[107th Congress Public Law 16]
[From the U.S. Government Printing Office]
<DOC>
[DOCID: f:publ016.107]
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ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001
[[Page 115 STAT. 38]]
Public Law 107-16
107th Congress
An Act
To provide for reconciliation pursuant to section 104 of the concurrent
resolution on the budget for fiscal year 2002. <<NOTE: June 7,
2001 - [H.R. 1836]>>
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, <<NOTE: Economic Growth
and Tax Relief Reconciliation Act of 2001.>>
SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.
(a) <<NOTE: 26 USC 1 note.>> Short Title.--This Act may be cited as
the ``Economic Growth and Tax Relief Reconciliation Act of 2001''.
(b) Amendment of 1986 Code.--Except as otherwise expressly provided,
whenever in this Act an amendment or repeal is expressed in terms of an
amendment to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provision of the
Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; references; table of contents.
TITLE I--INDIVIDUAL INCOME TAX RATE REDUCTIONS
Sec. 101. Reduction in income tax rates for individuals.
Sec. 102. Repeal of phaseout of personal exemptions.
Sec. 103. Phaseout of overall limitation on itemized deductions.
TITLE II--TAX BENEFITS RELATING TO CHILDREN
Sec. 201. Modifications to child tax credit.
Sec. 202. Expansion of adoption credit and adoption assistance programs.
Sec. 203. Refunds disregarded in the administration of Federal programs
and federally assisted programs.
Sec. 204. Dependent care credit.
Sec. 205. Allowance of credit for employer expenses for child care
assistance.
TITLE III--MARRIAGE PENALTY RELIEF
Sec. 301. Elimination of marriage penalty in standard deduction.
Sec. 302. Phaseout of marriage penalty in 15-percent bracket.
Sec. 303. Marriage penalty relief for earned income credit; earned
income to include only amounts includible in gross income;
simplification of earned income credit.
TITLE IV--AFFORDABLE EDUCATION PROVISIONS
Subtitle A--Education Savings Incentives
Sec. 401. Modifications to education individual retirement accounts.
Sec. 402. Modifications to qualified tuition programs.
Subtitle B--Educational Assistance
Sec. 411. Extension of exclusion for employer-provided educational
assistance.
Sec. 412. Elimination of 60-month limit and increase in income
limitation on
student loan interest deduction.
Sec. 413. Exclusion of certain amounts received under the National
Health Service Corps Scholarship Program and the F. Edward
Hebert Armed Forces Health Professions Scholarship and
Financial Assistance Program.
[[Page 115 STAT. 39]]
Subtitle C--Liberalization of Tax-Exempt Financing Rules for Public
School Construction
Sec. 421. Additional increase in arbitrage rebate exception for
governmental bonds used to finance educational facilities.
Sec. 422. Treatment of qualified public educational facility bonds as
exempt facility bonds.
Subtitle D--Other Provisions
Sec. 431. Deduction for higher education expenses.
TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS
Subtitle A--Repeal of Estate and Generation-Skipping Transfer Taxes
Sec. 501. Repeal of estate and generation-skipping transfer taxes.
Subtitle B--Reductions of Estate and Gift Tax Rates
Sec. 511. Additional reductions of estate and gift tax rates.
Subtitle C--Increase in Exemption Amounts
Sec. 521. Increase in exemption equivalent of unified credit, lifetime
gifts exemption, and GST exemption amounts.
Subtitle D--Credit for State Death Taxes
Sec. 531. Reduction of credit for State death taxes.
Sec. 532. Credit for State death taxes replaced with deduction for such
taxes.
Subtitle E--Carryover Basis at Death; Other Changes Taking Effect With
Repeal
Sec. 541. Termination of step-up in basis at death.
Sec. 542. Treatment of property acquired from a decedent dying after
December 31, 2009.
Subtitle F--Conservation Easements
Sec. 551. Expansion of estate tax rule for conservation easements.
Subtitle G--Modifications of Generation-Skipping Transfer Tax
Sec. 561. Deemed allocation of GST exemption to lifetime transfers to
trusts; retroactive allocations.
Sec. 562. Severing of trusts.
Sec. 563. Modification of certain valuation rules.
Sec. 564. Relief provisions.
Subtitle H--Extension of Time for Payment of Estate Tax
Sec. 571. Increase in number of allowable partners and shareholders in
closely held businesses.
Sec. 572. Expansion of availability of installment payment for estates
with interests qualifying lending and finance businesses.
Sec. 573. Clarification of availability of installment payment.
Subtitle I--Other Provisions
Sec. 581. Waiver of statute of limitation for taxes on certain farm
valuations.
TITLE VI--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS
Subtitle A--Individual Retirement Accounts
Sec. 601. Modification of IRA contribution limits.
Sec. 602. Deemed IRAs under employer plans.
Subtitle B--Expanding Coverage
Sec. 611. Increase in benefit and contribution limits.
Sec. 612. Plan loans for subchapter S owners, partners, and sole
proprietors.
Sec. 613. Modification of top-heavy rules.
Sec. 614. Elective deferrals not taken into account for purposes of
deduction limits.
Sec. 615. Repeal of coordination requirements for deferred compensation
plans of State and local governments and tax-exempt
organizations.
Sec. 616. Deduction limits.
Sec. 617. Option to treat elective deferrals as after-tax Roth
contributions.
[[Page 115 STAT. 40]]
Sec. 618. Nonrefundable credit to certain individuals for elective
deferrals and IRA contributions.
Sec. 619. Credit for pension plan startup costs of small employers.
Sec. 620. Elimination of user fee for requests to IRS regarding pension
plans.
Sec. 621. Treatment of nonresident aliens engaged in international
transportation services.
Subtitle C--Enhancing Fairness for Women
Sec. 631. Catch-up contributions for individuals age 50 or over.
Sec. 632. Equitable treatment for contributions of employees to defined
contribution plans.
Sec. 633. Faster vesting of certain employer matching contributions.
Sec. 634. Modification to minimum distribution rules.
Sec. 635. Clarification of tax treatment of division of section 457 plan
benefits upon divorce.
Sec. 636. Provisions relating to hardship distributions.
Sec. 637. Waiver of tax on nondeductible contributions for domestic or
similar workers.
Subtitle D--Increasing Portability for Participants
Sec. 641. Rollovers allowed among various types of plans.
Sec. 642. Rollovers of IRAs into workplace retirement plans.
Sec. 643. Rollovers of after-tax contributions.
Sec. 644. Hardship exception to 60-day rule.
Sec. 645. Treatment of forms of distribution.
Sec. 646. Rationalization of restrictions on distributions.
Sec. 647. Purchase of service credit in governmental defined benefit
plans.
Sec. 648. Employers may disregard rollovers for purposes of cash-out
amounts.
Sec. 649. Minimum distribution and inclusion requirements for section
457 plans.
Subtitle E--Strengthening Pension Security and Enforcement
Part I--General Provisions
Sec. 651. Repeal of 160 percent of current liability funding limit.
Sec. 652. Maximum contribution deduction rules modified and applied to
all
defined benefit plans.
Sec. 653. Excise tax relief for sound pension funding.
Sec. 654. Treatment of multiemployer plans under section 415.
Sec. 655. Protection of investment of employee contributions to 401(k)
plans.
Sec. 656. Prohibited allocations of stock in S corporation ESOP.
Sec. 657. Automatic rollovers of certain mandatory distributions.
Sec. 658. Clarification of treatment of contributions to multiemployer
plan.
Part II--Treatment of Plan Amendments Reducing Future Benefit Accruals
Sec. 659. Excise tax on failure to provide notice by defined benefit
plans significantly reducing future benefit accruals.
Subtitle F--Reducing Regulatory Burdens
Sec. 661. Modification of timing of plan valuations.
Sec. 662. ESOP dividends may be reinvested without loss of dividend
deduction.
Sec. 663. Repeal of transition rule relating to certain highly
compensated employees.
Sec. 664. Employees of tax-exempt entities.
Sec. 665. Clarification of treatment of employer-provided retirement
advice.
Sec. 666. Repeal of the multiple use test.
Subtitle G--Miscellaneous Provisions
Sec. 671. Tax treatment and information requirements of Alaska Native
Settlement Trusts.
TITLE VII--ALTERNATIVE MINIMUM TAX
Sec. 701. Increase in alternative minimum tax exemption.
TITLE VIII--OTHER PROVISIONS
Sec. 801. Time for payment of corporate estimated taxes.
Sec. 802. Expansion of authority to postpone certain tax-related
deadlines by reason of Presidentially declared disaster.
Sec. 803. No Federal income tax on restitution received by victims of
the Nazi
regime or their heirs or estates.
TITLE IX--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT
Sec. 901. Sunset of provisions of Act.
[[Page 115 STAT. 41]]
TITLE I--INDIVIDUAL INCOME TAX RATE REDUCTIONS
SEC. 101. REDUCTION IN INCOME TAX RATES FOR INDIVIDUALS.
(a) In General.--Section 1 <<NOTE: 26 USC 1.>> (relating to tax
imposed) is amended by adding at the end the following new subsection:
``(i) Rate Reductions After 2000.--
``(1) 10-percent rate bracket.--
``(A) In general.--In the case of taxable years
beginning after December 31, 2000--
``(i) the rate of tax under subsections (a),
(b), (c), and (d) on taxable income not over the
initial bracket amount shall be 10 percent, and
``(ii) the 15 percent rate of tax shall apply
only to taxable income over the initial bracket
amount but not over the maximum dollar amount for
the 15-percent rate bracket.
``(B) Initial bracket amount.--For purposes of this
paragraph, the initial bracket amount is--
``(i) $14,000 ($12,000 in the case of taxable
years beginning before January 1, 2008) in the
case of subsection (a),
``(ii) $10,000 in the case of subsection (b),
and
``(iii) \1/2\ the amount applicable under
clause (i) (after adjustment, if any, under
subparagraph (C)) in the case of subsections (c)
and (d).
``(C) <<NOTE: Applicability.>> Inflation
adjustment.--In prescribing the tables under subsection
(f ) which apply with respect to taxable years beginning
in calendar years after 2000--
``(i) the Secretary shall make no adjustment
to the initial bracket amount for any taxable year
beginning before January 1, 2009,
``(ii) the cost-of-living adjustment used in
making adjustments to the initial bracket amount
for any taxable year beginning after December 31,
2008, shall be determined under subsection (f )(3)
by substituting `2007' for `1992' in subparagraph
(B) thereof, and
``(iii) such adjustment shall not apply to the
amount referred to in subparagraph (B)(iii).
If any amount after adjustment under the preceding
sentence is not a multiple of $50, such amount shall be
rounded to the next lowest multiple of $50.
``(D) Coordination with acceleration of 10 percent
rate bracket benefit for 2001.--This paragraph shall not
apply to any taxable year to which section 6428 applies.
``(2) Reductions in rates after june 30, 2001.--In the case
of taxable years beginning in a calendar year after 2000, the
corresponding percentage specified for such calendar year in the
following table shall be substituted for the otherwise
applicable tax rate in the tables under subsections (a), (b),
(c), (d), and (e).
[[Page 115 STAT. 42]]
------------------------------------------------------------------------
The corresponding percentages
``In the case of shall be substituted for the
taxable years following percentages:
beginning during -----------------------------------
calendar year: 28% 31% 36% 39.6%
------------------------------------------------------------------------
2001.................. 27.5% 30.5% 35.5% 39.1%
2002 and 2003......... 27.0% 30.0% 35.0% 38.6%
2004 and 2005......... 26.0% 29.0% 34.0% 37.6%
2006 and thereafter... 25.0% 28.0% 33.0% 35.0%
------------------------------------------------------------------------
``(3) Adjustment of tables.--The Secretary shall adjust the
tables prescribed under subsection (f ) to carry out this
subsection.''.
(b) Acceleration of 10 Percent Rate Bracket Benefit for 2001.--
(1) In general.--Subchapter B of chapter 65 (relating to
abatements, credits, and refunds) is amended by adding at the
end the following new section:
``SEC. 6428. ACCELERATION OF 10 PERCENT INCOME TAX RATE BRACKET BENEFIT
FOR 2001.
``(a) In General.--In the case of an eligible individual, there
shall be allowed as a credit against the tax imposed by chapter 1 for
the taxpayer's first taxable year beginning in 2001 an amount equal to 5
percent of so much of the taxpayer's taxable income as does not exceed
the initial bracket amount (as defined in section 1(i)(1)(B)).
``(b) Limitation Based on Amount of Tax.--The credit allowed by
subsection (a) shall not exceed the excess (if any) 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 of chapter 1 (other than the credits allowable
under subpart C thereof, relating to refundable credits).
``(c) Eligible Individual.--For purposes of this section, the term
`eligible individual' means any individual other than--
``(1) any estate or trust,
``(2) any nonresident alien individual, and
``(3) any individual with respect to whom a deduction under
section 151 is allowable to another taxpayer for a taxable year
beginning in the calendar year in which the individual's taxable
year begins.
``(d) Special Rules.--
``(1) Coordination with advance refunds of credit.--
``(A) In general.--The amount of credit which would
(but for this paragraph) be allowable under this section
shall be reduced (but not below zero) by the aggregate
refunds and credits made or allowed to the taxpayer
under subsection (e). Any failure to so reduce the
credit shall be treated as arising out of a mathematical
or clerical error and assessed according to section
6213(b)(1).
``(B) Joint returns.--In the case of a refund or
credit made or allowed under subsection (e) with respect
to a joint return, half of such refund or credit shall
be treated as having been made or allowed to each
individual filing such return.
``(2) Coordination with estimated tax.--The credit under
this section shall be treated for purposes of section 6654(f )
[[Page 115 STAT. 43]]
in the same manner as a credit under subpart A of part IV of
subchapter A of chapter 1.
``(e) Advance Refunds of Credit Based on Prior Year Data.--
``(1) In general.--Each individual who was an eligible
individual for such individual's first taxable year beginning in
2000 shall be treated as having made a payment against the tax
imposed by chapter 1 for such first taxable year in an amount
equal to the advance refund amount for such taxable year.
``(2) Advance refund amount.--For purposes of paragraph (1),
the advance refund amount is the amount that would have been
allowed as a credit under this section for such first taxable
year if this section (other than subsection (d) and this
subsection) had applied to such taxable year.
``(3) Timing of payments.--In the case of any overpayment
attributable to this subsection, the Secretary shall, subject to
the provisions of this title, refund or credit such overpayment
as rapidly as possible and, to the extent practicable, before
October 1, 2001. No refund or credit shall be made or allowed
under this subsection after December 31, 2001.
``(4) No interest.--No interest shall be allowed on any
overpayment attributable to this subsection.''.
(2) Clerical amendment.--The table of sections for
subchapter B of chapter 65 is amended by adding at the end the
following new item:
``Sec. 6428. Acceleration of 10 percent income tax rate
bracket benefit for 2001.''.
(c) Conforming Amendments.--
(1) Subparagraph (B) of section 1(g)(7) <<NOTE: 26 USC 1.>>
is amended by striking ``15 percent'' in clause (ii)(II) and
inserting ``10 percent.''.
(2) Section 1(h) is amended--
(A) by striking ``28 percent'' both places it
appears in paragraphs (1)(A)(ii)(I) and (1)(B)(i) and
inserting ``25 percent'', and
(B) by striking paragraph (13).
(3) Section 15 is amended by adding at the end the following
new subsection:
``(f ) Rate Reductions Enacted by Economic Growth and Tax Relief
Reconciliation Act of 2001.--This section shall not apply to any change
in rates under subsection (i) of section 1 (relating to rate reductions
after 2000).''.
(4) Section 531 is amended by striking ``equal to'' and all
that follows and inserting ``equal to the product of the highest
rate of tax under section 1(c) and the accumulated taxable
income.''.
(5) Section 541 is amended by striking ``equal to'' and all
that follows and inserting ``equal to the product of the highest
rate of tax under section 1(c) and the undistributed personal
holding company income.''.
(6) Section 3402(p)(1)(B) is amended by striking ``7, 15,
28, or 31 percent'' and inserting ``7 percent, any percentage
applicable to any of the 3 lowest income brackets in the table
under section 1(c),''.
(7) Section 3402(p)(2) is amended by striking ``15 percent''
and inserting ``10 percent''.
[[Page 115 STAT. 44]]
(8) Section 3402(q)(1) <<NOTE: 26 USC 3402.>> is amended by
striking ``equal to 28 percent of such payment'' and inserting
``equal to the product of the third lowest rate of tax
applicable under section 1(c) and such payment''.
(9) Section 3402(r)(3) is amended by striking ``31 percent''
and inserting ``the fourth lowest rate of tax applicable under
section 1(c)''.
(10) Section 3406(a)(1) is amended by striking ``equal to 31
percent of such payment'' and inserting ``equal to the product
of the fourth lowest rate of tax applicable under section 1(c)
and such payment''.
(11) Section 13273 of the Revenue Reconciliation Act of 1993
is amended by striking ``28 percent'' and inserting ``the third
lowest rate of tax applicable under section 1(c) of the Internal
Revenue Code of 1986''.
(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
beginning after December 31, 2000.
(2) Amendments to withholding provisions.--The amendments
made by paragraphs (6), (7), (8), (9), (10), and (11) of
subsection (c) shall apply to amounts paid after the 60th day
after the date of the enactment of this Act. References to
income brackets and rates of tax in such paragraphs shall be
applied without regard to section 1(i)(1)(D) of the Internal
Revenue Code of 1986.
SEC. 102. REPEAL OF PHASEOUT OF PERSONAL EXEMPTIONS.
(a) In General.--Paragraph (3) of section 151(d) (relating to
exemption amount) is amended by adding at the end the following new
subparagraphs:
``(E) Reduction of phaseout.--
``(i) In general.--In the case of taxable
years beginning after December 31, 2005, and
before January 1, 2010, the reduction under
subparagraph (A) shall be equal to the applicable
fraction of the amount which would (but for this
subparagraph) be the amount of such reduction.
``(ii) Applicable fraction.--For purposes of
clause (i), the applicable fraction shall be
determined in accordance with the following table:
``For taxable years beginning The applicable
in calendar year-- fraction is--
2006 and 2007............................... \2/3\
2008 and 2009............................... \1/3\.
``(F) Termination.--This paragraph shall not apply
to any taxable year beginning after December 31,
2009.''.
(b) <<NOTE: Applicability. 26 USC 151 note.>> Effective Date.--The
amendment made by this section shall apply to taxable years beginning
after December 31, 2005.
SEC. 103. PHASEOUT OF OVERALL LIMITATION ON ITEMIZED DEDUCTIONS.
(a) In General.--Section 68 is amended by adding at the end the
following new subsections:
``(f ) Phaseout of Limitation.--
``(1) In general.--In the case of taxable years beginning
after December 31, 2005, and before January 1, 2010, the
reduction under subsection (a) shall be equal to the applicable
[[Page 115 STAT. 45]]
fraction of the amount which would (but for this subsection) be
the amount of such reduction.
``(2) Applicable fraction.--For purposes of paragraph (1),
the applicable fraction shall be determined in accordance with
the following table:
``For taxable years beginning The applicable
in calendar year-- fraction is--
2006 and 2007............................... \2/3\
2008 and 2009............................... \1/3\.
``(g) Termination.--This section shall not apply to any taxable year
beginning after December 31, 2009.''.
(b) <<NOTE: Applicability. 26 USC 68 note.>> Effective Date.--The
amendment made by this section shall apply to taxable years beginning
after December 31, 2005.
TITLE II--TAX BENEFITS RELATING TO CHILDREN
SEC. 201. MODIFICATIONS TO CHILD TAX CREDIT.
(a) Increase in Per Child Amount.--Subsection (a) of section 24
(relating to child tax credit) <<NOTE: 26 USC 24.>> is amended to read
as follows:
``(a) Allowance of Credit.--
``(1) In general.--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 the per child amount.
``(2) Per child amount.--For purposes of paragraph (1), the
per child amount shall be determined as follows:
``In the case of any taxab The per child amount is--
beginning in--
2001, 2002, 2003, or 2004 $ 600
2005, 2006, 2007, or 2008 700
2009 800
2010 or thereafter 1,000.''.
(b) Credit Allowed Against Alternative Minimum Tax.--
(1) In general.--Subsection (b) of section 24 (relating to
child tax credit) is amended by adding at the end the following
new paragraph:
``(3) Limitation based on amount of tax.--The credit allowed
under subsection (a) for any taxable year shall not exceed the
excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under this
subpart (other than this section) and section 27 for the
taxable year.''.
(2) Conforming amendments.--
(A) The heading for section 24(b) is amended to read
as follows: ``Limitations.--''.
(B) The heading for section 24(b)(1) is amended to
read as follows: ``Limitation based on adjusted gross
income.--''.
(C) Section 24(d), as amended by subsection (c), is
amended--
(i) by striking ``section 26(a)'' each place
it appears and inserting ``subsection (b)(3)'',
and
[[Page 115 STAT. 46]]
(ii) in paragraph (1)(B) by striking
``aggregate amount of credits allowed by this
subpart'' and inserting ``amount of credit allowed
by this section''.
(D) Paragraph (1) of section 26(a) <<NOTE: 26 USC
26.>> is amended by inserting ``(other than section
24)'' after ``this subpart''.
(E) Subsection (c) of section 23 is amended by
striking ``and section 1400C'' and inserting ``and
sections 24 and 1400C''.
(F) Subparagraph (C) of section 25(e)(1) is amended
by inserting ``, 24,'' after ``sections 23''.
(G) Section 904(h) is amended by inserting ``(other
than section 24)'' after ``chapter''.
(H) Subsection (d) of section 1400C is amended by
inserting ``and section 24'' after ``this section''.
(c) Refundable Child Credit.--
(1) In general.--So much of section 24(d) (relating to
additional credit for families with 3 or more children) as
precedes paragraph (2) is amended to read as follows:
``(d) Portion of Credit Refundable.--
``(1) In general.--The aggregate credits allowed to a
taxpayer under subpart C shall be increased by the lesser of--
``(A) the credit which would be allowed under this
section without regard to this subsection and the
limitation under section 26(a), or
``(B) the amount by which the amount of credit
allowed by this section (determined without regard to
this subsection) would increase if the limitation
imposed by section 26(a) were increased by the greater
of--
``(i) 15 percent (10 percent in the case of
taxable years beginning before January 1, 2005) of
so much of the taxpayer's earned income (within
the meaning of section 32) which is taken into
account in computing taxable income for the
taxable year as exceeds $10,000, or
``(ii) in the case of a taxpayer with 3 or
more qualifying children, the excess (if any) of--
``(I) the taxpayer's social security
taxes for the taxable year, over
``(II) the credit allowed under
section 32 for the taxable year.
The amount of the credit allowed under this subsection shall not
be treated as a credit allowed under this subpart and shall
reduce the amount of credit otherwise allowable under subsection
(a) without regard to section 26(a).''.
(2) Inflation adjustment.--Subsection (d) of section 24 is
amended by adding at the end the following new paragraph:
``(4) Inflation adjustment.--In the case of any taxable year
beginning in a calendar year after 2001, the $10,000 amount
contained in paragraph (1)(B) shall be increased by an amount
equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined under
section 1(f )(3) for the calendar year in which the
taxable year begins, determined by substituting
`calendar year 2000' for `calendar year 1992' in
subparagraph (B) thereof.
Any increase determined under the preceding sentence shall be
rounded to the nearest multiple of $50.''.
[[Page 115 STAT. 47]]
(3) Conforming amendment.--Section 32 <<NOTE: 26 USC 32.>>
is amended by striking subsection (n).
(d) Elimination of Reduction of Credit to Taxpayer Subject to
Alternative Minimum Tax Provision.--Section 24(d) is amended--
(1) by striking paragraph (2), and
(2) by redesignating paragraphs (3) and (4) as paragraphs
(2) and (3), respectively.
(e) Effective Dates.-- <<NOTE: Applicability. 26 USC 24 note.>>
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2000.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to taxable years beginning after December 31, 2001.
SEC. 202. EXPANSION OF ADOPTION CREDIT AND ADOPTION ASSISTANCE PROGRAMS.
(a) In General.--
(1) Adoption credit.--Section 23(a)(1) (relating to
allowance of credit) is amended to read as follows:
``(1) In general.--In the case of an individual, there shall
be allowed as a credit against the tax imposed by this chapter--
``(A) in the case of an adoption of a child other
than a child with special needs, the amount of the
qualified adoption expenses paid or incurred by the
taxpayer, and
``(B) in the case of an adoption of a child with
special needs, $10,000.''.
(2) Adoption assistance programs.--Section 137(a) (relating
to adoption assistance programs) is amended to read as follows:
``(a) In General.--Gross income of an employee does not include
amounts paid or expenses incurred by the employer for adoption expenses
in connection with the adoption of a child by an employee if such
amounts are furnished pursuant to an adoption assistance program. The
amount of the exclusion shall be--
``(1) in the case of an adoption of a child other than a
child with special needs, the amount of the qualified adoption
expenses paid or incurred by the taxpayer, and
``(2) in the case of an adoption of a child with special
needs, $10,000.''.
(b) Dollar Limitations.--
(1) Dollar amount of allowed expenses.--
(A) Adoption expenses.--Section 23(b)(1) (relating
to allowance of credit) is amended--
(i) by striking ``$5,000'' and inserting
``$10,000'',
(ii) by striking ``($6,000, in the case of a
child with special needs)'', and
(iii) by striking ``subsection (a)'' and
inserting ``subsection (a)(1)(A)''.
(B) Adoption assistance programs.--Section 137(b)(1)
(relating to dollar limitations for adoption assistance
programs) is amended--
(i) by striking ``$5,000'' and inserting
``$10,000'', and
(ii) by striking ``($6,000, in the case of a
child with special needs)'', and
[[Page 115 STAT. 48]]
(iii) by striking ``subsection (a)'' and
inserting ``subsection (a)(1)''.
(2) Phase-out limitation.--
(A) Adoption expenses.--Clause (i) of section
23(b)(2)(A) (relating to income limitation) <<NOTE: 26
USC 23.>> is amended by striking ``$75,000'' and
inserting ``$150,000''.
(B) Adoption assistance programs.--Section
137(b)(2)(A) (relating to income limitation) is amended
by striking ``$75,000'' and inserting ``$150,000''.
(c) Year Credit Allowed.--Section 23(a)(2) (relating to year credit
allowed) is amended by adding at the end the following new flush
sentence:
``In the case of the adoption of a child with special needs, the
credit allowed under paragraph (1) shall be allowed for the
taxable year in which the adoption becomes final.''.
(d) Repeal of Terminations.--
(1) Children without special needs.--Paragraph (2) of
section 23(d) (relating to definition of eligible child) is
amended to read as follows:
``(2) Eligible child.--The term `eligible child' means any
individual who--
``(A) has not attained age 18, or
``(B) is physically or mentally incapable of caring
for himself.''.
(2) Adoption assistance programs.--Section 137 (relating to
adoption assistance programs) is amended by striking subsection
(f ).
(e) Adjustment of Dollar and Income Limitations for Inflation.--
(1) Adoption credit.--Section 23 (relating to adoption
expenses) is amended by redesignating subsection (h) as
subsection (i) and by inserting after subsection (g) the
following new subsection:
``(h) Adjustments for Inflation.--In the case of a taxable year
beginning after December 31, 2002, each of the dollar amounts in
subsection (a)(1)(B) and paragraphs (1) and (2)(A)(i) of subsection (b)
shall be increased by an amount equal to--
``(1) such dollar amount, multiplied by
``(2) 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) Adoption assistance programs.--Section 137 (relating to
adoption assistance programs), as amended by subsection (d), is
amended by adding at the end the following new subsection:
``(f ) Adjustments for Inflation.--In the case of a taxable year
beginning after December 31, 2002, each of the dollar amounts in
subsection (a)(2) and paragraphs (1) and (2)(A) of subsection (b) shall
be increased by an amount equal to--
``(1) such dollar amount, multiplied by
``(2) 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.''.
(f ) Credit Allowed Against Alternative Minimum Tax.--
[[Page 115 STAT. 49]]
(1) In general.--Subsection (b) of section 23 <<NOTE: 26 USC
23.>> is amended by adding at the end the following new
paragraph:
``(4) Limitation based on amount of tax.--The credit allowed
under subsection (a) for any taxable year shall not exceed the
excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under this
subpart (other than this section) and section 27 for the
taxable year.''.
(2) Conforming amendments.--
(A) Section 23(c), as amended by section 201(b), is
amended--
(i) by striking ``section 26(a)'' and
inserting ``subsection (b)(4)'', and
(ii) by striking ``reduced by the sum of the
credits allowable under this subpart (other than
this section and sections 24 and 1400C)''.
(B) Section 24(b)(3)(B), as added by section 201(b),
is amended by striking ``this section'' and inserting
``this section and section 23''.
(C) Sections 26(a)(1), 904(h), and 1400C(d), as
amended by section 201(b), are each amended by striking
``section 24'' and inserting ``sections 23 and 24''.
(g) Effective Date.-- <<NOTE: Applicability. 26 USC 23 note.>>
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2001.
(2) Subsection (a).--The amendments made by subsection (a)
shall apply to taxable years beginning after December 31, 2002.
SEC. 203. <<NOTE: 26 USC 24 note.>> REFUNDS DISREGARDED IN THE
ADMINISTRATION OF FEDERAL PROGRAMS AND FEDERALLY ASSISTED
PROGRAMS.
Any payment considered to have been made to any individual by reason
of section 24 of the Internal Revenue Code of 1986, as amended by
section 201, shall not be taken into account as income and shall not be
taken into account as resources for the month of receipt and the
following month, for purposes of determining the eligibility of such
individual or any other individual for benefits or assistance, or the
amount or extent of benefits or assistance, under any Federal program or
under any State or local program financed in whole or in part with
Federal funds.
SEC. 204. DEPENDENT CARE CREDIT.
(a) Increase in Dollar Limit.--Subsection (c) of section 21
(relating to expenses for household and dependent care services
necessary for gainful employment) is amended--
(1) by striking ``$2,400'' in paragraph (1) and inserting
``$3,000'', and
(2) by striking ``$4,800'' in paragraph (2) and inserting
``$6,000''.
(b) Increase in Applicable Percentage.--Section 21(a)(2) (defining
applicable percentage) is amended--
(1) by striking ``30 percent'' and inserting ``35 percent'',
and
(2) by striking ``$10,000'' and inserting ``$15,000''.
[[Page 115 STAT. 50]]
(c) <<NOTE: Applicability. 26 USC 21 note.>> Effective Date.--The
amendments made by this section shall apply to taxable years beginning
after December 31, 2002.
SEC. 205. ALLOWANCE OF CREDIT FOR EMPLOYER EXPENSES FOR CHILD CARE
ASSISTANCE.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by section 619, is
further amended by adding at the end the following:
``SEC. 45F. EMPLOYER-PROVIDED CHILD CARE CREDIT.
``(a) In General.--For purposes of section 38, the employer-provided
child care credit determined under this section for the taxable year is
an amount equal to the sum of--
``(1) 25 percent of the qualified child care expenditures,
and
``(2) 10 percent of the qualified child care resource and
referral expenditures,
of the taxpayer for such taxable year.
``(b) Dollar Limitation.--The credit allowable under subsection (a)
for any taxable year shall not exceed $150,000.
``(c) Definitions.--For purposes of this section--
``(1) Qualified child care expenditure.--
``(A) In general.--The term `qualified child care
expenditure' means any amount paid or incurred--
``(i) to acquire, construct, rehabilitate, or
expand property--
``(I) which is to be used as part of
a qualified child care facility of the
taxpayer,
``(II) with respect to which a
deduction for depreciation (or
amortization in lieu of depreciation) is
allowable, and
``(III) which does not constitute
part of the principal residence (within
the meaning of section 121) of the
taxpayer or any employee of the
taxpayer,
``(ii) for the operating costs of a qualified
child care facility of the taxpayer, including
costs related to the training of employees, to
scholarship programs, and to the providing of
increased compensation to employees with higher
levels of child care training, or
``(iii) under a contract with a qualified
child care facility to provide child care services
to employees of the taxpayer.
``(B) Fair market value.--The term `qualified child
care expenditures' shall not include expenses in excess
of the fair market value of such care.
``(2) Qualified child care facility.--
``(A) In general.--The term `qualified child care
facility' means a facility--
``(i) the principal use of which is to provide
child care assistance, and
``(ii) which meets the requirements of all
applicable laws and regulations of the State or
local government in which it is located, including
the licensing of the facility as a child care
facility.
[[Page 115 STAT. 51]]
Clause (i) shall not apply to a facility which is the
principal residence (within the meaning of section 121)
of the operator of the facility.
``(B) Special rules with respect to a taxpayer.--A
facility shall not be treated as a qualified child care
facility with respect to a taxpayer unless--
``(i) enrollment in the facility is open to
employees of the taxpayer during the taxable year,
``(ii) if the facility is the principal trade
or business of the taxpayer, at least 30 percent
of the enrollees of such facility are dependents
of employees of the taxpayer, and
``(iii) the use of such facility (or the
eligibility to use such facility) does not
discriminate in favor of employees of the taxpayer
who are highly compensated employees (within the
meaning of section 414(q)).
``(3) Qualified child care resource and referral
expenditure.--
``(A) In general.--The term `qualified child care
resource and referral expenditure' means any amount paid
or incurred under a contract to provide child care
resource and referral services to an employee of the
taxpayer.
``(B) Nondiscrimination.--The services shall not be
treated as qualified unless the provision of such
services (or the eligibility to use such services) does
not discriminate in favor of employees of the taxpayer
who are highly compensated employees (within the meaning
of section 414(q)).
``(d) Recapture of Acquisition and Construction Credit.--
``(1) In general.--If, as of the close of any taxable year,
there is a recapture event with respect to any qualified child
care facility of the taxpayer, then the tax of the taxpayer
under this chapter for such taxable year shall be increased by
an amount equal to the product of--
``(A) the applicable recapture percentage, and
``(B) the aggregate decrease in the credits allowed
under section 38 for all prior taxable years which would
have resulted if the qualified child care expenditures
of the taxpayer described in subsection (c)(1)(A) with
respect to such facility had been zero.
``(2) Applicable recapture percentage.--
``(A) In general.--For purposes of this subsection,
the applicable recapture percentage shall be determined
from the following table:
The applicable
recapture
``If the recapture event
occurs in: percentage is:
Years 1-3..................................... 100
Year 4........................................ 85
Year 5........................................ 70
Year 6........................................ 55
Year 7........................................ 40
Year 8........................................ 25
Years 9 and 10................................ 10
Years 11 and thereafter....................... 0.
``(B) Years.--For purposes of subparagraph (A), year
1 shall begin on the first day of the taxable year in
which the qualified child care facility is placed in
service by the taxpayer.
[[Page 115 STAT. 52]]
``(3) Recapture event defined.--For purposes of this
subsection, the term `recapture event' means--
``(A) Cessation of operation.--The cessation of the
operation of the facility as a qualified child care
facility.
``(B) Change in ownership.--
``(i) In general.--Except as provided in
clause (ii), the disposition of a taxpayer's
interest in a qualified child care facility with
respect to which the credit described in
subsection (a) was allowable.
``(ii) Agreement to assume recapture
liability.--Clause (i) shall not apply if the
person acquiring such interest in the facility
agrees in writing to assume the recapture
liability of the person disposing of such interest
in effect immediately before such disposition. In
the event of such an assumption, the person
acquiring the interest in the facility shall be
treated as the taxpayer for purposes of assessing
any recapture liability (computed as if there had
been no change in ownership).
``(4) Special rules.--
``(A) Tax benefit rule.--The tax for the taxable
year shall be increased under paragraph (1) only with
respect to credits allowed by reason of this section
which were used to reduce tax liability. In the case of
credits not so used to reduce tax liability, the
carryforwards and carrybacks under section 39 shall be
appropriately adjusted.
``(B) No credits against tax.--Any increase in tax
under this subsection shall not be treated as a tax
imposed by this chapter for purposes of determining the
amount of any credit under subpart A, B, or D of this
part.
``(C) No recapture by reason of casualty loss.--The
increase in tax under this subsection shall not apply to
a cessation of operation of the facility as a qualified
child care facility by reason of a casualty loss to the
extent such loss is restored by reconstruction or
replacement within a reasonable period established by
the Secretary.
``(e) Special Rules.--For purposes of this section--
``(1) Aggregation rules.--All persons which are treated as a
single employer under subsections (a) and (b) of section 52
shall be treated as a single taxpayer.
``(2) <<NOTE: Regulations. Applicability.>> Pass-thru in
the case of estates and trusts.--Under regulations prescribed by
the Secretary, rules similar to the rules of subsection (d) of
section 52 shall apply.
``(3) Allocation in the case of partnerships.--In the case
of partnerships, the credit shall be allocated among partners
under regulations prescribed by the Secretary.
``(f ) No Double Benefit.--
``(1) Reduction in basis.--For purposes of this subtitle--
``(A) In general.--If a credit is determined under
this section with respect to any property by reason of
expenditures described in subsection (c)(1)(A), the
basis of such property shall be reduced by the amount of
the credit so determined.
``(B) Certain dispositions.--If, during any taxable
year, there is a recapture amount determined with
respect to any property the basis of which was reduced
under
[[Page 115 STAT. 53]]
subparagraph (A), the basis of such property
(immediately before the event resulting in such
recapture) shall be increased by an amount equal to such
recapture amount. For purposes of the preceding
sentence, the term `recapture amount' means any increase
in tax (or adjustment in carrybacks or carryovers)
determined under subsection (d).
``(2) Other deductions and credits.--No deduction or credit
shall be allowed under any other provision of this chapter with
respect to the amount of the credit determined under this
section.''.
(b) Conforming Amendments.--
(1) Section 38(b), <<NOTE: 26 USC 38.>> as amended by
section 619, is amended by striking ``plus'' at the end of
paragraph (13), by striking the period at the end of paragraph
(14) and inserting ``, plus'', and by adding at the end the
following:
``(15) the employer-provided child care credit determined
under section 45F.''.
(2) The table of sections for subpart D of part IV of
subchapter A of chapter 1 is amended by adding at the end the
following:
``Sec. 45F. Employer-provided child care credit.''.
(3) Section 1016(a) is amended by striking ``and'' at the
end of paragraph (26), by striking the period at the end of
paragraph (27) and inserting ``, and'', and by adding at the end
the following:
``(28) in the case of a facility with respect to which a
credit was allowed under section 45F, to the extent provided in
section 45F(f )(1).''.
(c) <<NOTE: Applicability. 26 USC 38 note.>> Effective Date.--The
amendments made by this section shall apply to taxable years beginning
after December 31, 2001.
TITLE III--MARRIAGE PENALTY RELIEF
SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.
(a) In General.--Paragraph (2) of section 63(c) (relating to
standard deduction) is amended--
(1) by striking ``$5,000'' in subparagraph (A) and inserting
``the applicable percentage of the dollar amount in effect under
subparagraph (C) for the taxable year'';
(2) by adding ``or'' at the end of subparagraph (B);
(3) by striking ``in the case of'' and all that follows in
subparagraph (C) and inserting ``in any other case.''; and
(4) by striking subparagraph (D).
(b) Applicable Percentage.--Section 63(c) (relating to standard
deduction) is amended by adding at the end the following new paragraph:
``(7) Applicable percentage.--For purposes of paragraph (2),
the applicable percentage shall be determined in accordance with
the following table:
``For taxable years beginning The applicable
in calendar year-- percentage is--
2005........................................ 174
2006........................................ 184
2007........................................ 187
2008........................................ 190
2009 and thereafter......................... 200.''.
[[Page 115 STAT. 54]]
(c) Technical Amendments.--
(1) Subparagraph (B) of section 1(f )(6) <<NOTE: 26 USC
1.>> is amended by striking ``(other than with'' and all that
follows through ``shall be applied'' and inserting ``(other than
with respect to sections 63(c)(4) and 151(d)(4)(A)) shall be
applied''.
(2) Paragraph (4) of section 63(c) is amended by adding at
the end the following flush sentence:
``The preceding sentence shall not apply to the amount referred
to in paragraph (2)(A).''.
(d) <<NOTE: Applicability. 26 USC 1 note.>> Effective Date.--The
amendments made by this section shall apply to taxable years beginning
after December 31, 2004.
SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET.
(a) In General.--Section 1(f ) (relating to adjustments in tax
tables so that inflation will not result in tax increases) is amended by
adding at the end the following new paragraph:
``(8) Phaseout of marriage penalty in 15-percent bracket.--
``(A) In general.--With respect to taxable years
beginning after December 31, 2004, in prescribing the
tables under paragraph (1)--
``(i) the maximum taxable income in the 15-
percent rate bracket in the table contained in
subsection (a) (and the minimum taxable income in
the next higher taxable income bracket in such
table) shall be the applicable percentage of the
maximum taxable income in the 15-percent rate
bracket in the table contained in subsection (c)
(after any other adjustment under this
subsection), and
``(ii) the comparable taxable income amounts
in the table contained in subsection (d) shall be
\1/2\ of the amounts determined under clause (i).
``(B) Applicable percentage.--For purposes of
subparagraph (A), the applicable percentage shall be
determined in accordance with the following table:
``For taxable years beginning The applicable
in calendar year-- percentage is--
2005........................................ 180
2006........................................ 187
2007........................................ 193
2008 and thereafter......................... 200.
``(C) Rounding.--If any amount determined under
subparagraph (A)(i) is not a multiple of $50, such
amount shall be rounded to the next lowest multiple of
$50.''.
(b) Technical Amendments.--
(1) Subparagraph (A) of section 1(f )(2) is amended by
inserting ``except as provided in paragraph (8),'' before ``by
increasing''.
(2) The heading for subsection (f ) of section 1 is amended
by inserting ``Phaseout of Marriage Penalty in 15-Percent
Bracket;'' before ``Adjustments''.
(c) <<NOTE: Applicability. 26 USC 1 note.>> Effective Date.--The
amendments made by this section shall apply to taxable years beginning
after December 31, 2004.
[[Page 115 STAT. 55]]
SEC. 303. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT; EARNED
INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE IN GROSS INCOME;
SIMPLIFICATION OF EARNED INCOME CREDIT.
(a) Increased Phaseout Amount.--
(1) In general.--Section 32(b)(2) <<NOTE: 26 USC 32.>>
(relating to amounts) is amended--
(A) by striking ``Amounts.--The earned'' and
inserting ``Amounts.--
``(A) In general.--Subject to subparagraph (B), the
earned'', and
(B) by adding at the end the following new
subparagraph:
``(B) Joint returns.--In the case of a joint return
filed by an eligible individual and such individual's
spouse, the phaseout amount determined under
subparagraph (A) shall be increased by--
``(i) $1,000 in the case of taxable years
beginning in 2002, 2003, and 2004,
``(ii) $2,000 in the case of taxable years
beginning in 2005, 2006, and 2007, and
``(iii) $3,000 in the case of taxable years
beginning after 2007.''.
(2) Inflation adjustment.--Paragraph (1)(B) of section 32(
j) (relating to inflation adjustments) is amended to read as
follows:
``(B) the cost-of-living adjustment determined under
section 1(f )(3) for the calendar year in which the
taxable year begins, determined--
``(i) in the case of amounts in subsections
(b)(2)(A) and (i)(1), by substituting `calendar
year 1995' for `calendar year 1992' in
subparagraph (B) thereof, and
``(ii) in the case of the $3,000 amount in
subsection (b)(2)(B)(iii), by substituting
`calendar year 2007' for `calendar year 1992' in
subparagraph (B) of such section 1.''.
(3) Rounding.--Section 32( j)(2)(A) (relating to rounding)
is amended by striking ``subsection (b)(2)'' and inserting
``subsection (b)(2)(A) (after being increased under subparagraph
(B) thereof )''.
(b) Earned Income To Include Only Amounts Includible in Gross
Income.--Clause (i) of section 32(c)(2)(A) (defining earned income) is
amended by inserting ``, but only if such amounts are includible in
gross income for the taxable year'' after ``other employee
compensation''.
(c) Repeal of Reduction of Credit to Taxpayers Subject to
Alternative Minimum Tax.--Section 32(h) is repealed.
(d) Replacement of Modified Adjusted Gross Income With Adjusted
Gross Income.--
(1) In general.--Section 32(a)(2)(B) is amended by striking
``modified''.
(2) Conforming amendments.--
(A) Section 32(c) is amended by striking paragraph
(5).
(B) Section 32(f )(2)(B) is amended by striking
``modified'' each place it appears.
(e) Relationship Test.--
[[Page 115 STAT. 56]]
(1) In general.--Clause (i) of section
32(c)(3)(B) <<NOTE: 26 USC 32.>> (relating to relationship
test) is amended to read as follows:
``(i) In general.--An individual bears a
relationship to the taxpayer described in this
subparagraph if such individual is--
``(I) a son, daughter, stepson, or
stepdaughter, or a descendant of any
such individual,
``(II) a brother, sister,
stepbrother, or stepsister, or a
descendant of any such individual, who
the taxpayer cares for as the taxpayer's
own child, or
``(III) an eligible foster child of
the taxpayer.''.
(2) Eligible foster child.--
(A) In general.--Clause (iii) of section 32(c)(3)(B)
is amended to read as follows:
``(iii) Eligible foster child.--For purposes
of clause (i), the term `eligible foster child'
means an individual not described in subclause (I)
or (II) of clause (i) who--
``(I) is placed with the taxpayer by
an authorized placement agency, and
``(II) the taxpayer cares for as the
taxpayer's own child.''.
(B) Conforming amendment.--Section 32(c)(3)(A)(ii)
is amended by striking ``except as provided in
subparagraph (B)(iii),''.
(f ) 2 or More Claiming Qualifying Child.--Section 32(c)(1)(C) is
amended to read as follows:
``(C) 2 or more claiming qualifying child.--
``(i) In general.--Except as provided in
clause (ii), if (but for this paragraph) an
individual may be claimed, and is claimed, as a
qualifying child by 2 or more taxpayers for a
taxable year beginning in the same calendar year,
such individual shall be treated as the qualifying
child of the taxpayer who is--
``(I) a parent of the individual, or
``(II) if subclause (I) does not
apply, the taxpayer with the highest
adjusted gross income for such taxable
year.
``(ii) More than 1 claiming credit.--If the
parents claiming the credit with respect to any
qualifying child do not file a joint return
together, such child shall be treated as the
qualifying child of--
``(I) the parent with whom the child
resided for the longest period of time
during the taxable year, or
``(II) if the child resides with
both parents for the same amount of time
during such taxable year, the parent
with the highest adjusted gross
income.''.
(g) Expansion of Mathematical Error Authority.--Paragraph (2) of
section 6213(g) is amended by striking ``and'' at the end of
subparagraph (K), by striking the period at the end of subparagraph (L)
and inserting ``, and'', and by inserting after subparagraph (L) the
following new subparagraph:
[[Page 115 STAT. 57]]
``(M) the entry on the return claiming the credit
under section 32 with respect to a child if, according
to the Federal Case Registry of Child Support Orders
established under section 453(h) of the Social Security
Act, the taxpayer is a noncustodial parent of such
child.''.
(h) Clerical Amendment.--Subparagraph (E) of section
32(c)(3) <<NOTE: 26 USC 32.>> is amended by striking ``subparagraphs
(A)(ii) and (B)(iii)(II)'' and inserting ``subparagraph (A)(ii)''.
(i) <<NOTE: 26 USC 32 note.>> Effective Dates.--
(1) In <<NOTE: Applicability.>> general.--Except as
provided in paragraph (2), the amendments made by this section
shall apply to taxable years beginning after December 31, 2001.
(2) Subsection (g).--The amendment made by subsection (g)
shall take effect on January 1, 2004.
TITLE IV--AFFORDABLE EDUCATION PROVISIONS
Subtitle A--Education Savings Incentives
SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.
(a) Maximum Annual Contributions.--
(1) In general.--Section 530(b)(1)(A)(iii) (defining
education individual retirement account) is amended by striking
``$500'' and inserting ``$2,000''.
(2) Conforming amendment.--Section 4973(e)(1)(A) is amended
by striking ``$500'' and inserting ``$2,000''.
(b) Modification of AGI Limits To Remove Marriage Penalty.--Section
530(c)(1) (relating to reduction in permitted contributions based on
adjusted gross income) is amended--
(1) by striking ``$150,000'' in subparagraph (A)(ii) and
inserting ``$190,000'', and
(2) by striking ``$10,000'' in subparagraph (B) and
inserting ``$30,000''.
(c) Tax-Free Expenditures for Elementary and Secondary School
Expenses.--
(1) In general.--Section 530(b)(2) (defining qualified
higher education expenses) is amended to read as follows:
``(2) Qualified education expenses.--
``(A) In general.--The term `qualified education
expenses' means--
``(i) qualified higher education expenses (as
defined in section 529(e)(3)), and
``(ii) qualified elementary and secondary
education expenses (as defined in paragraph (4)).
``(B) Qualified state tuition programs.--Such term
shall include any contribution to a qualified State
tuition program (as defined in section 529(b)) on behalf
of the designated beneficiary (as defined in section
529(e)(1)); but there shall be no increase in the
investment in the contract for purposes of applying
section 72 by reason of any portion of such contribution
which is not includible in gross income by reason of
subsection (d)(2).''.
[[Page 115 STAT. 58]]
(2) Qualified elementary and secondary education expenses.--
Section 530(b) <<NOTE: 26 USC 530.>> (relating to definitions
and special rules) is amended by adding at the end the following
new paragraph:
``(4) Qualified elementary and secondary education
expenses.--
``(A) In general.--The term `qualified elementary
and secondary education expenses' means--
``(i) expenses for tuition, fees, academic
tutoring, special needs services in the case of a
special needs beneficiary, books, supplies, and
other equipment which are incurred in connection
with the enrollment or attendance of the
designated beneficiary of the trust as an
elementary or secondary school student at a
public, private, or religious school,
``(ii) expenses for room and board, uniforms,
transportation, and supplementary items and
services (including extended day programs) which
are required or provided by a public, private, or
religious school in connection with such
enrollment or attendance, and
``(iii) expenses for the purchase of any
computer technology or equipment (as defined in
section 170(e)(6)(F)(i)) or Internet access and
related services, if such technology, equipment,
or services are to be used by the beneficiary and
the beneficiary's family during any of the years
the beneficiary is in school.
Clause (iii) shall not include expenses for computer
software designed for sports, games, or hobbies unless
the software is predominantly educational in nature.
``(B) School.--The term `school' means any school
which provides elementary education or secondary
education (kindergarten through grade 12), as determined
under State law.''.
(3) Conforming amendments.--Section 530 is amended--
(A) by striking ``higher'' each place it appears in
subsections (b)(1) and (d)(2), and
(B) by striking ``higher'' in the heading for
subsection (d)(2).
(d) <<NOTE: Regulations.>> Waiver of Age Limitations for Children
With Special Needs.--Section 530(b)(1) (defining education individual
retirement account) is amended by adding at the end the following flush
sentence:
``The age limitations in subparagraphs (A)(ii) and (E), and
paragraphs (5) and (6) of subsection (d), shall not apply to any
designated beneficiary with special needs (as determined under
regulations prescribed by the Secretary).''.
(e) Entities Permitted To Contribute to Accounts.--Section 530(c)(1)
(relating to reduction in permitted contributions based on adjusted
gross income) is amended by striking ``The maximum amount which a
contributor'' and inserting ``In the case of a contributor who is an
individual, the maximum amount the contributor''.
(f ) Time When Contributions Deemed Made.--
(1) In general.--Section 530(b) (relating to definitions and
special rules), as amended by subsection (c)(2), is amended by
adding at the end the following new paragraph:
``(5) Time when contributions deemed made.--An individual
shall be deemed to have made a contribution to an
[[Page 115 STAT. 59]]
education individual retirement account on the last day of the
preceding taxable year if the contribution is made on account of
such taxable year and is made not later than the time prescribed
by law for filing the return for such taxable year (not
including extensions thereof ).''.
(2) Extension of time to return excess contributions.--
Subparagraph (C) of section 530(d)(4) <<NOTE: 26 USC 530.>>
(relating to additional tax for distributions not used for
educational expenses) is amended--
(A) by striking clause (i) and inserting the
following new clause:
``(i) such distribution is made before the
first day of the sixth month of the taxable year
following the taxable year, and'', and
(B) by striking ``due date of return'' in the
heading and inserting ``certain date''.
(g) Coordination With Hope and Lifetime Learning Credits and
Qualified Tuition Programs.--
(1) In general.--Section 530(d)(2)(C) is amended to read as
follows:
``(C) Coordination with hope and lifetime learning
credits and qualified tuition programs.--For purposes of
subparagraph (A)--
``(i) Credit coordination.--The total amount
of qualified higher education expenses with
respect to an individual for the taxable year
shall be reduced--
``(I) as provided in section
25A(g)(2), and
``(II) by the amount of such
expenses which were taken into account
in determining the credit allowed to the
taxpayer or any other person under
section 25A.
``(ii) Coordination with qualified tuition
programs.--If, with respect to an individual for
any taxable year--
``(I) the aggregate distributions
during such year to which subparagraph
(A) and section 529(c)(3)(B) apply,
exceed
``(II) the total amount of qualified
education expenses (after the
application of clause (i)) for such
year,
the taxpayer shall allocate such expenses among
such distributions for purposes of determining the
amount of the exclusion under subparagraph (A) and
section 529(c)(3)(B).''.
(2) Conforming amendments.--
(A) Subsection (e) of section 25A is amended to read
as follows:
``(e) Election Not To Have Section Apply.--A taxpayer may elect not
to have this section apply with respect to the qualified tuition and
related expenses of an individual for any taxable year.''.
(B) Section 135(d)(2)(A) is amended by striking
``allowable'' and inserting ``allowed''.
(C) Section 530(d)(2)(D) is amended--
(i) by striking ``or credit'' and inserting
``, credit, or exclusion'', and
[[Page 115 STAT. 60]]
(ii) by striking ``credit or deduction'' in
the heading and inserting ``deduction, credit, or
exclusion''.
(D) Section 4973(e)(1) <<NOTE: 26 USC 4973.>> is
amended by adding ``and'' at the end of subparagraph
(A), by striking subparagraph (B), and by redesignating
subparagraph (C) as subparagraph (B).
(h) <<NOTE: Applicability. 26 USC 25A note.>> Effective Date.--The
amendments made by this section shall apply to taxable years beginning
after December 31, 2001.
SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.
(a) Eligible Educational Institutions Permitted To Maintain
Qualified Tuition Programs.--
(1) In general.--Section 529(b)(1) (defining qualified State
tuition program) is amended--
(A) by inserting ``or by 1 or more eligible
educational institutions'' after ``maintained by a State
or agency or instrumentality thereof '' in the matter
preceding subparagraph (A), and
(B) by adding at the end the following new flush
sentence:
``Except to the extent provided in regulations, a program
established and maintained by 1 or more eligible educational
institutions shall not be treated as a qualified tuition program
unless such program provides that amounts are held in a
qualified trust and such program has received a ruling or
determination that such program meets the applicable
requirements for a qualified tuition program. For purposes of
the preceding sentence, the term `qualified trust' means a trust
which is created or organized in the United States for the
exclusive benefit of designated beneficiaries and with respect
to which the requirements of paragraphs (2) and (5) of section
408(a) are met.''.
(2) Private qualified tuition programs limited to benefit
plans.--Clause (ii) of section 529(b)(1)(A) is amended by
inserting ``in the case of a program established and maintained
by a State or agency or instrumentality thereof,'' before ``may
make''.
(3) Additional tax on nonqualified withdrawals.--Section 529
is amended--
(A) by striking paragraph (3) of subsection (b) and
by redesignating paragraphs (4), (5), (6), and (7) of
such subsection as paragraphs (3), (4), (5), and (6),
respectively, and
(B) by adding at the end of subsection (c) the
following new paragraph:
``(6) Additional tax.--The tax imposed by section 530(d)(4)
shall apply to any payment or distribution from a qualified
tuition program in the same manner as such tax applies to a
payment or distribution from an education individual retirement
account. This paragraph shall not apply to any payment or
distribution in any taxable year beginning before January 1,
2004, which is includible in gross income but used for qualified
higher education expenses of the designated beneficiary.''.
(4) Conforming amendments.--
(A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D),
529, 530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are
amended by
[[Page 115 STAT. 61]]
striking ``qualified State tuition'' each place it
appears and inserting ``qualified tuition''.
(B) The headings for sections <<NOTE: 26 USC 72,
135.>> 72(e)(9) and 135(c)(2)(C) are amended by
striking ``qualified state tuition'' each place it
appears and inserting ``qualified tuition''.
(C) The headings for sections 529(b) and
530(b)(2)(B) are amended by striking ``Qualified state
tuition'' each place it appears and inserting
``Qualified tuition''.
(D) The heading for section 529 is amended by
striking ``state''.
(E) The item relating to section 529 in the table of
sections for part VIII of subchapter F of chapter 1 is
amended by striking ``State''.
(b) Exclusion From Gross Income of Education Distributions From
Qualified Tuition Programs.--
(1) In general.--Section 529(c)(3)(B) (relating to
distributions) is amended to read as follows:
``(B) Distributions for qualified higher education
expenses.--For purposes of this paragraph--
``(i) In-kind distributions.--No amount shall
be includible in gross income under subparagraph
(A) by reason of a distribution which consists of
providing a benefit to the distributee which, if
paid for by the distributee, would constitute
payment of a qualified higher education expense.
``(ii) Cash distributions.--In the case of
distributions not described in clause (i), if--
``(I) such distributions do not
exceed the qualified higher education
expenses (reduced by expenses described
in clause (i)), no amount shall be
includible in gross income, and
``(II) in any other case, the amount
otherwise includible in gross income
shall be reduced by an amount which
bears the same ratio to such amount as
such expenses bear to such
distributions.
``(iii) Exception for institutional
programs.--In the case of any taxable year
beginning before January 1, 2004, clauses (i) and
(ii) shall not apply with respect to any
distribution during such taxable year under a
qualified tuition program established and
maintained by 1 or more eligible educational
institutions.
``(iv) Treatment as distributions.--Any
benefit furnished to a designated beneficiary
under a qualified tuition program shall be treated
as a distribution to the beneficiary for purposes
of this paragraph.
``(v) Coordination with hope and lifetime
learning credits.--The total amount of qualified
higher education expenses with respect to an
individual for the taxable year shall be reduced--
``(I) as provided in section
25A(g)(2), and
``(II) by the amount of such
expenses which were taken into account
in determining the credit allowed to the
taxpayer or any other person under
section 25A.
[[Page 115 STAT. 62]]
``(vi) Coordination with education individual
retirement accounts.--If, with respect to an
individual for any taxable year--
``(I) the aggregate distributions to
which clauses (i) and (ii) and section
530(d)(2)(A) apply, exceed
``(II) the total amount of qualified
higher education expenses otherwise
taken into account under clauses (i) and
(ii) (after the application of clause
(v)) for such year,
the taxpayer shall allocate such expenses among
such distributions for purposes of determining the
amount of the exclusion under clauses (i) and (ii)
and section 530(d)(2)(A).''.
(2) Conforming amendments.--
(A) Section 135(d)(2)(B) <<NOTE: 26 USC 135.>> is
amended by striking ``the exclusion under section
530(d)(2)'' and inserting ``the exclusions under
sections 529(c)(3)(B) and 530(d)(2)''.
(B) Section 221(e)(2)(A) is amended by inserting
``529,'' after ``135,''.
(c) Rollover to Different Program for Benefit of Same Designated
Beneficiary.--Section 529(c)(3)(C) (relating to change in beneficiaries)
is amended--
(1) by striking ``transferred to the credit'' in clause (i)
and inserting ``transferred--
``(I) to another qualified tuition
program for the benefit of the
designated beneficiary, or
``(II) to the credit'',
(2) by adding at the end the following new clause:
``(iii) Limitation on certain rollovers.--
Clause (i)(I) shall not apply to any transfer if
such transfer occurs within 12 months from the
date of a previous transfer to any qualified
tuition program for the benefit of the designated
beneficiary.'', and
(3) by inserting ``or programs'' after ``beneficiaries'' in
the heading.
(d) Member of Family Includes First Cousin.--Section 529(e)(2)
(defining member of family) is amended by striking ``and'' at the end of
subparagraph (B), by striking the period at the end of subparagraph (C)
and by inserting ``; and'', and by adding at the end the following new
subparagraph:
``(D) any first cousin of such beneficiary.''.
(e) Adjustment of Limitation on Room and Board Distributions.--
Section 529(e)(3)(B)(ii) is amended to read as follows:
``(ii) Limitation.--The amount treated as
qualified higher education expenses by reason of
clause (i) shall not exceed--
``(I) the allowance (applicable to
the student) for room and board included
in the cost of attendance (as defined in
section 472 of the Higher Education Act
of 1965 (20 U.S.C. 1087ll), as in effect
on the date of the enactment of the
Economic Growth and Tax Relief
Reconciliation Act of 2001) as
determined by the eligible educational
institution for such period, or
``(II) if greater, the actual
invoice amount the student residing in
housing owned or operated by
[[Page 115 STAT. 63]]
the eligible educational institution is
charged by such institution for room and
board costs for such period.''.
(f ) Special Needs Services.--Subparagraph (A) of section
529(e)(3) <<NOTE: 26 USC 529.>> (defining qualified higher education
expenses) is amended to read as follows:
``(A) In general.--The term `qualified higher
education expenses' means--
``(i) tuition, fees, books, supplies, and
equipment required for the enrollment or
attendance of a designated beneficiary at an
eligible educational institution; and
``(ii) expenses for special needs services in
the case of a special needs beneficiary which are
incurred in connection with such enrollment or
attendance.''.
(g) Technical Amendments.--Section 529(c)(3)(D) is amended--
(1) by inserting ``except to the extent provided by the
Secretary,'' before ``all distributions'' in clause (ii), and
(2) by inserting ``except to the extent provided by the
Secretary,'' before ``the value'' in clause (iii).
(h) <<NOTE: Applicability. 26 USC 72 note.>> Effective Date.--The
amendments made by this section shall apply to taxable years beginning
after December 31, 2001.
Subtitle B--Educational Assistance
SEC. 411. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL
ASSISTANCE.
(a) In General.--Section 127 (relating to exclusion for educational
assistance programs) is amended by striking subsection (d) and by
redesignating subsection (e) as subsection (d).
(b) Repeal of Limitation on Graduate Education.--The last sentence
of section 127(c)(1) is amended by striking ``, and such term also does
not include any payment for, or the provision of any benefits with
respect to, any graduate level course of a kind normally taken by an
individual pursuing a program leading to a law, business, medical, or
other advanced academic or professional degree''.
(c) Conforming Amendment.--Section 51A(b)(5)(B)(iii) is amended by
striking ``or would be so excludable but for section 127(d)''.
(d) <<NOTE: Applicability. 26 USC 51A note.>> Effective Date.--The
amendments made by this section shall apply with respect to expenses
relating to courses beginning after December 31, 2001.
SEC. 412. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME
LIMITATION ON STUDENT LOAN INTEREST DEDUCTION.
(a) Elimination of 60-Month Limit.--
(1) In general.--Section 221 (relating to interest on
education loans), as amended by section 402(b)(2)(B), is amended
by striking subsection (d) and by redesignating subsections (e),
(f ), and (g) as subsections (d), (e), and (f ), respectively.
(2) Conforming amendment.--Section 6050S(e) is amended by
striking ``section 221(e)(1)'' and inserting ``section
221(d)(1)''.
[[Page 115 STAT. 64]]
(3) <<NOTE: Applicability. 26 USC 221 note.>> Effective
date.--The amendments made by this subsection shall apply with
respect to any loan interest paid after December 31, 2001, in
taxable years ending after such date.
(b) Increase in Income Limitation.--
(1) In general.--Section 221(b)(2)(B) <<NOTE: 26 USC 221.>>
(relating to amount of reduction) is amended by striking clauses
(i) and (ii) and inserting the following:
``(i) the excess of--
``(I) the taxpayer's modified
adjusted gross income for such taxable
year, over
``(II) $50,000 ($100,000 in the case
of a joint return), bears to
``(ii) $15,000 ($30,000 in the case of a joint
return).''.
(2) Conforming amendment.--Section 221(g)(1) is amended by
striking ``$40,000 and $60,000 amounts'' and inserting ``$50,000
and $100,000 amounts''.
(3) <<NOTE: Applicability. 26 USC 221 note.>> Effective
date.--The amendments made by this subsection shall apply to
taxable years ending after December 31, 2001.
SEC. 413. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL
HEALTH SERVICE CORPS SCHOLARSHIP PROGRAM AND THE F. EDWARD
HEBERT ARMED FORCES HEALTH PROFESSIONS SCHOLARSHIP AND
FINANCIAL ASSISTANCE PROGRAM.
(a) In General.--Section 117(c) (relating to the exclusion from
gross income amounts received as a qualified scholarship) is amended--
(1) by striking ``Subsections (a)'' and inserting the
following:
``(1) In general.--Except as provided in paragraph (2),
subsections (a)'', and
(2) by adding at the end the following new paragraph:
``(2) Exceptions.--Paragraph (1) shall not apply to any
amount received by an individual under--
``(A) the National Health Service Corps Scholarship
Program under section 338A(g)(1)(A) of the Public Health
Service Act, or
``(B) the Armed Forces Health Professions
Scholarship and Financial Assistance program under
subchapter I of chapter 105 of title 10, United States
Code.''.
(b) <<NOTE: Applicability. 26 USC 117 note.>> Effective Date.--The
amendments made by subsection (a) shall apply to amounts received in
taxable years beginning after December 31, 2001.
Subtitle C--Liberalization of Tax-Exempt Financing Rules for Public
School Construction
SEC. 421. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR
GOVERNMENTAL BONDS USED TO FINANCE EDUCATIONAL FACILITIES.
(a) In General.--Section 148(f )(4)(D)(vii) (relating to increase in
exception for bonds financing public school capital expenditures)
[[Page 115 STAT. 65]]
is amended by striking ``$5,000,000'' the second place it appears and
inserting ``$10,000,000''.
(b) <<NOTE: Applicability. 26 USC 148 note.>> Effective Date.--The
amendment made by subsection (a) shall apply to obligations issued in
calendar years beginning after December 31, 2001.
SEC. 422. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY BONDS AS
EXEMPT FACILITY BONDS.
(a) Treatment as Exempt Facility Bond.--Subsection (a) of section
142 <<NOTE: 26 USC 142.>> (relating to exempt facility bond) is amended
by striking ``or'' at the end of paragraph (11), by striking the period
at the end of paragraph (12) and inserting ``, or'', and by adding at
the end the following new paragraph:
``(13) qualified public educational facilities.''.
(b) Qualified Public Educational Facilities.--Section 142 (relating
to exempt facility bond) is amended by adding at the end the following
new subsection:
``(k) Qualified Public Educational Facilities.--
``(1) In general.--For purposes of subsection (a)(13), the
term `qualified public educational facility' means any school
facility which is--
``(A) part of a public elementary school or a public
secondary school, and
``(B) owned by a private, for-profit corporation
pursuant to a public-private partnership agreement with
a State or local educational agency described in
paragraph (2).
``(2) Public-private partnership agreement described.--A
public-private partnership agreement is described in this
paragraph if it is an agreement--
``(A) under which the corporation agrees--
``(i) to do 1 or more of the following:
construct, rehabilitate, refurbish, or equip a
school facility, and
``(ii) at the end of the term of the
agreement, to transfer the school facility to such
agency for no additional consideration, and
``(B) the term of which does not exceed the term of
the issue to be used to provide the school facility.
``(3) School facility.--For purposes of this subsection, the
term `school facility' means--
``(A) any school building,
``(B) any functionally related and subordinate
facility and land with respect to such building,
including any stadium or other facility primarily used
for school events, and
``(C) any property, to which section 168 applies (or
would apply but for section 179), for use in a facility
described in subparagraph (A) or (B).
``(4) Public schools.--For purposes of this subsection, the
terms `elementary school' and `secondary school' have the
meanings given such terms by section 14101 of the Elementary and
Secondary Education Act of 1965 (20 U.S.C. 8801), as in effect
on the date of the enactment of this subsection.
``(5) Annual aggregate face amount of tax-exempt
financing.--
``(A) In general.--An issue shall not be treated as
an issue described in subsection (a)(13) if the
aggregate face amount of bonds issued by the State
pursuant thereto
[[Page 115 STAT. 66]]
(when added to the aggregate face amount of bonds
previously so issued during the calendar year) exceeds
an amount equal to the greater of--
``(i) $10 multiplied by the State population,
or
``(ii) $5,000,000.
``(B) Allocation rules.--
``(i) In general.--Except as otherwise
provided in this subparagraph, the State may
allocate the amount described in subparagraph (A)
for any calendar year in such manner as the State
determines appropriate.
``(ii) Rules for carryforward of unused
limitation.--A State may elect to carry forward an
unused limitation for any calendar year for 3
calendar years following the calendar year in
which the unused limitation arose under rules
similar to the rules of section 146(f ), except
that the only purpose for which the carryforward
may be elected is the issuance of exempt facility
bonds described in subsection (a)(13).''.
(c) Exemption From General State Volume Caps.--Paragraph (3) of
section 146(g) <<NOTE: 26 USC 146.>> (relating to exception for certain
bonds) is amended--
(1) by striking ``or (12)'' and inserting ``(12), or (13)'',
and
(2) by striking ``and environmental enhancements of
hydroelectric generating facilities'' and inserting
``environmental enhancements of hydroelectric generating
facilities, and qualified public educational facilities''.
(d) Exemption From Limitation on Use for Land Acquisition.--Section
147(h) (relating to certain rules not to apply to mortgage revenue
bonds, qualified student loan bonds, and qualified 501(c)(3) bonds) is
amended by adding at the end the following new paragraph:
``(3) Exempt facility bonds for qualified public-private
schools.--Subsection (c) shall not apply to any exempt facility
bond issued as part of an issue described in section 142(a)(13)
(relating to qualified public educational facilities).''.
(e) Conforming Amendment.--The heading for section 147(h) is amended
by striking ``Mortgage Revenue Bonds, Qualified Student Loan Bonds, and
Qualified 501(c)(3) Bonds'' and inserting ``Certain Bonds''.
(f ) <<NOTE: Applicability. 26 USC 142 note.>> Effective Date.--The
amendments made by this section shall apply to bonds issued after
December 31, 2001.
Subtitle D--Other Provisions
SEC. 431. DEDUCTION FOR HIGHER EDUCATION EXPENSES.
(a) Deduction Allowed.--Part VII of subchapter B of chapter 1
(relating to additional itemized deductions for individuals) is amended
by redesignating section 222 as section 223 and by inserting after
section 221 the following:
``SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES.
``(a) Allowance of Deduction.--In the case of an individual, there
shall be allowed as a deduction an amount equal to the qualified tuition
and related expenses paid by the taxpayer during the taxable year.
[[Page 115 STAT. 67]]
``(b) Dollar limitations.--
``(1) In general.--The amount allowed as a deduction under
subsection (a) with respect to the taxpayer for any taxable year
shall not exceed the applicable dollar limit.
``(2) Applicable dollar limit.--
``(A) 2002 and 2003.--In the case of a taxable year
beginning in 2002 or 2003, the applicable dollar limit
shall be equal to--
``(i) in the case of a taxpayer whose adjusted
gross income for the taxable year does not exceed
$65,000 ($130,000 in the case of a joint return),
$3,000, and--
``(ii) in the case of any other taxpayer,
zero.
``(B) 2004 and 2005.--In the case of a taxable year
beginning in 2004 or 2005, the applicable dollar amount
shall be equal to--
``(i) in the case of a taxpayer whose adjusted
gross income for the taxable year does not exceed
$65,000 ($130,000 in the case of a joint return),
$4,000,
``(ii) in the case of a taxpayer not described
in clause (i) whose adjusted gross income for the
taxable year does not exceed $80,000 ($160,000 in
the case of a joint return), $2,000, and
``(iii) in the case of any other taxpayer,
zero.
``(C) Adjusted gross income.--For purposes of this
paragraph, adjusted gross income shall be determined--
``(i) without regard to this section and
sections 911, 931, and 933, and
``(ii) after application of sections 86, 135,
137, 219, 221, and 469.
``(c) No Double Benefit.--
``(1) In general.--No deduction shall be allowed under
subsection (a) for any expense for which a deduction is allowed
to the taxpayer under any other provision of this chapter.
``(2) Coordination with other education incentives.--
``(A) Denial of deduction if credit elected.--No
deduction shall be allowed under subsection (a) for a
taxable year with respect to the qualified tuition and
related expenses with respect to an individual if the
taxpayer or any other person elects to have section 25A
apply with respect to such individual for such year.
``(B) Coordination with exclusions.--The total
amount of qualified tuition and related expenses shall
be reduced by the amount of such expenses taken into
account in determining any amount excluded under section
135, 529(c)(1), or 530(d)(2). For purposes of the
preceding sentence, the amount taken into account in
determining the amount excluded under section 529(c)(1)
shall not include that portion of the distribution which
represents a return of any contributions to the plan.
``(3) Dependents.--No deduction shall be allowed under
subsection (a) to any individual with respect to whom a
deduction under section 151 is allowable to another taxpayer for
a taxable year beginning in the calendar year in which such
individual's taxable year begins.
``(d) Definitions and Special Rules.--For purposes of this section--
[[Page 115 STAT. 68]]
``(1) Qualified tuition and related expenses.--The term
`qualified tuition and related expenses' has the meaning given
such term by section 25A(f ). Such expenses shall be reduced in
the same manner as under section 25A(g)(2).
``(2) Identification requirement.--No deduction 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 the individual on the return of tax for the taxable
year.
``(3) Limitation on taxable year of deduction.--
``(A) In general.--A deduction shall be allowed
under subsection (a) for qualified tuition and related
expenses for any taxable year only to the extent such
expenses are in connection with enrollment at an
institution of higher education during the taxable year.
``(B) Certain prepayments allowed.--Subparagraph (A)
shall not apply to qualified tuition and related
expenses paid during a taxable year if such expenses are
in connection with an academic term beginning during
such taxable year or during the first 3 months of the
next taxable year.
``(4) <<NOTE: Applicability.>> No deduction 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.
``(5) 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.
``(6) Regulations.--The Secretary may prescribe such
regulations as may be necessary or appropriate to carry out this
section, including regulations requiring recordkeeping and
information reporting.
``(e) Termination.--This section shall not apply to taxable years
beginning after December 31, 2005.''.
(b) Deduction Allowed in Computing Adjusted Gross Income.--Section
62(a) <<NOTE: 26 USC 62.>> is amended by inserting after paragraph (17)
the following:
``(18) Higher education expenses.--The deduction allowed by
section 222.''.
(c) Conforming Amendments.--
(1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and 219(g)(3)
are each amended by inserting ``222,'' after ``221,''.
(2) Section 221(b)(2)(C) is amended by inserting ``222,''
before ``911''.
(3) Section 469(i)(3)(F) is amended by striking ``and 221''
and inserting ``, 221, and 222''.
(4) The table of sections for part VII of subchapter B of
chapter 1 is amended by striking the item relating to section
222 and inserting the following:
``Sec. 222. Qualified tuition and related expenses.
``Sec. 223. Cross reference.''.
[[Page 115 STAT. 69]]
(d) <<NOTE: Applicability. 26 USC 62 note.>> Effective Date.--The
amendments made by this section shall apply to payments made in taxable
years beginning after December 31, 2001.
TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS
Subtitle A--Repeal of Estate and Generation-Skipping Transfer Taxes
SEC. 501. REPEAL OF ESTATE AND GENERATION-SKIPPING TRANSFER TAXES.
(a) Estate Tax Repeal.--Subchapter C of chapter 11 of subtitle B
(relating to miscellaneous) is amended by adding at the end the
following new section:
``SEC. 2210. TERMINATION.
``(a) In General.--Except as provided in subsection (b), this
chapter shall not apply to the estates of decedents dying after December
31, 2009.
``(b) Certain Distributions From Qualified Domestic Trusts.--In
applying section 2056A with respect to the surviving spouse of a
decedent dying before January 1, 2010--
``(1) section 2056A(b)(1)(A) shall not apply to
distributions made after December 31, 2020, and
``(2) section 2056A(b)(1)(B) shall not apply after December
31, 2009.''.
(b) Generation-Skipping Transfer Tax Repeal.--Subchapter G of
chapter 13 of subtitle B (relating to administration) is amended by
adding at the end the following new section:
``SEC. 2664. TERMINATION.
``This chapter shall not apply to generation-skipping transfers
after December 31, 2009.''.
(c) Conforming Amendments.--
(1) The table of sections for subchapter C of chapter 11 is
amended by adding at the end the following new item:
``Sec. 2210. Termination.''.
(2) The table of sections for subchapter G of chapter 13 is
amended by adding at the end the following new item:
``Sec. 2664. Termination.''.
(d) <<NOTE: Applicability. 26 USC 2210 note.>> Effective Date.--The
amendments made by this section shall apply to the estates of decedents
dying, and generation-skipping transfers, after December 31, 2009.
[[Page 115 STAT. 70]]
Subtitle B--Reductions of Estate and Gift Tax Rates
SEC. 511. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.
(a) Maximum Rate of Tax Reduced to 50 Percent.--The table contained
in section 2001(c)(1) <<NOTE: 26 USC 2001.>> is amended by striking the
two highest brackets and inserting the following:
``Over $2,500,000.....$1,025,800, plus 50% of the excess over
$2,500,000.''.
(b) Repeal of Phaseout of Graduated Rates.--Subsection (c) of
section 2001 is amended by striking paragraph (2).
(c) Additional Reductions of Maximum Rate of Tax.--Subsection (c) of
section 2001, as amended by subsection (b), is amended by adding at the
end the following new paragraph:
``(2) Phasedown of maximum rate of tax.--
``(A) <<NOTE: Regulations.>> In general.--In the
case of estates of decedents dying, and gifts made, in
calendar years after 2002 and before 2010, the tentative
tax under this subsection shall be determined by using a
table prescribed by the Secretary (in lieu of using the
table contained in paragraph (1)) which is the same as
such table; except that--
``(i) the maximum rate of tax for any calendar
year shall be determined in the table under
subparagraph (B), and
``(ii) the brackets and the amounts setting
forth the tax shall be adjusted to the extent
necessary to reflect the adjustments under
subparagraph (A).
``(B) Maximum rate.--
The maximum...............................
``In calendar year: rate is:..................................
2003 49 percent
2004 48 percent
2005 47 percent
2006 46 percent
2007, 2008, and 2009 45 percent.''.
(d) Maximum Gift Tax Rate Reduced to Maximum Individual Rate After
2009.--Subsection (a) of section 2502 (relating to rate of tax) is
amended to read as follows:
``(a) Computation of Tax.--
``(1) In general.--The tax imposed by section 2501 for each
calendar year shall be an amount equal to the excess of--
``(A) a tentative tax, computed under paragraph (2),
on the aggregate sum of the taxable gifts for such
calendar year and for each of the preceding calendar
periods, over
``(B) a tentative tax, computed under paragraph (2),
on the aggregate sum of the taxable gifts for each of
the preceding calendar periods.
``(2) Rate schedule.--
``If the amount with respeThe tentative tax is:
which the tentative tax to
be computed is:
Not over $10,000......18% of such amount.
Over $10,000 but not o$1,800, plus 20% of the excess over $10,000.
$20,000.
Over $20,000 but not o$3,800, plus 22% of the excess over $20,000.
$40,000.
[[Page 115 STAT. 71]]
Over $40,000 but not o$8,200, plus 24% of the excess over $40,000.
$60,000.
Over $60,000 but not o$13,000, plus 26% of the excess over $60,000.
$80,000.
Over $80,000 but not o$18,200, plus 28% of the excess over $80,000.
$100,000.
Over $100,000 but not $23,800, plus 30% of the excess over $100,000.
$150,000.
Over $150,000 but not $38,800, plus 32% of the excess over $150,000.
$250,000.
Over $250,000 but not $70,800, plus 34% of the excess over $250,000.
$500,000.
Over $500,000.........$155,800, plus 35% of the excess over
$500,000.''.
(e) Treatment of Certain Transfers in <<NOTE: 26 USC
2511.>> Trust.--Section 2511 (relating to transfers in general) is
amended by adding at the end the following new subsection:
``(c) Treatment of Certain Transfers in Trust.--Notwithstanding any
other provision of this section and except as provided in regulations, a
transfer in trust shall be treated as a taxable gift under section 2503,
unless the trust is treated as wholly owned by the donor or the donor's
spouse under subpart E of part I of subchapter J of chapter 1.''.
(f ) Effective Dates.-- <<NOTE: Applicability. 26 USC 2001
note. 26 USC 2001 note. 26 USC 2502 note.>>
26 USC
2001 note.
26 USC
2001 note.
26 USC
2502 note.
(1) Subsections (a) and (b).--The amendments made by
subsections (a) and (b) shall apply to estates of decedents
dying, and gifts made, after December 31, 2001.
(2) Subsection (c).--The amendment made by subsection (c)
shall apply to estates of decedents dying, and gifts made, after
December 31, 2002.
(3) Subsections (d) and (e).--The amendments made by
subsections (d) and (e) shall apply to gifts made after December
31, 2009.
Subtitle C--Increase in Exemption Amounts
SEC. 521. INCREASE IN EXEMPTION EQUIVALENT OF UNIFIED CREDIT, LIFETIME
GIFTS EXEMPTION, AND GST EXEMPTION AMOUNTS.
(a) In General.--Subsection (c) of section 2010 (relating to
applicable credit amount) is amended by striking the table and inserting
the following new table:
``In the case of estates of decedents The applicable
dying during: exclusion amount is:
2002 and 2003..............................$1,000,000
2004 and 2005..............................$1,500,000
2006, 2007, and 2008.......................$2,000,000
2009....................................$3,500,000.''.
(b) Lifetime Gift Exemption Increased to $1,000,000.--
(1) For periods before estate tax repeal.--Paragraph (1) of
section 2505(a) (relating to unified credit against gift tax) is
amended by inserting ``(determined as if the applicable
exclusion amount were $1,000,000)'' after ``calendar year''.
(2) For periods after estate tax repeal.--Paragraph (1) of
section 2505(a) (relating to unified credit against gift
[[Page 115 STAT. 72]]
tax), as amended by paragraph (1), is amended to read as
follows:
``(1) the amount of the tentative tax which would be
determined under the rate schedule set forth in section
2502(a)(2) if the amount with respect to which such tentative
tax is to be computed were $1,000,000, reduced by''.
(c) GST Exemption.--
(1) In general.--Subsection (a) of 2631 <<NOTE: 26 USC
2631.>> (relating to GST exemption) is amended by striking ``of
$1,000,000'' and inserting ``amount''.
(2) Exemption amount.--Subsection (c) of section 2631 is
amended to read as follows:
``(c) GST Exemption Amount.--For purposes of subsection (a), the GST
exemption amount for any calendar year shall be equal to the applicable
exclusion amount under section 2010(c) for such calendar year.''.
(d) Repeal of Special Benefit for Family-Owned Business Interests.--
Section 2057 (relating to family-owned business interests) is amended by
adding at the end the following new subsection:
``( j) Termination.--This section shall not apply to the estates of
decedents dying after December 31, 2003.''.
(e) <<NOTE: Applicability. 26 USC 2010 note.>> Effective Dates.--
(1) In general.--Except as provided in paragraphs (2) and
(3), the amendments made by this section shall apply to estates
of decedents dying, and gifts made, after December 31, 2001.
(2) Subsection (b)(2).--The amendments made by subsection
(b)(2) shall apply to gifts made after December 31, 2009.
(3) Subsections (c) and (d).--The amendments made by
subsections (c) and (d) shall apply to estates of decedents
dying, and generation-skipping transfers, after December 31,
2003.
Subtitle D--Credit for State Death Taxes
SEC. 531. REDUCTION OF CREDIT FOR STATE DEATH TAXES.
(a) In General.--Section 2011(b) (relating to amount of credit) is
amended--
(1) by striking ``Credit.--The credit allowed'' and
inserting ``Credit.--
``(1) In general.--Except as provided in paragraph (2), the
credit allowed'',
(2) by striking ``For purposes'' and inserting the
following:
``(3) Adjusted taxable estate.--For purposes'', and
(3) by inserting after paragraph (1) the following new
paragraph:
``(2) Reduction of maximum credit.--
``(A) In general.--In the case of estates of
decedents dying after December 31, 2001, the credit
allowed by this section shall not exceed the applicable
percentage of the credit otherwise determined under
paragraph (1).
``(B) Applicable percentage.--
``In the case of estates of decedents The applicable
dying during: percentage is:
2002.......................................75 percent
[[Page 115 STAT. 73]]
2003.......................................50 percent
2004....................................25 percent.''.
(b) <<NOTE: Applicability. 26 USC 2011 note.>> Effective Date.--The
amendments made by this subsection shall apply to estates of decedents
dying after December 31, 2001.
SEC. 532. CREDIT FOR STATE DEATH TAXES REPLACED WITH DEDUCTION FOR SUCH
TAXES.
(a) Repeal of Credit.--Section 2011 <<NOTE: 26 USC 2011.>>
(relating to credit for State death taxes) is amended by adding at the
end the following new subsection:
``(g) Termination.--This section shall not apply to the estates of
decedents dying after December 31, 2004.''.
(b) Deduction for State Death Taxes.--Part IV of subchapter A of
chapter 11 is amended by adding at the end the following new section:
``SEC. 2058. STATE DEATH TAXES.
``(a) Allowance of Deduction.--For purposes of the tax imposed by
section 2001, the value of the taxable estate shall be determined by
deducting from the value of the gross estate the amount of any estate,
inheritance, legacy, or succession taxes actually paid to any State or
the District of Columbia, in respect of any property included in the
gross estate (not including any such taxes paid with respect to the
estate of a person other than the decedent).
``(b) Period of Limitations.--The deduction allowed by this section
shall include only such taxes as were actually paid and deduction
therefor claimed before the later of--
``(1) 4 years after the filing of the return required by
section 6018, or
``(2) if--
``(A) a petition for redetermination of a deficiency
has been filed with the Tax Court within the time
prescribed in section 6213(a), the expiration of 60 days
after the decision of the Tax Court becomes final,
``(B) an extension of time has been granted under
section 6161 or 6166 for payment of the tax shown on the
return, or of a deficiency, the date of the expiration
of the period of the extension, or
``(C) a claim for refund or credit of an overpayment
of tax imposed by this chapter has been filed within the
time prescribed in section 6511, the latest of the
expiration of--
``(i) 60 days from the date of mailing by
certified mail or registered mail by the Secretary
to the taxpayer of a notice of the disallowance of
any part of such claim,
``(ii) 60 days after a decision by any court
of competent jurisdiction becomes final with
respect to a timely suit instituted upon such
claim, or
``(iii) 2 years after a notice of the waiver
of disallowance is filed under section 6532(a)(3).
Notwithstanding sections 6511 and 6512, refund based on the deduction
may be made if the claim for refund is filed within the period provided
in the preceding sentence. Any such refund shall be made without
interest.''.
(c) Conforming Amendments.--
[[Page 115 STAT. 74]]
(1) Subsection (a) of section 2012 <<NOTE: 26 USC 2012.>>
is amended by striking ``the credit for State death taxes
provided by section 2011 and''.
(2) Subparagraph (A) of section 2013(c)(1) is amended by
striking ``2011,''.
(3) Paragraph (2) of section 2014(b) is amended by striking
``, 2011,''.
(4) Sections 2015 and 2016 are each amended by striking
``2011 or''.
(5) Subsection (d) of section 2053 is amended to read as
follows:
``(d) Certain Foreign Death Taxes.--
``(1) <<NOTE: Regulations.>> In general.--Notwithstanding
the provisions of subsection (c)(1)(B), for purposes of the tax
imposed by section 2001, the value of the taxable estate may be
determined, if the executor so elects before the expiration of
the period of limitation for assessment provided in section
6501, by deducting from the value of the gross estate the amount
(as determined in accordance with regulations prescribed by the
Secretary) of any estate, succession, legacy, or inheritance tax
imposed by and actually paid to any foreign country, in respect
of any property situated within such foreign country and
included in the gross estate of a citizen or resident of the
United States, upon a transfer by the decedent for public,
charitable, or religious uses described in section 2055. The
determination under this paragraph of the country within which
property is situated shall be made in accordance with the rules
applicable under subchapter B (sec. 2101 and following) in
determining whether property is situated within or without the
United States. Any election under this paragraph shall be
exercised in accordance with regulations prescribed by the
Secretary.
``(2) Condition for allowance of deduction.--No deduction
shall be allowed under paragraph (1) for a foreign death tax
specified therein unless the decrease in the tax imposed by
section 2001 which results from the deduction provided in
paragraph (1) will inure solely for the benefit of the public,
charitable, or religious transferees described in section 2055
or section 2106(a)(2). In any case where the tax imposed by
section 2001 is equitably apportioned among all the transferees
of property included in the gross estate, including those
described in sections 2055 and 2106(a)(2) (taking into account
any exemptions, credits, or deductions allowed by this chapter),
in determining such decrease, there shall be disregarded any
decrease in the Federal estate tax which any transferees other
than those described in sections 2055 and 2106(a)(2) are
required to pay.
``(3) Effect on credit for foreign death taxes of deduction
under this subsection.--
``(A) Election.--An election under this subsection
shall be deemed a waiver of the right to claim a credit,
against the Federal estate tax, under a death tax
convention with any foreign country for any tax or
portion thereof in respect of which a deduction is taken
under this subsection.
``(B) Cross reference.--
``See section 2014(f ) for the effect of a deduction
taken under this paragraph on the credit for foreign
death taxes.''.
(6) Subparagraph (A) of section 2056A(b)(10) is amended--
[[Page 115 STAT. 75]]
(A) by striking ``2011,'', and
(B) by inserting ``2058,'' after ``2056,''.
(7)(A) Subsection (a) of section 2102 <<NOTE: 26 USC
2102.>> is amended to read as follows:
``(a) In General.--The tax imposed by section 2101 shall be credited
with the amounts determined in accordance with sections 2012 and 2013
(relating to gift tax and tax on prior transfers).''.
(B) Section 2102 is amended by striking subsection (b) and
by redesignating subsection (c) as subsection (b).
(C) Section 2102(b)(5) (as redesignated by subparagraph (B))
and section 2107(c)(3) are each amended by striking ``2011 to
2013, inclusive,'' and inserting ``2012 and 2013''.
(8) Subsection (a) of section 2106 is amended by adding at
the end the following new paragraph:
``(4) State death taxes.--The amount which bears the same
ratio to the State death taxes as the value of the property, as
determined for purposes of this chapter, upon which State death
taxes were paid and which is included in the gross estate under
section 2103 bears to the value of the total gross estate under
section 2103. For purposes of this paragraph, the term `State
death taxes' means the taxes described in section 2011(a).''.
(9) Section 2201 is amended--
(A) by striking ``as defined in section 2011(d)'',
and
(B) by adding at the end the following new flush
sentence:
``For purposes of this section, the additional estate tax is the
difference between the tax imposed by section 2001 or 2101 and the
amount equal to 125 percent of the maximum credit provided by section
2011(b), as in effect before its repeal by the Economic Growth and Tax
Relief Reconciliation Act of 2001.''.
(10) Section 2604 (relating to credit for certain State
taxes) is amended by adding at the end the following new
subsection:
``(c) Termination.--This section shall not apply to the generation-
skipping transfers after December 31, 2004.''.
(11) Paragraph (2) of section 6511(i) is amended by striking
``2011(c), 2014(b),'' and inserting ``2014(b)''.
(12) Subsection (c) of section 6612 is amended by striking
``section 2011(c) (relating to refunds due to credit for State
taxes),''.
(13) The table of sections for part II of subchapter A of
chapter 11 is amended by striking the item relating to section
2011.
(14) The table of sections for part IV of subchapter A of
chapter 11 is amended by adding at the end the following new
item:
``Sec. 2058. State death taxes.''.
(15) The table of sections for subchapter A of chapter 13 is
amended by striking the item relating to section 2604.
(d) <<NOTE: Applicability. 26 USC 2011 note.>> Effective Date.--The
amendments made by this section shall apply to estates of decedents
dying, and generation-skipping transfers, after December 31, 2004.
[[Page 115 STAT. 76]]
Subtitle E--Carryover Basis at Death; Other Changes Taking Effect With
Repeal
SEC. 541. TERMINATION OF STEP-UP IN BASIS AT DEATH.
Section 1014 <<NOTE: 26 USC 1014.>> (relating to basis of property
acquired from a decedent) is amended by adding at the end the following
new subsection:
``(f ) Termination.--This section shall not apply with respect to
decedents dying after December 31, 2009.''.
SEC. 542. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER
DECEMBER 31, 2009.
(a) General Rule.--Part II of subchapter O of chapter 1 (relating to
basis rules of general application) is amended by inserting after
section 1021 the following new section:
``SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER
DECEMBER 31, 2009.
``(a) In General.--Except as otherwise provided in this section--
``(1) property acquired from a decedent dying after December
31, 2009, shall be treated for purposes of this subtitle as
transferred by gift, and
``(2) the basis of the person acquiring property from such a
decedent shall be the lesser of--
``(A) the adjusted basis of the decedent, or
``(B) the fair market value of the property at the
date of the decedent's death.
``(b) Basis Increase for Certain Property.--
``(1) In general.--In the case of property to which this
subsection applies, the basis of such property under subsection
(a) shall be increased by its basis increase under this
subsection.
``(2) Basis increase.--For purposes of this subsection--
``(A) In general.--The basis increase under this
subsection for any property is the portion of the
aggregate basis increase which is allocated to the
property pursuant to this section.
``(B) Aggregate basis increase.--In the case of any
estate, the aggregate basis increase under this
subsection is $1,300,000.
``(C) Limit increased by unused built-in losses and
loss carryovers.--The limitation under subparagraph (B)
shall be increased by--
``(i) the sum of the amount of any capital
loss carryover under section 1212(b), and the
amount of any net operating loss carryover under
section 172, which would (but for the decedent's
death) be carried from the decedent's last taxable
year to a later taxable year of the decedent, plus
``(ii) the sum of the amount of any losses
that would have been allowable under section 165
if the property acquired from the decedent had
been sold at fair market value immediately before
the decedent's death.
[[Page 115 STAT. 77]]
``(3) Decedent nonresidents who are not citizens of the
united states.--In the case of a decedent nonresident not a
citizen of the United States--
``(A) paragraph (2)(B) shall be applied by
substituting `$60,000' for `$1,300,000', and
``(B) paragraph (2)(C) shall not apply.
``(c) Additional Basis Increase for Property Acquired by Surviving
Spouse.--
``(1) In general.--In the case of property to which this
subsection applies and which is qualified spousal property, the
basis of such property under subsection (a) (as increased under
subsection (b)) shall be increased by its spousal property basis
increase.
``(2) Spousal property basis increase.--For purposes of this
subsection--
``(A) In general.--The spousal property basis
increase for property referred to in paragraph (1) is
the portion of the aggregate spousal property basis
increase which is allocated to the property pursuant to
this section.
``(B) Aggregate spousal property basis increase.--In
the case of any estate, the aggregate spousal property
basis increase is $3,000,000.
``(3) Qualified spousal property.--For purposes of this
subsection, the term `qualified spousal property' means--
``(A) outright transfer property, and
``(B) qualified terminable interest property.
``(4) Outright transfer property.--For purposes of this
subsection--
``(A) In general.--The term `outright transfer
property' means any interest in property acquired from
the decedent by the decedent's surviving spouse.
``(B) Exception.--Subparagraph (A) shall not apply
where, on the lapse of time, on the occurrence of an
event or contingency, or on the failure of an event or
contingency to occur, an interest passing to the
surviving spouse will terminate or fail--
``(i)(I) if an interest in such property
passes or has passed (for less than an adequate
and full consideration in money or money's worth)
from the decedent to any person other than such
surviving spouse (or the estate of such spouse),
and
``(II) if by reason of such passing such
person (or his heirs or assigns) may possess or
enjoy any part of such property after such
termination or failure of the interest so passing
to the surviving spouse, or
``(ii) if such interest is to be acquired for
the surviving spouse, pursuant to directions of
the decedent, by his executor or by the trustee of
a trust.
For purposes of this subparagraph, an interest shall not
be considered as an interest which will terminate or
fail merely because it is the ownership of a bond, note,
or similar contractual obligation, the discharge of
which would not have the effect of an annuity for life
or for a term.
``(C) Interest of spouse conditional on survival for
limited period.--For purposes of this paragraph, an
[[Page 115 STAT. 78]]
interest passing to the surviving spouse shall not be
considered as an interest which will terminate or fail
on the death of such spouse if--
``(i) such death will cause a termination or
failure of such interest only if it occurs within
a period not exceeding 6 months after the
decedent's death, or only if it occurs as a result
of a common disaster resulting in the death of the
decedent and the surviving spouse, or only if it
occurs in the case of either such event, and
``(ii) such termination or failure does not in
fact occur.
``(5) Qualified terminable interest property.--For purposes
of this subsection--
``(A) In general.--The term `qualified terminable
interest property' means property--
``(i) which passes from the decedent, and
``(ii) in which the surviving spouse has a
qualifying income interest for life.
``(B) Qualifying income interest for life.--The
surviving spouse has a qualifying income interest for
life if--
``(i) the surviving spouse is entitled to all
the income from the property, payable annually or
at more frequent intervals, or has a usufruct
interest for life in the property, and
``(ii) no person has a power to appoint any
part of the property to any person other than the
surviving spouse.
Clause (ii) shall not apply to a power exercisable only
at or after the death of the surviving spouse. To the
extent provided in regulations, an annuity shall be
treated in a manner similar to an income interest in
property (regardless of whether the property from which
the annuity is payable can be separately identified).
``(C) Property includes interest therein.--The term
`property' includes an interest in property.
``(D) Specific portion treated as separate
property.--A specific portion of property shall be
treated as separate property. For purposes of the
preceding sentence, the term `specific portion' only
includes a portion determined on a fractional or
percentage basis.
``(d) Definitions and Special Rules for Application of Subsections
(b) and (c).--
``(1) Property to which subsections (b) and (c) apply.--
``(A) In general.--The basis of property acquired
from a decedent may be increased under subsection (b) or
(c) only if the property was owned by the decedent at
the time of death.
``(B) Rules relating to ownership.--
``(i) Jointly held property.--In the case of
property which was owned by the decedent and
another person as joint tenants with right of
survivorship or tenants by the entirety--
``(I) if the only such other person
is the surviving spouse, the decedent
shall be treated as the owner of only 50
percent of the property,
[[Page 115 STAT. 79]]
``(II) in any case (to which
subclause (I) does not apply) in which
the decedent furnished consideration for
the acquisition of the property, the
decedent shall be treated as the owner
to the extent of the portion of the
property which is proportionate to such
consideration, and
``(III) in any case (to which
subclause (I) does not apply) in which
the property has been acquired by gift,
bequest, devise, or inheritance by the
decedent and any other person as joint
tenants with right of survivorship and
their interests are not otherwise
specified or fixed by law, the decedent
shall be treated as the owner to the
extent of the value of a fractional part
to be determined by dividing the value
of the property by the number of joint
tenants with right of survivorship.
``(ii) Revocable trusts.--The decedent shall
be treated as owning property transferred by the
decedent during life to a qualified revocable
trust (as defined in section 645(b)(1)).
``(iii) Powers of appointment.--The decedent
shall not be treated as owning any property by
reason of holding a power of appointment with
respect to such property.
``(iv) Community property.--Property which
represents the surviving spouse's one-half share
of community property held by the decedent and the
surviving spouse under the community property laws
of any State or possession of the United States or
any foreign country shall be treated for purposes
of this section as owned by, and acquired from,
the decedent if at least one-half of the whole of
the community interest in such property is treated
as owned by, and acquired from, the decedent
without regard to this clause.
``(C) Property acquired by decedent by gift within 3
years of death.--
``(i) In general.--Subsections (b) and (c)
shall not apply to property acquired by the
decedent by gift or by inter vivos transfer for
less than adequate and full consideration in money
or money's worth during the 3-year period ending
on the date of the decedent's death.
``(ii) Exception for certain gifts from
spouse.--Clause (i) shall not apply to property
acquired by the decedent from the decedent's
spouse unless, during such 3-year period, such
spouse acquired the property in whole or in part
by gift or by inter vivos transfer for less than
adequate and full consideration in money or
money's worth.
``(D) Stock of certain entities.--Subsections (b)
and (c) shall not apply to--
``(i) stock or securities of a foreign
personal holding company,
``(ii) stock of a DISC or former DISC,
``(iii) stock of a foreign investment company,
or
[[Page 115 STAT. 80]]
``(iv) stock of a passive foreign investment
company unless such company is a qualified
electing fund (as defined in section 1295) with
respect to the decedent.
``(2) Fair market value limitation.--The adjustments under
subsections (b) and (c) shall not increase the basis of any
interest in property acquired from the decedent above its fair
market value in the hands of the decedent as of the date of the
decedent's death.
``(3) Allocation rules.--
``(A) In general.--The executor shall allocate the
adjustments under subsections (b) and (c) on the return
required by section 6018.
``(B) Changes in allocation.--Any allocation made
pursuant to subparagraph (A) may be changed only as
provided by the Secretary.
``(4) Inflation adjustment of basis adjustment amounts.--
``(A) In general.--In the case of decedents dying in
a calendar year after 2010, the $1,300,000, $60,000, and
$3,000,000 dollar amounts in subsections (b) and
(c)(2)(B) shall each 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 such
calendar year, determined by substituting `2009'
for `1992' in subparagraph (B) thereof.
``(B) Rounding.--If any increase determined under
subparagraph (A) is not a multiple of--
``(i) $100,000 in the case of the $1,300,000
amount,
``(ii) $5,000 in the case of the $60,000
amount, and
``(iii) $250,000 in the case of the $3,000,000
amount,
such increase shall be rounded to the next lowest
multiple thereof.
``(e) Property Acquired From the Decedent.--For purposes of this
section, the following property shall be considered to have been
acquired from the decedent:
``(1) Property acquired by bequest, devise, or inheritance,
or by the decedent's estate from the decedent.
``(2) Property transferred by the decedent during his
lifetime--
``(A) to a qualified revocable trust (as defined in
section 645(b)(1)), or
``(B) to any other trust with respect to which the
decedent reserved the right to make any change in the
enjoyment thereof through the exercise of a power to
alter, amend, or terminate the trust.
``(3) Any other property passing from the decedent by reason
of death to the extent that such property passed without
consideration.
``(f ) Coordination With Section 691.--This section shall not apply
to property which constitutes a right to receive an item of income in
respect of a decedent under section 691.
``(g) Certain Liabilities Disregarded.--
[[Page 115 STAT. 81]]
``(1) In general.--In determining whether gain is recognized
on the acquisition of property--
``(A) from a decedent by a decedent's estate or any
beneficiary other than a tax-exempt beneficiary, and
``(B) from the decedent's estate by any beneficiary
other than a tax-exempt beneficiary,
and in determining the adjusted basis of such property,
liabilities in excess of basis shall be disregarded.
``(2) Tax-exempt beneficiary.--For purposes of paragraph
(1), the term `tax-exempt beneficiary' means--
``(A) the United States, any State or political
subdivision thereof, any possession of the United
States, any Indian tribal government (within the meaning
of section 7871), or any agency or instrumentality of
any of the foregoing,
``(B) an organization (other than a cooperative
described in section 521) which is exempt from tax
imposed by chapter 1,
``(C) any foreign person or entity (within the
meaning of section 168(h)(2)), and
``(D) to the extent provided in regulations, any
person to whom property is transferred for the principal
purpose of tax avoidance.
``(h) Regulations.--The Secretary shall prescribe such regulations
as may be necessary to carry out the purposes of this section.''.
(b) Information Returns, Etc.--
(1) Large transfers at death.--So much of subpart C of part
II of subchapter A of chapter 61 as precedes section 6019 is
amended to read as follows:
``Subpart C--Returns Relating to Transfers During Life or at Death
``Sec. 6018. Returns relating to large transfers at
death.
``Sec. 6019. Gift tax returns.
``SEC. 6018. RETURNS RELATING TO LARGE TRANSFERS AT DEATH.
``(a) In General.--If this section applies to property acquired from
a decedent, the executor of the estate of such decedent shall make a
return containing the information specified in subsection (c) with
respect to such property.
``(b) Property to Which Section Applies.--
``(1) Large transfers.--This section shall apply to all
property (other than cash) acquired from a decedent if the fair
market value of such property acquired from the decedent exceeds
the dollar amount applicable under section 1022(b)(2)(B)
(without regard to section 1022(b)(2)(C)).
``(2) Transfers of certain gifts received by decedent within
3 years of death.--This section shall apply to any appreciated
property acquired from the decedent if--
``(A) subsections (b) and (c) of section 1022 do not
apply to such property by reason of section
1022(d)(1)(C), and
``(B) such property was required to be included on a
return required to be filed under section 6019.
``(3) Nonresidents not citizens of the united states.--In
the case of a decedent who is a nonresident not a citizen of the
United States, paragraphs (1) and (2) shall be applied--
[[Page 115 STAT. 82]]
``(A) by taking into account only--
``(i) tangible property situated in the United
States, and
``(ii) other property acquired from the
decedent by a United States person, and
``(B) by substituting the dollar amount applicable
under section 1022(b)(3) for the dollar amount referred
to in paragraph (1).
``(4) Returns by trustees or beneficiaries.--If the executor
is unable to make a complete return as to any property acquired
from or passing from the decedent, the executor shall include in
the return a description of such property and the name of every
person holding a legal or beneficial interest therein. Upon
notice from the Secretary, such person shall in like manner make
a return as to such property.
``(c) Information Required To Be Furnished.--The information
specified in this subsection with respect to any property acquired from
the decedent is--
``(1) the name and TIN of the recipient of such property,
``(2) an accurate description of such property,
``(3) the adjusted basis of such property in the hands of
the decedent and its fair market value at the time of death,
``(4) the decedent's holding period for such property,
``(5) sufficient information to determine whether any gain
on the sale of the property would be treated as ordinary income,
``(6) the amount of basis increase allocated to the property
under subsection (b) or (c) of section 1022, and
``(7) such other information as the Secretary may by
regulations prescribe.
``(d) <<NOTE: Applicability.>> Property Acquired From Decedent.--
For purposes of this section, section 1022 shall apply for purposes of
determining the property acquired from a decedent.
``(e) Statements To Be Furnished to Certain Persons.--Every person
required to make a return under subsection (a) shall furnish to each
person whose name is required to be set forth in such return (other than
the person required to make such return) a written statement showing--
``(1) the name, address, and phone number of the person
required to make such return, and
``(2) the information specified in subsection (c) with
respect to property acquired from, or passing from, the decedent
to the person required to receive such statement.
The <<NOTE: Deadline.>> written statement required under the preceding
sentence shall be furnished not later than 30 days after the date that
the return required by subsection (a) is filed.''.
(2) Gifts.--Section 6019 <<NOTE: 26 USC 6019.>> (relating
to gift tax returns) is amended--
(A) by striking ``Any individual'' and inserting
``(a) In General.--Any individual'', and
(B) by adding at the end the following new
subsection:
``(b) Statements To Be Furnished to Certain Persons.--Every person
required to make a return under subsection (a) shall furnish to each
person whose name is required to be set forth in such return (other than
the person required to make such return) a written statement showing--
``(1) the name, address, and phone number of the person
required to make such return, and
[[Page 115 STAT. 83]]
``(2) the information specified in such return with respect
to property received by the person required to receive such
statement.
The <<NOTE: Deadline.>> written statement required under the preceding
sentence shall be furnished not later than 30 days after the date that
the return required by subsection (a) is filed.''.
(3) Time for filing section 6018 returns.--
(A) Returns relating to large transfers at death.--
Subsection (a) of section 6075 <<NOTE: 26 USC 6075.>>
is amended to read as follows:
``(a) Returns Relating to Large Transfers at Death.--The return
required by section 6018 with respect to a decedent shall be filed with
the return of the tax imposed by chapter 1 for the decedent's last
taxable year or such later date specified in regulations prescribed by
the Secretary.''.
(B) Conforming amendments.--Paragraph (3) of section
6075(b) is amended--
(i) by striking ``estate tax return'' in the
heading and inserting ``section 6018 return'', and
(ii) by striking ``(relating to estate tax
returns)'' and inserting ``(relating to returns
relating to large transfers at death)''.
(4) Penalties.--Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by adding at the
end the following new section:
``SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN
TRANSFERS AT DEATH AND GIFTS.
``(a) Information Required To Be Furnished to the Secretary.--Any
person required to furnish any information under section 6018 who fails
to furnish such information on the date prescribed therefor (determined
with regard to any extension of time for filing) shall pay a penalty of
$10,000 ($500 in the case of information required to be furnished under
section 6018(b)(2)) for each such failure.
``(b) Information Required To Be Furnished to Beneficiaries.--Any
person required to furnish in writing to each person described in
section 6018(e) or 6019(b) the information required under such section
who fails to furnish such information shall pay a penalty of $50 for
each such failure.
``(c) Reasonable Cause Exception.--No penalty shall be imposed under
subsection (a) or (b) with respect to any failure if it is shown that
such failure is due to reasonable cause.
``(d) Intentional Disregard.--If any failure under subsection (a) or
(b) is due to intentional disregard of the requirements under sections
6018 and 6019(b), the penalty under such subsection shall be 5 percent
of the fair market value (as of the date of death or, in the case of
section 6019(b), the date of the gift) of the property with respect to
which the information is required.
``(e) Deficiency Procedures Not To Apply.--Subchapter B of chapter
63 (relating to deficiency procedures for income, estate, gift, and
certain excise taxes) shall not apply in respect of the assessment or
collection of any penalty imposed by this section.''.
(5) Clerical amendments.--
[[Page 115 STAT. 84]]
(A) The table of sections for part I of subchapter B
of chapter 68 is amended by adding at the end the
following new item:
``Sec. 6716. Failure to file information with respect to
certain transfers at death and gifts.''.
(B) The item relating to subpart C in the table of
subparts for part II of subchapter A of chapter 61 is
amended to read as follows:
``Subpart C. Returns relating to transfers during life
or at death.''.
(c) Exclusion of Gain on Sale of Principal Residence Made Available
to Heir of Decedent in Certain Cases.--Subsection (d) of section
121 <<NOTE: 26 USC 121.>> (relating to exclusion of gain from sale of
principal residence) is amended by adding at the end the following new
paragraph:
``(9) Property acquired from a decedent.--The exclusion
under this section shall apply to property sold by--
``(A) the estate of a decedent,
``(B) any individual who acquired such property from
the decedent (within the meaning of section 1022), and
``(C) a trust which, immediately before the death of
the decedent, was a qualified revocable trust (as
defined in section 645(b)(1)) established by the
decedent,
determined by taking into account the ownership and use by the
decedent.''.
(d) Transfers of Appreciated Carryover Basis Property To Satisfy
Pecuniary Bequest.--
(1) In general.--Section 1040 (relating to transfer of
certain farm, etc., real property) is amended to read as
follows:
``SEC. 1040. USE OF APPRECIATED CARRYOVER BASIS PROPERTY TO SATISFY
PECUNIARY BEQUEST.
``(a) In General.--If the executor of the estate of any decedent
satisfies the right of any person to receive a pecuniary bequest with
appreciated property, then gain on such exchange shall be recognized to
the estate only to the extent that, on the date of such exchange, the
fair market value of such property exceeds such value on the date of
death.
``(b) <<NOTE: Regulations.>> Similar Rule for Certain Trusts.--To
the extent provided in regulations prescribed by the Secretary, a rule
similar to the rule provided in subsection (a) shall apply where--
``(1) by reason of the death of the decedent, a person has a
right to receive from a trust a specific dollar amount which is
the equivalent of a pecuniary bequest, and
``(2) the trustee of a trust satisfies such right with
property.
``(c) Basis of Property Acquired in Exchange Described in Subsection
(a) or (b).--The basis of property acquired in an exchange with respect
to which gain realized is not recognized by reason of subsection (a) or
(b) shall be the basis of such property immediately before the exchange
increased by the amount of the gain recognized to the estate or trust on
the exchange.''.
(2) The item relating to section 1040 in the table of
sections for part III of subchapter O of chapter 1 is amended to
read as follows:
``Sec. 1040. Use of appreciated carryover basis property
to satisfy pecuniary bequest.''.
(e) Amendments Related to Carryover Basis.--
[[Page 115 STAT. 85]]
(1) Recognition of gain on transfers to nonresidents.--
(A) Subsection (a) of section 684 <<NOTE: 26 USC
684.>> is amended by inserting ``or to a nonresident
alien'' after ``or trust''.
(B) Subsection (b) of section 684 is amended to read
as follows:
``(b) Exceptions.--
``(1) Transfers to certain trusts.--Subsection (a) shall not
apply to a transfer to a trust by a United States person to the
extent that any United States person is treated as the owner of
such trust under section 671.
``(2) Lifetime transfers to nonresident aliens.--Subsection
(a) shall not apply to a lifetime transfer to a nonresident
alien.''.
(C) The section heading for section 684 is amended
by inserting ``and nonresident aliens'' after
``estates''.
(D) The item relating to section 684 in the table of
sections for subpart F of part I of subchapter J of
chapter 1 is amended by inserting ``and nonresident
aliens'' after ``estates''.
(2) Capital gain treatment for inherited art work or similar
property.--
(A) In general.--Subparagraph (C) of section
1221(a)(3) (defining capital asset) is amended by
inserting ``(other than by reason of section 1022)''
after ``is determined''.
(B) Coordination with section 170.--Paragraph (1) of
section 170(e) (relating to certain contributions of
ordinary income and capital gain property) is amended by
adding at the end the following: ``For purposes of this
paragraph, the determination of whether property is a
capital asset shall be made without regard to the
exception contained in section 1221(a)(3)(C) for basis
determined under section 1022.''.
(3) Definition of executor.--Section 7701(a) (relating to
definitions) is amended by adding at the end the following:
``(47) Executor.--The term `executor' means the executor or
administrator of the decedent, or, if there is no executor or
administrator appointed, qualified, and acting within the United
States, then any person in actual or constructive possession of
any property of the decedent.''.
(4) Certain trusts.--Subparagraph (A) of section 4947(a)(2)
is amended by inserting ``642(c),'' after ``170(f )(2)(B),''.
(5) Other amendments.--
(A) Section 1246 is amended by striking sub-
section (e).
(B) Subsection (e) of section 1291 is amended--
(i) by striking ``(e),''; and
(ii) by striking ``; except that'' and all
that follows and inserting a period.
(C) Section 1296 is amended by striking sub-
section (i).
[[Page 115 STAT. 86]]
(6) Clerical amendment.--The table of sections for part II
of subchapter O of chapter 1 is amended by inserting after the
item relating to section 1021 the following new item:
``Sec. 1022. Treatment of property acquired from a
decedent dying after
December 31, 2009.''.
(f ) Effective <<NOTE: Applicability. 26 USC 121 note.>> Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to estates of
decedents dying after December 31, 2009.
(2) Transfers to nonresidents.--The amendments made by
subsection (e)(1) shall apply to transfers after December 31,
2009.
(3) Section 4947.--The amendment made by subsection (e)(4)
shall apply to deductions for taxable years beginning after
December 31, 2009.
Subtitle F--Conservation Easements
SEC. 551. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASEMENTS.
(a) Repeal of Certain Restrictions on Where Land Is Located.--Clause
(i) of section 2031(c)(8)(A) <<NOTE: 26 USC 2031.>> (defining land
subject to a qualified conservation easement) is amended to read as
follows:
``(i) which is located in the United States or
any possession of the United States,''.
(b) Clarification of Date for Determining Value of Land and
Easement.--Section 2031(c)(2) (defining applicable percentage) is
amended by adding at the end the following new sentence: ``The values
taken into account under the preceding sentence shall be such values as
of the date of the contribution referred to in paragraph (8)(B).''.
(c) <<NOTE: Applicability. 26 USC 2031 note.>> Effective Date.--The
amendments made by this section shall apply to estates of decedents
dying after December 31, 2000.
Subtitle G--Modifications of Generation-Skipping Transfer Tax
SEC. 561. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME TRANSFERS TO
TRUSTS; RETROACTIVE ALLOCATIONS.
(a) In General.--Section 2632 (relating to special rules for
allocation of GST exemption) is amended by redesignating subsection (c)
as subsection (e) and by inserting after subsection (b) the following
new subsections:
``(c) Deemed Allocation to Certain Lifetime Transfers to GST
Trusts.--
``(1) In general.--If any individual makes an indirect skip
during such individual's lifetime, any unused portion of such
individual's GST exemption shall be allocated to the property
transferred to the extent necessary to make the inclusion ratio
for such property zero. If the amount of the indirect skip
exceeds such unused portion, the entire unused portion shall be
allocated to the property transferred.
[[Page 115 STAT. 87]]
``(2) Unused portion.--For purposes of paragraph (1), the
unused portion of an individual's GST exemption is that portion
of such exemption which has not previously been--
``(A) allocated by such individual,
``(B) treated as allocated under subsection (b) with
respect to a direct skip occurring during or before the
calendar year in which the indirect skip is made, or
``(C) treated as allocated under paragraph (1) with
respect to a prior indirect skip.
``(3) Definitions.--
``(A) Indirect skip.--For purposes of this
subsection, the term `indirect skip' means any transfer
of property (other than a direct skip) subject to the
tax imposed by chapter 12 made to a GST trust.
``(B) GST trust.--The term `GST trust' means a trust
that could have a generation-skipping transfer with
respect to the transferor unless--
``(i) the trust instrument provides that more
than 25 percent of the trust corpus must be
distributed to or may be withdrawn by one or more
individuals who are non-skip persons--
``(I) before the date that the
individual attains age 46,
``(II) on or before one or more
dates specified in the trust instrument
that will occur before the date that
such individual attains age 46, or
``(III) upon the occurrence of an
event that, in accordance with
regulations prescribed by the Secretary,
may reasonably be expected to occur
before the date that such individual
attains age 46,
``(ii) the trust instrument provides that more
than 25 percent of the trust corpus must be
distributed to or may be withdrawn by one or more
individuals who are non-skip persons and who are
living on the date of death of another person
identified in the instrument (by name or by class)
who is more than 10 years older than such
individuals,
``(iii) the trust instrument provides that, if
one or more individuals who are non-skip persons
die on or before a date or event described in
clause (i) or (ii), more than 25 percent of the
trust corpus either must be distributed to the
estate or estates of one or more of such
individuals or is subject to a general power of
appointment exercisable by one or more of such
individuals,
``(iv) the trust is a trust any portion of
which would be included in the gross estate of a
non-skip person (other than the transferor) if
such person died immediately after the transfer,
``(v) the trust is a charitable lead annuity
trust (within the meaning of section
2642(e)(3)(A)) or a charitable remainder annuity
trust or a charitable remainder unitrust (within
the meaning of section 664(d)), or
``(vi) the trust is a trust with respect to
which a deduction was allowed under section 2522
for the
[[Page 115 STAT. 88]]
amount of an interest in the form of the right to
receive annual payments of a fixed percentage of
the net fair market value of the trust property
(determined yearly) and which is required to pay
principal to a non-skip person if such person is
alive when the yearly payments for which the
deduction was allowed terminate.
For purposes of this subparagraph, the value of
transferred property shall not be considered to be
includible in the gross estate of a non-skip person or
subject to a right of withdrawal by reason of such
person holding a right to withdraw so much of such
property as does not exceed the amount referred to in
section 2503(b) with respect to any transferor, and it
shall be assumed that powers of appointment held by non-
skip persons will not be exercised.
``(4) Automatic allocations to certain gst trusts.--For
purposes of this subsection, an indirect skip to which section
2642(f ) applies shall be deemed to have been made only at the
close of the estate tax inclusion period. The fair market value
of such transfer shall be the fair market value of the trust
property at the close of the estate tax inclusion period.
``(5) Applicability and effect.--
``(A) In general.--An individual--
``(i) may elect to have this subsection not
apply to--
``(I) an indirect skip, or
``(II) any or all transfers made by
such individual to a particular trust,
and
``(ii) may elect to treat any trust as a GST
trust for purposes of this subsection with respect
to any or all transfers made by such individual to
such trust.
``(B) Elections.--
``(i) Elections with respect to indirect
skips.--An election under subparagraph (A)(i)(I)
shall be deemed to be timely if filed on a timely
filed gift tax return for the calendar year in
which the transfer was made or deemed to have been
made pursuant to paragraph (4) or on such later
date or dates as may be prescribed by the
Secretary.
``(ii) Other elections.--An election under
clause (i)(II) or (ii) of subparagraph (A) may be
made on a timely filed gift tax return for the
calendar year for which the election is to become
effective.
``(d) Retroactive Allocations.--
``(1) In general.--If--
``(A) a non-skip person has an interest or a future
interest in a trust to which any transfer has been made,
``(B) such person--
``(i) is a lineal descendant of a grandparent
of the transferor or of a grandparent of the
transferor's spouse or former spouse, and
``(ii) is assigned to a generation below the
generation assignment of the transferor, and
``(C) such person predeceases the transferor,
[[Page 115 STAT. 89]]
then the transferor may make an allocation of any of such
transferor's unused GST exemption to any previous transfer or
transfers to the trust on a chronological basis.
``(2) Special rules.--If the allocation under paragraph (1)
by the transferor is made on a gift tax return filed on or
before the date prescribed by section 6075(b) for gifts made
within the calendar year within which the non-skip person's
death occurred--
``(A) the value of such transfer or transfers for
purposes of section 2642(a) shall be determined as if
such allocation had been made on a timely filed gift tax
return for each calendar year within which each transfer
was made,
``(B) such allocation shall be effective immediately
before such death, and
``(C) the amount of the transferor's unused GST
exemption available to be allocated shall be determined
immediately before such death.
``(3) Future interest.--For purposes of this subsection, a
person has a future interest in a trust if the trust may permit
income or corpus to be paid to such person on a date or dates in
the future.''.
(b) Conforming Amendment.--Paragraph (2) of section <<NOTE: 26 USC
2632.>> 2632(b) is amended by striking ``with respect to a prior direct
skip'' and inserting ``or subsection (c)(1)''.
(c) <<NOTE: Applicability. 26 USC 2632 note.>> Effective Dates.--
(1) Deemed allocation.--Section 2632(c) of the Internal
Revenue Code of 1986 (as added by subsection (a)), and the
amendment made by subsection (b), shall apply to transfers
subject to chapter 11 or 12 made after December 31, 2000, and to
estate tax inclusion periods ending after December 31, 2000.
(2) Retroactive allocations.--Section 2632(d) of the
Internal Revenue Code of 1986 (as added by subsection (a)) shall
apply to deaths of non-skip persons occurring after December 31,
2000.
SEC. 562. SEVERING OF TRUSTS.
(a) In General.--Subsection (a) of section 2642 (relating to
inclusion ratio) is amended by adding at the end the following new
paragraph:
``(3) Severing of trusts.--
``(A) In general.--If a trust is severed in a
qualified severance, the trusts resulting from such
severance shall be treated as separate trusts thereafter
for purposes of this chapter.
``(B) Qualified severance.--For purposes of
subparagraph (A)--
``(i) In general.--The term `qualified
severance' means the division of a single trust
and the creation (by any means available under the
governing instrument or under local law) of two or
more trusts if--
``(I) the single trust was divided
on a fractional basis, and
``(II) the terms of the new trusts,
in the aggregate, provide for the same
succession of interests
[[Page 115 STAT. 90]]
of beneficiaries as are provided in the
original trust.
``(ii) Trusts with inclusion ratio greater
than zero.--If a trust has an inclusion ratio of
greater than zero and less than 1, a severance is
a qualified severance only if the single trust is
divided into two trusts, one of which receives a
fractional share of the total value of all trust
assets equal to the applicable fraction of the
single trust immediately before the severance. In
such case, the trust receiving such fractional
share shall have an inclusion ratio of zero and
the other trust shall have an inclusion ratio of
1.
``(iii) Regulations.--The term `qualified
severance' includes any other severance permitted
under regulations prescribed by the Secretary.
``(C) Timing and manner of severances.--A severance
pursuant to this paragraph may be made at any
time. <<NOTE: Regulations.>> The Secretary shall
prescribe by forms or regulations the manner in which
the qualified severance shall be reported to the
Secretary.''.
(b) <<NOTE: Applicability. 26 USC 2642 note.>> Effective Date.--The
amendment made by this section shall apply to severances after December
31, 2000.
SEC. 563. MODIFICATION OF CERTAIN VALUATION RULES.
(a) Gifts for Which Gift Tax Return Filed or Deemed Allocation
Made.--Paragraph (1) of section 2642(b) <<NOTE: 26 USC 2642.>>
(relating to valuation rules, etc.) is amended to read as follows:
``(1) Gifts for which gift tax return filed or deemed
allocation made.--If the allocation of the GST exemption to any
transfers of property is made on a gift tax return filed on or
before the date prescribed by section 6075(b) for such transfer
or is deemed to be made under section 2632 (b)(1) or (c)(1)--
``(A) the value of such property for purposes of
subsection (a) shall be its value as finally determined
for purposes of chapter 12 (within the meaning of
section 2001(f )(2)), or, in the case of an allocation
deemed to have been made at the close of an estate tax
inclusion period, its value at the time of the close of
the estate tax inclusion period, and
``(B) such allocation shall be effective on and
after the date of such transfer, or, in the case of an
allocation deemed to have been made at the close of an
estate tax inclusion period, on and after the close of
such estate tax inclusion period.''.
(b) Transfers at Death.--Subparagraph (A) of section 2642(b)(2) is
amended to read as follows:
``(A) Transfers at death.--If property is
transferred as a result of the death of the transferor,
the value of such property for purposes of subsection
(a) shall be its value as finally determined for
purposes of chapter 11; except that, if the requirements
prescribed by the Secretary respecting allocation of
post-death changes in value are not met, the value of
such property shall be determined as of the time of the
distribution concerned.''.
[[Page 115 STAT. 91]]
(c) <<NOTE: Applicability. 26 USC 2642 note.>> Effective Date.--The
amendments made by this section shall apply to transfers subject to
chapter 11 or 12 of the Internal Revenue Code of 1986 made after
December 31, 2000.
SEC. 564. RELIEF PROVISIONS.
(a) In General.--Section 2642 <<NOTE: 26 USC 2642.>> is amended by
adding at the end the following new subsection:
``(g) Relief Provisions.--
``(1) Relief from late elections.--
``(A) <<NOTE: Regulations.>> In general.--The
Secretary shall by regulation prescribe such
circumstances and procedures under which extensions of
time will be granted to make--
``(i) an allocation of GST exemption described
in paragraph (1) or (2) of subsection (b), and
``(ii) an election under subsection (b)(3) or
(c)(5) of section 2632.
Such regulations shall include procedures for requesting
comparable relief with respect to transfers made before
the date of the enactment of this paragraph.
``(B) Basis for determinations.--In determining
whether to grant relief under this paragraph, the
Secretary shall take into account all relevant
circumstances, including evidence of intent contained in
the trust instrument or instrument of transfer and such
other factors as the Secretary deems relevant. For
purposes of determining whether to grant relief under
this paragraph, the time for making the allocation (or
election) shall be treated as if not expressly
prescribed by statute.
``(2) Substantial compliance.--An allocation of GST
exemption under section 2632 that demonstrates an intent to have
the lowest possible inclusion ratio with respect to a transfer
or a trust shall be deemed to be an allocation of so much of the
transferor's unused GST exemption as produces the lowest
possible inclusion ratio. In determining whether there has been
substantial compliance, all relevant circumstances shall be
taken into account, including evidence of intent contained in
the trust instrument or instrument of transfer and such other
factors as the Secretary deems relevant.''.
(b) <<NOTE: Applicability. 26 USC 2642 note.>> Effective Dates.--
(1) Relief from late elections.--Section 2642(g)(1) of the
Internal Revenue Code of 1986 (as added by subsection (a)) shall
apply to requests pending on, or filed after, December 31, 2000.
(2) Substantial compliance.--Section 2642(g)(2) of such Code
(as so added) shall apply to transfers subject to chapter 11 or
12 of the Internal Revenue Code of 1986 made after December 31,
2000. No implication is intended with respect to the
availability of relief from late elections or the application of
a rule of substantial compliance on or before such date.
[[Page 115 STAT. 92]]
Subtitle H--Extension of Time for Payment of Estate Tax
SEC. 571. INCREASE IN NUMBER OF ALLOWABLE PARTNERS AND SHAREHOLDERS IN
CLOSELY HELD BUSINESSES.
(a) In General.--Paragraphs (1)(B)(ii), (1)(C)(ii), and
(9)(B)(iii)(I) of section 6166(b) <<NOTE: 26 USC 6166.>> (relating to
definitions and special rules) are each amended by striking ``15'' and
inserting ``45''.
(b) <<NOTE: Applicability. 26 USC 6166 note.>> Effective Date.--The
amendments made by this section shall apply to estates of decedents
dying after December 31, 2001.
SEC. 572. EXPANSION OF AVAILABILITY OF INSTALLMENT PAYMENT FOR ESTATES
WITH INTERESTS QUALIFYING LENDING AND FINANCE BUSINESSES.
(a) In General.--Section 6166(b) (relating to definitions and
special rules) is amended by adding at the end the following new
paragraph:
``(10) Stock in qualifying lending and finance business
treated as stock in an active trade or business company.--
``(A) In general.--If the executor elects the
benefits of this paragraph, then--
``(i) Stock in qualifying lending and finance
business treated as stock in an active trade or
business company.--For purposes of this section,
any asset used in a qualifying lending and finance
business shall be treated as an asset which is
used in carrying on a trade or business.
``(ii) 5-year deferral for principal not to
apply.--The executor shall be treated as having
selected under subsection (a)(3) the date
prescribed by section 6151(a).
``(iii) 5 equal installments allowed.--For
purposes of applying subsection (a)(1), `5' shall
be substituted for `10'.
``(B) Definitions.--For purposes of this paragraph--
``(i) Qualifying lending and finance
business.--The term `qualifying lending and
finance business' means a lending and finance
business, if--
``(I) based on all the facts and
circumstances immediately before the
date of the decedent's death, there was
substantial activity with respect to the
lending and finance business, or
``(II) during at least 3 of the 5
taxable years ending before the date of
the decedent's death, such business had
at least 1 full-time employee
substantially all of whose services were
the active management of such business,
10 full-time, nonowner employees
substantially all of whose services were
directly related to such business, and
$5,000,000 in gross receipts from
activities described in clause (ii).
``(ii) Lending and finance business.--The term
`lending and finance business' means a trade or
business of--
``(I) making loans,
[[Page 115 STAT. 93]]
``(II) purchasing or discounting
accounts receivable, notes, or
installment obligations,
``(III) engaging in rental and
leasing of real and tangible personal
property, including entering into leases
and purchasing, servicing, and disposing
of leases and leased assets,
``(IV) rendering services or making
facilities available in the ordinary
course of a lending or finance business,
and
``(V) rendering services or making
facilities available in connection with
activities described in subclauses (I)
through (IV) carried on by the
corporation rendering services or making
facilities available, or another
corporation which is a member of the
same affiliated group (as defined in
section 1504 without regard to section
1504(b)(3)).
``(iii) Limitation.--The term `qualifying
lending and finance business' shall not include
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
before the date of the decedent's death.''.
(b) <<NOTE: Applicability. 26 USC 6166 note.>> Effective Date.--The
amendment made by this section shall apply to estates of decedents dying
after December 31, 2001.
SEC. 573. CLARIFICATION OF AVAILABILITY OF INSTALLMENT PAYMENT.
(a) In General.--Subparagraph (B) of section <<NOTE: 26 USC 6166.>>
6166(b)(8) (relating to all stock must be non-readily-tradable stock) is
amended to read as follows:
``(B) All stock must be non-readily-tradable
stock.--
``(i) In general.--No stock shall be taken
into account for purposes of applying this
paragraph unless it is non-readily-tradable stock
(within the meaning of paragraph (7)(B)).
``(ii) Special application where only holding
company stock is non-readily-tradable stock.--If
the requirements of clause (i) are not met, but
all of the stock of each holding company taken
into account is non-readily-tradable, then this
paragraph shall apply, but subsection (a)(1) shall
be applied by substituting `5' for `10'.''.
(b) <<NOTE: Applicability. 26 USC 6166 note.>> Effective Date.--The
amendment made by this section shall apply to estates of decedents dying
after December 31, 2001.
Subtitle I--Other Provisions
SEC. <<NOTE: 26 USC 2032A note.>> 581. WAIVER OF STATUTE OF LIMITATION
FOR TAXES ON CERTAIN FARM VALUATIONS.
If on the date of the enactment of this Act (or at any time within 1
year after the date of the enactment) a refund or credit of any
overpayment of tax resulting from the application of section
[[Page 115 STAT. 94]]
2032A(c)(7)(E) of the Internal Revenue Code of 1986 is barred by any law
or rule of law, the refund or credit of such overpayment shall,
nevertheless, be made or allowed if claim therefor is filed before the
date 1 year after the date of the enactment of this Act.
TITLE VI--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS
Subtitle A--Individual Retirement Accounts
SEC. 601. MODIFICATION OF IRA CONTRIBUTION LIMITS.
(a) Increase in Contribution Limit.--
(1) In general.--Paragraph (1)(A) of section <<NOTE: 26 USC
219.>> 219(b) (relating to maximum amount of deduction) is
amended by striking ``$2,000'' and inserting ``the deductible
amount''.
(2) Deductible amount.--Section 219(b) is amended by adding
at the end the following new paragraph:
``(5) Deductible amount.--For purposes of paragraph (1)(A)--
``(A) In general.--The deductible amount shall be
determined in accordance with the following table:
``For taxable years The deductible
beginning in: amount is:
2002 through 2004........................... $3,000
2005 through 2007........................... $4,000
2008 and thereafter......................... $5,000.
``(B) Catch-up contributions for individuals 50 or
older.--
``(i) In general.--In the case of an
individual who has attained the age of 50 before
the close of the taxable year, the deductible
amount for such taxable year shall be increased by
the applicable amount.
``(ii) Applicable amount.--For purposes of
clause (i), the applicable amount shall be the
amount determined in accordance with the following
table:
``For taxable years The applicable
beginning in: amount is:
2002 through 2005........................... $500
2006 and thereafter......................... $1,000.
``(C) Cost-of-living adjustment.--
``(i) In general.--In the case of any taxable
year beginning in a calendar year after 2008, the
$5,000 amount under subparagraph (A) shall be
increased by an amount equal to--
``(I) such dollar amount, multiplied
by
``(II) the cost-of-living adjustment
determined under section 1(f )(3) for
the calendar year in which the taxable
year begins, determined by substituting
`calendar year 2007' for `calendar year
1992' in subparagraph (B) thereof.
``(ii) Rounding rules.--If any amount after
adjustment under clause (i) is not a multiple of
$500, such
[[Page 115 STAT. 95]]
amount shall be rounded to the next lower multiple
of $500.''.
(b) Conforming Amendments.--
(1) Section 408(a)(1) <<NOTE: 26 USC 408.>> is amended by
striking ``in excess of $2,000 on behalf of any individual'' and
inserting ``on behalf of any individual in excess of the amount
in effect for such taxable year under section 219(b)(1)(A)''.
(2) Section 408(b)(2)(B) is amended by striking ``$2,000''
and inserting ``the dollar amount in effect under section
219(b)(1)(A)''.
(3) Section 408(b) is amended by striking ``$2,000'' in the
matter following paragraph (4) and inserting ``the dollar amount
in effect under section 219(b)(1)(A)''.
(4) Section 408( j) is amended by striking ``$2,000''.
(5) Section 408(p)(8) is amended by striking ``$2,000'' and
inserting ``the dollar amount in effect under section
219(b)(1)(A)''.
(c) <<NOTE: Applicability. 26 USC 219 note.>> Effective Date.--The
amendments made by this section shall apply to taxable years beginning
after December 31, 2001.
SEC. 602. DEEMED IRAs UNDER EMPLOYER PLANS.
(a) In General.--Section 408 (relating to individual retirement
accounts) is amended by redesignating subsection (q) as subsection (r)
and by inserting after subsection (p) the following new subsection:
``(q) Deemed IRAs Under Qualified Employer Plans.--
``(1) General rule.--If--
``(A) a qualified employer plan elects to allow
employees to make voluntary employee contributions to a
separate account or annuity established under the plan,
and
``(B) under the terms of the qualified employer
plan, such account or annuity meets the applicable
requirements of this section or section 408A for an
individual retirement account or annuity,
then such account or annuity shall be treated for purposes of
this title in the same manner as an individual retirement plan
and not as a qualified employer plan (and contributions to such
account or annuity as contributions to an individual retirement
plan and not to the qualified employer plan). For purposes of
subparagraph (B), the requirements of subsection (a)(5) shall
not apply.
``(2) Special rules for qualified employer plans.--For
purposes of this title, a qualified employer plan shall not fail
to meet any requirement of this title solely by reason of
establishing and maintaining a program described in paragraph
(1).
``(3) Definitions.--For purposes of this subsection--
``(A) Qualified employer plan.--The term `qualified
employer plan' has the meaning given such term by
section 72(p)(4); except such term shall not include a
government plan which is not a qualified plan unless the
plan is an eligible deferred compensation plan (as
defined in section 457(b)).
``(B) Voluntary employee contribution.--The term
`voluntary employee contribution' means any contribution
(other than a mandatory contribution within the meaning
of section 411(c)(2)(C))--
[[Page 115 STAT. 96]]
``(i) which is made by an individual as an
employee under a qualified employer plan which
allows employees to elect to make contributions
described in paragraph (1), and
``(ii) with respect to which the individual
has designated the contribution as a contribution
to which this subsection applies.''.
(b) Amendment of ERISA.--
(1) In general.--Section 4 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1003) is amended by adding at
the end the following new subsection:
``(c) If a pension plan allows an employee to elect to make
voluntary employee contributions to accounts and annuities as provided
in section 408(q) of the Internal Revenue Code of 1986, such accounts
and annuities (and contributions thereto) shall not be treated as part
of such plan (or as a separate pension plan) for purposes of any
provision of this title other than section 403(c), 404, or 405 (relating
to exclusive benefit, and fiduciary and co-fiduciary
responsibilities).''.
(2) Conforming amendment.--Section 4(a) of such Act (29
U.S.C. 1003(a)) is amended by inserting ``or (c)'' after
``subsection (b)''.
(c) <<NOTE: Applicability. 26 USC 408 note.>> Effective Date.--The
amendments made by this section shall apply to plan years beginning
after December 31, 2002.
Subtitle B--Expanding Coverage
SEC. 611. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.
(a) Defined Benefit Plans.--
(1) Dollar limit.--
(A) Subparagraph (A) of section 415(b)(1) <<NOTE: 26
USC 415.>> (relating to limitation for defined benefit
plans) is amended by striking ``$90,000'' and inserting
``$160,000''.
(B) Subparagraphs (C) and (D) of section 415(b)(2)
are each amended in the headings and the text, by
striking ``$90,000'' and inserting ``$160,000'',
(C) Paragraph (7) of section 415(b) (relating to
benefits under certain collectively bargained plans) is
amended by striking ``the greater of $68,212 or one-half
the amount otherwise applicable for such year under
paragraph (1)(A) for `$90,000' '' and inserting ``one-
half the amount otherwise applicable for such year under
paragraph (1)(A) for `$160,000' ''.
(2) Limit reduced when benefit begins before age 62.--
Subparagraph (C) of section 415(b)(2) is amended by striking
``the social security retirement age'' each place it appears in
the heading and text and inserting ``age 62'' and by striking
the second sentence.
(3) Limit increased when benefit begins after age 65.--
Subparagraph (D) of section 415(b)(2) is amended by striking
``the social security retirement age'' each place it appears in
the heading and text and inserting ``age 65''.
(4) Cost-of-living adjustments.--Subsection (d) of section
415 (related to cost-of-living adjustments) is amended--
(A) by striking ``$90,000'' in paragraph (1)(A) and
inserting ``$160,000''; and
[[Page 115 STAT. 97]]
(B) in paragraph (3)(A)--
(i) by striking ``$90,000'' in the heading and
inserting ``$160,000''; and
(ii) by striking ``October 1, 1986'' and
inserting ``July 1, 2001''.
(5) Conforming amendments.--
(A) Section 415(b)(2) <<NOTE: 26 USC 415.>> is
amended by striking subparagraph (F).
(B) Section 415(b)(9) is amended to read as follows:
``(9) Special rule for commercial airline pilots.--
``(A) In general.--Except as provided in
subparagraph (B), in the case of any participant who is
a commercial airline pilot, if, as of the time of the
participant's retirement, regulations prescribed by the
Federal Aviation Administration require an individual to
separate from service as a commercial airline pilot
after attaining any age occurring on or after age 60 and
before age 62, paragraph (2)(C) shall be applied by
substituting such age for age 62.
``(B) Individuals who separate from service before
age 60.--If a participant described in subparagraph (A)
separates from service before age 60, the rules of
paragraph (2)(C) shall apply.''.
(C) Section 415(b)(10)(C)(i) is amended by striking
``applied without regard to paragraph (2)(F)''.
(b) Defined Contribution Plans.--
(1) Dollar limit.--Subparagraph (A) of section 415(c)(1)
(relating to limitation for defined contribution plans) is
amended by striking ``$30,000'' and inserting ``$40,000''.
(2) Cost-of-living adjustments.--Subsection (d) of section
415 (related to cost-of-living adjustments) is amended--
(A) by striking ``$30,000'' in paragraph (1)(C) and
inserting ``$40,000''; and
(B) in paragraph (3)(D)--
(i) by striking ``$30,000'' in the heading and
inserting ``$40,000''; and
(ii) by striking ``October 1, 1993'' and
inserting ``July 1, 2001''.
(c) Qualified Trusts.--
(1) Compensation limit.--Sections 401(a)(17), 404(l),
408(k), and 505(b)(7) are each amended by striking ``$150,000''
each place it appears and inserting ``$200,000''.
(2) Base period and rounding of cost-of-living adjustment.--
Subparagraph (B) of section 401(a)(17) is amended--
(A) by striking ``October 1, 1993'' and inserting
``July 1, 2001''; and
(B) by striking ``$10,000'' both places it appears
and inserting ``$5,000''.
(d) Elective Deferrals.--
(1) In general.--Paragraph (1) of section 402(g) (relating
to limitation on exclusion for elective deferrals) is amended to
read as follows:
``(1) In general.--
``(A) Limitation.--Notwithstanding subsections
(e)(3) and (h)(1)(B), the elective deferrals of any
individual for any taxable year shall be included in
such individual's
[[Page 115 STAT. 98]]
gross income to the extent the amount of such deferrals
for the taxable year exceeds the applicable dollar
amount.
``(B) Applicable dollar amount.--For purposes of
subparagraph (A), the applicable dollar amount shall be
the amount determined in accordance with the following
table:
``For taxable years The applicable
beginning in dollar amount:
calendar year:
2002........................................$11,000
2003........................................$12,000
2004........................................$13,000
2005........................................$14,000
2006 or thereafter.......................$15,000.''.
(2) Cost-of-living adjustment.--Paragraph (5) of section
402(g) <<NOTE: 26 USC 402.>> is amended to read as follows:
``(5) Cost-of-living adjustment.--In the case of taxable
years beginning after December 31, 2006, the Secretary shall
adjust the $15,000 amount under paragraph (1)(B) at the same
time and in the same manner as under section 415(d), except that
the base period shall be the calendar quarter beginning July 1,
2005, and any increase under this paragraph which is not a
multiple of $500 shall be rounded to the next lowest multiple of
$500.''.
(3) Conforming amendments.--
(A) Section 402(g) (relating to limitation on
exclusion for elective deferrals), as amended by
paragraphs (1) and (2), is further amended by striking
paragraph (4) and redesignating paragraphs (5), (6),
(7), (8), and (9) as paragraphs (4), (5), (6), (7), and
(8), respectively.
(B) Paragraph (2) of section 457(c) is amended by
striking ``402(g)(8)(A)(iii)'' and inserting
``402(g)(7)(A)(iii)''.
(C) Clause (iii) of section 501(c)(18)(D) is amended
by striking ``(other than paragraph (4) thereof )''.
(e) Deferred Compensation Plans of State and Local Governments and
Tax-Exempt Organizations.--
(1) In general.--Section 457 (relating to deferred
compensation plans of State and local governments and tax-exempt
organizations) is amended--
(A) in subsections (b)(2)(A) and (c)(1) by striking
``$7,500'' each place it appears and inserting ``the
applicable dollar amount''; and
(B) in subsection (b)(3)(A) by striking ``$15,000''
and inserting ``twice the dollar amount in effect under
subsection (b)(2)(A)''.
(2) Applicable dollar amount; cost-of-living adjustment.--
Paragraph (15) of section 457(e) is amended to read as follows:
``(15) Applicable dollar amount.--
``(A) In general.--The applicable dollar amount
shall be the amount determined in accordance with the
following table:
``For taxable years The applicable
beginning in dollar amount:
calendar year:
2002........................................$11,000
2003........................................$12,000
2004........................................$13,000
[[Page 115 STAT. 99]]
2005........................................$14,000
2006 or thereafter..........................$15,000.
``(B) Cost-of-living adjustments.--In the case of
taxable years beginning after December 31, 2006, the
Secretary shall adjust the $15,000 amount under
subparagraph (A) at the same time and in the same manner
as under section 415(d), except that the base period
shall be the calendar quarter beginning July 1, 2005,
and any increase under this paragraph which is not a
multiple of $500 shall be rounded to the next lowest
multiple of $500.''.
(f ) Simple Retirement Accounts.--
(1) Limitation.--Clause (ii) of section
408(p)(2)(A) <<NOTE: 26 USC 408.>> (relating to general rule
for qualified salary reduction arrangement) is amended by
striking ``$6,000'' and inserting ``the applicable dollar
amount''.
(2) Applicable dollar amount.--Subparagraph (E) of 408(p)(2)
is amended to read as follows:
``(E) Applicable dollar amount; cost-of-living
adjustment.--
``(i) In general.--For purposes of
subparagraph (A)(ii), the applicable dollar amount
shall be the amount determined in accordance with
the following table:
``For years The applicable
beginning in dollar amount:
calendar year:
2002................................ $7,000
2003................................ $8,000
2004................................ $9,000
2005 or thereafter..................$10,000.
``(ii) Cost-of-living adjustment.--In the case
of a year beginning after December 31, 2005, the
Secretary shall adjust the $10,000 amount under
clause (i) at the same time and in the same manner
as under section 415(d), except that the base
period taken into account shall be the calendar
quarter beginning July 1, 2004, and any increase
under this subparagraph which is not a multiple of
$500 shall be rounded to the next lower multiple
of $500.''.
(3) Conforming amendments.--
(A) Subclause (I) of section 401(k)(11)(B)(i) is
amended by striking ``$6,000'' and inserting ``the
amount in effect under section 408(p)(2)(A)(ii)''.
(B) Section 401(k)(11) is amended by striking
subparagraph (E).
(g) Certain Compensation Limits.--
(1) In general.--Subparagraph (A) of section 401(c)(2)
(defining earned income) is amended by adding at the end thereof
the following new sentence: ``For purposes of this part only
(other than sections 419 and 419A), this subparagraph shall be
applied as if the term `trade or business' for purposes of
section 1402 included service described in section
1402(c)(6).''.
(2) Simple retirement accounts.--Clause (ii) of section
408(p)(6)(A) (defining self-employed) is amended by adding at
the end the following new sentence: ``The preceding sentence
shall be applied as if the term `trade or business' for purposes
of section 1402 included service described in section
1402(c)(6).''.
[[Page 115 STAT. 100]]
(h) Rounding Rule Relating to Defined Benefit Plans and Defined
Contribution Plans.--Paragraph (4) of section 415(d) <<NOTE: 26 USC
415.>> is amended to read as follows:
``(4) Rounding.--
``(A) $160,000 amount.--Any increase under
subparagraph (A) of paragraph (1) which is not a
multiple of $5,000 shall be rounded to the next lowest
multiple of $5,000.
``(B) $40,000 amount.--Any increase under
subparagraph (C) of paragraph (1) which is not a
multiple of $1,000 shall be rounded to the next lowest
multiple of $1,000.''.
(i) Effective Dates.--
(1) <<NOTE: Applicability. 26 USC 415 note.>> In general.--
The amendments made by this section shall apply to years
beginning after December 31, 2001.
(2) Defined benefit plans.--The amendments made by
subsection (a) shall apply to years ending after December 31,
2001.
SEC. 612. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE
PROPRIETORS.
(a) In General.--Subparagraph (B) of section 4975(f )(6) (relating
to exemptions not to apply to certain transactions) is amended by adding
at the end the following new clause:
``(iii) Loan exception.--For purposes of
subparagraph (A)(i), the term `owner-employee'
shall only include a person described in subclause
(II) or (III) of clause (i).''.
(b) Amendment of ERISA.--Section 408(d)(2) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2)) is amended
by adding at the end the following new subparagraph:
``(C) For purposes of paragraph (1)(A), the term `owner-employee'
shall only include a person described in clause (ii) or (iii) of
subparagraph (A).''.
(c) <<NOTE: Applicability. 26 USC 4975 note.>> Effective Date.--The
amendment made by this section shall apply to years beginning after
December 31, 2001.
SEC. 613. MODIFICATION OF TOP-HEAVY RULES.
(a) Simplification of Definition of Key Employee.--
(1) In general.--Section 416(i)(1)(A) (defining key
employee) is amended--
(A) by striking ``or any of the 4 preceding plan
years'' in the matter preceding clause (i);
(B) by striking clause (i) and inserting the
following:
``(i) an officer of the employer having an
annual compensation greater than $130,000,'';
(C) by striking clause (ii) and redesignating
clauses (iii) and (iv) as clauses (ii) and (iii),
respectively; and
(D) by striking the second sentence in the matter
following clause (iii), as redesignated by subparagraph
(C), and by inserting the following: ``in the case of
plan years beginning after December 31, 2002, the
$130,000 amount in clause (i) shall be adjusted at the
same time and in the same manner as under section
415(d), except that the base period shall be the
calendar quarter beginning July 1, 2001, and any
increase under this sentence which is not a multiple of
$5,000 shall be rounded to the next lower multiple of
$5,000.''.
[[Page 115 STAT. 101]]
(2) Conforming amendment.--Section
416(i)(1)(B)(iii) <<NOTE: 26 USC 416.>> is amended by striking
``and subparagraph (A)(ii)''.
(b) Matching Contributions Taken Into Account for Minimum
Contribution Requirements.--Section 416(c)(2)(A) (relating to defined
contribution plans) is amended by adding at the end the following:
``Employer matching contributions (as defined in section 401(m)(4)(A))
shall be taken into account for purposes of this subparagraph (and any
reduction under this sentence shall not be taken into account in
determining whether section 401(k)(4)(A) applies).''.
(c) Distributions During Last Year Before Determination Date Taken
Into Account.--
(1) In general.--Paragraph (3) of section 416(g) is amended
to read as follows:
``(3) Distributions during last year before determination
date taken into account.--
``(A) In general.--For purposes of determining--
``(i) the present value of the cumulative
accrued benefit for any employee, or
``(ii) the amount of the account of any
employee,
such present value or amount shall be increased by the
aggregate distributions made with respect to such
employee under the plan during the 1-year period ending
on the determination date. The preceding sentence shall
also apply to distributions under a terminated plan
which if it had not been terminated would have been
required to be included in an aggregation group.
``(B) 5-year period in case of in-service
distribution.--In the case of any distribution made for
a reason other than separation from service, death, or
disability, subparagraph (A) shall be applied by
substituting `5-year period' for `1-year period'.''.
(2) Benefits not taken into account.--Subparagraph (E) of
section 416(g)(4) is amended--
(A) by striking ``last 5 years'' in the heading and
inserting ``last year before determination date''; and
(B) by striking ``5-year period'' and inserting ``1-
year period''.
(d) Definition of Top-Heavy Plans.--Paragraph (4) of section 416(g)
(relating to other special rules for top-heavy plans) is amended by
adding at the end the following new subparagraph:
``(H) Cash or deferred arrangements using
alternative methods of meeting nondiscrimination
requirements.--The term `top-heavy plan' shall not
include a plan which consists solely of--
``(i) a cash or deferred arrangement which
meets the requirements of section 401(k)(12), and
``(ii) matching contributions with respect to
which the requirements of section 401(m)(11) are
met.
If, but for this subparagraph, a plan would be treated
as a top-heavy plan because it is a member of an
aggregation group which is a top-heavy group,
contributions under the plan may be taken into account
in determining whether any other plan in the group meets
the requirements of subsection (c)(2).''.
[[Page 115 STAT. 102]]
(e) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined benefit
plans) is amended--
(A) by striking ``clause (ii)'' in clause (i) and
inserting ``clause (ii) or (iii)''; and
(B) by adding at the end the following:
``(iii) Exception for frozen plan.--For
purposes of determining an employee's years of
service with the employer, any service with the
employer shall be disregarded to the extent that
such service occurs during a plan year when the
plan benefits (within the meaning of section
410(b)) no key employee or former key employee.''.
(f ) <<NOTE: Applicability. 26 USC 416 note.>> Effective Date.--The
amendments made by this section shall apply to years beginning after
December 31, 2001.
SEC. 614. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF
DEDUCTION LIMITS.
(a) In General.--Section 404 <<NOTE: 26 USC 404.>> (relating to
deduction for contributions of an employer to an employees' trust or
annuity plan and compensation under a deferred payment plan) is amended
by adding at the end the following new subsection:
``(n) Elective Deferrals Not Taken Into Account for Purposes of
Deduction Limits.--Elective deferrals (as defined in section 402(g)(3))
shall not be subject to any limitation contained in paragraph (3), (7),
or (9) of subsection (a), and such elective deferrals shall not be taken
into account in applying any such limitation to any other
contributions.''.
(b) <<NOTE: Applicability. 26 USC 404 note.>> Effective Date.--The
amendment made by this section shall apply to years beginning after
December 31, 2001.
SEC. 615. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION
PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS.
(a) In General.--Subsection (c) of section 457 (relating to deferred
compensation plans of State and local governments and tax-exempt
organizations), as amended by section 611, is amended to read as
follows:
``(c) Limitation.--The maximum amount of the compensation of any one
individual which may be deferred under subsection (a) during any taxable
year shall not exceed the amount in effect under subsection (b)(2)(A)
(as modified by any adjustment provided under subsection (b)(3)).''.
(b) <<NOTE: Applicability. 26 USC 457 note.>> Effective Date.--The
amendment made by subsection (a) shall apply to years beginning after
December 31, 2001.
SEC. 616. DEDUCTION LIMITS.
(a) Modification of Limits.--
(1) Stock bonus and profit sharing trusts.--
(A) In general.--Subclause (I) of section
404(a)(3)(A)(i) (relating to stock bonus and profit
sharing trusts) is amended by striking ``15 percent''
and inserting ``25 percent''.
(B) Conforming amendment.--Subparagraph (C) of
section 404(h)(1) is amended by striking ``15 percent''
each place it appears and inserting ``25 percent''.
(2) Defined contribution plans.--
[[Page 115 STAT. 103]]
(A) In general.--Clause (v) of section <<NOTE: 26
USC 404.>> 404(a)(3)(A) (relating to stock bonus and
profit sharing trusts) is amended to read as follows:
``(v) Defined contribution plans subject to
the funding standards.--Except as provided by the
Secretary, a defined contribution plan which is
subject to the funding standards of section 412
shall be treated in the same manner as a stock
bonus or profit-sharing plan for purposes of this
subparagraph.''.
(B) Conforming amendments.--
(i) Section 404(a)(1)(A) is amended by
inserting ``(other than a trust to which paragraph
(3) applies)'' after ``pension trust''.
(ii) Section 404(h)(2) is amended by striking
``stock bonus or profit-sharing trust'' and
inserting ``trust subject to subsection
(a)(3)(A)''.
(iii) The heading of section 404(h)(2) is
amended by striking ``stock bonus and profit-
sharing trust'' and inserting ``certain trusts''.
(b) Compensation.--
(1) In general.--Section 404(a) (relating to general rule)
is amended by adding at the end the following:
``(12) Definition of compensation.--For purposes of
paragraphs (3), (7), (8), and (9), the term `compensation' shall
include amounts treated as `participant's compensation' under
subparagraph (C) or (D) of section 415(c)(3).''.
(2) Conforming amendments.--
(A) Subparagraph (B) of section 404(a)(3) is amended
by striking the last sentence thereof.
(B) Clause (i) of section 4972(c)(6)(B) is amended
by striking ``(within the meaning of section 404(a))''
and inserting ``(within the meaning of section 404(a)
and as adjusted under section 404(a)(12))''.
(c) <<NOTE: Applicability. 26 USC 404 note.>> Effective Date.--The
amendments made by this section shall apply to years beginning after
December 31, 2001.
SEC. 617. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX ROTH
CONTRIBUTIONS.
(a) In General.--Subpart A of part I of subchapter D of chapter 1
(relating to deferred compensation, etc.) is amended by inserting after
section 402 the following new section:
``SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS ROTH
CONTRIBUTIONS.
``(a) General Rule.--If an applicable retirement plan includes a
qualified Roth contribution program--
``(1) any designated Roth contribution made by an employee
pursuant to the program shall be treated as an elective deferral
for purposes of this chapter, except that such contribution
shall not be excludable from gross income, and
``(2) such plan (and any arrangement which is part of such
plan) shall not be treated as failing to meet any requirement of
this chapter solely by reason of including such program.
``(b) Qualified Roth Contribution Program.--For purposes of this
section--
``(1) In general.--The term `qualified Roth contribution
program' means a program under which an employee may elect to
make designated Roth contributions in lieu of all or
[[Page 115 STAT. 104]]
a portion of elective deferrals the employee is otherwise
eligible to make under the applicable retirement plan.
``(2) Separate accounting required.--A program shall not be
treated as a qualified Roth contribution program unless the
applicable retirement plan--
``(A) establishes separate accounts (`designated
Roth accounts') for the designated Roth contributions of
each employee and any earnings properly allocable to the
contributions, and
``(B) maintains separate recordkeeping with respect
to each account.
``(c) Definitions and Rules Relating to Designated Roth
Contributions.--For purposes of this section--
``(1) Designated roth contribution.--The term `designated
Roth contribution' means any elective deferral which--
``(A) is excludable from gross income of an employee
without regard to this section, and
``(B) the employee designates (at such time and in
such manner as the Secretary may prescribe) as not being
so excludable.
``(2) Designation limits.--The amount of elective deferrals
which an employee may designate under paragraph (1) shall not
exceed the excess (if any) of--
``(A) the maximum amount of elective deferrals
excludable from gross income of the employee for the
taxable year (without regard to this section), over
``(B) the aggregate amount of elective deferrals of
the employee for the taxable year which the employee
does not designate under paragraph (1).
``(3) Rollover contributions.--
``(A) In general.--A rollover contribution of any
payment or distribution from a designated Roth account
which is otherwise allowable under this chapter may be
made only if the contribution is to--
``(i) another designated Roth account of the
individual from whose account the payment or
distribution was made, or
``(ii) a Roth IRA of such individual.
``(B) Coordination with limit.--Any rollover
contribution to a designated Roth account under
subparagraph (A) shall not be taken into account for
purposes of paragraph (1).
``(d) Distribution Rules.--For purposes of this title--
``(1) Exclusion.--Any qualified distribution from a
designated Roth account shall not be includible in gross income.
``(2) Qualified distribution.--For purposes of this
subsection--
``(A) In general.--The term `qualified distribution'
has the meaning given such term by section 408A(d)(2)(A)
(without regard to clause (iv) thereof ).
``(B) Distributions within nonexclusion period.--A
payment or distribution from a designated Roth account
shall not be treated as a qualified distribution if such
payment or distribution is made within the 5-taxable-
year period beginning with the earlier of--
``(i) the first taxable year for which the
individual made a designated Roth contribution to
any designated
[[Page 115 STAT. 105]]
Roth account established for such individual under
the same applicable retirement plan, or
``(ii) if a rollover contribution was made to
such designated Roth account from a designated
Roth account previously established for such
individual under another applicable retirement
plan, the first taxable year for which the
individual made a designated Roth contribution to
such previously established account.
``(C) Distributions of excess deferrals and
contributions and earnings thereon.--The term `qualified
distribution' shall not include any distribution of any
excess deferral under section 402(g)(2) or any excess
contribution under section 401(k)(8), and any income on
the excess deferral or contribution.
``(3) Treatment of distributions of certain excess
deferrals.--Notwithstanding section 72, if any excess deferral
under section 402(g)(2) attributable to a designated Roth
contribution is not distributed on or before the 1st April 15
following the close of the taxable year in which such excess
deferral is made, the amount of such excess deferral shall--
``(A) not be treated as investment in the contract,
and
``(B) be included in gross income for the taxable
year in which such excess is distributed.
``(4) Aggregation rules.--Section 72 shall be applied
separately with respect to distributions and payments from a
designated Roth account and other distributions and payments
from the plan.
``(e) Other Definitions.--For purposes of this section--
``(1) Applicable retirement plan.--The term `applicable
retirement plan' means--
``(A) an employees' trust described in section
401(a) which is exempt from tax under section 501(a),
and
``(B) a plan under which amounts are contributed by
an individual's employer for an annuity contract
described in section 403(b).
``(2) Elective deferral.--The term `elective deferral' means
any elective deferral described in subparagraph (A) or (C) of
section 402(g)(3).''.
(b) Excess Deferrals.--Section 402(g) <<NOTE: 26 USC 402.>>
(relating to limitation on exclusion for elective deferrals) is
amended--
(1) by adding at the end of paragraph (1)(A) (as added by
section 201(c)(1)) the following new sentence: ``The preceding
sentence shall not apply the portion of such excess as does not
exceed the designated Roth contributions of the individual for
the taxable year.''; and
(2) by inserting ``(or would be included but for the last
sentence thereof )'' after ``paragraph (1)'' in paragraph
(2)(A).
(c) Rollovers.--Subparagraph (B) of section 402(c)(8) is amended by
adding at the end the following:
``If any portion of an eligible rollover distribution is
attributable to payments or distributions from a
designated Roth account (as defined in section 402A), an
eligible retirement plan with respect to such portion
shall include only another designated Roth account and a
Roth IRA.''.
(d) Reporting Requirements.--
[[Page 115 STAT. 106]]
(1) W-2 information.--Section 6051(a)(8) <<NOTE: 26 USC
6051.>> is amended by inserting ``, including the amount of
designated Roth contributions (as defined in section 402A)''
before the comma at the end.
(2) Information.--Section 6047 is amended by redesignating
subsection (f ) as subsection (g) and by inserting after
subsection (e) the following new subsection:
``(f ) Designated Roth Contributions.--The Secretary shall require
the plan administrator of each applicable retirement plan (as defined in
section 402A) to make such returns and reports regarding designated Roth
contributions (as defined in section 402A) to the Secretary,
participants and beneficiaries of the plan, and such other persons as
the Secretary may prescribe.''.
(e) Conforming Amendments.--
(1) Section 408A(e) is amended by adding after the first
sentence the following new sentence: ``Such term includes a
rollover contribution described in section 402A(c)(3)(A).''.
(2) The table of sections for subpart A of part I of
subchapter D of chapter 1 is amended by inserting after the item
relating to section 402 the following new item:
``Sec. 402A. Optional treatment of elective deferrals as
Roth contributions.''.
(f ) <<NOTE: Applicability. 26 USC 402 note.>> Effective Date.--The
amendments made by this section shall apply to taxable years beginning
after December 31, 2005.
SEC. 618. NONREFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR ELECTIVE
DEFERRALS AND IRA CONTRIBUTIONS.
(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 25A the following new section:
``SEC. 25B. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CERTAIN
INDIVIDUALS.
``(a) Allowance of Credit.--In the case of an eligible individual,
there shall be allowed as a credit against the tax imposed by this
subtitle for the taxable year an amount equal to the applicable
percentage of so much of the qualified retirement savings contributions
of the eligible individual for the taxable year as do not exceed $2,000.
``(b) Applicable Percentage.--For purposes of this section, the
applicable percentage is the percentage determined in accordance with
the following table:
------------------------------------------------------------------------
Adjusted Gross Income
-------------------------------------------------------------
Joint return Head of a All other cases Applicable
--------------------- household -------------------- percentage
--------------------
Over Not over Over Not over Over Not over
------------------------------------------------------------------------
$30,000 ........ $22,500 ........ $15,000 50
30,000 32,500 22,500 24,375 15,000 16,250 20
32,500 50,000 24,375 37,500 16,250 25,000 10
50,000 ......... 37,500 ........ 25,000 ........ 0
------------------------------------------------------------------------
``(c) Eligible Individual.--For purposes of this section--
``(1) In general.--The term `eligible individual' means any
individual if such individual has attained the age of 18 as of
the close of the taxable year.
[[Page 115 STAT. 107]]
``(2) Dependents and full-time students not eligible.--The
term `eligible individual' shall not include--
``(A) any individual with respect to whom a
deduction under section 151 is allowed to another
taxpayer for a taxable year beginning in the calendar
year in which such individual's taxable year begins, and
``(B) any individual who is a student (as defined in
section 151(c)(4)).
``(d) Qualified Retirement Savings Contributions.--For purposes of
this section--
``(1) In general.--The term `qualified retirement savings
contributions' means, with respect to any taxable year, the sum
of--
``(A) the amount of the qualified retirement
contributions (as defined in section 219(e)) made by the
eligible individual,
``(B) the amount of--
``(i) any elective deferrals (as defined in
section 402(g)(3)) of such individual, and
``(ii) any elective deferral of compensation
by such individual under an eligible deferred
compensation plan (as defined in section 457(b))
of an eligible employer described in section
457(e)(1)(A), and
``(C) the amount of voluntary employee contributions
by such individual to any qualified retirement plan (as
defined in section 4974(c)).
``(2) Reduction for certain distributions.--
``(A) In general.--The qualified retirement savings
contributions determined under paragraph (1) shall be
reduced (but not below zero) by the sum of--
``(i) any distribution from a qualified
retirement plan (as defined in section 4974(c)),
or from an eligible deferred compensation plan (as
defined in section 457(b)), received by the
individual during the testing period which is
includible in gross income, and
``(ii) any distribution from a Roth IRA or a
Roth account received by the individual during the
testing period which is not a qualified rollover
contribution (as defined in section 408A(e)) to a
Roth IRA or a rollover under section 402(c)(8)(B)
to a Roth account.
``(B) Testing period.--For purposes of subparagraph
(A), the testing period, with respect to a taxable year,
is the period which includes--
``(i) such taxable year,
``(ii) the 2 preceding taxable years, and
``(iii) the period after such taxable year and
before the due date (including extensions) for
filing the return of tax for such taxable year.
``(C) Excepted distributions.--There shall not be
taken into account under subparagraph (A)--
``(i) any distribution referred to in section
72(p), 401(k)(8), 401(m)(6), 402(g)(2), 404(k), or
408(d)(4), and
``(ii) any distribution to which section
408A(d)(3) applies.
``(D) Treatment of distributions received by spouse
of individual.--For purposes of determining
distributions received by an individual under
subparagraph
[[Page 115 STAT. 108]]
(A) for any taxable year, any distribution received by
the spouse of such individual shall be treated as
received by such individual if such individual and
spouse file a joint return for such taxable year and for
the taxable year during which the spouse receives the
distribution.
``(e) Adjusted Gross Income.--For purposes of this section, adjusted
gross income shall be determined without regard to sections 911, 931,
and 933.
``(f ) Investment in the Contract.--Notwithstanding any other
provision of law, a qualified retirement savings contribution shall not
fail to be included in determining the investment in the contract for
purposes of section 72 by reason of the credit under this section.
``(g) Termination.--This section shall not apply to taxable years
beginning after December 31, 2006.''.
(b) Credit Allowed Against Regular Tax and Alternative Minimum
Tax.--
(1) In general.--Section 25B, <<NOTE: 26 USC 25B.>> as
added by subsection (a), is amended by inserting after
subsection (f ) the following new subsection:
``(g) Limitation Based on Amount of Tax.--The credit allowed under
subsection (a) for the 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 this subpart
(other than this section and section 23) and section 27 for the
taxable year.''.
(2) Conforming amendments.--
(A) Section 24(b)(3)(B), as amended by sections
201(b) and 203(d), is amended by striking ``section 23''
and inserting ``sections 23 and 25B''.
(B) Section 25(e)(1)(C), as amended by section
201(b), is amended by inserting ``25B,'' after ``24,''.
(C) Section 26(a)(1), as amended by sections 201(b)
and 203, is amended by striking ``and 24'' and inserting
``, 24, and 25B''.
(D) Section 904(h), as amended by sections 201(b)
and 203, is amended by striking ``and 24'' and inserting
``, 24, and 25B''.
(E) Section 1400C(d), as amended by sections 201(b)
and 203, is amended by striking ``and 24'' and inserting
``, 24, and 25B''.
(c) Conforming Amendment.--The table of sections for subpart A of
part IV of subchapter A of chapter 1, as amended by section 432, is
amended by inserting after the item relating to section 25A the
following new item:
``Sec. 25B. Elective deferrals and IRA contributions by
certain individuals.''.
(d) <<NOTE: Applicability. 26 USC 24 note.>> Effective Date.--The
amendments made by this section shall apply to taxable years beginning
after December 31, 2001.
SEC. 619. CREDIT FOR PENSION PLAN STARTUP COSTS OF SMALL EMPLOYERS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by adding at the end
the following new section:
[[Page 115 STAT. 109]]
``SEC. 45E. SMALL EMPLOYER PENSION PLAN STARTUP COSTS.
``(a) General Rule.--For purposes of section 38, in the case of an
eligible employer, the small employer pension plan startup cost credit
determined under this section for any taxable year is an amount equal to
50 percent of the qualified startup costs paid or incurred by the
taxpayer during the taxable year.
``(b) Dollar Limitation.--The amount of the credit determined under
this section for any taxable year shall not exceed--
``(1) $500 for the first credit year and each of the 2
taxable years immediately following the first credit year, and
``(2) zero for any other taxable year.
``(c) Eligible Employer.--For purposes of this section--
``(1) In general.--The term `eligible employer' has the
meaning given such term by section 408(p)(2)(C)(i).
``(2) Requirement for new qualified employer plans.--Such
term shall not include an employer if, during the 3-taxable year
period immediately preceding the 1st taxable year for which the
credit under this section is otherwise allowable for a qualified
employer plan of the employer, the employer or any member of any
controlled group including the employer (or any predecessor of
either) established or maintained a qualified employer plan with
respect to which contributions were made, or benefits were
accrued, for substantially the same employees as are in the
qualified employer plan.
``(d) Other Definitions.--For purposes of this section--
``(1) Qualified startup costs.--
``(A) In general.--The term `qualified startup
costs' means any ordinary and necessary expenses of an
eligible employer which are paid or incurred in
connection with--
``(i) the establishment or administration of
an eligible employer plan, or
``(ii) the retirement-related education of
employees with respect to such plan.
``(B) Plan must have at least 1 participant.--Such
term shall not include any expense in connection with a
plan that does not have at least 1 employee eligible to
participate who is not a highly compensated employee.
``(2) Eligible employer plan.--The term `eligible employer
plan' means a qualified employer plan within the meaning of
section 4972(d).
``(3) First credit year.--The term `first credit year'
means--
``(A) the taxable year which includes the date that
the eligible employer plan to which such costs relate
becomes effective, or
``(B) at the election of the eligible employer, the
taxable year preceding the taxable year referred to in
subparagraph (A).
``(e) Special Rules.--For purposes of this section--
``(1) Aggregation rules.--All persons treated as a single
employer under subsection (a) or (b) of section 52, or
subsection (n) or (o) of section 414, shall be treated as one
person. All eligible employer plans shall be treated as 1
eligible employer plan.
``(2) Disallowance of deduction.--No deduction shall be
allowed for that portion of the qualified startup costs paid
[[Page 115 STAT. 110]]
or incurred for the taxable year which is equal to the credit
determined under subsection (a).
``(3) Election not to claim credit.--This section shall not
apply to a taxpayer for any taxable year if such taxpayer elects
to have this section not apply for such taxable year.''.
(b) Credit Allowed as Part of General Business Credit.--Section
38(b) <<NOTE: 26 USC 38.>> (defining current year business credit) is
amended by striking ``plus'' at the end of paragraph (12), by striking
the period at the end of paragraph (13) and inserting ``, plus'', and by
adding at the end the following new paragraph:
``(14) in the case of an eligible employer (as defined in
section 45E(c)), the small employer pension plan startup cost
credit determined under section 45E(a).''.
(c) Conforming Amendments.--
(1) Section 39(d) is amended by adding at the end the
following new paragraph:
``(10) No carryback of small employer pension plan startup
cost credit before january 1, 2002.--No portion of the unused
business credit for any taxable year which is attributable to
the small employer pension plan startup cost credit determined
under section 45E may be carried back to a taxable year
beginning before January 1, 2002.''.
(2) Subsection (c) of section 196 is amended by striking
``and'' at the end of paragraph (8), by striking the period at
the end of paragraph (9) and inserting ``, and'', and by adding
at the end the following new paragraph:
``(10) the small employer pension plan startup cost credit
determined under section 45E(a).''.
(3) The table of sections for subpart D of part IV of
subchapter A of chapter 1 is amended by adding at the end the
following new item:
``Sec. 45E. Small employer pension plan startup
costs.''.
(d) <<NOTE: Applicability. 26 USC 38 note.>> Effective Date.--The
amendments made by this section shall apply to costs paid or incurred in
taxable years beginning after December 31, 2001, with respect to
qualified employer plans established after such date.
SEC. 620. <<NOTE: 26 USC 7801 note.>> ELIMINATION OF USER FEE FOR
REQUESTS TO IRS REGARDING PENSION PLANS.
(a) Elimination of Certain User Fees.--The Secretary of the Treasury
or the Secretary's delegate shall not require payment of user fees under
the program established under section 10511 of the Revenue Act of 1987
for requests to the Internal Revenue Service for determination letters
with respect to the qualified status of a pension benefit plan
maintained solely by one or more eligible employers or any trust which
is part of the plan. The preceding sentence shall not apply to any
request--
(1) made after the later of--
(A) the fifth plan year the pension benefit plan is
in existence; or
(B) the end of any remedial amendment period with
respect to the plan beginning within the first 5 plan
years; or
(2) made by the sponsor of any prototype or similar plan
which the sponsor intends to market to participating employers.
[[Page 115 STAT. 111]]
(b) Pension Benefit Plan.--For purposes of this section, the term
``pension benefit plan'' means a pension, profit-sharing, stock bonus,
annuity, or employee stock ownership plan.
(c) Eligible Employer.--For purposes of this section, the term
``eligible employer'' means an eligible employer (as defined in section
408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986) which has at
least one employee who is not a highly compensated employee (as defined
in section 414(q)) and is participating in the plan. The determination
of whether an employer is an eligible employer under this section shall
be made as of the date of the request described in subsection (a).
(d) Determination of Average Fees Charged.--For purposes of any
determination of average fees charged, any request to which subsection
(a) applies shall not be taken into account.
(e) <<NOTE: Applicability.>> Effective Date.--The provisions of
this section shall apply with respect to requests made after December
31, 2001.
SEC. 621. TREATMENT OF NONRESIDENT ALIENS ENGAGED IN INTERNATIONAL
TRANSPORTATION SERVICES.
(a) Exclusion From Income Sourcing Rules.--The second sentence of
section 861(a)(3) <<NOTE: 26 USC 861.>> (relating to gross income from
sources within the United States) is amended by striking ``except for
purposes of sections 79 and 105 and subchapter D,''.
(b) <<NOTE: Applicability. 26 USC 861 note.>> Effective Date.--The
amendment made by subsection (a) shall apply to remuneration for
services performed in plan years beginning after December 31, 2001.
Subtitle C--Enhancing Fairness for Women
SEC. 631. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.
(a) In General.--Section 414 (relating to definitions and special
rules) is amended by adding at the end the following new subsection:
``(v) Catch-up Contributions for Individuals Age 50 or Over.--
``(1) In general.--An applicable employer plan shall not be
treated as failing to meet any requirement of this title solely
because the plan permits an eligible participant to make
additional elective deferrals in any plan year.
``(2) Limitation on amount of additional deferrals.--
``(A) In general.--A plan shall not permit
additional elective deferrals under paragraph (1) for
any year in an amount greater than the lesser of--
``(i) the applicable dollar amount, or
``(ii) the excess (if any) of--
``(I) the participant's compensation
(as defined in section 415(c)(3)) for
the year, over
``(II) any other elective deferrals
of the participant for such year which
are made without regard to this
subsection.
``(B) Applicable dollar amount.--For purposes of
this paragraph--
``(i) In the case of an applicable employer
plan other than a plan described in section
401(k)(11) or
[[Page 115 STAT. 112]]
408(p), the applicable dollar amount shall be
determined in accordance with the following table:
``For taxable years The applicable............................
beginning in: dollar amount is:.........................
2002 $1,000
2003 $2,000
2004 $3,000
2005 $4,000
2006 and thereafter $5,000.
``(ii) In the case of an applicable employer
plan described in section 401(k)(11) or 408(p),
the applicable dollar amount shall be determined
in accordance with the following table:
``For taxable years The applicable............................
beginning in: dollar amount is:.........................
2002 $500
2003 $1,000
2004 $1,500
2005 $2,000
2006 and thereafter $2,500.
``(C) Cost-of-living adjustment.--In the case of a
year beginning after December 31, 2006, the Secretary
shall adjust annually the $5,000 amount in subparagraph
(B)(i) and the $2,500 amount in subparagraph (B)(ii) for
increases in the cost-of-living at the same time and in
the same manner as adjustments under section 415(d);
except that the base period taken into account shall be
the calendar quarter beginning July 1, 2005, and any
increase under this subparagraph which is not a multiple
of $500 shall be rounded to the next lower multiple of
$500.''.
``(3) Treatment of contributions.--In the case of any
contribution to a plan under paragraph (1)--
``(A) such contribution shall not, with respect to
the year in which the contribution is made--
``(i) be subject to any otherwise applicable
limitation contained in section 402(g), 402(h),
403(b), 404(a), 404(h), 408(k), 408(p), 415, or
457, or
``(ii) be taken into account in applying such
limitations to other contributions or benefits
under such plan or any other such plan, and
``(B) except as provided in paragraph (4), such plan
shall not be treated as failing to meet the requirements
of section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11),
401(k)(12), 403(b)(12), 408(k), 408(p), 408B, 410(b), or
416 by reason of the making of (or the right to make)
such contribution.
``(4) Application of nondiscrimination rules.--
``(A) In general.--An applicable employer plan shall
be treated as failing to meet the nondiscrimination
requirements under section 401(a)(4) with respect to
benefits, rights, and features unless the plan allows
all eligible participants to make the same election with
respect to the additional elective deferrals under this
subsection.
[[Page 115 STAT. 113]]
``(B) Aggregation.--For purposes of subparagraph
(A), all plans maintained by employers who are treated
as a single employer under subsection (b), (c), (m), or
(o) of section 414 shall be treated as 1 plan.
``(5) Eligible participant.--For purposes of this
subsection, the term `eligible participant' means, with respect
to any plan year, a participant in a plan--
``(A) who has attained the age of 50 before the
close of the plan year, and
``(B) with respect to whom no other elective
deferrals may (without regard to this subsection) be
made to the plan for the plan year by reason of the
application of any limitation or other restriction
described in paragraph (3) or comparable limitation or
restriction contained in the terms of the plan.
``(6) Other definitions and rules.--For purposes of this
subsection--
``(A) Applicable employer plan.--The term
`applicable employer plan' means--
``(i) an employees' trust described in section
401(a) which is exempt from tax under section
501(a),
``(ii) a plan under which amounts are
contributed by an individual's employer for an
annuity contract described in section 403(b),
``(iii) an eligible deferred compensation plan
under section 457 of an eligible employer
described in section 457(e)(1)(A), and
``(iv) an arrangement meeting the requirements
of section 408 (k) or (p).
``(B) Elective deferral.--The term `elective
deferral' has the meaning given such term by subsection
(u)(2)(C).
``(C) Exception for section 457 plans.--This
subsection shall not apply to an applicable employer
plan described in subparagraph (A)(iii) for any year to
which section 457(b)(3) applies.''.
(b) <<NOTE: Effective date. 26 USC 414 note.>> Effective Date.--The
amendment made by this section shall apply to contributions in taxable
years beginning after December 31, 2001.
SEC. 632. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED
CONTRIBUTION PLANS.
(a) Equitable Treatment.--
(1) In general.--Subparagraph (B) of section <<NOTE: 26 USC
415.>> 415(c)(1) (relating to limitation for defined
contribution plans) is amended by striking ``25 percent'' and
inserting ``100 percent''.
(2) Application to section 403(b).--Section 403(b) is
amended--
(A) by striking ``the exclusion allowance for such
taxable year'' in paragraph (1) and inserting ``the
applicable limit under section 415'',
(B) by striking paragraph (2), and
(C) by inserting ``or any amount received by a
former employee after the fifth taxable year following
the taxable year in which such employee was terminated''
before the period at the end of the second sentence of
paragraph (3).
(3) Conforming amendments.--
[[Page 115 STAT. 114]]
(A) Subsection (f ) of section 72 <<NOTE: 26 USC
72.>> is amended by striking ``section
403(b)(2)(D)(iii))'' and inserting ``section
403(b)(2)(D)(iii), as in effect before the enactment of
the Economic Growth and Tax Relief Reconciliation Act of
2001''.
(B) Section 404(a)(10)(B) is amended by striking ``,
the exclusion allowance under section 403(b)(2),''.
(C) Section 415(a)(2) is amended by striking ``, and
the amount of the contribution for such portion shall
reduce the exclusion allowance as provided in section
403(b)(2)''.
(D) Section 415(c)(3) is amended by adding at the
end the following new subparagraph:
``(E) Annuity contracts.--In the case of an annuity
contract described in section 403(b), the term
`participant's compensation' means the participant's
includible compensation determined under section
403(b)(3).''.
(E) Section 415(c) is amended by striking paragraph
(4).
(F) Section 415(c)(7) is amended to read as follows:
``(7) Certain contributions by church plans not treated as
exceeding limit.--
``(A) In general.--Notwithstanding any other
provision of this subsection, at the election of a
participant who is an employee of a church or a
convention or association of churches, including an
organization described in section 414(e)(3)(B)(ii),
contributions and other additions for an annuity
contract or retirement income account described in
section 403(b) with respect to such participant, when
expressed as an annual addition to such participant's
account, shall be treated as not exceeding the
limitation of paragraph (1) if such annual addition is
not in excess of $10,000.
``(B) $40,000 aggregate limitation.--The total
amount of additions with respect to any participant
which may be taken into account for purposes of this
subparagraph for all years may not exceed $40,000.
``(C) Annual addition.--For purposes of this
paragraph, the term `annual addition' has the meaning
given such term by paragraph (2).''.
(G) Subparagraph (B) of section 402(g)(7) (as
redesignated by section 611(c)(3)) is amended by
inserting before the period at the end the following:
``(as in effect before the enactment of the Economic
Growth and Tax Relief Reconciliation Act of 2001''.
(H) Section 664(g) is amended--
(i) in paragraph (3)(E) by striking
``limitations under section 415(c)'' and inserting
``applicable limitation under paragraph (7)'', and
(ii) by adding at the end the following new
paragraph:
``(7) Applicable limitation.--
``(A) In general.--For purposes of paragraph (3)(E),
the applicable limitation under this paragraph with
respect to a participant is an amount equal to the
lesser of--
``(i) $30,000, or
``(ii) 25 percent of the participant's
compensation (as defined in section 415(c)(3)).
[[Page 115 STAT. 115]]
``(B) Cost-of-living adjustment.--The Secretary
shall adjust annually the $30,000 amount under
subparagraph (A)(i) at the same time and in the same
manner as under section 415(d), except that the base
period shall be the calendar quarter beginning October
1, 1993, and any increase under this subparagraph which
is not a multiple of $5,000 shall be rounded to the next
lowest multiple of $5,000.''.
(4) <<NOTE: Applicability. 26 USC 72 note.>> Effective
date.--The amendments made by this subsection shall apply to
years beginning after December 31, 2001.
(b) Special Rules for Sections 403(b) and 408.--
(1) In general.--Subsection (k) of section 415 <<NOTE: 26
USC 415.>> is amended by adding at the end the following new
paragraph:
``(4) Special rules for sections 403(b) and 408.--For
purposes of this section, any annuity contract described in
section 403(b) for the benefit of a participant shall be treated
as a defined contribution plan maintained by each employer with
respect to which the participant has the control required under
subsection (b) or (c) of section 414 (as modified by subsection
(h)). For purposes of this section, any contribution by an
employer to a simplified employee pension plan for an individual
for a taxable year shall be treated as an employer contribution
to a defined contribution plan for such individual for such
year.''.
(2) <<NOTE: 26 USC 415 note.>> Effective date.--
(A) <<NOTE: Applicability.>> In general.--The
amendment made by paragraph (1) shall apply to
limitation years beginning after December 31, 1999.
(B) Exclusion allowance.--Effective for limitation
years beginning in 2000, in the case of any annuity
contract described in section 403(b) of the Internal
Revenue Code of 1986, the amount of the contribution
disqualified by reason of section 415(g) of such Code
shall reduce the exclusion allowance as provided in
section 403(b)(2) of such Code.
(3) <<NOTE: 26 USC 403 note.>> Election to modify section
403(b) exclusion allowance to conform to section 415
modification.--In the case of taxable years beginning after
December 31, 1999, and before January 1, 2002, a plan may
disregard the requirement in the regulations regarding the
exclusion allowance under section 403(b)(2) of the Internal
Revenue Code of 1986 that contributions to a defined benefit
pension plan be treated as previously excluded amounts for
purposes of the exclusion allowance.
(c) Deferred Compensation Plans of State and Local Governments and
Tax-Exempt Organizations.--
(1) In general.--Subparagraph (B) of section 457(b)(2)
(relating to salary limitation on eligible deferred compensation
plans) is amended by striking ``33\1/3\ percent'' and inserting
``100 percent''.
(2) <<NOTE: Applicability. 26 USC 457 note.>> Effective
date.--The amendment made by this subsection shall apply to
years beginning after December 31, 2001.
SEC. 633. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.
(a) In General.--Section 411(a) (relating to minimum vesting
standards) is amended--
[[Page 115 STAT. 116]]
(1) in paragraph (2), by striking ``A plan'' and inserting
``Except as provided in paragraph (12), a plan''; and
(2) by adding at the end the following:
``(12) Faster vesting for matching contributions.--In the
case of matching contributions (as defined in section
401(m)(4)(A)), paragraph (2) shall be applied--
``(A) by substituting `3 years' for `5 years' in
subparagraph (A), and
``(B) by substituting the following table for the
table contained in subparagraph (B):
The nonforfeitable
``Years of service: percentage is:
2........................................... 20
3........................................... 40
4........................................... 60
5........................................... 80
6........................................... 100.''.
(b) Amendment of ERISA.--Section 203(a) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1053(a)) is amended--
(1) in paragraph (2), by striking ``A plan'' and inserting
``Except as provided in paragraph (4), a plan'', and
(2) by adding at the end the following:
``(4) In the case of matching contributions (as defined in
section 401(m)(4)(A) of the Internal Revenue Code of 1986),
paragraph (2) shall be applied--
``(A) by substituting `3 years' for `5 years' in
subparagraph (A), and
``(B) by substituting the following table for the
table contained in subparagraph (B):
The nonforfeitable
``Years of service: percentage is:
2........................................... 20
3........................................... 40
4........................................... 60
5........................................... 80
6........................................... 100.''.
(c) <<NOTE: 26 USC 411 note.>> Effective Dates.--
(1) <<NOTE: Applicability.>> In general.--Except as
provided in paragraph (2), the amendments made by this section
shall apply to contributions for plan years beginning after
December 31, 2001.
(2) Collective bargaining agreements.--In the case of a plan
maintained pursuant to one or more collective bargaining
agreements between employee representatives and one or more
employers ratified by the date of the enactment of this Act, the
amendments made by this section shall not apply to contributions
on behalf of employees covered by any such agreement for plan
years beginning before the earlier of--
(A) the later of--
(i) the date on which the last of such
collective bargaining agreements terminates
(determined without regard to any extension
thereof on or after such date of the enactment);
or
(ii) January 1, 2002; or
(B) January 1, 2006.
(3) Service required.--With respect to any plan, the
amendments made by this section shall not apply to any employee
before the date that such employee has 1 hour of
[[Page 115 STAT. 117]]
service under such plan in any plan year to which the amendments
made by this section apply.
SEC. 634. MODIFICATION TO MINIMUM DISTRIBUTION RULES.
The Secretary of the Treasury shall modify the life expectancy
tables under the regulations relating to minimum distribution
requirements under sections 401(a)(9), 408(a)(6) and (b)(3), 403(b)(10),
and 457(d)(2) of the Internal Revenue Code to reflect current life
expectancy.
SEC. 635. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 PLAN
BENEFITS UPON DIVORCE.
(a) In General.--Section 414(p)(11) <<NOTE: 26 USC 414.>> (relating
to application of rules to governmental and church plans) is amended--
(1) by inserting ``or an eligible deferred compensation plan
(within the meaning of section 457(b))'' after ``subsection
(e))''; and
(2) in the heading, by striking ``governmental and church
plans'' and inserting ``certain other plans''.
(b) Waiver of Certain Distribution Requirements.--Paragraph (10) of
section 414(p) is amended by striking ``and section 409(d)'' and
inserting ``section 409(d), and section 457(d)''.
(c) Tax Treatment of Payments From a Section 457 Plan.--Subsection
(p) of section 414 is amended by redesignating paragraph (12) as
paragraph (13) and inserting after paragraph (11) the following new
paragraph:
``(12) Tax treatment of payments from a section 457 plan.--
If a distribution or payment from an eligible deferred
compensation plan described in section 457(b) is made pursuant
to a qualified domestic relations order, rules similar to the
rules of section 402(e)(1)(A) shall apply to such distribution
or payment.''.
(d) <<NOTE: Applicability. 26 USC 414 note.>> Effective Date.--The
amendment made by this section shall apply to transfers, distributions,
and payments made after December 31, 2001.
SEC. 636. PROVISIONS RELATING TO HARDSHIP DISTRIBUTIONS.
(a) Safe Harbor Relief.--
(1) In general.--The Secretary of the Treasury shall revise
the regulations relating to hardship distributions under section
401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to
provide that the period an employee is prohibited from making
elective and employee contributions in order for a distribution
to be deemed necessary to satisfy financial need shall be equal
to 6 months.
(2) <<NOTE: Applicability.>> Effective date.--The revised
regulations under this subsection shall apply to years beginning
after December 31, 2001.
(b) Hardship Distributions Not Treated as Eligible Rollover
Distributions.--
(1) Modification of definition of eligible rollover.--
Subparagraph (C) of section 402(c)(4) (relating to eligible
rollover distribution) is amended to read as follows:
``(C) any distribution which is made upon hardship
of the employee.''.
(2) <<NOTE: Applicability. 26 USC 402 note.>> Effective
date.--The amendment made by this subsection shall apply to
distributions made after December 31, 2001.
[[Page 115 STAT. 118]]
SEC. 637. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBUTIONS FOR DOMESTIC OR
SIMILAR WORKERS.
(a) In General.--Section 4972(c)(6) <<NOTE: 26 USC 4972.>>
(relating to exceptions to nondeductible contributions), as amended by
section 616, is amended by striking ``and'' at the end of subparagraph
(A), by striking the period and inserting ``, or'' at the end of
subparagraph (B), and by inserting after subparagraph (B) the following
new subparagraph:
``(C) so much of the contributions to a simple
retirement account (within the meaning of section
408(p)) or a simple plan (within the meaning of section
401(k)(11)) which are not deductible when contributed
solely because such contributions are not made in
connection with a trade or business of the employer.''.
(b) Exclusion of Certain Contributions.--Section 4972(c)(6), as
amended by subsection (a), is amended by adding at the end the following
new sentence: ``Subparagraph (C) shall not apply to contributions made
on behalf of the employer or a member of the employer's family (as
defined in section 447(e)(1)).''.
(c) <<NOTE: 26 USC 4972 note.>> No Inference.--Nothing in the
amendments made by this section shall be construed to infer the proper
treatment of nondeductible contributions under the laws in effect before
such amendments.
(d) <<NOTE: Applicability. 26 USC 4972 note.>> Effective Date.--The
amendments made by this section shall apply to taxable years beginning
after December 31, 2001.
Subtitle D--Increasing Portability for Participants
SEC. 641. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.
(a) Rollovers From and to Section 457 Plans.--
(1) Rollovers from section 457 plans.--
(A) In general.--Section 457(e) (relating to other
definitions and special rules) is amended by adding at
the end the following:
``(16) Rollover amounts.--
``(A) General rule.--In the case of an eligible
deferred compensation plan established and maintained by
an employer described in subsection (e)(1)(A), if--
``(i) any portion of the balance to the credit
of an employee in such plan is paid to such
employee in an eligible rollover distribution
(within the meaning of section 402(c)(4)),
``(ii) the employee transfers any portion of
the property such employee receives in such
distribution to an eligible retirement plan
described in section 402(c)(8)(B), and
``(iii) in the case of a distribution of
property other than money, the amount so
transferred consists of the property distributed,
then such distribution (to the extent so transferred)
shall not be includible in gross income for the taxable
year in which paid.
``(B) Certain rules made applicable.--The rules of
paragraphs (2) through (7) and (9) of section 402(c) and
[[Page 115 STAT. 119]]
section 402(f ) shall apply for purposes of subparagraph
(A).
``(C) Reporting.--Rollovers under this paragraph
shall be reported to the Secretary in the same manner as
rollovers from qualified retirement plans (as defined in
section 4974(c)).''.
(B) Deferral limit determined without regard to
rollover amounts.--Section 457(b)(2) <<NOTE: 26 USC
457.>> (defining eligible deferred compensation plan)
is amended by inserting ``(other than rollover
amounts)'' after ``taxable year''.
(C) Direct rollover.--Paragraph (1) of section
457(d) is amended by striking ``and'' at the end of
subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting ``, and'', and by
inserting after subparagraph (B) the following:
``(C) in the case of a plan maintained by an
employer described in subsection (e)(1)(A), the plan
meets requirements similar to the requirements of
section 401(a)(31).
Any amount transferred in a direct trustee-to-trustee transfer
in accordance with section 401(a)(31) shall not be includible in
gross income for the taxable year of transfer.''.
(D) Withholding.--
(i) Paragraph (12) of section 3401(a) is
amended by adding at the end the following:
``(E) under or to an eligible deferred compensation
plan which, at the time of such payment, is a plan
described in section 457(b) which is maintained by an
eligible employer described in section 457(e)(1)(A),
or''.
(ii) Paragraph (3) of section 3405(c) is
amended to read as follows:
``(3) Eligible rollover distribution.--For purposes of this
subsection, the term `eligible rollover distribution' has the
meaning given such term by section 402(f )(2)(A).''.
(iii) Liability for withholding.--Subparagraph
(B) of section 3405(d)(2) is amended by striking
``or'' at the end of clause (ii), by striking the
period at the end of clause (iii) and inserting
``, or'', and by adding at the end the following:
``(iv) section 457(b) and which is maintained
by an eligible employer described in section
457(e)(1)(A).''.
(2) Rollovers to section 457 plans.--
(A) In general.--Section 402(c)(8)(B) (defining
eligible retirement plan) is amended by striking ``and''
at the end of clause (iii), by striking the period at
the end of clause (iv) and inserting ``, and'', and by
inserting after clause (iv) the following new clause:
``(v) an eligible deferred compensation plan
described in section 457(b) which is maintained by
an eligible employer described in section
457(e)(1)(A).''.
(B) Separate accounting.--Section 402(c) is amended
by adding at the end the following new paragraph:
``(10) Separate accounting.--Unless a plan described in
clause (v) of paragraph (8)(B) agrees to separately account for
amounts rolled into such plan from eligible retirement plans not
described in such clause, the plan described in such clause may
not accept transfers or rollovers from such retirement plans.''.
[[Page 115 STAT. 120]]
(C) 10 percent additional tax.--Subsection (t) of
section 72 (relating to 10-percent additional tax on
early distributions from qualified retirement plans) is
amended by adding at the end the following new
paragraph:
``(9) Special rule for rollovers to section 457 plans.--For
purposes of this subsection, a distribution from an eligible
deferred compensation plan (as defined in section 457(b)) of an
eligible employer described in section 457(e)(1)(A) shall be
treated as a distribution from a qualified retirement plan
described in 4974(c)(1) to the extent that such distribution is
attributable to an amount transferred to an eligible deferred
compensation plan from a qualified retirement plan (as defined
in section 4974(c)).''.
(b) Allowance of Rollovers From and To 403(b) Plans.--
(1) Rollovers from section 403(b) plans.--Section
403(b)(8)(A)(ii) <<NOTE: 26 USC 403.>> (relating to rollover
amounts) is amended by striking ``such distribution'' and all
that follows and inserting ``such distribution to an eligible
retirement plan described in section 402(c)(8)(B), and''.
(2) Rollovers to section 403(b) plans.--Section 402(c)(8)(B)
(defining eligible retirement plan), as amended by subsection
(a), is amended by striking ``and'' at the end of clause (iv),
by striking the period at the end of clause (v) and inserting
``, and'', and by inserting after clause (v) the following new
clause:
``(vi) an annuity contract described in
section 403(b).''.
(c) Expanded Explanation to Recipients of Rollover Distributions.--
Paragraph (1) of section 402(f ) (relating to written explanation to
recipients of distributions eligible for rollover treatment) is amended
by striking ``and'' at the end of subparagraph (C), by striking the
period at the end of subparagraph (D) and inserting ``, and'', and by
adding at the end the following new subparagraph:
``(E) of the provisions under which distributions
from the eligible retirement plan receiving the
distribution may be subject to restrictions and tax
consequences which are different from those applicable
to distributions from the plan making such
distribution.''.
(d) Spousal Rollovers.--Section 402(c)(9) (relating to rollover
where spouse receives distribution after death of employee) is amended
by striking ``; except that'' and all that follows up to the end period.
(e) Conforming Amendments.--
(1) Section 72(o)(4) is amended by striking ``and
408(d)(3)'' and inserting ``403(b)(8), 408(d)(3), and
457(e)(16)''.
(2) Section 219(d)(2) is amended by striking ``or
408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
(3) Section 401(a)(31)(B) is amended by striking ``and
403(a)(4)'' and inserting ``, 403(a)(4), 403(b)(8), and
457(e)(16)''.
(4) Subparagraph (A) of section 402(f )(2) is amended by
striking ``or paragraph (4) of section 403(a)'' and inserting
``, paragraph (4) of section 403(a), subparagraph (A) of section
403(b)(8), or subparagraph (A) of section 457(e)(16)''.
(5) Paragraph (1) of section 402(f ) is amended by striking
``from an eligible retirement plan''.
[[Page 115 STAT. 121]]
(6) Subparagraphs (A) and (B) of section 402(f
)(1) <<NOTE: 26 USC 402.>> are amended by striking ``another
eligible retirement plan'' and inserting ``an eligible
retirement plan''.
(7) Subparagraph (B) of section 403(b)(8) is amended to read
as follows:
``(B) Certain rules made applicable.--The rules of
paragraphs (2) through (7) and (9) of section 402(c) and
section 402(f ) shall apply for purposes of subparagraph
(A), except that section 402(f ) shall be applied to the
payor in lieu of the plan administrator.''.
(8) Section 408(a)(1) is amended by striking ``or
403(b)(8),'' and inserting ``403(b)(8), or 457(e)(16)''.
(9) Subparagraphs (A) and (B) of section 415(b)(2) are each
amended by striking ``and 408(d)(3)'' and inserting ``403(b)(8),
408(d)(3), and 457(e)(16)''.
(10) Section 415(c)(2) is amended by striking ``and
408(d)(3)'' and inserting ``408(d)(3), and 457(e)(16)''.
(11) Section 4973(b)(1)(A) is amended by striking ``or
408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
(f ) <<NOTE: 26 USC 402 note.>> Effective Date; Special Rule.--
(1) <<NOTE: Applicability.>> Effective date.--The
amendments made by this section shall apply to distributions
after December 31, 2001.
(2) Reasonable notice.--No penalty shall be imposed on a
plan for the failure to provide the information required by the
amendment made by subsection (c) with respect to any
distribution made before the date that is 90 days after the date
on which the Secretary of the Treasury issues a safe harbor
rollover notice after the date of the enactment of this Act, if
the administrator of such plan makes a reasonable attempt to
comply with such requirement.
(3) Special rule.--Notwithstanding any other provision of
law, subsections (h)(3) and (h)(5) of section 1122 of the Tax
Reform Act of 1986 shall not apply to any distribution from an
eligible retirement plan (as defined in clause (iii) or (iv) of
section 402(c)(8)(B) of the Internal Revenue Code of 1986) on
behalf of an individual if there was a rollover to such plan on
behalf of such individual which is permitted solely by reason of
any amendment made by this section.
SEC. 642. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.
(a) In General.--Subparagraph (A) of section 408(d)(3) (relating to
rollover amounts) is amended by adding ``or'' at the end of clause (i),
by striking clauses (ii) and (iii), and by adding at the end the
following:
``(ii) <<NOTE: Deadline.>> the entire amount
received (including money and any other property)
is paid into an eligible retirement plan for the
benefit of such individual not later than the 60th
day after the date on which the payment or
distribution is received, except that the maximum
amount which may be paid into such plan may not
exceed the portion of the amount received which is
includible in gross income (determined without
regard to this paragraph).
For purposes of clause (ii), the term `eligible
retirement plan' means an eligible retirement plan
described in clause (iii), (iv), (v), or (vi) of section
402(c)(8)(B).''.
(b) Conforming Amendments.--
[[Page 115 STAT. 122]]
(1) Paragraph (1) of section 403(b) <<NOTE: 26 USC 403.>>
is amended by striking ``section 408(d)(3)(A)(iii)'' and
inserting ``section 408(d)(3)(A)(ii)''.
(2) Clause (i) of section 408(d)(3)(D) is amended by
striking ``(i), (ii), or (iii)'' and inserting ``(i) or (ii)''.
(3) Subparagraph (G) of section 408(d)(3) is amended to read
as follows:
``(G) Simple retirement accounts.--In the case of
any payment or distribution out of a simple retirement
account (as defined in subsection (p)) to which section
72(t)(6) applies, this paragraph shall not apply unless
such payment or distribution is paid into another simple
retirement account.''.
(c) <<NOTE: 26 USC 408 note.>> Effective Date; Special Rule.--
(1) <<NOTE: Applicability.>> Effective date.--The
amendments made by this section shall apply to distributions
after December 31, 2001.
(2) Special rule.--Notwithstanding any other provision of
law, subsections (h)(3) and (h)(5) of section 1122 of the Tax
Reform Act of 1986 shall not apply to any distribution from an
eligible retirement plan (as defined in clause (iii) or (iv) of
section 402(c)(8)(B) of the Internal Revenue Code of 1986) on
behalf of an individual if there was a rollover to such plan on
behalf of such individual which is permitted solely by reason of
the amendments made by this section.
SEC. 643. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.
(a) Rollovers From Exempt Trusts.--Paragraph (2) of section 402(c)
(relating to maximum amount which may be rolled over) is amended by
adding at the end the following: ``The preceding sentence shall not
apply to such distribution to the extent--
``(A) such portion is transferred in a direct
trustee-to-trustee transfer to a qualified trust which
is part of a plan which is a defined contribution plan
and which agrees to separately account for amounts so
transferred, including separately accounting for the
portion of such distribution which is includible in
gross income and the portion of such distribution which
is not so includible, or
``(B) such portion is transferred to an eligible
retirement plan described in clause (i) or (ii) of
paragraph (8)(B).''.
(b) Optional Direct Transfer of Eligible Rollover Distributions.--
Subparagraph (B) of section 401(a)(31) (relating to limitation) is
amended by adding at the end the following: ``The preceding sentence
shall not apply to such distribution if the plan to which such
distribution is transferred--
``(i) agrees to separately account for amounts
so transferred, including separately accounting
for the portion of such distribution which is
includible in gross income and the portion of such
distribution which is not so includible, or
``(ii) is an eligible retirement plan
described in clause (i) or (ii) of section
402(c)(8)(B).''.
(c) Rules for Applying Section 72 to IRAs.--Paragraph (3) of section
408(d) (relating to special rules for applying section 72) is amended by
inserting at the end the following:
``(H) Application of section 72.--
``(i) In general.--If--
[[Page 115 STAT. 123]]
``(I) a distribution is made from an
individual retirement plan, and
``(II) a rollover contribution is
made to an eligible retirement plan
described in section 402(c)(8)(B)(iii),
(iv), (v), or (vi) with respect to all
or part of such distribution,
then, notwithstanding paragraph (2), the rules of
clause (ii) shall apply for purposes of applying
section 72.
``(ii) Applicable rules.--In the case of a
distribution described in clause (i)--
``(I) section 72 shall be applied
separately to such distribution,
``(II) notwithstanding the pro rata
allocation of income on, and investment
in, the contract to distributions under
section 72, the portion of such
distribution rolled over to an eligible
retirement plan described in clause (i)
shall be treated as from income on the
contract (to the extent of the aggregate
income on the contract from all
individual retirement plans of the
distributee), and
``(III) appropriate adjustments
shall be made in applying section 72 to
other distributions in such taxable year
and subsequent taxable years.''.
(d) <<NOTE: Applicability. 26 USC 401 note.>> Effective Date.--The
amendments made by this section shall apply to distributions made after
December 31, 2001.
SEC. 644. HARDSHIP EXCEPTION TO 60-DAY RULE.
(a) Exempt Trusts.--Paragraph (3) of section 402(c) (relating to
transfer must be made within 60 days of receipt) is amended to read as
follows:
``(3) Transfer must be made within 60 days of receipt.--
``(A) In general.--Except as provided in
subparagraph (B), paragraph (1) shall not apply to any
transfer of a distribution made after the 60th day
following the day on which the distributee received the
property distributed.
``(B) Hardship exception.--The Secretary may waive
the 60-day requirement under subparagraph (A) where the
failure to waive such requirement would be against
equity or good conscience, including casualty, disaster,
or other events beyond the reasonable control of the
individual subject to such requirement.''.
(b) IRAs.--Paragraph (3) of section 408(d) <<NOTE: 26 USC 408.>>
(relating to rollover contributions), as amended by section 643, is
amended by adding after subparagraph (H) the following new subparagraph:
``(I) Waiver of 60-day requirement.--The Secretary
may waive the 60-day requirement under subparagraphs (A)
and (D) where the failure to waive such requirement
would be against equity or good conscience, including
casualty, disaster, or other events beyond the
reasonable control of the individual subject to such
requirement.''.
(c) <<NOTE: 26 USC 402 note.>> Effective Date.--The amendments made
by this section shall apply to distributions after December 31, 2001.
SEC. 645. TREATMENT OF FORMS OF DISTRIBUTION.
(a) Plan Transfers.--
(1) Amendment of internal revenue code.--Paragraph (6) of
section 411(d) (relating to accrued benefit not to be
[[Page 115 STAT. 124]]
decreased by amendment) is amended by adding at the end the
following:
``(D) Plan transfers.--
``(i) In general.--A defined contribution plan
(in this subparagraph referred to as the
`transferee plan') shall not be treated as failing
to meet the requirements of this subsection merely
because the transferee plan does not provide some
or all of the forms of distribution previously
available under another defined contribution plan
(in this subparagraph referred to as the
`transferor plan') to the extent that--
``(I) the forms of distribution
previously available under the
transferor plan applied to the account
of a participant or beneficiary under
the transferor plan that was transferred
from the transferor plan to the
transferee plan pursuant to a direct
transfer rather than pursuant to a
distribution from the transferor plan,
``(II) the terms of both the
transferor plan and the transferee plan
authorize the transfer described in
subclause (I),
``(III) the transfer described in
subclause (I) was made pursuant to a
voluntary election by the participant or
beneficiary whose account was
transferred to the transferee plan,
``(IV) the election described in
subclause (III) was made after the
participant or beneficiary received a
notice describing the consequences of
making the election, and
``(V) the transferee plan allows the
participant or beneficiary described in
subclause (III) to receive any
distribution to which the participant or
beneficiary is entitled under the
transferee plan in the form of a single
sum distribution.
``(ii) Special rule for mergers, etc.--Clause
(i) shall apply to plan mergers and other
transactions having the effect of a direct
transfer, including consolidations of benefits
attributable to different employers within a
multiple employer plan.
``(E) Elimination of form of distribution.--Except
to the extent provided in regulations, a defined
contribution plan shall not be treated as failing to
meet the requirements of this section merely because of
the elimination of a form of distribution previously
available thereunder. This subparagraph shall not apply
to the elimination of a form of distribution with
respect to any participant unless--
``(i) a single sum payment is available to
such participant at the same time or times as the
form of distribution being eliminated, and
``(ii) such single sum payment is based on the
same or greater portion of the participant's
account as the form of distribution being
eliminated.''.
(2) Amendment of erisa.--Section 204(g) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) is
amended by adding at the end the following:
[[Page 115 STAT. 125]]
``(4)(A) A defined contribution plan (in this subparagraph referred
to as the `transferee plan') shall not be treated as failing to meet the
requirements of this subsection merely because the transferee plan does
not provide some or all of the forms of distribution previously
available under another defined contribution plan (in this subparagraph
referred to as the `transferor plan') to the extent that--
``(i) the forms of distribution previously available under
the transferor plan applied to the account of a participant or
beneficiary under the transferor plan that was transferred from
the transferor plan to the transferee plan pursuant to a direct
transfer rather than pursuant to a distribution from the
transferor plan;
``(ii) the terms of both the transferor plan and the
transferee plan authorize the transfer described in clause (i);
``(iii) the transfer described in clause (i) was made
pursuant to a voluntary election by the participant or
beneficiary whose account was transferred to the transferee
plan;
``(iv) the election described in clause (iii) was made after
the participant or beneficiary received a notice describing the
consequences of making the election; and
``(v) the transferee plan allows the participant or
beneficiary described in clause (iii) to receive any
distribution to which the participant or beneficiary is entitled
under the transferee plan in the form of a single sum
distribution.
``(B) Subparagraph (A) shall apply to plan mergers and other
transactions having the effect of a direct transfer, including
consolidations of benefits attributable to different employers within a
multiple employer plan.
``(5) Except to the extent provided in regulations promulgated by
the Secretary of the Treasury, a defined contribution plan shall not be
treated as failing to meet the requirements of this subsection merely
because of the elimination of a form of distribution previously
available thereunder. This paragraph shall not apply to the elimination
of a form of distribution with respect to any participant unless--
``(A) a single sum payment is available to such participant
at the same time or times as the form of distribution being
eliminated; and
``(B) such single sum payment is based on the same or
greater portion of the participant's account as the form of
distribution being eliminated.''.
(3) <<NOTE: Applicability. 26 USC 411 note.>> Effective
date.--The amendments made by this subsection shall apply to
years beginning after December 31, 2001.
(b) Regulations.--
(1) Amendment of internal revenue code.--Paragraph (6)(B) of
section 411(d) (relating to accrued benefit not to be decreased
by amendment) is amended by inserting after the second sentence
the following: ``The Secretary shall by regulations provide that
this subparagraph shall not apply to any plan amendment which
reduces or eliminates benefits or subsidies which create
significant burdens or complexities for the plan and plan
participants, unless such amendment adversely affects the rights
of any participant in a more than de minimis manner.''.
(2) Amendment of erisa.--Section 204(g)(2) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
[[Page 115 STAT. 126]]
1054(g)(2)) is amended by inserting after the second sentence
the following: ``The Secretary of the Treasury shall by
regulations provide that this paragraph shall not apply to any
plan amendment which reduces or eliminates benefits or subsidies
which create significant burdens or complexities for the plan
and plan participants, unless such amendment adversely affects
the rights of any participant in a more than de minimis
manner.''.
(3) Secretary directed.--Not <<NOTE: Deadline. 26 USC 411
note.>> later than December 31, 2003, the Secretary of the
Treasury is directed to issue regulations under section
411(d)(6) of the Internal Revenue Code of 1986 and section
204(g) of the Employee Retirement Income Security Act of 1974,
including the regulations required by the amendment made by this
subsection. <<NOTE: Effective date. Applicability.>> Such
regulations shall apply to plan years beginning after December
31, 2003, or such earlier date as is specified by the Secretary
of the Treasury.
SEC. 646. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.
(a) Modification of Same Desk Exception.--
(1) Section 401(k).--
(A) Section 401(k)(2)(B)(i)(I) (relating to
qualified cash or deferred arrangements) is amended by
striking ``separation from service'' and inserting
``severance from employment''.
(B) Subparagraph (A) of section 401(k)(10) (relating
to distributions upon termination of plan or disposition
of assets or subsidiary) is amended to read as follows:
``(A) In general.--An event described in this
subparagraph is the termination of the plan without
establishment or maintenance of another defined
contribution plan (other than an employee stock
ownership plan as defined in section 4975(e)(7)).''.
(C) Section 401(k)(10) is amended--
(i) in subparagraph (B)--
(I) by striking ``An event'' in
clause (i) and inserting ``A
termination''; and
(II) by striking ``the event'' in
clause (i) and inserting ``the
termination'';
(ii) by striking subparagraph (C); and
(iii) by striking ``or disposition of assets
or subsidiary'' in the heading.
(2) Section 403(b).--
(A) Paragraphs (7)(A)(ii) and (11)(A) of section
403(b) are each amended by striking ``separates from
service'' and inserting ``has a severance from
employment''.
(B) The heading for paragraph (11) of section 403(b)
is amended by striking ``separation from service'' and
inserting ``severance from employment''.
(3) Section 457.--Clause (ii) of section 457(d)(1)(A) is
amended by striking ``is separated from service'' and inserting
``has a severance from employment''.
(b) <<NOTE: 26 USC 401 note.>> Effective Date.--The amendments made
by this section shall apply to distributions after December 31, 2001.
[[Page 115 STAT. 127]]
SEC. 647. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT
PLANS.
(a) Section 403(b) Plans.--Subsection (b) of section 403 <<NOTE: 26
USC 403.>> is amended by adding at the end the following new paragraph:
``(13) Trustee-to-trustee transfers to purchase permissive
service credit.--No amount shall be includible in gross income
by reason of a direct trustee-to-trustee transfer to a defined
benefit governmental plan (as defined in section 414(d)) if such
transfer is--
``(A) for the purchase of permissive service credit
(as defined in section 415(n)(3)(A)) under such plan, or
``(B) a repayment to which section 415 does not
apply by reason of subsection (k)(3) thereof.''.
(b) Section 457 Plans.--Subsection (e) of section 457, as amended by
section 641, is amended by adding after paragraph (16) the following new
paragraph:
``(17) Trustee-to-trustee transfers to purchase permissive
service credit.--No amount shall be includible in gross income
by reason of a direct trustee-to-trustee transfer to a defined
benefit governmental plan (as defined in section 414(d)) if such
transfer is--
``(A) for the purchase of permissive service credit
(as defined in section 415(n)(3)(A)) under such plan, or
``(B) a repayment to which section 415 does not
apply by reason of subsection (k)(3) thereof.''.
(c) <<NOTE: Applicability. 26 USC 403 note.>> Effective Date.--The
amendments made by this section shall apply to trustee-to-trustee
transfers after December 31, 2001.
SEC. 648. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT
AMOUNTS.
(a) Qualified Plans.--
(1) Amendment of internal revenue code.--Section 411(a)(11)
(relating to restrictions on certain mandatory distributions) is
amended by adding at the end the following:
``(D) Special rule for rollover contributions.--A
plan shall not fail to meet the requirements of this
paragraph if, under the terms of the plan, the present
value of the nonforfeitable accrued benefit is
determined without regard to that portion of such
benefit which is attributable to rollover contributions
(and earnings allocable thereto). For purposes of this
subparagraph, the term `rollover contributions' means
any rollover contribution under sections 402(c),
403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and
457(e)(16).''.
(2) Amendment of erisa.--Section 203(e) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is
amended by adding at the end the following:
``(4) A plan shall not fail to meet the requirements of this
subsection if, under the terms of the plan, the present value of the
nonforfeitable accrued benefit is determined without regard to that
portion of such benefit which is attributable to rollover contributions
(and earnings allocable thereto). For purposes of this subparagraph, the
term `rollover contributions' means any rollover contribution under
sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16)
of the Internal Revenue Code of 1986.''.
[[Page 115 STAT. 128]]
(b) Eligible Deferred Compensation Plans.--Clause (i) of section
457(e)(9)(A) <<NOTE: 26 USC 457.>> is amended by striking ``such
amount'' and inserting ``the portion of such amount which is not
attributable to rollover contributions (as defined in section
411(a)(11)(D))''.
(c) <<NOTE: Applicability. 26 USC 411 note.>> Effective Date.--The
amendments made by this section shall apply to distributions after
December 31, 2001.
SEC. 649. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION
457 PLANS.
(a) Minimum Distribution Requirements.--Paragraph (2) of section
457(d) (relating to distribution requirements) is amended to read as
follows:
``(2) Minimum distribution requirements.--A plan meets the
minimum distribution requirements of this paragraph if such plan
meets the requirements of section 401(a)(9).''.
(b) Inclusion in Gross Income.--
(1) Year of inclusion.--Subsection (a) of section 457
(relating to year of inclusion in gross income) is amended to
read as follows:
``(a) Year of Inclusion in Gross Income.--
``(1) In general.--Any amount of compensation deferred under
an eligible deferred compensation plan, and any income
attributable to the amounts so deferred, shall be includible in
gross income only for the taxable year in which such
compensation or other income--
``(A) is paid to the participant or other
beneficiary, in the case of a plan of an eligible
employer described in subsection (e)(1)(A), and
``(B) is paid or otherwise made available to the
participant or other beneficiary, in the case of a plan
of an eligible employer described in subsection
(e)(1)(B).
``(2) Special rule for rollover amounts.--To the extent
provided in section 72(t)(9), section 72(t) shall apply to any
amount includible in gross income under this subsection.''.
(2) Conforming amendments.--
(A) So much of paragraph (9) of section 457(e) as
precedes subparagraph (A) is amended to read as follows:
``(9) Benefits of tax exempt organization plans not treated
as made available by reason of certain elections, etc.--In the
case of an eligible deferred compensation plan of an employer
described in subsection (e)(1)(B)--''.
(B) Section 457(d) is amended by adding at the end
the following new paragraph:
``(3) Special rule for government plan.--An eligible
deferred compensation plan of an employer described in
subsection (e)(1)(A) shall not be treated as failing to meet the
requirements of this subsection solely by reason of making a
distribution described in subsection (e)(9)(A).''.
(c) <<NOTE: Applicability. 26 USC 457 note.>> Effective Date.--The
amendments made by subsections (a) and (b) shall apply to distributions
after December 31, 2001.
[[Page 115 STAT. 129]]
Subtitle E--Strengthening Pension Security and Enforcement
PART I--GENERAL PROVISIONS
SEC. 651. REPEAL OF 160 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.
(a) Amendments to Internal Revenue Code.--Section
412(c)(7) <<NOTE: 26 USC 412.>> (relating to full-funding limitation)
is amended--
(1) by striking ``the applicable percentage'' in
subparagraph (A)(i)(I) and inserting ``in the case of plan years
beginning before January 1, 2004, the applicable percentage'';
and
(2) by amending subparagraph (F) to read as follows:
``(F) Applicable percentage.--For purposes of
subparagraph (A)(i)(I), the applicable percentage shall
be determined in accordance with the following table:
``In the case of any plan year The applicable
beginning in-- percentage is--
2002........................................ 165
2003........................................ 170.''.
(b) Amendment of ERISA.--Section 302(c)(7) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is
amended--
(1) by striking ``the applicable percentage'' in
subparagraph (A)(i)(I) and inserting ``in the case of plan years
beginning before January 1, 2004, the applicable percentage'',
and
(2) by amending subparagraph (F) to read as follows:
``(F) Applicable percentage.--For purposes of
subparagraph (A)(i)(I), the applicable percentage shall
be determined in accordance with the following table:
``In the case of any plan year The applicable
beginning in calendar year-- percentage is--
2002........................................ 165
2003........................................ 170.''.
(c) <<NOTE: Applicability. 26 USC 412 note.>> Effective Date.--The
amendments made by this section shall apply to plan years beginning
after December 31, 2001.
SEC. 652. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO
ALL DEFINED BENEFIT PLANS.
(a) In General.--Subparagraph (D) of section 404(a)(1) (relating to
special rule in case of certain plans) is amended to read as follows:
``(D) Special rule in case of certain plans.--
``(i) In general.--In the case of any defined
benefit plan, except as provided in regulations,
the maximum amount deductible under the
limitations of this paragraph shall not be less
than the unfunded current liability determined
under section 412(l).
``(ii) Plans with 100 or less participants.--
For purposes of this subparagraph, in the case of
a plan which has 100 or less participants for the
plan year, unfunded current liability shall not
include the liability attributable to benefit
increases for highly compensated employees (as
defined in section 414(q)) resulting from a plan
amendment which is made or
[[Page 115 STAT. 130]]
becomes effective, whichever is later, within the
last 2 years.
``(iii) Rule for determining number of
participants.--For purposes of determining the
number of plan participants, all defined benefit
plans maintained by the same employer (or any
member of such employer's controlled group (within
the meaning of section 412(l)(8)(C))) shall be
treated as one plan, but only employees of such
member or employer shall be taken into account.
``(iv) Plans maintained by professional
service employers.--In the case of a plan which,
subject to section 4041 of the Employee Retirement
Income Security Act of 1974, terminates during the
plan year, clause (i) shall be applied by
substituting for unfunded current liability the
amount required to make the plan sufficient for
benefit liabilities (within the meaning of section
4041(d) of such Act).''.
(b) Conforming Amendment.--Paragraph (6) of section
4972(c), <<NOTE: 26 USC 4972.>> as amended by sections 616 and 637, is
amended--
(1) by striking subparagraph (A) and redesignating
subparagraphs (B) and (C) as subparagraphs (A) and (B),
respectively,
(2) by striking the first sentence following subparagraph
(B) (as so redesignated),
(3) by striking ``subparagraph (B)'' in the next to last
sentence and inserting ``subparagraph (A)'', and
(4) by striking ``Subparagraph (C)'' in the last sentence
and inserting ``Subparagraph (B)''.
(c) <<NOTE: Applicability. 26 USC 404 note.>> Effective Date.--The
amendments made by this section shall apply to plan years beginning
after December 31, 2001.
SEC. 653. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.
(a) In General.--Subsection (c) of section 4972 (relating to
nondeductible contributions) is amended by adding at the end the
following new paragraph:
``(7) Defined benefit plan exception.--In determining the
amount of nondeductible contributions for any taxable year, an
employer may elect for such year not to take into account any
contributions to a defined benefit plan except to the extent
that such contributions exceed the full-funding limitation (as
defined in section 412(c)(7), determined without regard to
subparagraph (A)(i)(I) thereof ). For purposes of this
paragraph, the deductible limits under section 404(a)(7) shall
first be applied to amounts contributed to defined contribution
plans and then to amounts described in this paragraph. If an
employer makes an election under this paragraph for a taxable
year, paragraph (6) shall not apply to such employer for such
taxable year.''.
(b) <<NOTE: Applicability. 26 USC 4972 note.>> Effective Date.--The
amendment made by this section shall apply to years beginning after
December 31, 2001.
SEC. 654. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.
(a) Compensation Limit.--
(1) In general.--Paragraph (11) of section 415(b) (relating
to limitation for defined benefit plans) is amended to read as
follows:
[[Page 115 STAT. 131]]
``(11) Special limitation rule for governmental and
multiemployer plans.--In the case of a governmental plan (as
defined in section 414(d)) or a multiemployer plan (as defined
in section 414(f )), subparagraph (B) of paragraph (1) shall not
apply.''.
(2) Conforming amendment.--Section 415(b)(7) <<NOTE: 26 USC
415.>> (relating to benefits under certain collectively
bargained plans) is amended by inserting ``(other than a
multiemployer plan)'' after ``defined benefit plan'' in the
matter preceding subparagraph (A).
(b) Combining and Aggregation of Plans.--
(1) Combining of plans.--Subsection (f ) of section 415
(relating to combining of plans) is amended by adding at the end
the following:
``(3) Exception for multiemployer plans.--Notwithstanding
paragraph (1) and subsection (g), a multiemployer plan (as
defined in section 414(f )) shall not be combined or
aggregated--
``(A) with any other plan which is not a
multiemployer plan for purposes of applying subsection
(b)(1)(B) to such other plan, or
``(B) with any other multiemployer plan for purposes
of applying the limitations established in this
section.''.
(2) Conforming amendment for aggregation of plans.--
Subsection (g) of section 415 (relating to aggregation of plans)
is amended by striking ``The Secretary'' and inserting ``Except
as provided in subsection (f )(3), the Secretary''.
(c) <<NOTE: Applicability. 26 USC 415 note.>> Effective Date.--The
amendments made by this section shall apply to years beginning after
December 31, 2001.
SEC. 655. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBUTIONS TO 401(k)
PLANS.
(a) In General.--Section 1524(b) of the Taxpayer Relief Act of 1997
is amended to read as follows: <<NOTE: 29 USC 1107 note.>>
``(b) Effective Date.--
``(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to elective
deferrals for plan years beginning after December 31, 1998.
``(2) Nonapplication to previously acquired property.--The
amendments made by this section shall not apply to any elective
deferral which is invested in assets consisting of qualifying
employer securities, qualifying employer real property, or both,
if such assets were acquired before January 1, 1999.''.
(b) <<NOTE: 29 USC 1107 note.>> Effective Date.--The amendment made
by this section shall apply as if included in the provision of the
Taxpayer Relief Act of 1997 to which it relates.
SEC. 656. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION ESOP.
(a) In General.--Section 409 (relating to qualifications for tax
credit employee stock ownership plans) is amended by redesignating
subsection (p) as subsection (q) and by inserting after subsection (o)
the following new subsection:
``(p) Prohibited Allocations of Securities in an S Corporation.--
[[Page 115 STAT. 132]]
``(1) In general.--An employee stock ownership plan holding
employer securities consisting of stock in an S corporation
shall provide that no portion of the assets of the plan
attributable to (or allocable in lieu of ) such employer
securities may, during a nonallocation year, accrue (or be
allocated directly or indirectly under any plan of the employer
meeting the requirements of section 401(a)) for the benefit of
any disqualified person.
``(2) Failure to meet requirements.--
``(A) In general.--If a plan fails to meet the
requirements of paragraph (1), the plan shall be treated
as having distributed to any disqualified person the
amount allocated to the account of such person in
violation of paragraph (1) at the time of such
allocation.
``(B) Cross reference.--
``For excise tax relating to violations of paragraph
(1) and ownership of synthetic equity, see section
4979A.
``(3) Nonallocation year.--For purposes of this subsection--
``(A) In general.--The term `nonallocation year'
means any plan year of an employee stock ownership plan
if, at any time during such plan year--
``(i) such plan holds employer securities
consisting of stock in an S corporation, and
``(ii) disqualified persons own at least 50
percent of the number of shares of stock in the S
corporation.
``(B) Attribution rules.--For purposes of
subparagraph (A)--
``(i) <<NOTE: Applicability.>> In general.--
The rules of section 318(a) shall apply for
purposes of determining ownership, except that--
``(I) in applying paragraph (1)
thereof, the members of an individual's
family shall include members of the
family described in paragraph (4)(D),
and
``(II) paragraph (4) thereof shall
not apply.
``(ii) Deemed-owned shares.--Notwithstanding
the employee trust exception in section
318(a)(2)(B)(i), an individual shall be treated as
owning deemed-owned shares of the individual.
Solely for purposes of applying paragraph (5), this
subparagraph shall be applied after the attribution
rules of paragraph (5) have been applied.
``(4) Disqualified person.--For purposes of this
subsection--
``(A) In general.--The term `disqualified person'
means any person if--
``(i) the aggregate number of deemed-owned
shares of such person and the members of such
person's family is at least 20 percent of the
number of deemed-owned shares of stock in the S
corporation, or
``(ii) in the case of a person not described
in clause (i), the number of deemed-owned shares
of such person is at least 10 percent of the
number of deemed-owned shares of stock in such
corporation.
``(B) Treatment of family members.--In the case of a
disqualified person described in subparagraph (A)(i),
any
[[Page 115 STAT. 133]]
member of such person's family with deemed-owned shares
shall be treated as a disqualified person if not
otherwise treated as a disqualified person under
subparagraph (A).
``(C) Deemed-owned shares.--
``(i) In general.--The term `deemed-owned
shares' means, with respect to any person--
``(I) the stock in the S corporation
constituting employer securities of an
employee stock ownership plan which is
allocated to such person under the plan,
and
``(II) such person's share of the
stock in such corporation which is held
by such plan but which is not allocated
under the plan to participants.
``(ii) Person's share of unallocated stock.--
For purposes of clause (i)(II), a person's share
of unallocated S corporation stock held by such
plan is the amount of the unallocated stock which
would be allocated to such person if the
unallocated stock were allocated to all
participants in the same proportions as the most
recent stock allocation under the plan.
``(D) Member of family.--For purposes of this
paragraph, the term `member of the family' means, with
respect to any individual--
``(i) the spouse of the individual,
``(ii) an ancestor or lineal descendant of the
individual or the individual's spouse,
``(iii) a brother or sister of the individual
or the individual's spouse and any lineal
descendant of the brother or sister, and
``(iv) the spouse of any individual described
in clause (ii) or (iii).
A spouse of an individual who is legally separated from
such individual under a decree of divorce or separate
maintenance shall not be treated as such individual's
spouse for purposes of this subparagraph.
``(5) Treatment of synthetic equity.--For purposes of
paragraphs (3) and (4), in the case of a person who owns
synthetic equity in the S corporation, except to the extent
provided in regulations, the shares of stock in such corporation
on which such synthetic equity is based shall be treated as
outstanding stock in such corporation and deemed-owned shares of
such person if such treatment of synthetic equity of 1 or more
such persons results in--
``(A) the treatment of any person as a disqualified
person, or
``(B) the treatment of any year as a nonallocation
year.
For purposes of this paragraph, synthetic equity shall be
treated as owned by a person in the same manner as stock is
treated as owned by a person under the rules of paragraphs (2)
and (3) of section 318(a). If, without regard to this paragraph,
a person is treated as a disqualified person or a year is
treated as a nonallocation year, this paragraph shall not be
construed to result in the person or year not being so treated.
``(6) Definitions.--For purposes of this subsection--
``(A) Employee stock ownership plan.--The term
`employee stock ownership plan' has the meaning given
such term by section 4975(e)(7).
[[Page 115 STAT. 134]]
``(B) Employer securities.--The term `employer
security' has the meaning given such term by section
409(l).
``(C) Synthetic equity.--The term `synthetic equity'
means any stock option, warrant, restricted stock,
deferred issuance stock right, or similar interest or
right that gives the holder the right to acquire or
receive stock of the S corporation in the future. Except
to the extent provided in regulations, synthetic equity
also includes a stock appreciation right, phantom stock
unit, or similar right to a future cash payment based on
the value of such stock or appreciation in such value.
``(7) Regulations and guidance.--
``(A) In general.--The Secretary shall prescribe
such regulations as may be necessary to carry out the
purposes of this subsection.
``(B) Avoidance or evasion.--The Secretary may, by
regulation or other guidance of general applicability,
provide that a nonallocation year occurs in any case in
which the principal purpose of the ownership structure
of an S corporation constitutes an avoidance or evasion
of this subsection.''.
(b) Coordination With Section 4975(e)(7).--The last sentence of
section 4975(e)(7) <<NOTE: 26 USC 4975.>> (defining employee stock
ownership plan) is amended by inserting ``, section 409(p),'' after
``409(n)''.
(c) Excise Tax.--
(1) Application of tax.--Subsection (a) of section 4979A
(relating to tax on certain prohibited allocations of employer
securities) is amended--
(A) by striking ``or'' at the end of paragraph (1),
and
(B) by striking all that follows paragraph (2) and
inserting the following:
``(3) there is any allocation of employer securities which
violates the provisions of section 409(p), or a nonallocation
year described in subsection (e)(2)(C) with respect to an
employee stock ownership plan, or
``(4) any synthetic equity is owned by a disqualified person
in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership equal to
50 percent of the amount involved.''.
(2) Liability.--Section 4979A(c) (defining liability for
tax) is amended to read as follows:
``(c) Liability for Tax.--The tax imposed by this section shall be
paid--
``(1) in the case of an allocation referred to in paragraph
(1) or (2) of subsection (a), by--
``(A) the employer sponsoring such plan, or
``(B) the eligible worker-owned cooperative,
which made the written statement described in section
664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be),
and
``(2) in the case of an allocation or ownership referred to
in paragraph (3) or (4) of subsection (a), by the S corporation
the stock in which was so allocated or owned.''.
(3) Definitions.--Section 4979A(e) (relating to definitions)
is amended to read as follows:
``(e) Definitions and Special Rules.--For purposes of this section--
[[Page 115 STAT. 135]]
``(1) Definitions.--Except as provided in paragraph (2),
terms used in this section have the same respective meanings as
when used in sections 409 and 4978.
``(2) Special rules relating to tax imposed by reason of
paragraph (3) or (4) of subsection (a).--
``(A) Prohibited allocations.--The amount involved
with respect to any tax imposed by reason of subsection
(a)(3) is the amount allocated to the account of any
person in violation of section 409(p)(1).
``(B) Synthetic equity.--The amount involved with
respect to any tax imposed by reason of subsection
(a)(4) is the value of the shares on which the synthetic
equity is based.
``(C) Special rule during first nonallocation
year.--For purposes of subparagraph (A), the amount
involved for the first nonallocation year of any
employee stock ownership plan shall be determined by
taking into account the total value of all the deemed-
owned shares of all disqualified persons with respect to
such plan.
``(D) Statute of limitations.--The statutory period
for the assessment of any tax imposed by this section by
reason of paragraph (3) or (4) of subsection (a) shall
not expire before the date which is 3 years from the
later of--
``(i) the allocation or ownership referred to
in such paragraph giving rise to such tax, or
``(ii) the date on which the Secretary is
notified of such allocation or ownership.''.
(d) <<NOTE: Applicability. 26 USC 409 note.>> Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to plan years beginning after December 31, 2004.
(2) Exception for certain plans.--In the case of any--
(A) employee stock ownership plan established after
March 14, 2001, or
(B) employee stock ownership plan established on or
before such date if employer securities held by the plan
consist of stock in a corporation with respect to which
an election under section 1362(a) of the Internal
Revenue Code of 1986 is not in effect on such date,
the amendments made by this section shall apply to plan years
ending after March 14, 2001.
SEC. 657. AUTOMATIC ROLLOVERS OF CERTAIN MANDATORY DISTRIBUTIONS.
(a) Direct Transfers of Mandatory Distributions.--
(1) In general.--Section 401(a)(31) <<NOTE: 26 USC 401.>>
(relating to optional direct transfer of eligible rollover
distributions), as amended by section 643, is amended by
redesignating subparagraphs (B), (C), and (D) as subparagraphs
(C), (D), and (E), respectively, and by inserting after
subparagraph (A) the following new subparagraph:
``(B) Certain mandatory distributions.--
``(i) In general.--In case of a trust which is
part of an eligible plan, such trust shall not
constitute a qualified trust under this section
unless the plan of which such trust is a part
provides that if--
[[Page 115 STAT. 136]]
``(I) a distribution described in
clause (ii) in excess of $1,000 is made,
and
``(II) the distributee does not make
an election under subparagraph (A) and
does not elect to receive the
distribution directly,
the plan administrator shall make such transfer to
an individual retirement plan of a designated
trustee or issuer and shall notify the distributee
in writing (either separately or as part of the
notice under section 402(f )) that the
distribution may be transferred to another
individual retirement plan.
``(ii) Eligible plan.--For purposes of clause
(i), the term `eligible plan' means a plan which
provides that any nonforfeitable accrued benefit
for which the present value (as determined under
section 411(a)(11)) does not exceed $5,000 shall
be immediately distributed to the participant.''.
(2) Conforming amendments.--
(A) The heading of section 401(a)(31) is amended by
striking ``Optional direct'' and inserting ``Direct''.
(B) Section 401(a)(31)(C), as redesignated by
paragraph (1), is amended by striking ``Subparagraph
(A)'' and inserting ``Subparagraphs (A) and (B)''.
(b) Notice Requirement.--Subparagraph (A) of section 402(f )(1) is
amended by inserting before the comma at the end the following: ``and
that the automatic distribution by direct transfer applies to certain
distributions in accordance with section 401(a)(31)(B)''.
(c) Fiduciary Rules.--
(1) In general.--Section 404(c) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1104(c)) is amended by
adding at the end the following new paragraph:
``(3) In the case of a pension plan which makes a transfer
to an individual retirement account or annuity of a designated
trustee or issuer under section 401(a)(31)(B) of the Internal
Revenue Code of 1986, the participant or beneficiary shall, for
purposes of paragraph (1), be treated as exercising control over
the assets in the account or annuity upon--
``(A) the earlier of the earlier of--
``(i) a rollover of all or a portion of the
amount to another individual retirement account or
annuity; or
``(ii) one year after the transfer is made; or
``(B) if the transfer is made in a manner consistent
with guidance provided by the Secretary.''.
(2) <<NOTE: 26 USC 401 note.>> Regulations.--
(A) Automatic <<NOTE: Deadline.>> rollover safe
harbor.--Not later than 3 years after the date of
enactment of this Act, the Secretary of Labor shall
prescribe regulations providing for safe harbors under
which the designation of an institution and investment
of funds in accordance with section 401(a)(31)(B) of the
Internal Revenue Code of 1986 is deemed to satisfy the
fiduciary requirements of section 404(a) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1104(a)).
(B) Use of low-cost individual retirement plans.--
The Secretary of the Treasury and the Secretary of Labor
[[Page 115 STAT. 137]]
may provide, and shall give consideration to providing,
special relief with respect to the use of low-cost
individual retirement plans for purposes of transfers
under section 401(a)(31)(B) of the Internal Revenue Code
of 1986 and for other uses that promote the preservation
of assets for retirement income purposes.
(d) <<NOTE: Applicability. 26 USC 401 note.>> Effective Date.--The
amendments made by this section shall apply to distributions made after
final regulations implementing subsection (c)(2)(A) are prescribed.
SEC. <<NOTE: 26 USC 404 note.>> 658. CLARIFICATION OF TREATMENT OF
CONTRIBUTIONS TO MULTIEMPLOYER PLAN.
(a) Not Considered Method of Accounting.--For purposes of section
446 of the Internal Revenue Code of 1986, a determination under section
404(a)(6) of such Code regarding the taxable year with respect to which
a contribution to a multiemployer pension plan is deemed made shall not
be treated as a method of accounting of the taxpayer. No deduction shall
be allowed for any taxable year for any contribution to a multiemployer
pension plan with respect to which a deduction was previously allowed.
(b) Regulations.--The Secretary of the Treasury shall promulgate
such regulations as necessary to clarify that a taxpayer shall not be
allowed an aggregate amount of deductions for contributions to a
multiemployer pension plan which exceeds the amount of such
contributions made or deemed made under section 404(a)(6) of the
Internal Revenue Code of 1986 to such plan.
(c) Effective Date.--Subsection (a), and any regulations promulgated
under subsection (b), shall be effective for years ending after the date
of the enactment of this Act.
PART II--TREATMENT OF PLAN AMENDMENTS REDUCING FUTURE BENEFIT ACCRUALS
SEC. 659. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT
PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT ACCRUALS.
(a) Amendment of Internal Revenue Code.--
(1) In general.--Chapter 43 (relating to qualified pension,
etc., plans) is amended by adding at the end the following new
section:
``SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO
SATISFY NOTICE REQUIREMENTS.
``(a) Imposition of Tax.--There is hereby imposed a tax on the
failure of any applicable pension plan to meet the requirements of
subsection (e) with respect to any applicable individual.
``(b) Amount of Tax.--
``(1) In general.--The amount of the tax imposed by
subsection (a) on any failure with respect to any applicable
individual shall be $100 for each day in the noncompliance
period with respect to such failure.
``(2) Noncompliance period.--For purposes of this section,
the term `noncompliance period' means, with respect to any
failure, the period beginning on the date the failure first
occurs and ending on the date the notice to which the failure
relates is provided or the failure is otherwise corrected.
``(c) Limitations on Amount of Tax.--
[[Page 115 STAT. 138]]
``(1) Tax not to apply where failure not discovered and
reasonable diligence exercised.--No tax shall be imposed by
subsection (a) on any failure during any period for which it is
established to the satisfaction of the Secretary that any person
subject to liability for the tax under subsection (d) did not
know that the failure existed and exercised reasonable diligence
to meet the requirements of subsection (e).
``(2) Tax not to apply to failures corrected within 30
days.--No tax shall be imposed by subsection (a) on any failure
if--
``(A) any person subject to liability for the tax
under subsection (d) exercised reasonable diligence to
meet the requirements of subsection (e), and
``(B) such person provides the notice described in
subsection (e) during the 30-day period beginning on the
first date such person knew, or exercising reasonable
diligence would have known, that such failure existed.
``(3) Overall limitation for unintentional failures.--
``(A) In general.--If the person subject to
liability for tax under subsection (d) exercised
reasonable diligence to meet the requirements of
subsection (e), the tax imposed by subsection (a) for
failures during the taxable year of the employer (or, in
the case of a multiemployer plan, the taxable year of
the trust forming part of the plan) shall not exceed
$500,000. For purposes of the preceding sentence, all
multiemployer plans of which the same trust forms a part
shall be treated as 1 plan.
``(B) Taxable years in the case of certain
controlled groups.--For purposes of this paragraph, if
all persons who are treated as a single employer for
purposes of this section do not have the same taxable
year, the taxable years taken into account shall be
determined under principles similar to the principles of
section 1561.
``(4) Waiver by secretary.--In the case of a failure which
is due to reasonable cause and not to willful neglect, the
Secretary may waive part or all of the tax imposed by subsection
(a) to the extent that the payment of such tax would be
excessive or otherwise inequitable relative to the failure
involved.
``(d) Liability for Tax.--The following shall be liable for the tax
imposed by subsection (a):
``(1) In the case of a plan other than a multiemployer plan,
the employer.
``(2) In the case of a multiemployer plan, the plan.
``(e) Notice Requirements for Plans Significantly Reducing Benefit
Accruals.--
``(1) In general.--If an applicable pension plan is amended
to provide for a significant reduction in the rate of future
benefit accrual, the plan administrator shall provide written
notice to each applicable individual (and to each employee
organization representing applicable individuals).
``(2) Notice.--The notice required by paragraph (1) shall be
written in a manner calculated to be understood by the average
plan participant and shall provide sufficient information (as
determined in accordance with regulations prescribed by the
Secretary) to allow applicable individuals to understand the
effect of the plan amendment. The Secretary may provide
[[Page 115 STAT. 139]]
a simplified form of notice for, or exempt from any notice
requirement, a plan--
``(A) which has fewer than 100 participants who have
accrued a benefit under the plan, or
``(B) which offers participants the option to choose
between the new benefit formula and the old benefit
formula.
``(3) Timing of notice.--Except as provided in regulations,
the notice required by paragraph (1) shall be provided within a
reasonable time before the effective date of the plan amendment.
``(4) Designees.--Any notice under paragraph (1) may be
provided to a person designated, in writing, by the person to
which it would otherwise be provided.
``(5) Notice before adoption of amendment.--A plan shall not
be treated as failing to meet the requirements of paragraph (1)
merely because notice is provided before the adoption of the
plan amendment if no material modification of the amendment
occurs before the amendment is adopted.
``(f ) Definitions and Special Rules.--For purposes of this
section--
``(1) Applicable individual.--The term `applicable
individual' means, with respect to any plan amendment--
``(A) each participant in the plan, and
``(B) any beneficiary who is an alternate payee
(within the meaning of section 414(p)(8)) under an
applicable qualified domestic relations order (within
the meaning of section 414(p)(1)(A)),
whose rate of future benefit accrual under the plan may
reasonably be expected to be significantly reduced by such plan
amendment.
``(2) Applicable pension plan.--The term `applicable pension
plan' means--
``(A) any defined benefit plan, or
``(B) an individual account plan which is subject to
the funding standards of section 412.
Such term shall not include a governmental plan (within the
meaning of section 414(d)) or a church plan (within the meaning
of section 414(e)) with respect to which the election provided
by section 410(d) has not been made.
``(3) Early retirement.--A plan amendment which eliminates
or significantly reduces any early retirement benefit or
retirement-type subsidy (within the meaning of section
411(d)(6)(B)(i)) shall be treated as having the effect of
significantly reducing the rate of future benefit accrual.
``(g) New Technologies.--The Secretary may by regulations allow any
notice under subsection (e) to be provided by using new technologies.''.
(2) Clerical amendment.--The table of sections for chapter
43 is amended by adding at the end the following new item:
``Sec. 4980F. Failure of applicable plans reducing
benefit accruals to satisfy notice
requirements.''.
(b) Amendment of ERISA.--Subsection (h) of section 204 of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054) is
amended to read as follows:
[[Page 115 STAT. 140]]
``(h)(1) An applicable pension plan may not be amended so as to
provide for a significant reduction in the rate of future benefit
accrual unless the plan administrator provides the notice described in
paragraph (2) to each applicable individual (and to each employee
organization representing applicable individuals).
``(2) The notice required by paragraph (1) shall be written in a
manner calculated to be understood by the average plan participant and
shall provide sufficient information (as determined in accordance with
regulations prescribed by the Secretary of the Treasury) to allow
applicable individuals to understand the effect of the plan amendment.
The Secretary of the Treasury may provide a simplified form of notice
for, or exempt from any notice requirement, a plan--
``(A) which has fewer than 100 participants who have accrued
a benefit under the plan, or
``(B) which offers participants the option to choose between
the new benefit formula and the old benefit formula.
``(3) Except as provided in regulations prescribed by the Secretary
of the Treasury, the notice required by paragraph (1) shall be provided
within a reasonable time before the effective date of the plan
amendment.
``(4) Any notice under paragraph (1) may be provided to a person
designated, in writing, by the person to which it would otherwise be
provided.
``(5) A plan shall not be treated as failing to meet the
requirements of paragraph (1) merely because notice is provided before
the adoption of the plan amendment if no material modification of the
amendment occurs before the amendment is adopted.
``(6)(A) In the case of any egregious failure to meet any
requirement of this subsection with respect to any plan amendment, the
provisions of the applicable pension plan shall be applied as if such
plan amendment entitled all applicable individuals to the greater of--
``(i) the benefits to which they would have been entitled
without regard to such amendment, or
``(ii) the benefits under the plan with regard to such
amendment.
``(B) For purposes of subparagraph (A), there is an egregious
failure to meet the requirements of this subsection if such failure is
within the control of the plan sponsor and is--
``(i) an intentional failure (including any failure to
promptly provide the required notice or information after the
plan administrator discovers an unintentional failure to meet
the requirements of this subsection),
``(ii) a failure to provide most of the individuals with
most of the information they are entitled to receive under this
subsection, or
``(iii) a failure which is determined to be egregious under
regulations prescribed by the Secretary of the Treasury.
``(7) The Secretary of the Treasury may by regulations allow any
notice under this subsection to be provided by using new technologies.
``(8) For purposes of this subsection--
``(A) The term `applicable individual' means, with respect
to any plan amendment--
``(i) each participant in the plan; and
[[Page 115 STAT. 141]]
``(ii) any beneficiary who is an alternate payee
(within the meaning of section 206(d)(3)(K)) under an
applicable qualified domestic relations order (within
the meaning of section 206(d)(3)(B)(i)),
whose rate of future benefit accrual under the plan may
reasonably be expected to be significantly reduced by such plan
amendment.
``(B) The term `applicable pension plan' means--
``(i) any defined benefit plan; or
``(ii) an individual account plan which is subject
to the funding standards of section 412 of the Internal
Revenue Code of 1986.
``(9) For purposes of this subsection, a plan amendment which
eliminates or significantly reduces any early retirement benefit or
retirement-type subsidy (within the meaning of subsection (g)(2)(A))
shall be treated as having the effect of significantly reducing the rate
of future benefit accrual.''.
(c) <<NOTE: 26 USC 4980F note. Applicability.>> Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to plan amendments taking effect on or after the date of
the enactment of this Act.
(2) Transition.--Until such time as the Secretary of the
Treasury issues regulations under sections 4980F(e)(2) and (3)
of the Internal Revenue Code of 1986, and section 204(h) of the
Employee Retirement Income Security Act of 1974, as added by the
amendments made by this section, a plan shall be treated as
meeting the requirements of such sections if it makes a good
faith effort to comply with such requirements.
(3) Special notice rule.--
(A) In general.--The period for providing any notice
required by the amendments made by this section shall
not end before the date which is 3 months after the date
of the enactment of this Act.
(B) Reasonable notice.--The amendments made by this
section shall not apply to any plan amendment taking
effect on or after the date of the enactment of this Act
if, before April 25, 2001, notice was provided to
participants and beneficiaries adversely affected by the
plan amendment (or their representatives) which was
reasonably expected to notify them of the nature and
effective date of the plan amendment.
Subtitle F--Reducing Regulatory Burdens
SEC. 661. MODIFICATION OF TIMING OF PLAN VALUATIONS.
(a) In General.--Paragraph (9) of section 412(c) <<NOTE: 26 USC
412.>> (relating to annual valuation) is amended to read as follows:
``(9) Annual valuation.--
``(A) In general.--For purposes of this section, a
determination of experience gains and losses and a
valuation of the plan's liability shall be made not less
frequently than once every year, except that such
determination shall be made more frequently to the
extent required in particular cases under regulations
prescribed by the Secretary.
``(B) Valuation date.--
[[Page 115 STAT. 142]]
``(i) Current year.--Except as provided in
clause (ii), the valuation referred to in
subparagraph (A) shall be made as of a date within
the plan year to which the valuation refers or
within one month prior to the beginning of such
year.
``(ii) Use of prior year valuation.--The
valuation referred to in subparagraph (A) may be
made as of a date within the plan year prior to
the year to which the valuation refers if, as of
such date, the value of the assets of the plan are
not less than 125 percent of the plan's current
liability (as defined in paragraph (7)(B)).
``(iii) Adjustments.--Information under clause
(ii) shall, in accordance with regulations, be
actuarially adjusted to reflect significant
differences in participants.''.
(b) Amendment of ERISA.--Paragraph (9) of section 302(c) of the
Employee Retirement Income Security Act of 1974 <<NOTE: 29 USC 1082.>>
(29 U.S.C. 1053(c)) is amended--
(1) by inserting ``(A)'' after ``(9)'', and
(2) by adding at the end the following:
``(B)(i) Except as provided in clause (ii), the valuation referred
to in subparagraph (A) shall be made as of a date within the plan year
to which the valuation refers or within one month prior to the beginning
of such year.
``(ii) The valuation referred to in subparagraph (A) may be made as
of a date within the plan year prior to the year to which the valuation
refers if, as of such date, the value of the assets of the plan are not
less than 125 percent of the plan's current liability (as defined in
paragraph (7)(B)).
``(iii) Information under clause (ii) shall, in accordance with
regulations, be actuarially adjusted to reflect significant differences
in participants.''.
(c) <<NOTE: Applicability. 26 USC 412 note.>> Effective Date.--The
amendments made by this section shall apply to plan years beginning
after December 31, 2001.
SEC. 662. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND
DEDUCTION.
(a) In General.--Section 404(k)(2)(A) (defining applicable
dividends) is amended by striking ``or'' at the end of clause (ii), by
redesignating clause (iii) as clause (iv), and by inserting after clause
(ii) the following new clause:
``(iii) is, at the election of such
participants or their beneficiaries--
``(I) payable as provided in clause
(i) or (ii), or
``(II) paid to the plan and
reinvested in qualifying employer
securities, or''.
(b) Standards for Disallowance.--Section 404(k)(5)(A) (relating to
disallowance of deduction) is amended by inserting ``avoidance or''
before ``evasion''.
(c) <<NOTE: Applicability. 26 USC 404 note.>> Effective Date.--The
amendments made by this section shall apply to taxable years beginning
after December 31, 2001.
SEC. 663. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY
COMPENSATED EMPLOYEES.
(a) In General.--Paragraph (4) of section 1114(c) of the Tax Reform
Act of <<NOTE: 26 USC 414 note.>> 1986 is hereby repealed.
[[Page 115 STAT. 143]]
(b) <<NOTE: Applicability. 26 USC 414 note.>> Effective Date.--The
repeal made by subsection (a) shall apply to plan years beginning after
December 31, 2001.
SEC. 664. EMPLOYEES OF TAX-EXEMPT ENTITIES.
(a) In General.--The Secretary of the Treasury shall modify Treasury
Regulations section 1.410(b)-6(g) to provide that employees of an
organization described in section 403(b)(1)(A)(i) of the Internal
Revenue Code of 1986 who are eligible to make contributions under
section 403(b) of such Code pursuant to a salary reduction agreement may
be treated as excludable with respect to a plan under section 401(k) or
(m) of such Code that is provided under the same general arrangement as
a plan under such section 401(k), if--
(1) no employee of an organization described in section
403(b)(1)(A)(i) of such Code is eligible to participate in such
section 401(k) plan or section 401(m) plan; and
(2) 95 percent of the employees who are not employees of an
organization described in section 403(b)(1)(A)(i) of such Code
are eligible to participate in such plan under such section
401(k) or (m).
(b) Effective Date.--The modification required by subsection (a)
shall apply as of the same date set forth in section 1426(b) of the
Small Business Job Protection Act of 1996.
SEC. 665. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT
ADVICE.
(a) In General.--Subsection (a) of section 132 (relating to
exclusion from gross income) is amended by striking ``or'' at the end of
paragraph (5), by striking the period at the end of paragraph (6) and
inserting ``, or'', and by adding at the end the following new
paragraph:
``(7) qualified retirement planning services.''.
(b) Qualified Retirement Planning Services Defined.--Section 132 is
amended by redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following:
``(m) Qualified Retirement Planning Services.--
``(1) In general.--For purposes of this section, the term
`qualified retirement planning services' means any retirement
planning advice or information provided to an employee and his
spouse by an employer maintaining a qualified employer plan.
``(2) Nondiscrimination rule.--Subsection (a)(7) shall apply
in the case of highly compensated employees only if such
services are available on substantially the same terms to each
member of the group of employees normally provided education and
information regarding the employer's qualified employer plan.
``(3) Qualified employer plan.--For purposes of this
subsection, the term `qualified employer plan' means a plan,
contract, pension, or account described in section 219(g)(5).''.
(c) <<NOTE: Applicability. 26 USC 132 note.>> Effective Date.--The
amendments made by this section shall apply to years beginning after
December 31, 2001.
SEC. 666. REPEAL OF THE MULTIPLE USE TEST.
(a) In General.--Paragraph (9) of section 401(m) is amended to read
as follows:
``(9) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes
[[Page 115 STAT. 144]]
of this subsection and subsection (k), including regulations
permitting appropriate aggregation of plans and
contributions.''.
(b) <<NOTE: Applicability. 26 USC 401 note.>> Effective Date.--The
amendment made by this section shall apply to years beginning after
December 31, 2001.
Subtitle G--Miscellaneous Provisions
SEC. 671. TAX TREATMENT AND INFORMATION REQUIREMENTS OF ALASKA NATIVE
SETTLEMENT TRUSTS.
(a) Treatment of Alaska Native Settlement Trusts.--Subpart A of part
I of subchapter J of chapter 1 (relating to general rules for taxation
of trusts and estates) is amended by adding at the end the following new
section:
``SEC. 646. TAX TREATMENT OF ELECTING ALASKA NATIVE SETTLEMENT TRUSTS.
``(a) In General.--If an election under this section is in effect
with respect to any Settlement Trust, the provisions of this section
shall apply in determining the income tax treatment of the Settlement
Trust and its beneficiaries with respect to the Settlement Trust.
``(b) Taxation of Income of Trust.--Except as provided in subsection
(f )(1)(B)(ii)--
``(1) In general.--There is hereby imposed on the taxable
income of an electing Settlement Trust, other than its net
capital gain, a tax at the lowest rate specified in section
1(c).
``(2) Capital gain.--In the case of an electing Settlement
Trust with a net capital gain for the taxable year, a tax is
hereby imposed on such gain at the rate of tax which would apply
to such gain if the taxpayer were subject to a tax on its other
taxable income at only the lowest rate specified in section
1(c).
Any such tax shall be in lieu of the income tax otherwise imposed by
this chapter on such income or gain.
``(c) One-Time Election.--
``(1) In general.--A Settlement Trust may elect to have the
provisions of this section apply to the trust and its
beneficiaries.
``(2) Time and method of election.--An election under
paragraph (1) shall be made by the trustee of such trust--
``(A) on or before the due date (including
extensions) for filing the Settlement Trust's return of
tax for the first taxable year of such trust ending
after the date of the enactment of this section, and
``(B) by attaching to such return of tax a statement
specifically providing for such election.
``(3) Period election in effect.--Except as provided in
subsection (f ), an election under this subsection--
``(A) shall apply to the first taxable year
described in paragraph (2)(A) and all subsequent taxable
years, and
``(B) may not be revoked once it is made.
``(d) Contributions to Trust.--
``(1) Beneficiaries of electing trust not taxed on
contributions.--In the case of an electing Settlement Trust, no
amount shall be includible in the gross income of a beneficiary
of such trust by reason of a contribution to such trust.
[[Page 115 STAT. 145]]
``(2) Earnings and profits.--The earnings and profits of the
sponsoring Native Corporation shall not be reduced on account of
any contribution to such Settlement Trust.
``(e) Tax Treatment of Distributions to Beneficiaries.--Amounts
distributed by an electing Settlement Trust during any taxable year
shall be considered as having the following characteristics in the hands
of the recipient beneficiary:
``(1) First, as amounts excludable from gross income for the
taxable year to the extent of the taxable income of such trust
for such taxable year (decreased by any income tax paid by the
trust with respect to the income) plus any amount excluded from
gross income of the trust under section 103.
``(2) Second, as amounts excludable from gross income to the
extent of the amount described in paragraph (1) for all taxable
years for which an election is in effect under subsection (c)
with respect to the trust, and not previously taken into account
under paragraph (1).
``(3) Third, as amounts distributed by the sponsoring Native
Corporation with respect to its stock (within the meaning of
section 301(a)) during such taxable year and taxable to the
recipient beneficiary as amounts described in section 301(c)(1),
to the extent of current or accumulated earnings and profits of
the sponsoring Native Corporation as of the close of such
taxable year after proper adjustment is made for all
distributions made by the sponsoring Native Corporation during
such taxable year.
``(4) Fourth, as amounts distributed by the trust in excess
of the distributable net income of such trust for such taxable
year.
Amounts distributed to which paragraph (3) applies shall not be treated
as a corporate distribution subject to section 311(b), and for purposes
of determining the amount of a distribution for purposes of paragraph
(3) and the basis to the recipients, section 643(e) and not section 301
(b) or (d) shall apply.
``(f ) Special Rules Where Transfer Restrictions Modified.--
``(1) Transfer of beneficial interests.--If, at any time, a
beneficial interest in an electing Settlement Trust may be
disposed of to a person in a manner which would not be permitted
by section 7(h) of the Alaska Native Claims Settlement Act (43
U.S.C. 1606(h)) if such interest were Settlement Common Stock--
``(A) no election may be made under subsection (c)
with respect to such trust, and
``(B) if such an election is in effect as of such
time--
``(i) such election shall cease to apply as of
the first day of the taxable year in which such
disposition is first permitted,
``(ii) the provisions of this section shall
not apply to such trust for such taxable year and
all taxable years thereafter, and
``(iii) the distributable net income of such
trust shall be increased by the current or
accumulated earnings and profits of the sponsoring
Native Corporation as of the close of such taxable
year after proper adjustment is made for all
distributions made by the
[[Page 115 STAT. 146]]
sponsoring Native Corporation during such taxable
year.
In no event shall the increase under clause (iii) exceed the
fair market value of the trust's assets as of the date the
beneficial interest of the trust first becomes so disposable.
The earnings and profits of the sponsoring Native Corporation
shall be adjusted as of the last day of such taxable year by the
amount of earnings and profits so included in the distributable
net income of the trust.
``(2) Stock in corporation.--If--
``(A) stock in the sponsoring Native Corporation may
be disposed of to a person in a manner which would not
be permitted by section 7(h) of the Alaska Native Claims
Settlement Act (43 U.S.C. 1606(h)) if such stock were
Settlement Common Stock, and
``(B) at any time after such disposition of stock is
first permitted, such corporation transfers assets to a
Settlement Trust,
paragraph (1)(B) shall be applied to such trust on and after the
date of the transfer in the same manner as if the trust
permitted dispositions of beneficial interests in the trust in a
manner not permitted by such section 7(h).
``(3) Certain distributions.--For purposes of this section,
the surrender of an interest in a Native Corporation or an
electing Settlement Trust in order to accomplish the whole or
partial redemption of the interest of a shareholder or
beneficiary in such corporation or trust, or to accomplish the
whole or partial liquidation of such corporation or trust, shall
be deemed to be a transfer permitted by section 7(h) of the
Alaska Native Claims Settlement Act.
``(g) Taxable Income.--For purposes of this title, the taxable
income of an electing Settlement Trust shall be determined under section
641(b) without regard to any deduction under section 651 or 661.
``(h) Definitions.--For purposes of this section--
``(1) Electing settlement trust.--The term `electing
Settlement Trust' means a Settlement Trust which has made the
election, effective for a taxable year, described in subsection
(c).
``(2) Native corporation.--The term `Native Corporation' has
the meaning given such term by section 3(m) of the Alaska Native
Claims Settlement Act (43 U.S.C. 1602(m)).
``(3) Settlement common stock.--The term `Settlement Common
Stock' has the meaning given such term by section 3(p) of the
Alaska Native Claims Settlement Act (43 U.S.C. 1602(p)).
``(4) Settlement trust.--The term `Settlement Trust' means a
trust that constitutes a settlement trust under section 3(t) of
the Alaska Native Claims Settlement Act (43 U.S.C. 1602(t)).
``(5) Sponsoring native corporation.--The term `sponsoring
Native Corporation' means the Native Corporation which transfers
assets to an electing Settlement Trust.
``(i) Special Loss Disallowance Rule.--Any loss that would otherwise
be recognized by a shareholder upon a disposition of a share of stock of
a sponsoring Native Corporation shall be reduced (but not below zero) by
the per share loss adjustment factor. The
[[Page 115 STAT. 147]]
per share loss adjustment factor shall be the aggregate of all
contributions to all electing Settlement Trusts sponsored by such Native
Corporation made on or after the first day each trust is treated as an
electing Settlement Trust expressed on a per share basis and determined
as of the day of each such contribution.
``( j) Cross Reference.--
``For information required with respect to electing
Settlement Trusts and sponsoring Native Corporations,
see section 6039H.''.
(b) Reporting.--Subpart A of part III of subchapter A of chapter 61
of subtitle F (relating to information concerning persons subject to
special provisions) is amended by inserting after section 6039G the
following new section:
``SEC. 6039H. INFORMATION WITH RESPECT TO ALASKA NATIVE SETTLEMENT
TRUSTS AND SPONSORING NATIVE CORPORATIONS.
``(a) Requirement.--The fiduciary of an electing Settlement Trust
(as defined in section 646(h)(1)) shall include with the return of
income of the trust a statement containing the information required
under subsection (c).
``(b) Application With Other Requirements.--The filing of any
statement under this section shall be in lieu of the reporting
requirements under section 6034A to furnish any statement to a
beneficiary regarding amounts distributed to such beneficiary (and such
other reporting rules as the Secretary deems appropriate).
``(c) Required Information.--The information required under this
subsection shall include--
``(1) the amount of distributions made during the taxable
year to each beneficiary,
``(2) the treatment of such distribution under the
applicable provision of section 646, including the amount that
is excludable from the recipient beneficiary's gross income
under section 646, and
``(3) the amount (if any) of any distribution during such
year that is deemed to have been made by the sponsoring Native
Corporation (as defined in section 646(h)(5)).
``(d) Sponsoring Native Corporation.--
``(1) In general.--The electing Settlement Trust shall, on
or before the date on which the statement under subsection (a)
is required to be filed, furnish such statement to the
sponsoring Native Corporation (as so defined).
``(2) Distributees.--The sponsoring Native Corporation shall
furnish each recipient of a distribution described in section
646(e)(3) a statement containing the amount deemed to have been
distributed to such recipient by such corporation for the
taxable year.''.
(c) Clerical Amendment.--
(1) The table of sections for subpart A of part I of
subchapter J of chapter 1 of such Code is amended by adding at
the end the following new item:
``Sec. 646. Tax treatment of electing Alaska Native
Settlement Trusts.''.
(2) The table of sections for subpart A of part III of
subchapter A of chapter 61 of subtitle F of such Code is amended
[[Page 115 STAT. 148]]
by inserting after the item relating to section 6039G the
following new item:
``Sec. 6039H. Information with respect to Alaska Native
Settlement Trusts and sponsoring Native
Corporations.''.
(d) <<NOTE: Applicability. 26 USC 646 note.>> Effective Date.--The
amendments made by this section shall apply to taxable years ending
after the date of the enactment of this Act and to contributions made to
electing Settlement Trusts for such year or any subsequent year.
TITLE VII--ALTERNATIVE MINIMUM TAX
SEC. 701. INCREASE IN ALTERNATIVE MINIMUM TAX EXEMPTION.
(a) In General.--
(1) Subparagraph (A) of section 55(d)(1) (relating to
exemption amount for taxpayers other than corporations) is
amended by striking ``$45,000'' and inserting ``$45,000 ($49,000
in the case of taxable years beginning in 2001, 2002, 2003, and
2004)''.
(2) Subparagraph (B) of section 55(d)(1) (relating to
exemption amount for taxpayers other than corporations) is
amended by striking ``$33,750'' and inserting ``$33,750 ($35,750
in the case of taxable years beginning in 2001, 2002, 2003, and
2004)''.
(b) Conforming Amendments.--
(1) Paragraph (1) of section 55(d) is amended by striking
``and'' at the end of subparagraph (B), by striking subparagraph
(C), and by inserting after subparagraph (B) the following new
subparagraphs:
``(C) 50 percent of the dollar amount applicable
under paragraph (1)(A) in the case of a married
individual who files a separate return, and
``(D) $22,500 in the case of an estate or trust.''.
(2) Subparagraph (C) of section 55(d)(3) is amended by
striking ``paragraph (1)(C)'' and inserting ``subparagraph (C)
or (D) of paragraph (1)''.
(3) The last sentence of section 55(d)(3) is amended--
(A) by striking ``paragraph (1)(C)(i)'' and
inserting ``paragraph (1)(C)''; and
(B) by striking ``$165,000 or (ii) $22,500'' and
inserting ``the minimum amount of such income (as so
determined) for which the exemption amount under
paragraph (1)(C) is zero, or (ii) such exemption amount
(determined without regard to this paragraph)''.
(c) <<NOTE: Applicability. 26 USC 55 note.>> Effective Date.--The
amendments made by this section shall apply to taxable years beginning
after December 31, 2000.
TITLE VIII--OTHER PROVISIONS
SEC. 801. <<NOTE: 26 USC 6655 note.>> TIME FOR PAYMENT OF CORPORATE
ESTIMATED TAXES.
Notwithstanding section 6655 of the Internal Revenue Code of 1986--
(1) 100 percent of the amount of any required installment of
corporate estimated tax which is otherwise due in September 2001
shall not be due until October 1, 2001; and
[[Page 115 STAT. 149]]
(2) 20 percent of the amount of any required installment of
corporate estimated tax which is otherwise due in September 2004
shall not be due until October 1, 2004.
SEC. 802. EXPANSION OF AUTHORITY TO POSTPONE CERTAIN TAX-RELATED
DEADLINES BY REASON OF PRESIDENTIALLY DECLARED DISASTER.
(a) In General.--Section 7508A(a) (relating to authority to postpone
certain tax-related deadlines by reason of presidentially declared
disaster) is amended by striking ``90 days'' and inserting ``120 days''.
(b) <<NOTE: 26 USC 7508A note.>> Effective Date.--The amendment
made by this section shall take effect on the date of enactment of this
Act.
SEC. 803. <<NOTE: 26 USC note prec. 101.>> NO FEDERAL INCOME TAX ON
RESTITUTION RECEIVED BY VICTIMS OF THE NAZI REGIME OR THEIR
HEIRS OR ESTATES.
(a) In General.--For purposes of the Internal Revenue Code of 1986,
any excludable restitution payments received by an eligible individual
(or the individual's heirs or estate) and any excludable interest--
(1) shall not be included in gross income; and
(2) shall not be taken into account for purposes of applying
any provision of such Code which takes into account excludable
income in computing adjusted gross income, including section 86
of such Code (relating to taxation of Social Security benefits).
For purposes of such Code, the basis of any property received by an
eligible individual (or the individual's heirs or estate) as part of an
excludable restitution payment shall be the fair market value of such
property as of the time of the receipt.
(b) Eligible Individual.--For purposes of this section, the term
``eligible individual'' means a person who was persecuted on the basis
of race, religion, physical or mental disability, or sexual orientation
by Nazi Germany, any other Axis regime, or any other Nazi-controlled or
Nazi-allied country.
(c) Excludable Restitution Payment.--For purposes of this section,
the term ``excludable restitution payment'' means any payment or
distribution to an individual (or the individual's heirs or estate)
which--
(1) is payable by reason of the individual's status as an
eligible individual, including any amount payable by any foreign
country, the United States of America, or any other foreign or
domestic entity, or a fund established by any such country or
entity, any amount payable as a result of a final resolution of
a legal action, and any amount payable under a law providing for
payments or restitution of property;
(2) constitutes the direct or indirect return of, or
compensation or reparation for, assets stolen or hidden from, or
otherwise lost to, the individual before, during, or immediately
after World War II by reason of the individual's status as an
eligible individual, including any proceeds of insurance under
policies issued on eligible individuals by European insurance
companies immediately before and during World War II; or
(3) consists of interest which is payable as part of any
payment or distribution described in paragraph (1) or (2).
(d) Excludable Interest.--For purposes of this section, the term
``excludable interest'' means any interest earned by--
[[Page 115 STAT. 150]]
(1) escrow accounts or settlement funds established pursuant
to the settlement of the action entitled ``In re: Holocaust
Victim Assets Litigation,'' (E.D.N.Y.) C.A. No. 96-4849,
(2) funds to benefit eligible individuals or their heirs
created by the International Commission on Holocaust Insurance
Claims as a result of the Agreement between the Government of
the United States of America and the Government of the Federal
Republic of Germany concerning the Foundation ``Remembrance,
Responsibility, and Future,'' dated July 17, 2000, or
(3) similar funds subject to the administration of the
United States courts created to provide excludable restitution
payments to eligible individuals (or eligible individuals' heirs
or estates).
(e) Effective Date.--
(1) In general.--This section shall apply to any amount
received on or after January 1, 2000.
(2) No inference.--Nothing in this Act shall be construed to
create any inference with respect to the proper tax treatment of
any amount received before January 1, 2000.
TITLE IX--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT
SEC. 901. SUNSET OF PROVISIONS OF ACT. <<NOTE: 26 USC 1 note.>>
(a) In General.--All provisions of, and amendments made by, this Act
shall not apply--
(1) to taxable, plan, or limitation years beginning after
December 31, 2010, or
(2) in the case of title V, to estates of decedents dying,
gifts made, or generation skipping transfers, after December 31,
2010.
(b) Application of Certain Laws.--The Internal Revenue Code of 1986
and the Employee Retirement Income Security Act of 1974 shall be applied
and administered to years, estates, gifts, and transfers described in
subsection (a) as if the provisions and amendments described in
subsection (a) had never been enacted.
Approved June 7, 2001.
LEGISLATIVE HISTORY--H.R. 1836:
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HOUSE REPORTS: No. 107-84 (Comm. of Conference).
CONGRESSIONAL RECORD, Vol. 147 (2001):
May 16, considered and passed House.
May 17, 21-23, considered and passed Senate, amended.
May 25, House agreed to conference report.
May 26, Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 37 (2001):
June 7, Presidential remarks.
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