee stock ownership plan as defined
in section 4975(e)(7) of the Internal Revenue Code of 1986.
``(iv) This paragraph shall not apply to an individual
account plan if, pursuant to the terms of the plan, the portion
of any employee's applicable elective deferrals which is
required to be invested in qualifying employer securities and
qualifying employer real property for any year may not exceed 1
percent of the employee's compensation which is taken into
account under the plan in determining the maximum amount of the
employee's applicable elective deferrals for such year.
``(C) For purposes of this paragraph, the term `applicable
elective deferral' means any elective deferral (as defined in
section 402(g)(3)(A) of the Internal Revenue Code of 1986) which
is made pursuant to a qualified cash or deferred arrangement as
defined in section 401(k) of the Internal Revenue Code of
1986.''.
[[Page 111 STAT. 1072]]
<<NOTE: 29 USC 1107 note.>> (b) Effective Date.--The amendments made
by this section shall apply to elective deferrals for plan years
beginning after December 31, 1998.
SEC. 1525. SECTION 401(K) PLANS FOR CERTAIN IRRIGATION AND DRAINAGE
ENTITIES.
(a) In General.--Subparagraph (B) of section 401(k)(7) (relating to
rural cooperative plan) is amended--
(1) by striking ``and'' at the end of clause (iii), by
redesignating clause (iv) as clause (v), and by inserting after
clause (iii) the following new clause:
``(iv) any organization which--
``(I) is a mutual irrigation or
ditch company described in section
501(c)(12) (without regard to the 85
percent requirement thereof), or
``(II) is a district organized under
the laws of a State as a municipal
corporation for the purpose of
irrigation, water conservation, or
drainage, and'', and
(2) in clause (v), as so redesignated, by striking ``or
(iii)'' and inserting ``, (iii), or (iv)''.
<<NOTE: 26 USC 401 note.>> (b) Effective Date.--The amendments made
by subsection (a) shall apply to years beginning after December 31,
1997.
SEC. 1526. PORTABILITY OF PERMISSIVE SERVICE CREDIT UNDER GOVERNMENTAL
PENSION PLANS.
(a) In General.--Section 415 (relating to limitations on benefits
and contributions under qualified plans) is amended by adding at the end
the following new subsection:
``(n) Special Rules Relating to Purchase of Permissive Service
Credit.--
``(1) In general.--If an employee makes 1 or more
contributions to a defined benefit governmental plan (within the
meaning of section 414(d)) to purchase permissive service credit
under such plan, then the requirements of this section shall be
treated as met only if--
``(A) the requirements of subsection (b) are met,
determined by treating the accrued benefit derived from
all such contributions as an annual benefit for purposes
of subsection (b), or
``(B) the requirements of subsection (c) are met,
determined by treating all such contributions as annual
additions for purposes of subsection (c).
``(2) Application of limit.--For purposes of--
``(A) applying paragraph (1)(A), the plan shall not
fail to meet the reduced limit under subsection
(b)(2)(C) solely by reason of this subsection, and
``(B) applying paragraph (1)(B), the plan shall not
fail to meet the percentage limitation under subsection
(c)(1)(B) solely by reason of this subsection.
``(3) Permissive service credit.--For purposes of this
subsection--
``(A) In general.--The term `permissive service
credit' means service credit--
``(i) recognized by the governmental plan for
purposes of calculating a participant's benefit
under the plan,
[[Page 111 STAT. 1073]]
``(ii) which such participant has not received
under such governmental plan, and
``(iii) which such participant may receive
only by making a voluntary additional
contribution, in an amount determined under such
governmental plan, which does not exceed the
amount necessary to fund the benefit attributable
to such service credit.
``(B) Limitation on nonqualified service credit.--A
plan shall fail to meet the requirements of this section
if--
``(i) more than 5 years of permissive service
credit attributable to nonqualified service are
taken into account for purposes of this
subsection, or
``(ii) any permissive service credit
attributable to nonqualified service is taken into
account under this subsection before the employee
has at least 5 years of participation under the
plan.
``(C) Nonqualified service.--For purposes of
subparagraph (B), the term `nonqualified service' means
service for which permissive service credit is allowed
other than--
``(i) service (including parental, medical,
sabbatical, and similar leave) as an employee of
the Government of the United States, any State or
political subdivision thereof, or any agency or
instrumentality of any of the foregoing (other
than military service or service for credit which
was obtained as a result of a repayment described
in subsection (k)(3)),
``(ii) service (including parental, medical,
sabbatical, and similar leave) as an employee
(other than as an employee described in clause
(i)) of an educational organization described in
section 170(b)(1)(A)(ii) which is a public,
private, or sectarian school which provides
elementary or secondary education (through grade
12), as determined under State law,
``(iii) service as an employee of an
association of employees who are described in
clause (i), or
``(iv) military service (other than qualified
military service under section 414(u)) recognized
by such governmental plan.
In the case of service described in clauses (i), (ii),
or (iii), such service will be nonqualified service if
recognition of such service would cause a participant to
receive a retirement benefit for the same service under
more than one plan.''.
(b) Special Rule for Repayment of Cashouts.--Section 415(k)
(relating to special rules) is amended by adding at the end the
following new paragraph:
``(3) Repayments of cashouts under governmental plans.--In
the case of any repayment of contributions (including interest
thereon) to the governmental plan with respect to an amount
previously refunded upon a forfeiture of service credit under
the plan or under another governmental plan maintained by a
State or local government employer within the same State, any
such repayment shall not be taken into account for purposes of
this section.''.
<<NOTE: 26 USC 415 note.>> (c) Effective Dates.--
[[Page 111 STAT. 1074]]
(1) In general.--The amendments made by this section shall
apply to permissive service credit contributions made in years
beginning after December 31, 1997.
(2) Transition rule.--
(A) In general.--In the case of an eligible
participant in a governmental plan (within the meaning
of section 414(d) of the Internal Revenue Code of 1986),
the limitations of section 415(c)(1) of such Code shall
not be applied to reduce the amount of permissive
service credit which may be purchased to an amount less
than the amount which was allowed to be purchased under
the terms of the plan as in effect on the date of the
enactment of this Act.
(B) Eligible participant.--For purposes of
subparagraph (A), an eligible participant is an
individual who first became a participant in the plan
before the first plan year beginning after the last day
of the calendar year in which the next regular session
(following the date of the enactment of this Act) of the
governing body with authority to amend the plan ends.
SEC. 1527. REMOVAL OF DOLLAR LIMITATION ON BENEFIT PAYMENTS FROM A
DEFINED BENEFIT PLAN MAINTAINED FOR CERTAIN POLICE AND FIRE
EMPLOYEES.
(a) In General.--Subparagraph (G) of section 415(b)(2) is amended by
striking ``participant--'' and all that follows and inserting
``participant, subparagraph (C) of this paragraph shall not apply.''.
<<NOTE: 26 USC 415 note.>> (b) Effective Date.--The amendment made
by subsection (a) shall apply to years beginning after December 31,
1996.
SEC. 1528. SURVIVOR BENEFITS FOR PUBLIC SAFETY OFFICERS KILLED IN THE
LINE OF DUTY.
(a) In General.--Section 101 (relating to certain death benefits) is
amended by adding at the end the following new subsection:
``(h) Survivor Benefits Attributable to Service by a Public Safety
Officer who is Killed in the Line of Duty.--
``(1) In general.--Gross income shall not include any amount
paid as a survivor annuity on account of the death of a public
safety officer (as such term is defined in section 1204 of the
Omnibus Crime Control and Safe Streets Act of 1968) killed in
the line of duty--
``(A) if such annuity is provided, under a
governmental plan which meets the requirements of
section 401(a), to the spouse (or a former spouse) of
the public safety officer or to a child of such officer;
and
``(B) to the extent such annuity is attributable to
such officer's service as a public safety officer.
``(2) Exceptions.--Paragraph (1) shall not apply with
respect to the death of any public safety officer if, as
determined in accordance with the provisions of the Omnibus
Crime Control and Safe Streets Act of 1968--
``(A) the death was caused by the intentional
misconduct of the officer or by such officer's intention
to bring about such officer's death;
``(B) the officer was voluntarily intoxicated (as
defined in section 1204 of such Act) at the time of
death;
[[Page 111 STAT. 1075]]
``(C) the officer was performing such officer's
duties in a grossly negligent manner at the time of
death; or
``(D) the payment is to an individual whose actions
were a substantial contributing factor to the death of
the officer.''.
<<NOTE: 26 USC 101 note.>> (b) Effective Date.--The amendments made
by this section shall apply to amounts received in taxable years
beginning after December 31, 1996, with respect to individuals dying
after such date.
SEC. 1529. TREATMENT OF CERTAIN DISABILITY BENEFITS RECEIVED BY FORMER
POLICE OFFICERS OR FIREFIGHTERS.
(a) General Rule.--For purposes of determining whether any amount to
which this section applies is excludable from gross income under section
104(a)(1) of the Internal Revenue Code of 1986, the following conditions
shall be treated as personal injuries or sickness in the course of
employment:
(1) Heart disease.
(2) Hypertension.
(b) Amounts To Which Section Applies.--This section shall apply to
any amount--
(1) which is payable--
(A) to an individual (or to the survivors of an
individual) who was a full-time employee of any police
department or fire department which is organized and
operated by a State, by any political subdivision
thereof, or by any agency or instrumentality of a State
or political subdivision thereof, and
(B) under a State law (as amended on May 19, 1992)
which irrebuttably presumed that heart disease and
hypertension are work-related illnesses but only for
employees separating from service before July 1, 1992;
and
(2) which was received in calendar year 1989, 1990, or 1991.
(c) Waiver of Statute of Limitations.--If, on the date of the
enactment of this Act (or at any time within the 1-year period beginning
on such date of enactment), credit or refund of any overpayment of tax
resulting from the provisions of this section is barred by any law or
rule of law (including res judicata), then credit or refund of such
overpayment shall, nevertheless, be allowed or made if claim therefore
is filed before the date 1 year after such date of enactment.
SEC. 1530. GRATUITOUS TRANSFERS FOR THE BENEFIT OF EMPLOYEES.
(a) In General.--Subparagraph (C) of section 664(d)(1) and
subparagraph (C) of section 664(d)(2) are each amended by striking the
period at the end thereof and inserting ``or, to the extent the
remainder interest is in qualified employer securities (as defined in
subsection (g)(4)), all or part of such securities are to be transferred
to an employee stock ownership plan (as defined in section 4975(e)(7))
in a qualified gratuitous transfer (as defined by subsection (g)).''.
(b) Qualified Gratuitous Transfer Defined.--Section 664 is amended
by adding at the end the following new subsection:
``(g) Qualified Gratuitous Transfer of Qualified Employer
Securities.--
[[Page 111 STAT. 1076]]
``(1) In general.--For purposes of this section, the term
`qualified gratuitous transfer' means a transfer of qualified
employer securities to an employee stock ownership plan (as
defined in section 4975(e)(7)) but only to the extent that--
``(A) the securities transferred previously passed
from a decedent dying before January 1, 1999, to a trust
described in paragraph (1) or (2) of subsection (d),
``(B) no deduction under section 404 is allowable
with respect to such transfer,
``(C) such plan contains the provisions required by
paragraph (3),
``(D) such plan treats such securities as being
attributable to employer contributions but without
regard to the limitations otherwise applicable to such
contributions under section 404, and
``(E) the employer whose employees are covered by
the plan described in this paragraph files with the
Secretary a verified written statement consenting to the
application of sections 4978 and 4979A with respect to
such employer.
``(2) Exception.--The term `qualified gratuitous transfer'
shall not include a transfer of qualified employer securities to
an employee stock ownership plan unless--
``(A) such plan was in existence on August 1, 1996,
``(B) at the time of the transfer, the decedent and
members of the decedent's family (within the meaning of
section 2032A(e)(2)) own (directly or through the
application of section 318(a)) no more than 10 percent
of the value of the stock of the corporation referred to
in paragraph (4), and
``(C) immediately after the transfer, such plan owns
(after the application of section 318(a)(4)) at least 60
percent of the value of the outstanding stock of the
corporation.
``(3) Plan requirements.--A plan contains the provisions
required by this paragraph if such plan provides that--
``(A) the qualified employer securities so
transferred are allocated to plan participants in a
manner consistent with section 401(a)(4),
``(B) plan participants are entitled to direct the
plan as to the manner in which such securities which are
entitled to vote and are allocated to the account of
such participant are to be voted,
``(C) an independent trustee votes the securities so
transferred which are not allocated to plan
participants,
``(D) each participant who is entitled to a
distribution from the plan has the rights described in
subparagraphs (A) and (B) of section 409(h)(1),
``(E) such securities are held in a suspense account
under the plan to be allocated each year, up to the
limitations under section 415(c), after first allocating
all other annual additions for the limitation year, up
to the limitations under sections 415 (c) and (e), and
``(F) on termination of the plan, all securities so
transferred which are not allocated to plan participants
as of such termination are to be transferred to, or for
the use of, an organization described in section 170(c).
[[Page 111 STAT. 1077]]
For purposes of the preceding sentence, the term `independent
trustee' means any trustee who is not a member of the family
(within the meaning of section 2032A(e)(2)) of the decedent or a
5-percent shareholder. A plan shall not fail to be treated as
meeting the requirements of section 401(a) by reason of meeting
the requirements of this subsection.
``(4) Qualified employer securities.--For purposes of this
section, the term `qualified employer securities' means employer
securities (as defined in section 409(l)) which are issued by a
domestic corporation--
``(A) which has no outstanding stock which is
readily tradable on an established securities market,
and
``(B) which has only 1 class of stock.
``(5) Treatment of securities allocated by employee stock
ownership plan to persons related to decedent or 5-percent
shareholders.--
``(A) In general.--If any portion of the assets of
the plan attributable to securities acquired by the plan
in a qualified gratuitous transfer are allocated to the
account of--
``(i) any person who is related to the
decedent (within the meaning of section 267(b)) or
a member of the decedent's family (within the
meaning of section 2032A(e)(2)), or
``(ii) any person who, at the time of such
allocation or at any time during the 1-year period
ending on the date of the acquisition of qualified
employer securities by the plan, is a 5-percent
shareholder of the employer maintaining the plan,
the plan shall be treated as having distributed (at the
time of such allocation) to such person or shareholder
the amount so allocated.
``(B) 5-percent shareholder.--For purposes of
subparagraph (A), the term `5-percent shareholder' means
any person who owns (directly or through the application
of section 318(a)) more than 5 percent of the
outstanding stock of the corporation which issued such
qualified employer securities or of any corporation
which is a member of the same controlled group of
corporations (within the meaning of section 409(l)(4))
as such corporation. For purposes of the preceding
sentence, section 318(a) shall be applied without regard
to the exception in paragraph (2)(B)(i) thereof.
``(C) Cross reference.--
``For excise tax on allocations described in
subparagraph (A), see section 4979A.
``(6) Tax on failure to transfer unallocated securities to
charity on termination of plan.--If the requirements of
paragraph (3)(F) are not met with respect to any securities,
there is hereby imposed a tax on the employer maintaining the
plan in an amount equal to the sum of--
``(A) the amount of the increase in the tax which
would be imposed by chapter 11 if such securities were
not transferred as described in paragraph (1), and
``(B) interest on such amount at the underpayment
rate under section 6621 (and compounded daily) from the
[[Page 111 STAT. 1078]]
due date for filing the return of the tax imposed by
chapter 11.''.
(c) Conforming Amendments.--
(1) Section 401(a)(1) is amended by inserting ``or by a
charitable remainder trust pursuant to a qualified gratuitous
transfer (as defined in section 664(g)(1)),'' after ``stock
bonus plans),''.
(2) Section 404(a)(9) is amended by inserting after
subparagraph (B) the following new subparagraph:
``(C) A qualified gratuitous transfer (as defined in
section 664(g)(1)) shall have no effect on the amount or
amounts otherwise deductible under paragraph (3) or (7)
or under this paragraph.''.
(3) Section 415(c)(6) is amended by adding at the end
thereof the following new sentence:
``The amount of any qualified gratuitous transfer (as defined in
section 664(g)(1)) allocated to a participant for any limitation
year shall not exceed the limitations imposed by this section,
but such amount shall not be taken into account in determining
whether any other amount exceeds the limitations imposed by this
section.''.
(4) Section 415(e) is amended--
(A) by redesignating paragraph (6) as paragraph (7),
and
(B) by inserting after paragraph (5) the following
new paragraph:
``(6) Special rule for qualified gratuitous transfers.--Any
qualified gratuitous transfer of qualified employer securities
(as defined by section 664(g)) shall not be taken into account
in calculating, and shall not be subject to, the limitations
provided in this subsection.''.
(5) Subparagraph (B) of section 664(d)(1) and subparagraph
(B) of section 664(d)(2) are each amended by inserting ``and
other than qualified gratuitous transfers described in
subparagraph (C)'' after ``subparagraph (A)''.
(6) Paragraph (4) of section 674(b) is amended by inserting
before the period ``or to an employee stock ownership plan (as
defined in section 4975(e)(7)) in a qualified gratuitous
transfer (as defined in section 664(g)(1))''.
(7) Section 2055(a) is amended--
(i) by striking ``or'' at the end of paragraph (3),
(ii) by striking the period at the end of paragraph
(4) and inserting ``; or'', and
(iii) by inserting after paragraph (4) the following
new paragraph:
``(5) to an employee stock ownership plan if such transfer
qualifies as a qualified gratuitous transfer of qualified
employer securities within the meaning of section 664(g).''.
(8) Paragraph (8) of section 2056(b) is amended to read as
follows:
``(8) Special rule for charitable remainder trusts.--
``(A) In general.--If the surviving spouse of the
decedent is the only beneficiary of a qualified
charitable remainder trust who is not a charitable
beneficiary nor an ESOP beneficiary, paragraph (1) shall
not apply to any interest in such trust which passes or
has passed from the decedent to such surviving spouse.
[[Page 111 STAT. 1079]]
``(B) Definitions.--For purposes of subparagraph
(A)--
``(i) Charitable beneficiary.--The term
`charitable beneficiary' means any beneficiary
which is an organization described in section
170(c).
``(ii) ESOP beneficiary.--The term `ESOP
beneficiary' means any beneficiary which is an
employee stock ownership plan (as defined in
section 4975(e)(7)) that holds a remainder
interest in qualified employer securities (as
defined in section 664(g)(4)) to be transferred to
such plan in a qualified gratuitous transfer (as
defined in section 664(g)(1)).
``(iii) Qualified charitable remainder
trust.--The term `qualified charitable remainder
trust' means a charitable remainder annuity trust
or a charitable remainder unitrust (described in
section 664).''.
(9) Section 4947(b) is amended by inserting after paragraph
(3) the following new paragraph:
``(4) Section 507.--The provisions of section 507(a) shall
not apply to a trust which is described in subsection (a)(2) by
reason of a distribution of qualified employer securities (as
defined in section 664(g)(4)) to an employee stock ownership
plan (as defined in section 4975(e)(7)) in a qualified
gratuitous transfer (as defined by section 664(g)).''.
(10) The last sentence of section 4975(e)(7) is amended by
inserting ``and section 664(g)'' after ``section 409(n)''.
(11) Subsection (a) of section 4978 is amended--
(A) by inserting ``or acquired any qualified
employer securities in a qualified gratuitous transfer
to which section 664(g) applied'' after ``section 1042
applied'', and
(B) by inserting before the comma at the end of
paragraph (2) ``60 percent of the total value of all
employer securities as of such disposition in the case
of any qualified employer securities acquired in a
qualified gratuitous transfer to which section 664(g)
applied)''.
(12) Paragraph (2) of section 4978(b) is amended--
(A) by inserting ``or acquired in the qualified
gratuitous transfer to which section 664(g) applied''
after ``section 1042 applied'', and
(B) by inserting ``or to which section 664(g)
applied'' after ``section 1042 applied'' in subparagraph
(A) thereof.
(13) Subsection (c) of section 4978 is amended by striking
``written statement'' and all that follows and inserting
``written statement described in section 664(g)(1)(E) or in
section 1042(b)(3) (as the case may be).''.
(14) Paragraph (2) of section 4978(e) is amended by striking
the period and inserting ``; except that such section shall be
applied without regard to subparagraph (B) thereof for purposes
of applying this section and section 4979A with respect to
securities acquired in a qualified gratuitous transfer (as
defined in section 664(g)(1)).''.
(15) Subsection (a) of section 4979A is amended to read as
follows:
``(a) Imposition of Tax.--If--
``(1) there is a prohibited allocation of qualified
securities by any employee stock ownership plan or eligible
worker-owned cooperative, or
``(2) there is an allocation described in section
664(g)(5)(A),
[[Page 111 STAT. 1080]]
there is hereby imposed a tax on such allocation equal to 50 percent of
the amount involved.''.
(16) Subsection (c) of section 4979A is amended to read as
follows:
``(c) Liability for Tax.--The tax imposed by this section shall be
paid by--
``(1) the employer sponsoring such plan, or
``(2) the eligible worker-owned cooperative,
which made the written statement described in section 664(g)(1)(E) or in
section 1042(b)(3)(B) (as the case may be).''.
(17) Section 4979A is amended by redesignating subsection
(d) as subsection (e) and by inserting after subsection (c) the
following new subsection:
``(d) Special Statute of Limitations for Tax Attributable to Certain
Allocations.--The statutory period for the assessment of any tax imposed
by this section on an allocation described in subsection (a)(2) of
qualified employer securities shall not expire before the date which is
3 years from the later of--
``(1) the 1st allocation of such securities in connection
with a qualified gratuitous transfer (as defined in section
664(g)(1)), or
``(2) the date on which the Secretary is notified of the
allocation described in subsection (a)(2).''.
<<NOTE: 26 USC 401 note.>> (d) Effective Date.--The amendments made
by this section shall apply to transfers made by trusts to, or for the
use of, an employee stock ownership plan after the date of the enactment
of this Act.
Subtitle C--Provisions Relating to Certain Health Acts
SEC. 1531. AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986 TO IMPLEMENT
THE NEWBORNS' AND MOTHERS' HEALTH PROTECTION ACT OF 1996 AND
THE MENTAL HEALTH PARITY ACT OF 1996.
(a) In General.--Subtitle K is amended--
(1) by striking all that precedes section 9801 and inserting
the following:
``Subtitle K--Group Health Plan Requirements
``Chapter 100. Group health plan requirements.
``CHAPTER 100--GROUP HEALTH PLAN REQUIREMENTS
``Subchapter A. Requirements relating to portability,
access, and renewability.
``Subchapter B. Other requirements.
``Subchapter C. General provisions.
[[Page 111 STAT. 1081]]
``Subchapter A--Requirements Relating to Portability, Access, and
Renewability
``Sec. 9801. Increased portability through limitation on
preexisting condition exclusions.
``Sec. 9802. Prohibiting discrimination against
individual participants and
beneficiaries based on health status.
``Sec. 9803. Guaranteed renewability in multiemployer
plans and certain multiple employer
welfare arrangements.'',
(2) by redesignating sections 9804, 9805, and 9806 as
sections 9831, 9832, and 9833, respectively,
(3) by inserting before section 9831 (as so redesignated)
the following:
``Subchapter C--General Provisions
``Sec. 9831. General exceptions.
``Sec. 9832. Definitions.
``Sec. 9833. Regulations.'', and
(4) by inserting after section 9803 the following:
``Subchapter B--Other Requirements
``Sec. 9811. Standards relating to benefits for mothers
and newborns.
``Sec. 9812. Parity in the application of certain limits
to mental health benefits.
``SEC. 9811. STANDARDS RELATING TO BENEFITS FOR MOTHERS AND NEWBORNS.
``(a) Requirements for Minimum Hospital Stay Following Birth.--
``(1) In general.--A group health plan may not--
``(A) except as provided in paragraph (2)--
``(i) restrict benefits for any hospital
length of stay in connection with childbirth for
the mother or newborn child, following a normal
vaginal delivery, to less than 48 hours, or
``(ii) restrict benefits for any hospital
length of stay in connection with childbirth for
the mother or newborn child, following a caesarean
section, to less than 96 hours; or
``(B) require that a provider obtain authorization
from the plan or the issuer for prescribing any length
of stay required under subparagraph (A) (without regard
to paragraph (2)).
``(2) Exception.--Paragraph (1)(A) shall not apply in
connection with any group health plan in any case in which the
decision to discharge the mother or her newborn child prior to
the expiration of the minimum length of stay otherwise required
under paragraph (1)(A) is made by an attending provider in
consultation with the mother.
``(b) Prohibitions.--A group health plan may not--
``(1) deny to the mother or her newborn child eligibility,
or continued eligibility, to enroll or to renew coverage under
the terms of the plan, solely for the purpose of avoiding the
requirements of this section;
``(2) provide monetary payments or rebates to mothers to
encourage such mothers to accept less than the minimum
protections available under this section;
[[Page 111 STAT. 1082]]
``(3) penalize or otherwise reduce or limit the
reimbursement of an attending provider because such provider
provided care to an individual participant or beneficiary in
accordance with this section;
``(4) provide incentives (monetary or otherwise) to an
attending provider to induce such provider to provide care to an
individual participant or beneficiary in a manner inconsistent
with this section; or
``(5) subject to subsection (c)(3), restrict benefits for
any portion of a period within a hospital length of stay
required under subsection (a) in a manner which is less
favorable than the benefits provided for any preceding portion
of such stay.
``(c) Rules of Construction.--
``(1) Nothing in this section shall be construed to require
a mother who is a participant or beneficiary--
``(A) to give birth in a hospital; or
``(B) to stay in the hospital for a fixed period of
time following the birth of her child.
``(2) This section shall not apply with respect to any group
health plan which does not provide benefits for hospital lengths
of stay in connection with childbirth for a mother or her
newborn child.
``(3) Nothing in this section shall be construed as
preventing a group health plan from imposing deductibles,
coinsurance, or other cost-sharing in relation to benefits for
hospital lengths of stay in connection with childbirth for a
mother or newborn child under the plan, except that such
coinsurance or other cost-sharing for any portion of a period
within a hospital length of stay required under subsection (a)
may not be greater than such coinsurance or cost-sharing for any
preceding portion of such stay.
``(d) Level and Type of Reimbursements.--Nothing in this section
shall be construed to prevent a group health plan from negotiating the
level and type of reimbursement with a provider for care provided in
accordance with this section.
``(f) Preemption; Exception for Health Insurance Coverage in Certain
States.--The requirements of this section shall not apply with respect
to health insurance coverage if there is a State law (including a
decision, rule, regulation, or other State action having the effect of
law) for a State that regulates such coverage that is described in any
of the following paragraphs:
``(1) Such State law requires such coverage to provide for
at least a 48-hour hospital length of stay following a normal
vaginal delivery and at least a 96-hour hospital length of stay
following a caesarean section.
``(2) Such State law requires such coverage to provide for
maternity and pediatric care in accordance with guidelines
established by the American College of Obstetricians and
Gynecologists, the American Academy of Pediatrics, or other
established professional medical associations.
``(3) Such State law requires, in connection with such
coverage for maternity care, that the hospital length of stay
for such care is left to the decision of (or required to be made
by) the attending provider in consultation with the mother.
[[Page 111 STAT. 1083]]
``SEC. 9812. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL
HEALTH BENEFITS.
``(a) In General.--
``(1) Aggregate lifetime limits.--In the case of a group
health plan that provides both medical and surgical benefits and
mental health benefits--
``(A) No lifetime limit.--If the plan does not
include an aggregate lifetime limit on substantially all
medical and surgical benefits, the plan may not impose
any aggregate lifetime limit on mental health benefits.
``(B) Lifetime limit.--If the plan includes an
aggregate lifetime limit on substantially all medical
and surgical benefits (in this paragraph referred to as
the `applicable lifetime limit'), the plan shall
either--
``(i) apply the applicable lifetime limit both
to the medical and surgical benefits to which it
otherwise would apply and to mental health
benefits and not distinguish in the application of
such limit between such medical and surgical
benefits and mental health benefits; or
``(ii) not include any aggregate lifetime
limit on mental health benefits that is less than
the applicable lifetime limit.
``(C) Rule in case of different limits.--In the case
of a plan that is not described in subparagraph (A) or
(B) and that includes no or different aggregate lifetime
limits on different categories of medical and surgical
benefits, the Secretary shall establish rules under
which subparagraph (B) is applied to such plan with
respect to mental health benefits by substituting for
the applicable lifetime limit an average aggregate
lifetime limit that is computed taking into account the
weighted average of the aggregate lifetime limits
applicable to such categories.
``(2) Annual limits.--In the case of a group health plan
that provides both medical and surgical benefits and mental
health benefits--
``(A) No annual limit.--If the plan does not include
an annual limit on substantially all medical and
surgical benefits, the plan may not impose any annual
limit on mental health benefits.
``(B) Annual limit.--If the plan includes an annual
limit on substantially all medical and surgical benefits
(in this paragraph referred to as the `applicable annual
limit'), the plan shall either--
``(i) apply the applicable annual limit both
to medical and surgical benefits to which it
otherwise would apply and to mental health
benefits and not distinguish in the application of
such limit between such medical and surgical
benefits and mental health benefits; or
``(ii) not include any annual limit on mental
health benefits that is less than the applicable
annual limit.
``(C) Rule in case of different limits.--In the case
of a plan that is not described in subparagraph (A) or
(B) and that includes no or different annual limits on
different categories of medical and surgical benefits,
the Secretary shall establish rules under which
subparagraph (B) is applied to such plan with respect to
mental health
[[Page 111 STAT. 1084]]
benefits by substituting for the applicable annual limit
an average annual limit that is computed taking into
account the weighted average of the annual limits
applicable to such categories.
``(b) Construction.--Nothing in this section shall be construed--
``(1) as requiring a group health plan to provide any mental
health benefits; or
``(2) in the case of a group health plan that provides
mental health benefits, as affecting the terms and conditions
(including cost sharing, limits on numbers of visits or days of
coverage, and requirements relating to medical necessity)
relating to the amount, duration, or scope of mental health
benefits under the plan, except as specifically provided in
subsection (a) (in regard to parity in the imposition of
aggregate lifetime limits and annual limits for mental health
benefits).
``(c) Exemptions.--
``(1) Small employer exemption.--This section shall not
apply to any group health plan for any plan year of a small
employer (as defined in section 4980D(d)(2)).
``(2) Increased cost exemption.--This section shall not
apply with respect to a group health plan if the application of
this section to such plan results in an increase in the cost
under the plan of at least 1 percent.
``(d) Separate Application to Each Option Offered.--In the case of a
group health plan that offers a participant or beneficiary two or more
benefit package options under the plan, the requirements of this section
shall be applied separately with respect to each such option.
``(e) Definitions.--For purposes of this section:
``(1) Aggregate lifetime limit.--The term `aggregate
lifetime limit' means, with respect to benefits under a group
health plan, a dollar limitation on the total amount that may be
paid with respect to such benefits under the plan with respect
to an individual or other coverage unit.
``(2) Annual limit.--The term `annual limit' means, with
respect to benefits under a group health plan, a dollar
limitation on the total amount of benefits that may be paid with
respect to such benefits in a 12-month period under the plan
with respect to an individual or other coverage unit.
``(3) Medical or surgical benefits.--The term `medical or
surgical benefits' means benefits with respect to medical or
surgical services, as defined under the terms of the plan, but
does not include mental health benefits.
``(4) Mental health benefits.--The term `mental health
benefits' means benefits with respect to mental health services,
as defined under the terms of the plan, but does not include
benefits with respect to treatment of substance abuse or
chemical dependency.
``(f) Sunset.--This section shall not apply to benefits for services
furnished on or after September 30, 2001.''.
(b) Conforming Amendments.--
(1) Chapter 100 of such Code is further amended--
(A) in the last sentence of section 9801(c)(1), by
striking ``section 9805(c)'' and inserting ``section
9832(c)'';
(B) in section 9831(b), by striking ``9805(c)(1)''
and inserting ``9832(c)(1)'';
[[Page 111 STAT. 1085]]
(C) in section 9831(c)(1), by striking
``9805(c)(2)'' and inserting ``9832(c)(2)'';
(D) in section 9831(c)(2), by striking
``9805(c)(3)'' and inserting ``9832(c)(3)''; and
(E) in section 9831(c)(3), by striking
``9805(c)(4)'' and inserting ``9832(c)(4)''.
(2) Section 4980D of such Code is amended--
(A) in subsection (a), by striking ``plan
portability, access, and renewability'' and inserting
``plans'';
(B) in subsection (c)(3)(B)(i)(I), by striking
``9805(d)(3)'' and inserting ``9832(d)(3)'';
(C) in subsection (d)(1), by inserting ``(other than
a failure attributable to section 9811)'' after ``on any
failure'';
(D) in subsection (d)(3), by striking ``9805'' and
inserting ``9832'';
(E) in subsection (f)(1), by striking ``9805(a)''
and inserting ``9832(a)''.
(3) The table of subtitles for such Code is amended by
striking the item relating to subtitle K and inserting the
following new item:
``Subtitle K. Group health plan requirements.''.
<<NOTE: 26 USC 4980D note.>> (c) Effective Date.--The amendments
made by this section shall apply with respect to group health plans for
plan years beginning on or after January 1, 1998.
SEC. 1532. SPECIAL RULES RELATING TO CHURCH PLANS.
(a) In General.--Section 9802 (relating to prohibiting
discrimination against individual participants and beneficiaries based
on health status) is amended by adding at the end the following new
subsection:
``(c) Special Rules for Church Plans.--A church plan (as defined in
section 414(e)) shall not be treated as failing to meet the requirements
of this section solely because such plan requires evidence of good
health for coverage of--
``(1) both any employee of an employer with 10 or less
employees (determined without regard to section 414(e)(3)(C))
and any self-employed individual, or
``(2) any individual who enrolls after the first 90 days of
initial eligibility under the plan.
This subsection shall apply to a plan for any year only if the plan
included the provisions described in the preceding sentence on July 15,
1997, and at all times thereafter before the beginning of such year.''.
<<NOTE: 26 USC 9802 note.>> (b) Effective Date.--The amendments made
by subsection (a) shall take effect as if included in the amendments
made by section 401(a) of the Health Insurance Portability and
Accountability Act of 1996.
Subtitle D--Provisions Relating to Plan Amendments
<<NOTE: 26 USC 411 note.>> SEC. 1541. PROVISIONS RELATING TO PLAN
AMENDMENTS.
(a) In General.--If this section applies to any plan or contract
amendment--
[[Page 111 STAT. 1086]]
(1) such plan or contract shall be treated as being operated
in accordance with the terms of the plan during the period
described in subsection (b)(2)(A), and
(2) such plan shall not fail to meet the requirements of
section 411(d)(6) of the Internal Revenue Code of 1986 or
section 204(g) of the Employee Retirement Income Security Act of
1974 by reason of such amendment.
(b) Amendments to Which Section Applies.--
(1) In general.--This section shall apply to any amendment
to any plan or annuity contract which is made--
(A) pursuant to any amendment made by this title or
subtitle H of title X, and
(B) before the first day of the first plan year
beginning on or after January 1, 1999.
In the case of a governmental plan (as defined in section 414(d)
of the Internal Revenue Code of 1986), this paragraph shall be
applied by substituting ``2001'' for ``1999''.
(2) Conditions.--This section shall not apply to any
amendment unless--
(A) during the period--
(i) beginning on the date the legislative
amendment described in paragraph (1)(A) takes
effect (or in the case of a plan or contract
amendment not required by such legislative
amendment, the effective date specified by the
plan), and
(ii) ending on the date described in paragraph
(1)(B) (or, if earlier, the date the plan or
contract amendment is adopted),
the plan or contract is operated as if such plan or
contract amendment were in effect, and
(B) such plan or contract amendment applies
retroactively for such period.
TITLE XVI--TECHNICAL AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION
ACT OF 1996 AND OTHER LEGISLATION
<<NOTE: 26 USC 1 note.>> SEC. 1600. COORDINATION WITH OTHER TITLES.
For purposes of applying the amendments made by any title of this
Act other than this title, the provisions of this title shall be treated
as having been enacted immediately before the provisions of such other
titles.
SEC. 1601. AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION ACT OF
1996.
(a) Amendments Related to Subtitle A.--
(1) Amendment related to section 1116.--Paragraph (1) of
section 6050R(c) is amended by striking ``name and address'' and
inserting ``name, address, and phone number of the information
contact''.
(2) Amendment to section 1116.--Paragraphs (1) and (2)(C) of
section 1116(b) of the Small Business Job Protection Act of 1996
shall each be applied as if the reference to chapter 68 were a
reference to chapter 61.
[[Page 111 STAT. 1087]]
(b) Amendment Related to Subtitle B.--Subsection (c) of section 52
is amended by striking ``targeted jobs credit'' and inserting ``work
opportunity credit''.
(c) Amendments Related to Subtitle C.--
(1) Amendment related to section 1302.--Subparagraph (B) of
section 1361(e)(1) is amended by striking ``and'' at the end of
clause (i), striking the period at the end of clause (ii) and
inserting ``, and'', and adding at the end the following new
clause:
``(iii) any charitable remainder annuity trust
or charitable remainder unitrust (as defined in
section 664(d)).''.
<<NOTE: 26 USC 1377 note.>> (2) Effective date for section
1307.--
(A) Notwithstanding section 1317 of the Small
Business Job Protection Act of 1996, the amendments made
by subsections (a) and (b) of section 1307 of such Act
shall apply to determinations made after December 31,
1996.
(B) In no event shall the 120-day period referred to
in section 1377(b)(1)(B) of the Internal Revenue Code of
1986 (as added by such section 1307) expire before the
end of the 120-day period beginning on the date of the
enactment of this Act.
(3) Amendment related to section 1308.--Subparagraph (A) of
section 1361(b)(3) is amended by striking ``For purposes of this
title'' and inserting ``Except as provided in regulations
prescribed by the Secretary, for purposes of this title''.
(4) Amendments related to section 1316.--
(A) Paragraph (2) of section 512(e) is amended by
striking ``within the meaning of section 1012'' and
inserting ``as defined in section 1361(e)(1)(C)''.
(B) Paragraph (7) of section 1361(c) is redesignated
as paragraph (6).
(C) Subparagraph (B) of section 1361(b)(1) is
amended by striking ``subsection (c)(7)'' and inserting
``subsection (c)(6)''.
(D) Paragraph (1) of section 512(e) is amended by
striking ``section 1361(c)(7)'' and inserting ``section
1361(c)(6)''.
(d) Amendments Related to Subtitle D.--
(1) Amendments related to section 1421.--
(A) Subsection (i) of section 408 is amended in the
last sentence by striking ``30 days'' and inserting ``31
days''.
(B) Subparagraph (H) of section 408(k)(6) is amended
by striking ``if the terms of such pension'' and
inserting ``of an employer if the terms of simplified
employee pensions of such employer''.
(C)(i) Subparagraph (B) of section 408(l)(2) is
amended--
(I) by inserting ``and the issuer of an
annuity established under such an arrangement''
after ``under subsection (p)'', and
(II) in clause (i), by inserting ``or issuer''
after ``trustee''.
(ii) Paragraph (2) of section 6693(c) is amended--
(I) by inserting ``or issuer'' after
``trustee'', and
(II) in the heading, by inserting ``and
issuer'' after ``trustee''.
[[Page 111 STAT. 1088]]
(D) Subsection (p) of section 408 is amended by
adding at the end the following new paragraph:
``(8) Coordination with maximum limitation under subsection
(a).--In the case of any simple retirement account, subsections
(a)(1) and (b)(2) shall be applied by substituting `the sum of
the dollar amount in effect under paragraph (2)(A)(ii) of this
subsection and the employer contribution required under
subparagraph (A)(iii) or (B)(i) of paragraph (2) of this
subsection, whichever is applicable' for `$2,000'.''.
(E) Clause (i) of section 408(p)(2)(D) is amended by
adding at the end the following new sentence: ``If only
individuals other than employees described in
subparagraph (A) or (B) of section 410(b)(3) are
eligible to participate in such arrangement, then the
preceding sentence shall be applied without regard to
any qualified plan in which only employees so described
are eligible to participate.''.
(F) Subparagraph (D) of section 408(p)(2) is amended
by adding at the end the following new clause:
<<NOTE: Applicability.>> ``(iii) Grace
period.--In the case of an employer who
establishes and maintains a plan under this
subsection for 1 or more years and who fails to
meet any requirement of this subsection for any
subsequent year due to any acquisition,
disposition, or similar transaction involving
another such employer, rules similar to the rules
of section 410(b)(6)(C) shall apply for purposes
of this subsection.''.
(G) Paragraph (5) of section 408(p) is amended in
the text preceding subparagraph (A) by striking
``simplified'' and inserting ``simple''.
(2) Amendments related to section 1422.--
(A) Clause (ii) of section 401(k)(11)(D) is amended
by striking the period and inserting ``if such plan
allows only contributions required under this
paragraph.''.
(B) Paragraph (11) of section 401(k) is amended by
adding at the end the following new subparagraph:
``(E) Cost-of-living adjustment.--The Secretary
shall adjust the $6,000 amount under subparagraph
(B)(i)(I) at the same time and in the same manner as
under section 408(p)(2)(E).''.
(C) Subparagraph (A) of section 404(a)(3) is
amended--
(i) in clause (i), by striking ``not in excess
of'' and all that follows and inserting the
following: ``not in excess of the greater of--
``(I) 15 percent of the compensation
otherwise paid or accrued during the
taxable year to the beneficiaries under
the stock bonus or profit-sharing plan,
or
``(II) the amount such employer is
required to contribute to such trust
under section 401(k)(11) for such
year.'', and
(ii) in clause (ii), by striking ``15
percent'' and all that follows and inserting the
following ``the amount described in subclause (I)
or (II) of clause (i), whichever is greater, with
respect to such taxable year.''.
(D) Subparagraph (B) of section 401(k)(11) is
amended by adding at the end the following new clause:
[[Page 111 STAT. 1089]]
``(iii) Administrative requirements.--
<<NOTE: Applicability.>> ``(I) In
general.--Rules similar to the rules of
subparagraphs (B) and (C) of section
408(p)(5) shall apply for purposes of
this subparagraph.
``(II) Notice of election period.--
The requirements of this subparagraph
shall not be treated as met with respect
to any year unless the employer notifies
each employee eligible to participate,
within a reasonable period of time
before the 60th day before the beginning
of such year (and, for the first year
the employee is so eligible, the 60th
day before the first day such employee
is so eligible), of the rules similar to
the rules of section 408(p)(5)(C) which
apply by reason of subclause (I).''.
(3) Amendment related to section 1433.--The heading of
paragraph (11) of section 401(m) is amended by striking
``Alternative'' and inserting ``Additional alternative''.
<<NOTE: 26 USC 403 note.>> (4) Clarification of section
1450.--
(A) Section 403(b)(11) of the Internal Revenue Code
of 1986 shall not apply with respect to a distribution
from a contract described in section 1450(b)(1) of such
Act to the extent that such distribution is not
includible in income by reason of--
(i) in the case of distributions before
January 1, 1998, section 403 (b)(8) or (b)(10) of
such Code (determined after the application of
section 1450(b)(2) of such Act), and
(ii) in the case of distributions on and after
such date, such section 403(b)(1).
<<NOTE: Applicability.>> (B) This paragraph shall
apply as if included in section 1450 of the Small
Business Job Protection Act of 1996.
(5) Amendment related to section 1451.--Clause (ii) of
section 205(c)(8)(A) of the Employee Retirement Income Security
Act of 1974 <<NOTE: 29 USC 1055.>> is amended by striking
``Secretary'' and inserting ``Secretary of the Treasury''.
(6) Amendments related to section 1461.--
(A) Section 414(e)(5)(A) is amended to read as
follows:
``(A) Certain ministers may participate.--For
purposes of this part--
``(i) In general.--A duly ordained,
commissioned, or licensed minister of a church is
described in paragraph (3)(B) if, in connection
with the exercise of their ministry, the
minister--
``(I) is a self-employed individual
(within the meaning of section
401(c)(1)(B), or
``(II) is employed by an
organization other than an organization
which is described in section 501(c)(3)
and with respect to which the minister
shares common religious bonds.
``(ii) Treatment as employer and employee.--
For purposes of sections 403(b)(1)(A) and
404(a)(10), a minister described in clause (i)(I)
shall be treated as employed by the minister's own
employer which is an organization described in
section 501(c)(3) and exempt from tax under
section 501(a).''.
[[Page 111 STAT. 1090]]
(B) Section 403(b)(1)(A) is amended by striking
``or'' at the end of clause (i), by inserting ``or'' at
the end of clause (ii), and by adding at the end the
following new clause:
``(iii) for the minister described in section
414(e)(5)(A) by the minister or by an employer,''.
(7) Amendment related to section 1462.--The paragraph (7) of
section 414(q) added by section 1462 of the Small Business Job
Protection Act of 1996 is redesignated as paragraph (9).
(e) Amendment Related to Subtitle E.--Subparagraph (A) of section
956(b)(1) is amended by inserting ``to the extent such amount was
accumulated in prior taxable years'' after ``section 316(a)(1)''.
(f) Amendments Related to Subtitle F.--
(1) Amendments related to section 1601.--
(A) The heading of section 30A is amended to read as
follows:
``SEC. 30A. PUERTO RICO ECONOMIC ACTIVITY CREDIT.''.
(B) The table of sections for subpart B of part IV
of subchapter A of chapter 1 is amended in the item
relating to section 30A by striking ``Puerto Rican'' and
inserting ``Puerto Rico''.
(C) Paragraph (1) of section 55(c) is amended by
striking ``Puerto Rican'' and inserting ``Puerto Rico''.
(2) Amendments related to section 1606.--
(A) Clause (ii) of section 9503(c)(2)(A) is amended
by striking ``(or with respect to qualified diesel-
powered highway vehicles purchased before January 1,
1999)''.
(B) Subparagraph (A) of section 9503(e)(5) is
amended by striking ``; except that'' and all that
follows and inserting a period.
(3) Amendments related to section 1607.--
(A) Subsection (f) of section 4001 (relating to
phasedown of tax on luxury passenger automobiles) is
amended--
(i) by inserting ``and section 4003(a)'' after
``subsection (a)'', and
(ii) by inserting ``, each place it appears,''
before ``the percentage''.
(B) Subsection (g) of section 4001 (relating to
termination) is amended by striking ``tax imposed by
this section'' and inserting ``taxes imposed by this
section and section 4003'' and by striking ``or use''
and inserting ``, use, or installation''.
<<NOTE: Applicability. 26 USC 4001 note.>> (C) The
amendments made by this paragraph shall apply to sales
after the date of the enactment of this Act.
(4) Amendments related to section 1609.--
(A) Subsection (l) of section 4041 is amended--
(i) by inserting ``or a fixed-wing aircraft''
after ``helicopter'', and
(ii) in the heading, by striking
``Helicopter''.
(B) The last sentence of section 4041(a)(2) is
amended by striking ``section 4081(a)(2)(A)'' and
inserting ``section 4081(a)(2)(A)(i)''.
[[Page 111 STAT. 1091]]
(C) Subsection (b) of section 4092 is amended by
striking ``section 4041(c)(4)'' and inserting ``section
4041(c)(2)''.
(D) Subsection (g) of section 4261 (as redesignated
by title X) is amended by inserting ``on that flight''
after ``dedicated''.
<<NOTE: 26 USC 4091 note.>> (E) Paragraph (1) of
section 1609(h) of such Act is amended by striking
``paragraph (3)(A)(i)'' and inserting ``paragraph
(3)(A)''.
(F) Paragraph (4) of section 1609(h) of such Act is
amended by inserting before the period ``or exclusively
for the use described in section 4092(b) of such Code''.
(5) Amendments related to section 1616.--
(A) Subparagraph (A) of section 593(e)(1) is amended
by inserting ``(and, in the case of an S corporation,
the accumulated adjustments account, as defined in
section 1368(e)(1))'' after ``1951,''.
(B) Paragraph (7) of section 1374(d) is amended by
adding at the end the following new sentence: ``For
purposes of applying this section to any amount
includible in income by reason of section 593(e), the
preceding sentence shall be applied without regard to
the phrase `10-year'.''.
(6) Amendments related to section 1621.--
(A) Subparagraph (A) of section 860L(b)(1) is
amended in the text preceding clause (i) by striking
``after the startup date'' and inserting ``on or after
the startup date''.
(B) Paragraph (2) of section 860L(d) is amended by
striking ``section 860I(c)(2)'' and inserting ``section
860I(b)(2)''.
(C) Subparagraph (B) of section 860L(e)(2) is
amended by inserting ``other than foreclosure property''
after ``any permitted asset''.
(D) Subparagraph (A) of section 860L(e)(3) is
amended by striking ``if the FASIT'' and all that
follows and inserting the following new flush text after
clause (ii):
``if the FASIT were treated as a REMIC and permitted
assets (other than cash or cash equivalents) were
treated as qualified mortgages.''.
(E)(i) Paragraph (3) of section 860L(e) is amended
by adding at the end the following new subparagraph:
``(D) Income from dispositions of former hedge
assets.--Paragraph (2)(A) shall not apply to income
derived from the disposition of--
``(i) an asset which was described in
subsection (c)(1)(D) when first acquired by the
FASIT but on the date of such disposition was no
longer described in subsection (c)(1)(D)(ii), or
``(ii) a contract right to acquire an asset
described in clause (i).''.
(ii) Subparagraph (A) of section 860L(e)(2) is
amended by inserting ``except as provided in paragraph
(3),'' before ``the receipt''.
(g) Amendments Related to Subtitle G.--
<<NOTE: 26 USC 6427 note.>> (1) Extension of period for
claiming refunds for alcohol fuels.--Notwithstanding section
6427(i)(3)(C) of the Internal Revenue Code of 1986, a claim
filed under section 6427(f) of such Code for any period after
September 30, 1995, and before October 1, 1996, shall be treated
as timely filed
[[Page 111 STAT. 1092]]
if filed before the 60th day after the date of the enactment of
this Act.
<<NOTE: 26 USC 6501.>> (2) Amendments to Sections 1703 and
1704.--Sections 1703(n)(8) and 1704(j)(4)(B) of the Small
Business Job Protection Act of 1996 shall each be applied as if
such sections referred to section 1702 instead of section 1602.
(h) Amendments Related to Subtitle H.--
(1) Amendments related to section 1806.--
(A) Subparagraph (B) of section 529(e)(1) is amended
by striking ``subsection (c)(2)(C)'' and inserting
``subsection (c)(3)(C)''.
(B) Subparagraph (C) of section 529(e)(1) is amended
by inserting ``(or agency or instrumentality thereof)''
after ``local government''.
(C) Paragraph (2) of section 1806(c) of the Small
Business Job Protection Act of 1996 <<NOTE: 26 USC 529
note.>> is amended by striking so much of the first
sentence as follows subparagraph (B)(ii) and inserting
the following:
<<NOTE: Applicability.>> ``then such program (as in effect on
August 20, 1996) shall be treated as a qualified State tuition
program with respect to contributions (and earnings allocable
thereto) pursuant to contracts entered into under such program
before the first date on which such program meets such
requirements (determined without regard to this paragraph) and
the provisions of such program (as so in effect) shall apply in
lieu of section 529(b) of the Internal Revenue Code of 1986 with
respect to such contributions and earnings.''.
(2) Amendments related to section 1807.--
(A) Paragraph (2) of section 23(a) is amended to
read as follows:
``(2) Year credit allowed.--The credit under paragraph (1)
with respect to any expense shall be allowed--
``(A) in the case of any expense paid or incurred
before the taxable year in which such adoption becomes
final, for the taxable year following the taxable year
during which such expense is paid or incurred, and
``(B) in the case of an expense paid or incurred
during or after the taxable year in which such adoption
becomes final, for the taxable year in which such
expense is paid or incurred.''.
(B) Subparagraph (B) of section 23(b)(2) is amended
by striking ``determined--'' and all that follows and
inserting the following: ``determined without regard to
sections 911, 931, and 933.''.
(C) Paragraph (1) of section 137(b) (relating to
adoption assistance programs) is amended by striking
``amount excludable from gross income'' and inserting
``of the amounts paid or expenses incurred which may be
taken into account''.
(D)(i) Subparagraph (C) of section 414(n)(3) is
amended by inserting ``137,'' after ``132,''.
(ii) Paragraph (2) of section 414(t) is amended by
inserting ``137,'' after ``132,''.
(iii) Paragraph (1) of section 6039GD(d) is amended
by striking ``or 129'' and inserting ``129, or 137''.
(i) Amendments Related to Subtitle I.--
[[Page 111 STAT. 1093]]
(1) Amendment related to section 1901.--Subsection (b) of
section 6048 is amended in the heading by striking ``Grantor''
and inserting ``Owner''.
(2) Amendments related to section 1903.--
Clauses (ii) and (iii) of section 679(a)(3)(C) are
each amended by inserting ``, owner,'' after
``grantor''.
(3) Amendments related to section 1907.--
(A) Clause (ii) of section 7701(a)(30)(E) is amended
by striking ``fiduciaries'' and inserting ``persons''.
(B) Subsection (b) of section 641 is amended by
adding at the end the following new sentence: ``For
purposes of this subsection, a foreign trust or foreign
estate shall be treated as a nonresident alien
individual who is not present in the United States at
any time.''.
<<NOTE: 26 USC 7701 note.>> (4) Effective date related to
subtitle i.--The Secretary of the Treasury may by regulations or
other administrative guidance provide that the amendments made
by section 1907(a) of the Small Business Job Protection Act of
1996 shall not apply to a trust with respect to a reasonable
period beginning on the date of the enactment of such Act, if--
(A) such trust is in existence on August 20, 1996,
and is a United States person for purposes of the
Internal Revenue Code of 1986 on such date (determined
without regard to such amendments),
(B) no election is in effect under section
1907(a)(3)(B) of such Act with respect to such trust,
(C) before the expiration of such reasonable period,
such trust makes the modifications necessary to be
treated as a United States person for purposes of such
Code (determined with regard to such amendments), and
(D) such trust meets such other conditions as the
Secretary may require.
<<NOTE: 26 USC 23 note.>> (j) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall take effect as if included
in the provisions of the Small Business Job Protection Act of
1996 to which they relate.
(2) Certain administrative requirements with respect to
certain pension plans.--The amendment made by subsection
(d)(2)(D) shall apply to calendar years beginning after the date
of the enactment of this Act.
SEC. 1602. AMENDMENTS RELATED TO HEALTH INSURANCE PORTABILITY AND
ACCOUNTABILITY ACT OF 1996.
(a) Amendments Related to Section 301.--
(1) Paragraph (2) of section 26(b) is amended by striking
``and'' at the end of subparagraph (N), by striking the period
at the end of subparagraph (O) and inserting ``, and'', and by
adding at the end the following new subparagraph:
``(P) section 220(f)(4) (relating to additional tax
on medical savings account distributions not used for
qualified medical expenses).''.
(2) Paragraph (3) of section 220(c) is amended by striking
subparagraph (A) and redesignating subparagraphs (B) through (D)
as subparagraphs (A) through (C), respectively.
[[Page 111 STAT. 1094]]
(3) Subparagraph (C) of section 220(d)(2) is amended by
striking ``an eligible individual'' and inserting ``described in
clauses (i) and (ii) of subsection (c)(1)(A)''.
(4) 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)(X).''.
(5) Paragraph (4) of section 4975(c) is amended by striking
``if, with respect to such transaction'' and all that follows
and inserting the following: ``if section 220(e)(2) applies to
such transaction.''.
(b) Amendment Related to Section 321.--Subparagraph (B) of section
7702B(c)(2) is amended in the last sentence by inserting ``described in
subparagraph (A)(i)'' after ``chronically ill individual''.
(c) Amendments Related to Section 322.--Subparagraph (B) of section
162(l)(2) is amended by adding at the end the following new sentence:
``The preceding sentence shall be applied separately with respect to--
``(i) plans which include coverage for
qualified long-term care services (as defined in
section 7702B(c)) or are qualified long-term care
insurance contracts (as defined in section
7702B(b)), and
``(ii) plans which do not include such
coverage and are not such contracts.''.
(d) Amendments Related to Section 323.--
(1) Paragraph (1) of section 6050Q(b) is amended by
inserting ``, address, and phone number of the information
contact'' after ``name''.
(2)(A) Paragraph (2) of section 6724(d) is amended by
striking so much as follows subparagraph (Q) and precedes the
last sentence, and inserting the following new subparagraphs:
``(R) section 6050R(c) (relating to returns relating
to certain purchases of fish),
``(S) section 6051 (relating to receipts for
employees),
``(T) section 6052(b) (relating to returns regarding
payment of wages in the form of group-term life
insurance),
``(U) section 6053(b) or (c) (relating to reports of
tips),
``(V) section 6048(b)(1)(B) (relating to foreign
trust reporting requirements),
``(W) section 4093(c)(4)(B) (relating to certain
purchasers of diesel and aviation fuels),
``(X) 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
``(Y) 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) Subsection (e) of section 6652 is amended in the last
sentence by striking ``section 6724(d)(2)(X)'' and inserting
``section 6724(d)(2)(Y)''.
(e) Amendment Related to Section 325.--Clauses (ii) and (iii) of
section 7702B(g)(4)(B) are each amended by striking ``Secretary'' and
inserting ``appropriate State regulatory agency''.
(f) Amendments Related to Section 501.--
[[Page 111 STAT. 1095]]
(1) Paragraph (4) of section 264(a) is amended by striking
subparagraph (A) and all that follows through ``by the
taxpayer.'' and inserting the following:
``(A) is or was an officer or employee, or
``(B) is or was financially interested in,
any trade or business carried on (currently or formerly) by the
taxpayer.''.
(2) The last 2 sentences of section 264(d)(2)(B)(ii) are
amended to read as follows:
``For purposes of subclause (II), the term
`applicable period' means the 12-month period
beginning on the date the policy is issued (and
each successive 12-month period thereafter) unless
the taxpayer elects a number of months (not
greater than 12) other than such 12-month period
to be its applicable period.
Such <<NOTE: Applicability.>> an election shall
be made not later than the 90th day after the date
of the enactment of this sentence and, if made,
shall apply to the taxpayer's first taxable year
ending on or after October 13, 1995, and all
subsequent taxable years unless revoked with the
consent of the Secretary.''.
(3) Subparagraph (B) of section 264(d)(4) is amended by
striking ``the employer'' and inserting ``the taxpayer''.
(4) Subsection (c) of section 501 of the Health Insurance
Portability and Accountability Act of 1996 <<NOTE: 26 USC 264
note.>> is amended by striking paragraph (3).
(5) Paragraph (2) of section 501(d) of such Act is amended
by striking ``no additional premiums'' and all that follows and
inserting the following: ``a lapse occurring after October 13,
1995, by reason of no additional premiums being received under
the contract.''.
(g) Amendments Related to Section 511.--
(1) Subparagraph (B) of section 877(d)(2) is amended by
striking ``the 10-year period described in subsection (a)'' and
inserting ``the 10-year period beginning on the date the
individual loses United States citizenship''.
(2) Subparagraph (D) of section 877(d)(2) is amended by
adding at the end the following new sentence: ``In the case of
any exchange occurring during such 5 years, any gain recognized
under this subparagraph shall be recognized immediately after
such loss of citizenship.''.
(3) Paragraph (3) of section 877(d) is amended by inserting
``and the period applicable under paragraph (2)'' after
``subsection (a)''.
(4) Subparagraph (A) of section 877(d)(4) is amended--
(A) by inserting ``during the 10-year period
beginning on the date the individual loses United States
citizenship'' after ``contributes property'' in clause
(i),
(B) by inserting ``immediately before such
contribution'' after ``from such property'', and
(C) by striking ``during the 10-year period referred
to in subsection (a),''.
(5) Subparagraph (C) of section 2501(a)(3) is amended by
striking ``decedent'' and inserting ``donor''.
(6)(A) Clause (i) of section 2107(c)(2)(B) is amended by
striking ``such foreign country in respect of property included
in the gross estate as the value of the property'' and inserting
[[Page 111 STAT. 1096]]
``such foreign country as the value of the property subjected to
such taxes by such foreign country and''.
(B) Subparagraph (C) of section 2107(c)(2) is amended to
read as follows:
``(C) Proportionate share.--In the case of property
which is included in the gross estate solely by reason
of subsection (b), such property's proportionate share
is the percentage which the value of such property bears
to the total value of all property included in the gross
estate solely by reason of subsection (b).''.
(h) Amendments Related to Section 512.--
(1) Subpart A of part III of subchapter A of chapter 61 is
amended by redesignating the section 6039F added by section 512
of the Health Insurance Portability and Accountability Act of
1996 as section 6039G and by moving such section 6039G to
immediately after the section 6039F added by section 1905 of the
Small Business Job Protection Act of 1996.
(2) The table of sections for subpart A of part III of
subchapter A of chapter 61 is amended by striking the item
relating to the section 6039F related to information on
individuals losing United States citizenship and inserting after
the item relating to the section 6039F related to notice of
large gifts received from foreign persons the following new
item:
``Sec. 6039G. Information on individuals losing United
States citizenship.''.
(3) Paragraph (1) of section 877(e) is amended by striking
``6039F'' and inserting ``6039G''.
<<NOTE: 26 USC 26 note.>> (i) Effective Date.--The amendments made
by this section shall take effect as if included in the provisions of
the Health Insurance Portability and Accountability Act of 1996 to which
such amendments relate.
SEC. 1603. AMENDMENTS RELATED TO TAXPAYER BILL OF RIGHTS 2.
(a) Amendment Related to Section 1311.--Subsection (b) of section
4962 is amended by striking ``subchapter A or C'' and inserting
``subchapter A, C, or D''.
(b) Amendments Related to Section 1312.--
(1)(A) Paragraph (10) of section 6033(b) is amended by
striking all that precedes subparagraph (A) and inserting the
following:
``(10) the respective amounts (if any) of the taxes imposed
on the organization, or any organization manager of the
organization, during the taxable year under any of the following
provisions (and the respective amounts (if any) of
reimbursements paid by the organization during the taxable year
with respect to taxes imposed on any such organization manager
under any of such provisions):''.
(B) Subparagraph (C) of section 6033(b)(10) is amended by
adding at the end the following: ``except to the extent that, by
reason of section 4962, the taxes imposed under such section are
not required to be paid or are credited or refunded,''.
(2) Paragraph (11) of section 6033(b) is amended to read as
follows:
``(11) the respective amounts (if any) of--
``(A) the taxes imposed with respect to the
organization on any organization manager, or any
disqualified person, during the taxable year under
section 4958 (relating to
[[Page 111 STAT. 1097]]
taxes on private excess benefit from certain charitable
organizations), and
``(B) reimbursements paid by the organization during
the taxable year with respect to taxes imposed under
such section,
except to the extent that, by reason of section 4962, the taxes
imposed under such section are not required to be paid or are
credited or refunded,''.
<<NOTE: 26 USC 4962 note.>> (c) Effective Date.--The amendments made
by this section shall take effect as if included in the provisions of
the Taxpayer Bill of Rights 2 to which such amendments relate.
SEC. 1604. MISCELLANEOUS PROVISIONS.
(a) Amendments Related to Energy Policy Act of 1992.--
(1) Paragraph (1) of section 263(a) is amended by striking
``or'' at the end of subparagraph (F), by striking the period at
the end of subparagraph (G) and inserting ``; or'', and by
adding at the end the following new subparagraph:
``(H) expenditures for which a deduction is allowed
under section 179A.''.
(2) Subparagraph (B) of section 312(k)(3) is amended--
(A) by striking ``179'' in the heading and the first
place it appears in the text and inserting ``179 or
179A'', and
(B) by striking ``179'' the last place it appears
and inserting ``179 or 179A, as the case may be''.
(3) Paragraphs (2)(C) and (3)(C) of section 1245(a) are each
amended by inserting ``179A,'' after ``179,''.
<<NOTE: 26 USC 263 note.>> (4) The amendments made by this
subsection shall take effect as if included in the amendments
made by section 1913 of the Energy Policy Act of 1992.
(b) Amendments Related to Uruguay Round Agreements Act.--
(1) Paragraph (1) of section 6621(a) is amended in the last
sentence by striking ``subsection (c)(3))'' and inserting
``subsection (c)(3), applied by substituting `overpayment' for
`underpayment')''.
(2)(A) Subclause (II) of section 412(m)(5)(E)(ii) is amended
by striking ``clause (i)'' and inserting ``subclause (I)''.
(B) Subclause (II) of section 302(e)(5)(E)(ii) of the
Employee Retirement Income Security Act of 1974 <<NOTE: 29 USC
1082.>> is amended by striking ``clause (i)'' and inserting
``subclause (I)''.
(3) Subparagraph (A) of section 767(d)(3) of the Uruguay
Round Agreements <<NOTE: 26 USC 411 note.>> Act is amended in
the last sentence by striking ``(except that'' and all that
follows through ``into account)''.
<<NOTE: 26 USC 412 note.>> (4) The amendments made by this
subsection shall take effect as if included in the sections of
the Uruguay Round Agreements Act to which they relate.
(c) Amendment Related to Omnibus Budget Reconciliation Act of
1993.--
(1) Paragraph (6) of section 168(j) (defining Indian
reservation) is amended by adding at the end the following new
flush sentence:
``For purposes of the preceding sentence, such section 3(d)
shall be applied by treating the term `former Indian
reservations in Oklahoma' as including only lands which are
within the
[[Page 111 STAT. 1098]]
jurisdictional area of an Oklahoma Indian tribe (as determined
by the Secretary of the Interior) and are recognized by such
Secretary as eligible for trust land status under 25 CFR Part
151 (as in effect on the date of the enactment of this
sentence).''.
<<NOTE: Applicability. 26 USC 168 note.>> (2) The amendment
made by paragraph (1) shall apply as if included in the
amendments made by section 13321 of the Omnibus Budget
Reconciliation Act of 1993, except that such amendment shall not
apply--
(A) with respect to property (with an applicable
recovery period under section 168(j) of the Internal
Revenue Code of 1986 of 6 years or less) held by the
taxpayer if the taxpayer claimed the benefits of section
168(j) of such Code with respect to such property on a
return filed before March 18, 1997, but only if such
return is the first return of tax filed for the taxable
year in which such property was placed in service, or
(B) with respect to wages for which the taxpayer
claimed the benefits of section 45A of such Code for a
taxable year on a return filed before March 18, 1997,
but only if such return was the first return of tax
filed for such taxable year.
(d) Amendments Related to Tax Reform Act of 1986.--
(1) Paragraph (3) of section 1059(d) is amended by striking
``subsection (a)(2)'' and inserting ``subsection (a)''.
(2)(A) Subparagraph (A) of section 833(b)(1) is amended--
(i) by inserting before the comma at the end of
clause (i) ``and liabilities incurred during the taxable
year under cost-plus contracts'', and
(ii) by inserting before the comma at the end of
clause (ii) ``or in connection with the administration
of cost-plus contracts''.
<<NOTE: 26 USC 833 note.>> (B) The amendment made by
subparagraph (A) shall take effect as if included in the
amendments made by section 1012 of the Tax Reform Act of 1986.
(e) Amendment Related to Tax Reform Act of 1984.--
(1) Section 267(f) is amended by adding at the end the
following new paragraph:
``(4) Determination of relationship resulting in
disallowance of loss, for purposes of other provisions.--For
purposes of any other section of this title which refers to a
relationship which would result in a disallowance of losses
under this section, deferral under paragraph (2) shall be
treated as disallowance.''.
<<NOTE: 26 USC 267 note.>> (2) Effective date.--The
amendment made by paragraph (1) shall take effect as if included
in section 174(b) of the Tax Reform Act of 1984.
(f) Amendments Related to Balanced Budget Act of 1997.--
(1) The Balanced Budget Act of 1997 is amended--
(A) in the table of contents for title IV, in the
item relating to section 4921, <<NOTE: Ante, p. 275.>>
by striking ``children with'';
(B) in the heading for section 4921, <<NOTE: Ante,
p. 574.>> by striking ``children with''; and
(C) in the section added by section 4921--
(i) in the heading for such section, by
striking ``children with''; and
(ii) by amending subsection (a) to read as
follows:
[[Page 111 STAT. 1099]]
``(a) In General.--The Secretary, directly or through grants, shall
provide for research into the prevention and cure of Type I diabetes.''.
<<NOTE: Applicability.>> (2)(A) Section 11201(g)(2)(B)(iii)
of the Balanced Budget Act of 1997 shall apply as if the
reference in such section to ``December 31, 2003'' were a
reference to ``December 31, 2001''.
<<NOTE: District of Columbia.>> (B) Notwithstanding section
11104(b)(3) of the Balanced Budget Act of 1997, in carrying out
any of the management reform plans under such section, the head
of a department of the government of the District of Columbia
shall report solely to the District of Columbia Financial
Responsibility and Management Assistance Authority.
<<NOTE: Ante, p. 671.>> (3) Section 9302 of the Balanced
Budget Act of 1997 is amended by adding at the end the following
new subsection:
``(k) Coordination With Tobacco Industry Settlement Agreement.--The
increase in excise taxes collected as a result of the amendments made by
subsections (a), (e), and (g) of this section shall be credited against
the total payments made by parties pursuant to Federal legislation
implementing the tobacco industry settlement agreement of June 20, 1997.
<<NOTE: 42 USC 254c-2 note.>> (4) The provisions of, and amendments
made by, this subsection shall take effect immediately after the
sections referred to in this subsection take effect.
(g) Clerical Amendments.--
(1) Clause (iii) of section 163(j)(2)(B) is amended by
striking ``clause (i)'' and inserting ``clause (ii)''.
(2) Paragraph (1) of section 665(d) is amended in the last
sentence by striking ``or 669(d) and (e)''.
(3) Subsection (g) of section 1441 (relating to cross
reference) is amended by striking ``one-half'' and inserting
``85 percent''.
(4) Paragraph (1) of section 2523(g) is amended by striking
``qualified remainder trust'' and inserting ``qualified
charitable remainder trust''.
(5) Subsection (d) of section 9502 is amended by
redesignating the paragraph added by section 806 of the Federal
Aviation Reauthorization Act of 1996 as paragraph (6).
TITLE XVII--IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM
VETO
SEC. 1701. IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM
VETO.
Section 1021(a)(3) of the Congressional Budget and Impoundment
Control Act of 1974 shall only apply to--
(1) section 101(c) (relating to high risk pools permitted to
cover dependents of high risk individuals);
(2) section 222 (relating to limitation on qualified
501(c)(3) bonds other than hospital bonds);
(3) section 224 (relating to contributions of computer
technology and equipment for elementary or secondary school
purposes);
[[Page 111 STAT. 1100]]
(4) section 312(a) (relating to treatment of remainder
interests for purposes of provision relating to gain on sale of
principal residence);
(5) section 501(b) (relating to indexing of alternative
valuation of certain farm, etc., real property);
(6) section 504 (relating to extension of treatment of
certain rents under section 2032A to lineal descendants);
(7) section 505 (relating to clarification of judicial
review of eligibility for extension of time for payment of
estate tax);
(8) section 508 (relating to treatment of land subject to
qualified conservation easement);
(9) section 511 (relating to expansion of exception from
generation-skipping transfer tax for transfers to individuals
with deceased parents);
(10) section 601 (relating to the research tax credit);
(11) section 602 (relating to contributions of stock to
private foundations);
(12) section 603 (relating to the work opportunity tax
credit);
(13) section 604 (relating to orphan drug tax credit);
(14) section 701 (relating to incentives for revitalization
of the District of Columbia) to the extent it amends the
Internal Revenue Code of 1986 to create sections 1400 and 1400A
(relating to tax-exempt economic development bonds);
(15) section 701 (relating to incentives for revitalization
of the District of Columbia) to the extent it amends the
Internal Revenue Code of 1986 to create section 1400C (relating
to first-time homebuyer credit for District of Columbia);
(16) section 801 (relating to incentives for employing long-
term family assistance recipients);
(17) section 904(b) (relating to uniform rate of tax on
vaccines) as it relates to any vaccine containing pertussis
bacteria, extracted or partial cell bacteria, or specific
pertussis antigens;
(18) section 904(b) (relating to uniform rate of tax on
vaccines) as it relates to any vaccine against measles;
(19) section 904(b) (relating to uniform rate of tax on
vaccines) as it relates to any vaccine against mumps;
(20) section 904(b) (relating to uniform rate of tax on
vaccines) as it relates to any vaccine against rubella;
(21) section 905 (relating to operators of multiple retail
gasoline outlets treated as wholesale distributors for refund
purposes);
(22) section 906 (relating to exemption of electric and
other clean-fuel motor vehicles from luxury automobile
classification);
(23) section 907(a) (relating to rate of tax on liquefied
natural gas determined on basis of BTU equivalency with
gasoline);
(24) section 907(b) (relating to rate of tax on methanol
from natural gas determined on basis of BTU equivalency with
gasoline);
(25) section 908 (relating to modification of tax treatment
of hard cider);
(26) section 914 (relating to mortgage financing for
residences located in disaster areas);
(27) section 962 (relating to assignment of workmen's
compensation liability eligible for exclusion relating to
personal injury liability assignments);
[[Page 111 STAT. 1101]]
(28) section 963 (relating to tax-exempt status for certain
State worker's compensation act companies);
(29) section 967 (relating to additional advance refunding
of certain Virgin Island bonds);
(30) section 968 (relating to nonrecognition of gain on sale
of stock to certain farmers' cooperatives);
(31) section 971 (relating to exemption of the incremental
cost of a clean fuel vehicle from the limits on depreciation for
vehicles);
(32) section 974 (relating to clarification of treatment of
certain receivables purchased by cooperative hospital service
organizations);
(33) section 975 (relating to deduction in computing
adjusted gross income for expenses in connection with service
performed by certain officials) with respect to taxable years
beginning before 1991;
(34) section 977 (relating to elective carryback of existing
carryovers of National Railroad Passenger Corporation);
(35) section 1005(b)(2)(B) (relating to transition rule for
instruments described in a ruling request submitted to the
Internal Revenue Service on or before June 8, 1997);
(36) section 1005(b)(2)(C) (relating to transition rule for
instruments described on or before June 8, 1997, in a public
announcement or in a filing with the Securities and Exchange
Commission) as it relates to a public announcement;
(37) section 1005(b)(2)(C) (relating to transition rule for
instruments described on or before June 8, 1997, in a public
announcement or in a filing with the Securities and Exchange
Commission) as it relates to a filing with the Securities and
Exchange Commission;
(38) section 1011(d)(2)(B) (relating to transition rule for
distributions made pursuant to the terms of a tender offer
outstanding on May 3, 1995);
(39) section 1011(d)(3) (relating to transition rule for
distributions made pursuant to the terms of a tender offer
outstanding on September 13, 1995);
(40) section 1012(d)(3)(B) (relating to transition rule for
distributions pursuant to an acquisition described in section
355(e)(2)(A)(ii) of the Internal Revenue Code of 1986 described
in a ruling request submitted to the Internal Revenue Service on
or before April 16, 1997);
(41) section 1012(d)(3)(C) (relating to transition rule for
distributions pursuant to an acquisition described in section
355(e)(2)(A)(ii) of the Internal Revenue Code of 1986 described
in a public announcement or filing with the Securities and
Exchange Commission) as it relates to a public announcement;
(42) section 1012(d)(3)(C) (relating to transition rule for
distributions pursuant to an acquisition described in section
355(e)(2)(A)(ii) of the Internal Revenue Code of 1986 described
in a public announcement or filing with the Securities and
Exchange Commission) as it relates to a filing with the
Securities and Exchange Commission;
(43) section 1013(d)(2)(B) (relating to transition rule for
distributions or acquisitions after June 8, 1997, described in a
ruling request submitted to the Internal Revenue Service
submitted on or before June 8, 1997);
[[Page 111 STAT. 1102]]
(44) section 1013(d)(2)(C) (relating to transition rule for
distributions or acquisitions after June 8, 1997, described in a
public announcement or filing with the Securities and Exchange
Commission on or before June 8, 1997) as it relates to a public
announcement;
(45) section 1013(d)(2)(C) (relating to transition rule for
distributions or acquisitions after June 8, 1997, described in a
public announcement or filing with the Securities and Exchange
Commission on or before June 8, 1997) as it relates to a filing
with the Securities and Exchange Commission;
(46) section 1014(f)(2)(B) (relating to transition rule for
any transaction after June 8, 1997, if such transaction is
described in a ruling request submitted to the Internal Revenue
Service on or before June 8, 1997);
(47) section 1014(f)(2)(C) (relating to transition rule for
any transaction after June 8, 1997, if such transaction is
described in a public announcement or filing with the Securities
and Exchange Commission on or before June 8, 1997) as it relates
to a public announcement;
(48) section 1014(f)(2)(C) (relating to transition rule for
any transaction after June 8, 1997, if such transaction is
described in a public announcement or filing with the Securities
and Exchange Commission on or before June 8, 1997) as it relates
to a filing with the Securities and Exchange Commission;
(49) section 1042(b) (relating to special rules for
provision terminating certain exceptions from rules relating to
exempt organizations which provide commercial-type insurance);
(50) section 1081(a) (relating to termination of suspense
accounts for family corporations required to use accrual method
of accounting) as it relates to the repeal of Internal Revenue
Code section 447(i)(3);
(51) section 1089(b)(3) (relating to reformations);
(52) section 1089(b)(5)(B)(i) (relating to persons under a
mental disability;
(53) section 1171 (relating to treatment of computer
software as FSC export property);
(54) section 1175 (relating to exemption for active
financing income);
(55) section 1204 (relating to travel expenses of certain
Federal employees engaged in criminal investigations);
(56) section 1236 (relating to extension of time for filing
a request for administrative adjustment);
(57) section 1243 (relating to special rules for
administrative adjustment request with respect to bad debts or
worthless securities);
(58) section 1251 (relating to clarification of limitation
on maximum number of shareholders);
(59) section 1253 (relating to attribution rules applicable
to stock ownership);
(60) section 1256 (relating to modification of earnings and
profits rules for determining whether REIT has earnings and
profits from non-REIT year);
(61) section 1257 (relating to treatment of foreclosure
property);
(62) section 1261 (relating to shared appreciation
mortgages);
[[Page 111 STAT. 1103]]
(63) section 1302 (relating to clarification of waiver of
certain rights of recovery);
(64) section 1303 (relating to transitional rule under
section 2056A);
(65) section 1304 (relating to treatment for estate tax
purposes of short-term obligations held by nonresident aliens);
(66) section 1311 (relating to clarification of treatment of
survivor annuities under qualified terminable interest rules);
(67) section 1312 (relating to treatment of qualified
domestic trust rules of forms of ownership which are not
trusts);
(68) section 1313 (relating to opportunity to correct
failures under section 2032A);
(69) section 1414 (relating to fermented material from any
brewery may be received at a distilled spirits plant);
(70) section 1417 (relating to use of additional
ameliorating material in certain wines);
(71) section 1418 (relating to domestically produced beer
may be withdrawn free of tax for use of foreign embassies,
legations, etc.);
(72) section 1421 (relating to transfer to brewery of beer
imported in bulk without payment of tax);
(73) section 1422 (relating to transfer to bonded wine
cellars of wine imported in bulk without payment of tax);
(74) section 1506 (relating to clarification of certain
rules relating to employee stock ownership plans of S
corporations);
(75) section 1507 (relating to modification of 10-percent
tax for nondeductible contributions);
(76) section 1523 (relating to repeal of application of
unrelated business income tax to ESOPs);
(77) section 1530 (relating to gratuitous transfers for the
benefit of employees);
(78) section 1532 (relating to special rules relating to
church plans); and
(79) section 1604(c)(2) (relating to amendment related to
Omnibus Budget Reconciliation Act of 1993).
Approved August 5, 1997.
LEGISLATIVE HISTORY--H.R. 2014 (S. 949):
---------------------------------------------------------------------------
HOUSE REPORTS: Nos. 105-148 (Comm. on the Budget) and 105-220 (Comm. of
Conference).
CONGRESSIONAL RECORD, Vol. 143 (1997):
June 26, considered and passed House.
June 27, considered and passed Senate, amended, in lieu of
S. 949.
July 31, House and Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 33 (1997):
Aug. 5, Presidential remarks and statement.
Aug. 11, Presidential remarks and special message on line
item veto.
FEDERAL REGISTER, Vol. 62 (1997):
Aug. 12, Cancellation of items pursuant to Line Item Veto
Act.
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