[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1018 Introduced in House (IH)]
107th CONGRESS
1st Session
H. R. 1018
To amend the Internal Revenue Code of 1986 to provide for economic
growth by providing tax relief.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
March 14, 2001
Mr. Toomey (for himself, Mr. Ryan of Wisconsin, Mr. Armey, Mr. Flake,
Mr. Shadegg, Mr. Sam Johnson of Texas, Mr. DeMint, Mr. Pence, Mr.
Bonilla, Mr. Sessions, Mr. Doolittle, Mr. Ryun of Kansas, Mr. Souder,
Mr. Largent, Mr. Otter, Mr. Tancredo, Mr. Chabot, Mr. Cox, Mrs. Myrick,
Mr. Hayworth, Mr. Cantor, Mr. Akin, Ms. Hart, Mr. Schaffer, Mr. Gary
Miller of California, Mr. Istook, Mr. Hostettler, Mr. Pitts, Mr.
Bartlett of Maryland, Mr. Herger, Mr. Issa, Mr. Hefley, Mr. Kirk, Mr.
Keller, Mr. Jones of North Carolina, Mrs. Jo Ann Davis of Virginia, and
Mr. Barr of Georgia) introduced the following bill; which was referred
to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide for economic
growth by providing tax relief.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
(a) Short Title.--This Act may be cited as the ``Economic Recovery
and Growth 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) Section 15 Not To Apply.--No amendment made by this Act shall
be treated as a change in a rate of tax for purposes of section 15 of
the Internal Revenue Code of 1986.
(d) Table of Contents.--
Sec. 1. Short title.
TITLE I--INDIVIDUAL INCOME TAX RELIEF
Sec. 101. Reduction in marginal income tax rates for individuals.
Sec. 102. Repeal of alternative minimum tax on individuals.
TITLE II--INDIVIDUAL SAVINGS AND INVESTMENT TAX RELIEF
Subtitle A--Individual Savings and Investment Tax Relief
Sec. 201. Reduction in capital gains rates.
Sec. 202. Phaseout of estate and gift taxes.
Subtitle B--Pension Reform
Chapter 1--Individual Retirement Accounts
Sec. 211. Modification of IRA contribution limits.
Sec. 212. Catchup contributions to IRAs by individuals age 50 or over.
Sec. 213. Modification of income limits on contributions and rollovers
to Roth IRAs.
Sec. 214. Deemed IRAs under employer plans.
Chapter 2--Expanding Coverage
Sec. 221. Increase in benefit and contribution limits.
Sec. 222. Plan loans for subchapter S owners, partners, and sole
proprietors.
Sec. 223. Modification of top-heavy rules.
Sec. 224. Elective deferrals not taken into account for purposes of
deduction limits.
Sec. 225. Repeal of coordination requirements for deferred compensation
plans of State and local governments and
tax-exempt organizations.
Sec. 226. Elimination of user fee for requests to IRS regarding pension
plans.
Sec. 227. Deduction limits.
Sec. 228. Option to treat elective deferrals as after-tax
contributions.
Chapter 3--Enhancing Fairness for Women
Sec. 231. Catch-up contributions for individuals age 50 or over.
Sec. 232. Equitable treatment for contributions of employees to defined
contribution plans.
Sec. 233. Faster vesting of certain employer matching contributions.
Sec. 234. Simplify and update the minimum distribution rules.
Sec. 235. Clarification of tax treatment of division of section 457
plan benefits upon divorce.
Sec. 236. Modification of safe harbor relief for hardship withdrawals
from cash or deferred arrangements.
Chapter 4--Increasing Portability for Participants
Sec. 241. Rollovers allowed among various types of plans.
Sec. 242. Rollovers of IRAs into workplace retirement plans.
Sec. 243. Rollovers of after-tax contributions.
Sec. 244. Hardship exception to 60-day rule.
Sec. 245. Treatment of forms of distribution.
Sec. 246. Rationalization of restrictions on distributions.
Sec. 247. Purchase of service credit in governmental defined benefit
plans.
Sec. 248. Employers may disregard rollovers for purposes of cash-out
amounts.
Sec. 249. Minimum distribution and inclusion requirements for section
457 plans.
Chapter 5--Strengthening Pension Security and Enforcement
Sec. 251. Repeal of 150 percent of current liability funding limit.
Sec. 252. Maximum contribution deduction rules modified and applied to
all defined benefit plans.
Sec. 253. Excise tax relief for sound pension funding.
Sec. 254. Excise tax on failure to provide notice by defined benefit
plans significantly reducing future benefit
accruals.
Sec. 255. Treatment of multiemployer plans under section 415.
Sec. 256. Prohibited allocations of stock in S corporation ESOP.
Chapter 6--Reducing Regulatory Burdens
Sec. 261. Modification of timing of plan valuations.
Sec. 262. ESOP dividends may be reinvested without loss of dividend
deduction.
Sec. 263. Repeal of transition rule relating to certain highly
compensated employees.
Sec. 264. Employees of tax-exempt entities.
Sec. 265. Clarification of treatment of employer-provided retirement
advice.
Sec. 266. Reporting simplification.
Sec. 267. Improvement of employee plans compliance resolution system.
Sec. 268. Repeal of the multiple use test.
Sec. 269. Flexibility in nondiscrimination, coverage, and line of
business rules.
Sec. 270. Extension to all governmental plans of moratorium on
application of certain nondiscrimination
rules applicable to State and local plans.
Sec. 271. Notice and consent period regarding distributions.
Chapter 7--Plan Amendments
Sec. 281. Provisions relating to plan amendments.
TITLE III--FAMILY TAX RELIEF
Sec. 301. Elimination of marriage penalty in standard deduction.
Sec. 302. Phaseout of marriage penalty in income tax rate brackets.
Sec. 303. Modifications of child tax credit.
Sec. 304. Expansion of Education IRAs.
Sec. 305. Eligible educational institutions permitted to maintain
qualified tuition programs.
Sec. 306. Exclusion from gross income of education distributions from
qualified tuition programs.
Sec. 307. Qualified tuition programs included in securities exemption.
Sec. 308. Expansion of credit for adoption expenses.
TITLE IV--CHARITABLE GIVING TAX RELIEF
Sec. 401. Deduction for portion of charitable contributions to be
allowed to individuals who do not itemize
deductions.
Sec. 402. Tax-free distributions from individual retirement accounts
for charitable purposes.
Sec. 403. Higher limitation on corporate charitable contributions.
TITLE V--MISCELLANEOUS TAX RELIEF
Sec. 501. Repeal of 1993 income tax increase on social security
benefits.
Sec. 502. Repeal of Federal communications excise tax.
Sec. 503. Deduction for 100 percent of health insurance costs of self-
employed individuals.
Sec. 504. Increased deduction for meal expenses.
Sec. 505. Increase in expense treatment for small businesses.
Sec. 506. Income averaging for farmers and fishermen not to increase
alternative minimum tax liability.
Sec. 507. Repeal of occupational taxes relating to distilled spirits,
wine, and beer.
Sec. 508. Permanent extension of research credit.
Sec. 509. Farm, fishing, and ranch risk management accounts.
TITLE I--INDIVIDUAL INCOME TAX RELIEF
SEC. 101. REDUCTION IN MARGINAL INCOME TAX RATES FOR INDIVIDUALS.
(a) In General.--Section 1 is amended by adding at the end the
following new subsection:
``(i) Rate Reductions After 2000.--
``(1) New lowest 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 12
percent (as modified by paragraph (2)), and
``(ii) the 15 percent rate of tax shall
apply only to taxable income over the initial
bracket amount.
``(B) Initial bracket amount.--For purposes of this
subsection, the initial bracket amount is--
``(i) $12,000 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) in the case of subsections (c) and
(d).
``(C) Inflation adjustment.--In prescribing the
tables under subsection (f) which apply with respect to
taxable years beginning in calendar years after 2001--
``(i) the Secretary shall make no
adjustment to the initial bracket amount for
any taxable year beginning before January 1,
2007,
``(ii) the cost-of-living adjustment used
in making adjustments to the initial bracket
amount for any taxable year beginning after
December 31, 2006, shall be determined under
subsection (f)(3) by substituting `2005' 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.
``(2) Additional reductions.--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,
to the extent applicable, (e).
------------------------------------------------------------------------
``In the case of The corresponding percentages shall be
taxable years substituted for the following percentages:
beginning during -----------------------------------------------
calendar year: 12% 15% 28% 31% 36% 39.6%
------------------------------------------------------------------------
2001............ 12% 15% 26% 26% 34% 34%
2002............ 12% 15% 26% 26% 34% 34%
2003............ 12% 15% 26% 26% 34% 34%
2004............ 12% 15% 26% 26% 34% 34%
2005............ 11% 15% 26% 26% 34% 34%
2006............ 10% 15% 25% 25% 33% 33%
2007............ 10% 15% 25% 25% 33% 33%
2008............ 10% 15% 25% 25% 33% 33%
2009............ 10% 15% 25% 25% 33% 33%
2010............ 9.5% 14.2% 23.7% 23.7% 31.3% 31.3%
2011 and 9% 13.5% 22.5% 22.5% 29.7% 29.7%
thereafter.
------------------------------------------------------------------------
``(3) Adjustment of tables.--The Secretary shall adjust the
tables prescribed under subsection (f) to carry out this
subsection.''
(b) Repeal of Reduction of Refundable Tax Credits.--
(1) Subsection (d) of section 24 is amended by striking
paragraph (2) and redesignating paragraph (3) as paragraph (2).
(2) Section 32 is amended by striking subsection (h).
(c) Conforming Amendments.--
(1) Subparagraph (B) of section 1(g)(7) is amended--
(A) by striking ``15 percent'' in clause (ii)(II)
and inserting ``the first bracket percentage'', and
(B) by adding at the end the following flush
sentence:
``For purposes of clause (ii), the first bracket
percentage is the percentage applicable to the lowest
income bracket in the table under subsection (c).''
(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 ``21.2 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 Recovery and Growth 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 of such Code 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 ``equal to 15
percent of such payment'' and inserting ``equal to the product
of the lowest rate of tax under section 1(c) and such
payment''.
(8) Section 3402(q)(1) is amended by striking ``equal to 28
percent of such payment'' and inserting ``equal to the product
of the third to the lowest rate of tax under section 1(c) and
such payment''.
(9) Section 3402(r)(3) is amended by striking ``31
percent'' and inserting ``the third to the lowest rate of tax
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 third to the lowest rate of tax 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 to the lowest rate of tax under section 1(c) of the
Internal Revenue Code of 1986''.
(d) 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.
SEC. 102. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDIVIDUALS.
(a) In General.--Subsection (a) of section 55 is amended by adding
at the end the following new flush sentence:
``For purposes of this title, the tentative minimum tax on any taxpayer
other than a corporation for any taxable year beginning after December
31, 2009, shall be zero.''.
(b) Reduction of Tax on Individuals Prior to Repeal.--Section 55 is
amended by adding at the end the following new subsection:
``(f) Phaseout of Tax on Individuals.--
``(1) In general.--The tax imposed by this section on a
taxpayer other than a corporation for any taxable year
beginning after December 31, 2000, and before January 1, 2010,
shall be the applicable percentage of the tax which would be
imposed but for this subsection.
``(2) Applicable percentage.--For purposes of paragraph
(1), the applicable percentage shall be determined in
accordance with the following table:
``For taxable years beginning
The applicable
in calendar year--
percentage is--
2001, 2002, or 2003............................ 80
2004, 2005, or 2006............................ 70
2007 or 2008................................... 60
2009........................................... 50.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2000.
TITLE II--INDIVIDUAL SAVINGS AND INVESTMENT TAX RELIEF; PENSION REFORM
Subtitle A--Individual Savings and Investment Tax Relief
SEC. 201. REDUCTION IN CAPITAL GAINS RATES.
(a) In General.--Subsection (h) of section 1 is amended--
(1) by striking ``10 percent'' in subparagraph (B) and
inserting ``7.5 percent'',
(2) by striking ``20 percent'' in subparagraph (C) and
inserting ``15 percent'',
(3) by striking ``25 percent'' in subparagraph (D) and
inserting ``20 percent'', and
(4) by striking paragraph (2).
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
SEC. 202. PHASEOUT OF ESTATE AND GIFT TAXES.
(a) Repeal of Estate and Gift Taxes.--Subtitle B (relating to
estate and gift taxes) is repealed effective with respect to estates of
decedents dying, and gifts made, after December 31, 2008.
(b) Phaseout of Tax.--Subsection (c) of section 2001 (relating to
imposition and rate of tax) is amended by adding at the end the
following new paragraph:
``(3) Phaseout of tax.--In the case of estates of decedents
dying, and gifts made, during any calendar year after 2001 and
before 2009--
``(A) In general.--The tentative tax under this
subsection shall be determined by using a table
prescribed by the Secretary (in lieu of using the table
contained in paragraph (1)) which is the same as such
table; except that--
``(i) each of the rates of tax shall be
reduced (but not below zero) by the number of
percentage points determined under subparagraph
(B), and
``(ii) the amounts setting forth the tax
shall be adjusted to the extent necessary to
reflect the adjustments under clause (i).
``(B) Percentage points of reduction.--
The number of
``For calendar year: percentage points is:
2002, 2003, 2004, or 2005..................... 15
2006.......................................... 20
2007.......................................... 30
2008.......................................... 40.
``(C) Coordination with paragraph (2).--Paragraph
(2) shall be applied by reducing the 55 percent
percentage contained therein by the number of
percentage points determined for such calendar year
under subparagraph (B).''.
(c) Effective Date.--The amendments made by subsection (b) shall
apply to estates of decedents dying, and gifts made, after December 31,
2001.
Subtitle B--Pension Reform
CHAPTER 1--INDIVIDUAL RETIREMENT ACCOUNTS
SEC. 211. MODIFICATION OF IRA CONTRIBUTION LIMITS.
(a) Increase in Contribution Limit.--
(1) In general.--Paragraph (1)(A) of section 219(b)
(relating to maximum amount of deduction) is amended by
striking ``$2,000'' and inserting ``the deductible amount''.
(2) Deductible amount.--Section 219(b) is amended by adding
at the end the following new paragraph:
``(5) Deductible amount.--For purposes of paragraph
(1)(A)--
``(A) In general.--The deductible amount shall be
determined in accordance with the following table:
``For taxable years The deductible
beginning in: amount is:
2002.......................................... $3,000
2003.......................................... $4,000
2004 and thereafter........................... $5,000.
``(B) Cost-of-living adjustment.--
``(i) In general.--In the case of any
taxable year beginning in a calendar year after
2004, 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 2003'
for `calendar year 1992' in subparagraph (B) thereof.
``(ii) Rounding rules.--If any amount after
adjustment under clause (i) is not a multiple
of $100, such amount shall be rounded to the
next lower multiple of $100.''.
(b) Conforming Amendments.--
(1) Section 408(a)(1) is amended by striking ``in excess of
$2,000 on behalf of any individual'' and inserting ``on behalf
of any individual in excess of the amount in effect for such
taxable year under section 219(b)(1)(A)''.
(2) Section 408(b)(2)(B) is amended by striking ``$2,000''
and inserting ``the dollar amount in effect under section
219(b)(1)(A)''.
(3) Section 408(b) is amended by striking ``$2,000'' in the
matter following paragraph (4) and inserting ``the dollar
amount in effect under section 219(b)(1)(A)''.
(4) Section 408(j) is amended by striking ``$2,000''.
(5) Section 408(p)(8) is amended by striking ``$2,000'' and
inserting ``the dollar amount in effect under section
219(b)(1)(A)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
SEC. 212. CATCHUP CONTRIBUTIONS TO IRAS BY INDIVIDUALS AGE 50 OR OVER.
(a) In General.--Section 219(b) is amended further by adding at the
end the following new paragraph:
``(6) Catchup contributions.--
``(A) In general.--In the case of an individual who
has attained the age of 50 before the close of the
taxable year, the dollar amount in effect under
paragraph (1)(A) for such taxable year shall be equal
to the applicable percentage of such amount determined
without regard to this paragraph.
``(B) Applicable percentage.--For purposes of this
paragraph, the applicable percentage shall be
determined in accordance with the following table:
``For taxable years The applicable
beginning in: percentage is:
2002.......................................... 110 percent
2003.......................................... 120 percent
2004.......................................... 130 percent
2005.......................................... 140 percent
2006 and thereafter........................... 150 percent.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions in taxable years beginning after December 31, 2001.
SEC. 213. MODIFICATION OF INCOME LIMITS ON CONTRIBUTIONS AND ROLLOVERS
TO ROTH IRAS.
(a) Repeal of AGI Limit on Contributions.--Section 408A(c)(3)
(relating to limits based on modified adjusted gross income) is
amended--
(1) by striking clause (ii) of subparagraph (A) and
inserting:
``(ii) $10,000.'', and
(2) by striking clause (ii) of subparagraph (C) and
inserting:
``(ii) the applicable dollar amount is--
``(I) $200,000 in the case of a
taxpayer filing a joint return, and
``(II) $100,000 in the case of any
other taxpayer.''.
(b) Increase in AGI Limit for Rollover Contributions.--Section
408A(c)(3)(B) (relating to rollover from IRA) is amended to read as
follows:
``(B) Rollover from ira.--A taxpayer shall not be
allowed to make a qualified rollover contribution from
an individual retirement plan other than a Roth IRA
during any taxable year if, for the taxable year of the
distribution to which the contribution relates, the
taxpayer's adjusted gross income exceeds $100,000
($200,000 in the case of a taxpayer filing a joint
return).''.
(c) Effective Dates.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
SEC. 214. DEEMED IRAS UNDER EMPLOYER PLANS.
(a) In General.--Section 408 (relating to individual retirement
accounts) is amended by redesignating subsection (q) as subsection (r)
and by inserting after subsection (p) the following new subsection:
``(q) Deemed IRAs Under Qualified Employer Plans.--
``(1) General rule.--If--
``(A) a qualified employer plan elects to allow
employees to make voluntary employee contributions to a
separate account or annuity established under the plan,
and
``(B) under the terms of the qualified employer
plan, such account or annuity meets the applicable
requirements of this section or section 408A for an
individual retirement account or annuity,
then such account or annuity shall be treated for purposes of
this title in the same manner as an individual retirement plan
(and contributions to such account or annuity as contributions
to an individual retirement plan). For purposes of subparagraph
(B), the requirements of subsection (a)(5) shall not apply.
``(2) Special rules for qualified employer plans.--For
purposes of this title--
``(A) a qualified employer plan shall not fail to
meet any requirement of this title solely by reason of
establishing and maintaining a program described in
paragraph (1), and
``(B) any account or annuity described in paragraph
(1), and any contribution to the account or annuity,
shall not be subject to any requirement of this title
applicable to a qualified employer plan or taken into
account in applying any such requirement to any other
contributions under the plan.
``(3) Definitions.--For purposes of this subsection--
``(A) Qualified employer plan.--The term `qualified
employer plan' has the meaning given such term by
section 72(p)(4).
``(B) Voluntary employee contribution.--The term
`voluntary employee contribution' means any
contribution (other than a mandatory contribution
within the meaning of section 411(c)(2)(C))--
``(i) which is made by an individual as an
employee under a qualified employer plan which
allows employees to elect to make contributions
described in paragraph (1), and
``(ii) with respect to which the individual
has designated the contribution as a
contribution to which this subsection
applies.''.
(b) Amendment of ERISA.--
(1) In general.--Section 4 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1003) is amended by
adding at the end the following new subsection:
``(c) If a pension plan allows an employee to elect to make
voluntary employee contributions to accounts and annuities as provided
in section 408(q) of the Internal Revenue Code of 1986, such accounts
and annuities (and contributions thereto) shall not be treated as part
of such plan (or as a separate pension plan) for purposes of any
provision of this title other than section 403(c), 404, or 405
(relating to exclusive benefit, and fiduciary and co-fiduciary
responsibilities).''.
(2) Conforming amendment.--Section 4(a) of such Act (29
U.S.C. 1003(a)) is amended by inserting ``or (c)'' after
``subsection (b)''.
(c) Effective Date.--The amendments made by this section shall
apply to plan years beginning after December 31, 2001.
CHAPTER 2--EXPANDING COVERAGE
SEC. 221. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.
(a) Defined Benefit Plans.--
(1) Dollar limit.--
(A) Subparagraph (A) of section 415(b)(1) (relating
to limitation for defined benefit plans) is amended by
striking ``$90,000'' and inserting ``$160,000''.
(B) Subparagraphs (C) and (D) of section 415(b)(2)
are each amended by striking ``$90,000'' each place it
appears in the headings and the text and inserting
``$160,000''.
(C) Paragraph (7) of section 415(b) (relating to
benefits under certain collectively bargained plans) is
amended by striking ``the greater of $68,212 or one-
half the amount otherwise applicable for such year
under paragraph (1)(A) for `$90,000''' and inserting
``one-half the amount otherwise applicable for such
year under paragraph (1)(A) for `$160,000'''.
(2) Limit reduced when benefit begins before age 62.--
Subparagraph (C) of section 415(b)(2) is amended by striking
``the social security retirement age'' each place it appears in
the heading and text and inserting ``age 62''.
(3) Limit increased when benefit begins after age 65.--
Subparagraph (D) of section 415(b)(2) is amended by striking
``the social security retirement age'' each place it appears in
the heading and text and inserting ``age 65''.
(4) Cost-of-living adjustments.--Subsection (d) of section
415 (related to cost-of-living adjustments) is amended--
(A) by striking ``$90,000'' in paragraph (1)(A) and
inserting ``$160,000''; and
(B) in paragraph (3)(A)--
(i) by striking ``$90,000'' in the heading
and inserting ``$160,000''; and
(ii) by striking ``October 1, 1986'' and
inserting ``July 1, 2001''.
(5) Conforming amendment.--Section 415(b)(2) is amended by
striking subparagraph (F).
(b) Defined Contribution Plans.--
(1) Dollar limit.--Subparagraph (A) of section 415(c)(1)
(relating to limitation for defined contribution plans) is
amended by striking ``$30,000'' and inserting ``$40,000''.
(2) Cost-of-living adjustments.--Subsection (d) of section
415 (related to cost-of-living adjustments) is amended--
(A) by striking ``$30,000'' in paragraph (1)(C) and
inserting ``$40,000''; and
(B) in paragraph (3)(D)--
(i) by striking ``$30,000'' in the heading
and inserting ``$40,000''; and
(ii) by striking ``October 1, 1993'' and
inserting ``July 1, 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 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) 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
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 specified in
the table in subparagraph (A) at the same time and in
the same manner as under section 415(d), except that
the base period shall be the calendar quarter beginning
July 1, 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)
(relating to general rule for qualified salary reduction
arrangement) is amended by striking ``$6,000'' and inserting
``the applicable dollar amount''.
(2) Applicable dollar amount.--Subparagraph (E) of
408(p)(2) is amended to read as follows:
``(E) Applicable dollar amount; cost-of-living
adjustment.--
``(i) In general.--For purposes of
subparagraph (A)(ii), the applicable dollar
amount shall be the amount determined in
accordance with the following table:
``For taxable years
The applicable
beginning in
dollar amount:
calendar year:
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) Clause (I) of section 401(k)(11)(B)(i) is
amended by striking ``$6,000'' and inserting ``the
amount in effect under section 408(p)(2)(A)(ii)''.
(B) Section 401(k)(11) is amended by striking
subparagraph (E).
(g) Rounding Rule Relating to Defined Benefit Plans and Defined
Contribution Plans.--Paragraph (4) of section 415(d) is amended to read
as follows:
``(4) Rounding.--
``(A) $160,000 amount.--Any increase under
subparagraph (A) of paragraph (1) which is not a
multiple of $5,000 shall be rounded to the next lowest
multiple of $5,000.
``(B) $40,000 amount.--Any increase under
subparagraph (C) of paragraph (1) which is not a
multiple of $1,000 shall be rounded to the next lowest
multiple of $1,000.''.
(h) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2001.
SEC. 222. 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) Effective Date.--The amendment made by this section shall apply
to loans made after December 31, 2001.
SEC. 223. MODIFICATION OF TOP-HEAVY RULES.
(a) Simplification of Definition of Key Employee.--
(1) In general.--Section 416(i)(1)(A) (defining key
employee) is amended--
(A) by striking ``or any of the 4 preceding plan
years'' in the matter preceding clause (i);
(B) by striking clause (i) and inserting the
following:
``(i) an officer of the employer having an
annual compensation greater than $150,000,'';
(C) by striking clause (ii) and redesignating
clauses (iii) and (iv) as clauses (ii) and (iii),
respectively; and
(D) by striking the second sentence in the matter
following clause (iii), as redesignated by subparagraph
(C).
(2) Conforming amendment.--Section 416(i)(1)(B)(iii) is
amended by striking ``and subparagraph (A)(ii)''.
(b) Matching Contributions Taken Into Account for Minimum
Contribution Requirements.--Section 416(c)(2)(A) (relating to defined
contribution plans) is amended by adding at the end the following:
``Employer matching contributions (as defined in section 401(m)(4)(A))
shall be taken into account for purposes of this subparagraph.''.
(c) Distributions During Last Year Before Determination Date Taken
Into Account.--
(1) In general.--Paragraph (3) of section 416(g) is amended
to read as follows:
``(3) Distributions during last year before determination
date taken into account.--
``(A) In general.--For purposes of determining--
``(i) the present value of the cumulative
accrued benefit for any employee, or
``(ii) the amount of the account of any
employee,
such present value or amount shall be increased by the
aggregate distributions made with respect to such
employee under the plan during the 1-year period ending
on the determination date. The preceding sentence shall
also apply to distributions under a terminated plan
which if it had not been terminated would have been
required to be included in an aggregation group.
``(B) 5-year period in case of in-service
distribution.--In the case of any distribution made for
a reason other than separation from service, death, or
disability, subparagraph (A) shall be applied by
substituting `5-year period' for `1-year period'.''.
(2) Benefits not taken into account.--Subparagraph (E) of
section 416(g)(4) is amended--
(A) by striking ``last 5 years'' in the heading and
inserting ``last year before determination date''; and
(B) by striking ``5-year period'' and inserting
``1-year period''.
(d) Definition of Top-Heavy Plans.--Paragraph (4) of section 416(g)
(relating to other special rules for top-heavy plans) is amended by
adding at the end the following new subparagraph:
``(H) Cash or deferred arrangements using
alternative methods of meeting nondiscrimination
requirements.--The term `top-heavy plan' shall not
include a plan which consists solely of--
``(i) a cash or deferred arrangement which
meets the requirements of section 401(k)(12),
and
``(ii) matching contributions with respect
to which the requirements of section 401(m)(11)
are met.
If, but for this subparagraph, a plan would be treated
as a top-heavy plan because it is a member of an
aggregation group which is a top-heavy group,
contributions under the plan may be taken into account
in determining whether any other plan in the group
meets the requirements of subsection (c)(2).''.
(e) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined benefit
plans) is amended--
(A) by striking ``clause (ii)'' in clause (i) and
inserting ``clause (ii) or (iii)''; and
(B) by adding at the end the following:
``(iii) Exception for frozen plan.--For
purposes of determining an employee's years of
service with the employer, any service with the
employer shall be disregarded to the extent
that such service occurs during a plan year
when the plan benefits (within the meaning of
section 410(b)) no employee or former
employee.''.
(f) Elimination of Family Attribution.--Section 416(i)(1)(B)
(defining 5-percent owner) is amended by adding at the end the
following new clause:
``(iv) Family attribution disregarded.--
Solely for purposes of applying this paragraph
(and not for purposes of any provision of this
title which incorporates by reference the
definition of a key employee or 5-percent owner
under this paragraph), section 318 shall be
applied without regard to subsection (a)(1)
thereof in determining whether any person is a
5-percent owner.''.
(g) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2001.
SEC. 224. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF
DEDUCTION LIMITS.
(a) In General.--Section 404 (relating to deduction for
contributions of an employer to an employees' trust or annuity plan and
compensation under a deferred payment plan) is amended by adding at the
end the following new subsection:
``(n) Elective Deferrals Not Taken Into Account for Purposes of
Deduction Limits.--Elective deferrals (as defined in section 402(g)(3))
shall not be subject to any limitation contained in paragraph (3), (7),
or (9) of subsection (a), and such elective deferrals shall not be
taken into account in applying any such limitation to any other
contributions.''.
(b) Effective Date.--The amendment made by this section shall apply
to years beginning after December 31, 2001.
SEC. 225. 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 201, is amended to read as
follows:
``(c) Limitation.--The maximum amount of the compensation of any
one individual which may be deferred under subsection (a) during any
taxable year shall not exceed the amount in effect under subsection
(b)(2)(A) (as modified by any adjustment provided under subsection
(b)(3)).''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to years beginning after December 31, 2001.
SEC. 226. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING PENSION
PLANS.
(a) Elimination of Certain User Fees.--The Secretary of the
Treasury or the Secretary's delegate shall not require payment of user
fees under the program established under section 7527 of the Internal
Revenue Code of 1986 for requests to the Internal Revenue Service for
determination letters with respect to the qualified status of a pension
benefit plan maintained solely by one or more eligible employers or any
trust which is part of the plan. The preceding sentence shall not apply
to any request--
(1) made after the fifth plan year the pension benefit plan
is in existence; or
(2) made by the sponsor of any prototype or similar plan
which the sponsor intends to market to participating employers.
(b) Pension Benefit Plan.--For purposes of this section, the term
``pension benefit plan'' means a pension, profit-sharing, stock bonus,
annuity, or employee stock ownership plan.
(c) Eligible Employer.--For purposes of this section, the term
``eligible employer'' has the same meaning given such term in section
408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986. The
determination of whether an employer is an eligible employer under this
section shall be made as of the date of the request described in
subsection (a).
(d) Effective Date.--The provisions of this section shall apply
with respect to requests made after December 31, 2001.
SEC. 227. DEDUCTION LIMITS.
(a) In General.--
(1) Stock bonus and profit sharing trusts.--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 ``20 percent''.
(2) Compensation.--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
otherwise paid or accrued during the taxable year' shall
include amounts treated as `participant's compensation' under
subparagraph (C) or (D) of section 415(c)(3).''.
(b) Conforming Amendments.--
(1) Subparagraph (B) of section 404(a)(3) is amended by
striking the last sentence thereof.
(2) Subparagraph (C) of section 404(h)(1) is amended by
striking ``15 percent'' each place it appears and inserting
``20 percent''.
(3) 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) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2001.
SEC. 228. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX
CONTRIBUTIONS.
(a) In General.--Subpart A of part I of subchapter D of chapter 1
(relating to deferred compensation, etc.) is amended by inserting after
section 402 the following new section:
``SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS
CONTRIBUTIONS.
``(a) General Rule.--If an applicable retirement plan includes a
qualified plus contribution program--
``(1) any designated plus contribution made by an employee
pursuant to the program shall be treated as an elective
deferral for purposes of this chapter, except that such
contribution shall not be excludable from gross income, and
``(2) such plan (and any arrangement which is part of such
plan) shall not be treated as failing to meet any requirement
of this chapter solely by reason of including such program.
``(b) Qualified Plus Contribution Program.--For purposes of this
section--
``(1) In general.--The term `qualified plus contribution
program' means a program under which an employee may elect to
make designated plus contributions in lieu of all or a portion
of elective deferrals the employee is otherwise eligible to
make under the applicable retirement plan.
``(2) Separate accounting required.--A program shall not be
treated as a qualified plus contribution program unless the
applicable retirement plan--
``(A) establishes separate accounts (`designated
plus accounts') for the designated plus contributions
of each employee and any earnings properly allocable to
the contributions, and
``(B) maintains separate recordkeeping with respect
to each account.
``(c) Definitions and Rules Relating to Designated Plus
Contributions.--For purposes of this section--
``(1) Designated plus contribution.--The term `designated
plus contribution' means any elective deferral which--
``(A) is excludable from gross income of an
employee without regard to this section, and
``(B) the employee designates (at such time and in
such manner as the Secretary may prescribe) as not
being so excludable.
``(2) Designation limits.--The amount of elective deferrals
which an employee may designate under paragraph (1) shall not
exceed the excess (if any) of--
``(A) the maximum amount of elective deferrals
excludable from gross income of the employee for the
taxable year (without regard to this section), over
``(B) the aggregate amount of elective deferrals of
the employee for the taxable year which the employee
does not designate under paragraph (1).
``(3) Rollover contributions.--
``(A) In general.--A rollover contribution of any
payment or distribution from a designated plus account
which is otherwise allowable under this chapter may be
made only if the contribution is to--
``(i) another designated plus account of
the individual from whose account the payment
or distribution was made, or
``(ii) a Roth IRA of such individual.
``(B) Coordination with limit.--Any rollover
contribution to a designated plus account under
subparagraph (A) shall not be taken into account for
purposes of paragraph (1).
``(d) Distribution Rules.--For purposes of this title--
``(1) Exclusion.--Any qualified distribution from a
designated plus account shall not be includible in gross
income.
``(2) Qualified distribution.--For purposes of this
subsection--
``(A) In general.--The term `qualified
distribution' has the meaning given such term by
section 408A(d)(2)(A) (without regard to clause (iv)
thereof).
``(B) Distributions within nonexclusion period.--A
payment or distribution from a designated plus account
shall not be treated as a qualified distribution if
such payment or distribution is made within the 5-
taxable-year period beginning with the earlier of--
``(i) the first taxable year for which the
individual made a designated plus contribution
to any designated plus account established for
such individual under the same applicable
retirement plan, or
``(ii) if a rollover contribution was made
to such designated plus account from a
designated plus account previously established
for such individual under another applicable
retirement plan, the first taxable year for
which the individual made a designated plus
contribution to such previously established
account.
``(C) Distributions of excess deferrals and
earnings.--The term `qualified distribution' shall not
include any distribution of any excess deferral under
section 402(g)(2) and any income on the excess
deferral.
``(3) Aggregation rules.--Section 72 shall be applied
separately with respect to distributions and payments from a
designated plus account and other distributions and payments
from the plan.
``(e) Other Definitions.--For purposes of this section--
``(1) Applicable retirement plan.--The term `applicable
retirement plan' means--
``(A) an employees' trust described in section
401(a) which is exempt from tax under section 501(a),
and
``(B) a plan under which amounts are contributed by
an individual's employer for an annuity contract
described in section 403(b).
``(2) Elective deferral.--The term `elective deferral'
means any elective deferral described in subparagraph (A) or
(C) of section 402(g)(3).''.
(b) Excess Deferrals.--Section 402(g) (relating to limitation on
exclusion for elective deferrals) is amended--
(1) by adding at the end of paragraph (1) the following new
sentence: ``The preceding sentence shall not apply to so much
of such excess as does not exceed the designated plus
contributions of the individual for the taxable year.''; and
(2) by inserting ``(or would be included but for the last
sentence thereof)'' after ``paragraph (1)'' in paragraph
(2)(A).
(c) Rollovers.--Subparagraph (B) of section 402(c)(8) is amended by
adding at the end the following:
``If any portion of an eligible rollover distribution
is attributable to payments or distributions from a
designated plus account (as defined in section 402A),
an eligible retirement plan with respect to such
portion shall include only another designated plus
account and a Roth IRA.''.
(d) Reporting Requirements.--
(1) W-2 information.--Section 6051(a)(8) is amended by
inserting ``, including the amount of designated plus
contributions (as defined in section 402A)'' before the comma
at the end.
(2) Information.--Section 6047 is amended by redesignating
subsection (f) as subsection (g) and by inserting after
subsection (e) the following new subsection:
``(f) Designated Plus Contributions.--The Secretary shall require
the plan administrator of each applicable retirement plan (as defined
in section 402A) to make such returns and reports regarding designated
plus contributions (as so defined) to the Secretary, participants and
beneficiaries of the plan, and such other persons as the Secretary may
prescribe.''.
(e) Conforming Amendments.--
(1) Section 408A(e) is amended by adding after the first
sentence the following new sentence: ``Such term includes a
rollover contribution described in section 402A(c)(3)(A).''.
(2) The table of sections for subpart A of part I of
subchapter D of chapter 1 is amended by inserting after the
item relating to section 402 the following new item:
``Sec. 402A. Optional treatment of
elective deferrals as plus
contributions.''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
CHAPTER 3--ENHANCING FAIRNESS FOR WOMEN
SEC. 231. 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 plan
shall not permit additional elective deferrals under paragraph
(1) for any year in an amount greater than the lesser of--
``(A) $5,000, or
``(B) the excess (if any) of--
``(i) the participant's compensation for
the year, over
``(ii) any other elective deferrals of the
participant for such year which are made
without regard to this subsection.
``(3) Treatment of contributions.--In the case of any
contribution to a plan under paragraph (1), such contribution
shall not, with respect to the year in which the contribution
is made--
``(A) be subject to any otherwise applicable
limitation contained in section 402(g), 402(h)(2),
404(a), 404(h), 408(p)(2)(A)(ii), 415, or 457, or
``(B) be taken into account in applying such
limitations to other contributions or benefits under
such plan or any other such plan.
``(4) Eligible participant.--For purposes of this
subsection, the term `eligible participant' means, with respect
to any plan year, a participant in a plan--
``(A) who has attained the age of 50 before the
close of the plan year, and
``(B) with respect to whom no other elective
deferrals may (without regard to this subsection) be
made to the plan for the plan year by reason of the
application of any limitation or other restriction
described in paragraph (3) or comparable limitation
contained in the terms of the plan.
``(5) 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
as defined 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.
``(D) Cost-of-living adjustment.--For years
beginning after December 31, 2005, the Secretary shall
adjust annually the $5,000 amount in subparagraph (A)
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 shall be the
calendar quarter beginning July 1, 2004, and any
increase which is not a multiple of $500 shall be
rounded to the next lowest multiple of $500.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions in taxable years beginning after December 31, 2001.
SEC. 232. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED
CONTRIBUTION PLANS.
(a) Equitable Treatment.--
(1) In general.--Subparagraph (B) of section 415(c)(1)
(relating to limitation for defined contribution plans) is
amended by striking ``25 percent'' and inserting ``100
percent''.
(2) Application to section 403(b).--Section 403(b) is
amended--
(A) by striking ``the exclusion allowance for such
taxable year'' in paragraph (1) and inserting ``the
applicable limit under section 415'';
(B) by striking paragraph (2); and
(C) by inserting ``or any amount received by a
former employee after the 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.--
(A) Subsection (f) of section 72 is amended by
striking ``section 403(b)(2)(D)(iii))'' and inserting
``section 403(b)(2)(D)(iii), as in effect before the
enactment of the Comprehensive Retirement Security and
Pension Reform Act of 2000)''.
(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 211) is amended by inserting
before the period at the end the following: ``(as in
effect before the enactment of the Comprehensive
Retirement Security and Pension Reform Act of 2000)''.
(3) 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 is amended
by adding at the end the following new paragraph:
``(4) Special rules for sections 403(b) and 408.--For
purposes of this section, any annuity contract described in
section 403(b) for the benefit of a participant shall be
treated as a defined contribution plan maintained by each
employer with respect to which the participant has the control
required under subsection (b) or (c) of section 414 (as
modified by subsection (h)). For purposes of this section, any
contribution by an employer to a simplified employee pension
plan for an individual for a taxable year shall be treated as
an employer contribution to a defined contribution plan for
such individual for such year.''.
(2) Effective date.--
(A) In general.--The amendment made by paragraph
(1) shall apply to limitation years beginning after
December 31, 2001.
(B) Exclusion allowance.--Effective for limitation
years beginning in 2002, in the case of any annuity
contract described in section 403(b) of the Internal
Revenue Code of 1986, the amount of the contribution
disqualified by reason of section 415(g) of such Code
shall reduce the exclusion allowance as provided in
section 403(b)(2) of such Code.
(3) Modification of 403(b) exclusion allowance to conform
to 415 modification.--The Secretary of the Treasury shall
modify the regulations regarding the exclusion allowance under
section 403(b)(2) of the Internal Revenue Code of 1986 to
render void the requirement that contributions to a defined
benefit pension plan be treated as previously excluded amounts
for purposes of the exclusion allowance. For taxable years
beginning after December 31, 2001, such regulations shall be
applied as if such requirement were void.
(c) Deferred Compensation Plans of State and Local Governments and
Tax-Exempt Organizations.--
(1) In general.--Subparagraph (B) of section 457(b)(2)
(relating to salary limitation on eligible deferred
compensation plans) is amended by striking ``33\1/3\ percent''
and inserting ``100 percent''.
(2) Effective date.--The amendment made by this subsection
shall apply to years beginning after December 31, 2001.
SEC. 233. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.
(a) In General.--Section 411(a) (relating to minimum vesting
standards) is amended--
(1) in paragraph (2), by striking ``A plan'' and inserting
``Except as provided in paragraph (12), a plan''; and
(2) by adding at the end the following:
``(12) Faster vesting for matching contributions.--In the
case of matching contributions (as defined in section
401(m)(4)(A)), paragraph (2) shall be applied--
``(A) by substituting `3 years' for `5 years' in
subparagraph (A), and
``(B) by substituting the following table for the
table contained in subparagraph (B):
The nonforfeitable
``Years of service:
percentage is:
2...................................... 20
3...................................... 40
4...................................... 60
5...................................... 80
6...................................... 100.''.
(b) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to contributions
for plan years beginning after December 31, 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, 2001; or
(B) January 1, 2005.
(3) Service required.--With respect to any plan, the
amendments made by this section shall not apply to any employee
before the date that such employee has 1 hour of service under
such plan in any plan year to which the amendments made by this
section apply.
SEC. 234. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES.
(a) Simplification and Finalization of Minimum Distribution
Requirements.--
(1) In general.--The Secretary of the Treasury shall--
(A) simplify and finalize the regulations relating
to minimum distribution requirements under sections
401(a)(9), 408 (a)(6) and (b)(3), 403(b)(10), and
457(d)(2) of the Internal Revenue Code of 1986; and
(B) modify such regulations to--
(i) reflect current life expectancy; and
(ii) revise the required distribution
methods so that, under reasonable assumptions,
the amount of the required minimum distribution
does not decrease over a participant's life
expectancy.
(2) Fresh start.--Notwithstanding subparagraph (D) of
section 401(a)(9) of such Code, during the first year that
regulations are in effect under this subsection, required
distributions for future years may be redetermined to reflect
changes under such regulations. Such redetermination shall
include the opportunity to choose a new designated beneficiary
and to elect a new method of calculating life expectancy.
(3) Effective date for regulations.--Regulations referred
to in paragraph (1) shall be effective for years beginning
after December 31, 2001, and shall apply in such years without
regard to whether an individual had previously begun receiving
minimum distributions.
(b) Repeal of Rule Where Distributions Had Begun Before Death
Occurs.--
(1) In general.--Subparagraph (B) of section 401(a)(9) is
amended by striking clause (i) and redesignating clauses (ii),
(iii), and (iv) as clauses (i), (ii), and (iii), respectively.
(2) Conforming changes.--
(A) Clause (i) of section 401(a)(9)(B) (as so
redesignated) is amended--
(i) by striking ``for other cases'' in the
heading; and
(ii) by striking ``the distribution of the
employee's interest has begun in accordance
with subparagraph (A)(ii)'' and inserting ``his
entire interest has been distributed to him''.
(B) Clause (ii) of section 401(a)(9)(B) (as so
redesignated) is amended by striking ``clause (ii)''
and inserting ``clause (i)''.
(C) Clause (iii) of section 401(a)(9)(B) (as so
redesignated) is amended--
(i) by striking ``clause (iii)(I)'' and
inserting ``clause (ii)(I)'';
(ii) by striking ``clause (iii)(III)'' in
subclause (I) and inserting ``clause
(ii)(III)'';
(iii) by striking ``the date on which the
employee would have attained age 70\1/2\,'' in
subclause (I) and inserting ``April 1 of the
calendar year following the calendar year in
which the spouse attains 70\1/2\,''; and
(iv) by striking ``the distributions to
such spouse begin,'' in subclause (II) and
inserting ``his entire interest has been
distributed to him,''.
(3) Effective date.--The amendments made by this subsection
shall apply to years beginning after December 31, 2001.
(c) Reduction in Excise Tax.--
(1) In general.--Subsection (a) of section 4974 is amended
by striking ``50 percent'' and inserting ``10 percent''.
(2) Effective date.--The amendment made by this subsection
shall apply to years beginning after December 31, 2001.
SEC. 235. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457
PLAN BENEFITS UPON DIVORCE.
(a) In General.--Section 414(p)(11) (relating to application of
rules to governmental and church plans) is amended--
(1) by inserting ``or an eligible deferred compensation
plan (within the meaning of section 457(b))'' after
``subsection (e))''; and
(2) in the heading, by striking ``governmental and church
plans'' and inserting ``certain other plans''.
(b) Waiver of Certain Distribution Requirements.--Paragraph (10) of
section 414(p) is amended by striking ``and section 409(d)'' and
inserting ``section 409(d), and section 457(d)''.
(c) Tax Treatment of Payments From a Section 457 Plan.--Subsection
(p) of section 414 is amended by redesignating paragraph (12) as
paragraph (13) and inserting after paragraph (11) the following new
paragraph:
``(12) Tax treatment of payments from a section 457 plan.--
If a distribution or payment from an eligible deferred
compensation plan described in section 457(b) is made pursuant
to a qualified domestic relations order, rules similar to the
rules of section 402(e)(1)(A) shall apply to such distribution
or payment.''.
(d) Effective Date.--The amendments made by this section shall
apply to transfers, distributions, and payments made after December 31,
2001.
SEC. 236. MODIFICATION OF SAFE HARBOR RELIEF FOR HARDSHIP WITHDRAWALS
FROM CASH OR DEFERRED ARRANGEMENTS.
(a) In General.--The Secretary of the Treasury shall revise the
regulations relating to hardship distributions under section
401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to provide
that the period an employee is prohibited from making elective and
employee contributions in order for a distribution to be deemed
necessary to satisfy financial need shall be equal to 6 months.
(b) Effective Date.--The revised regulations under subsection (a)
shall apply to years beginning after December 31, 2001.
CHAPTER 4--INCREASING PORTABILITY FOR PARTICIPANTS
SEC. 241. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.
(a) Rollovers From and to Section 457 Plans.--
(1) Rollovers from section 457 plans.--
(A) In general.--Section 457(e) (relating to other
definitions and special rules) is amended by adding at
the end the following:
``(16) Rollover amounts.--
``(A) General rule.--In the case of an eligible
deferred compensation plan established and maintained
by an employer described in subsection (e)(1)(A), if--
``(i) any portion of the balance to the
credit of an employee in such plan is paid to
such employee in an eligible rollover
distribution (within the meaning of section
402(c)(4) without regard to subparagraph (C)
thereof),
``(ii) the employee transfers any portion
of the property such employee receives in such
distribution to an eligible retirement plan
described in section 402(c)(8)(B), and
``(iii) in the case of a distribution of
property other than money, the amount so
transferred consists of the property
distributed,
then such distribution (to the extent so transferred)
shall not be includible in gross income for the taxable
year in which paid.
``(B) Certain rules made applicable.--The rules of
paragraphs (2) through (7) (other than paragraph
(4)(C)) and (9) of section 402(c) and section 402(f)
shall apply for purposes of subparagraph (A).
``(C) Reporting.--Rollovers under this paragraph
shall be reported to the Secretary in the same manner
as rollovers from qualified retirement plans (as
defined in section 4974(c)).''.
(B) Deferral limit determined without regard to
rollover amounts.--Section 457(b)(2) (defining eligible
deferred compensation plan) is amended by inserting
``(other than rollover amounts)'' after ``taxable
year''.
(C) Direct rollover.--Paragraph (1) of section
457(d) is amended by striking ``and'' at the end of
subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting ``, and'', and by
inserting after subparagraph (B) the following:
``(C) in the case of a plan maintained by an
employer described in subsection (e)(1)(A), the plan
meets requirements similar to the requirements of
section 401(a)(31).
Any amount transferred in a direct trustee-to-trustee transfer
in accordance with section 401(a)(31) shall not be includible
in gross income for the taxable year of transfer.''.
(D) Withholding.--
(i) Paragraph (12) of section 3401(a) is
amended by adding at the end the following:
``(E) under or to an eligible deferred compensation
plan which, at the time of such payment, is a plan
described in section 457(b) maintained by an employer
described in section 457(e)(1)(A); or''.
(ii) Paragraph (3) of section 3405(c) is
amended to read as follows:
``(3) Eligible rollover distribution.--For purposes of this
subsection, the term `eligible rollover distribution' has the
meaning given such term by section 402(f)(2)(A).''.
(iii) Liability for withholding.--
Subparagraph (B) of section 3405(d)(2) is
amended by striking ``or'' at the end of clause
(ii), by striking the period at the end of
clause (iii) and inserting ``, or'', and by
adding at the end the following:
``(iv) section 457(b).''.
(2) Rollovers to section 457 plans.--
(A) In general.--Section 402(c)(8)(B) (defining
eligible retirement plan) is amended by striking
``and'' at the end of clause (iii), by striking the
period at the end of clause (iv) and inserting ``,
and'', and by inserting after clause (iv) the following
new clause:
``(v) an eligible deferred compensation
plan described in section 457(b) of an employer
described in section 457(e)(1)(A).''.
(B) Separate accounting.--Section 402(c) is amended
by adding at the end the following new paragraph:
``(11) Separate accounting.--Unless a plan described in
clause (v) of paragraph (8)(B) agrees to separately account for
amounts rolled into such plan from eligible retirement plans
not described in such clause, the plan described in such clause
may not accept transfers or rollovers from such retirement
plans.''.
(C) 10 percent additional tax.--Subsection (t) of
section 72 (relating to 10-percent additional tax on
early distributions from qualified retirement plans) is
amended by adding at the end the following new
paragraph:
``(9) Special rule for rollovers to section 457 plans.--For
purposes of this subsection, a distribution from an eligible
deferred compensation plan (as defined in section 457(b)) of an
employer described in section 457(e)(1)(A) shall be treated as
a distribution from a qualified retirement plan described in
4974(c)(1) to the extent that such distribution is attributable
to an amount transferred to an eligible deferred compensation
plan from a qualified retirement plan (as defined in section
4974(c)).''.
(b) Allowance of Rollovers From and to 403(b) Plans.--
(1) Rollovers from section 403(b) plans.--Section
403(b)(8)(A)(ii) (relating to rollover amounts) is amended by
striking ``such distribution'' and all that follows and
inserting ``such distribution to an eligible retirement plan
described in section 402(c)(8)(B), and''.
(2) Rollovers to section 403(b) plans.--Section
402(c)(8)(B) (defining eligible retirement plan), as amended by
subsection (a), is amended by striking ``and'' at the end of
clause (iv), by striking the period at the end of clause (v)
and inserting ``, and'', and by inserting after clause (v) the
following new clause:
``(vi) an annuity contract described in
section 403(b).''.
(c) Expanded Explanation to Recipients of Rollover Distributions.--
Paragraph (1) of section 402(f) (relating to written explanation to
recipients of distributions eligible for rollover treatment) is amended
by striking ``and'' at the end of subparagraph (C), by striking the
period at the end of subparagraph (D) and inserting ``, and'', and by
adding at the end the following new subparagraph:
``(E) of the provisions under which distributions
from the eligible retirement plan receiving the
distribution may be subject to restrictions and tax
consequences which are different from those applicable
to distributions from the plan making such
distribution.''.
(d) Spousal Rollovers.--Section 402(c)(9) (relating to rollover
where spouse receives distribution after death of employee) is amended
by striking ``; except that'' and all that follows up to the end
period.
(e) Conforming Amendments.--
(1) Section 72(o)(4) is amended by striking ``and
408(d)(3)'' and inserting ``403(b)(8), 408(d)(3), and
457(e)(16)''.
(2) Section 219(d)(2) is amended by striking ``or
408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
(3) Section 401(a)(31)(B) is amended by striking ``and
403(a)(4)'' and inserting ``, 403(a)(4), 403(b)(8), and
457(e)(16)''.
(4) Subparagraph (A) of section 402(f)(2) is amended by
striking ``or paragraph (4) of section 403(a)'' and inserting
``, paragraph (4) of section 403(a), subparagraph (A) of
section 403(b)(8), or subparagraph (A) of section 457(e)(16)''.
(5) Paragraph (1) of section 402(f) is amended by striking
``from an eligible retirement plan''.
(6) Subparagraphs (A) and (B) of section 402(f)(1) are
amended by striking ``another eligible retirement plan'' and
inserting ``an eligible retirement plan''.
(7) Subparagraph (B) of section 403(b)(8) is amended to
read as follows:
``(B) Certain rules made applicable.--The rules of
paragraphs (2) through (7) and (9) of section 402(c)
and section 402(f) shall apply for purposes of
subparagraph (A), except that section 402(f) shall be
applied to the payor in lieu of the plan
administrator.''.
(8) Section 408(a)(1) is amended by striking ``or
403(b)(8),'' and inserting ``403(b)(8), or 457(e)(16)''.
(9) Subparagraphs (A) and (B) of section 415(b)(2) are each
amended by striking ``and 408(d)(3)'' and inserting
``403(b)(8), 408(d)(3), and 457(e)(16)''.
(10) Section 415(c)(2) is amended by striking ``and
408(d)(3)'' and inserting ``408(d)(3), and 457(e)(16)''.
(11) Section 4973(b)(1)(A) is amended by striking ``or
408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
(f) Effective Date; Special Rule.--
(1) Effective date.--The amendments made by this section
shall apply to distributions after December 31, 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 any amendment made by this section.
SEC. 242. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.
(a) In General.--Subparagraph (A) of section 408(d)(3) (relating to
rollover amounts) is amended by adding ``or'' at the end of clause (i),
by striking clauses (ii) and (iii), and by adding at the end the
following:
``(ii) the entire amount received
(including money and any other property) is
paid into an eligible retirement plan for the
benefit of such individual not later than the
60th day after the date on which the payment or
distribution is received, except that the
maximum amount which may be paid into such plan
may not exceed the portion of the amount
received which is includible in gross income
(determined without regard to this paragraph).
For purposes of clause (ii), the term `eligible
retirement plan' means an eligible retirement plan
described in clause (iii), (iv), (v), or (vi) of
section 402(c)(8)(B).''.
(b) Conforming Amendments.--
(1) Paragraph (1) of section 403(b) is amended by striking
``section 408(d)(3)(A)(iii)'' and inserting ``section
408(d)(3)(A)(ii)''.
(2) Clause (i) of section 408(d)(3)(D) is amended by
striking ``(i), (ii), or (iii)'' and inserting ``(i) or (ii)''.
(3) Subparagraph (G) of section 408(d)(3) is amended to
read as follows:
``(G) Simple retirement accounts.--In the case of
any payment or distribution out of a simple retirement
account (as defined in subsection (p)) to which section
72(t)(6) applies, this paragraph shall not apply unless
such payment or distribution is paid into another
simple retirement account.''.
(c) Effective Date; Special Rule.--
(1) Effective date.--The amendments made by this section
shall apply to distributions after December 31, 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. 243. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.
(a) Rollovers From Exempt Trusts.--Paragraph (2) of section 402(c)
(relating to maximum amount which may be rolled over) is amended by
adding at the end the following: ``The preceding sentence shall not
apply to such distribution to the extent--
``(A) such portion is transferred in a direct
trustee-to-trustee transfer to a qualified trust which
is part of a plan which is a defined contribution plan
and which agrees to separately account for amounts so
transferred, including separately accounting for the
portion of such distribution which is includible in
gross income and the portion of such distribution which
is not so includible, or
``(B) such portion is transferred to an eligible
retirement plan described in clause (i) or (ii) of
paragraph (8)(B).''.
(b) Optional Direct Transfer of Eligible Rollover Distributions.--
Subparagraph (B) of section 401(a)(31) (relating to limitation) is
amended by adding at the end the following: ``The preceding sentence
shall not apply to such distribution if the plan to which such
distribution is transferred--
``(i) agrees to separately account for
amounts so transferred, including separately
accounting for the portion of such distribution
which is includible in gross income and the
portion of such distribution which is not so
includible, or
``(ii) is an eligible retirement plan
described in clause (i) or (ii) of section
402(c)(8)(B).''.
(c) Rules for Applying Section 72 to IRAs.--Paragraph (3) of
section 408(d) (relating to special rules for applying section 72) is
amended by inserting at the end the following:
``(H) Application of section 72.--
``(i) In general.--If--
``(I) a distribution is made from
an individual retirement plan, and
``(II) a rollover contribution is
made to an eligible retirement plan
described in section 402(c)(8)(B)(iii),
(iv), (v), or (vi) with respect to all
or part of such distribution,
then, notwithstanding paragraph (2), the rules
of clause (ii) shall apply for purposes of
applying section 72.
``(ii) Applicable rules.--In the case of a
distribution described in clause (i)--
``(I) section 72 shall be applied
separately to such distribution,
``(II) notwithstanding the pro rata
allocation of income on, and investment
in, the contract to distributions under
section 72, the portion of such
distribution rolled over to an eligible
retirement plan described in clause (i)
shall be treated as from income on the
contract (to the extent of the
aggregate income on the contract from
all individual retirement plans of the
distributee), and
``(III) appropriate adjustments
shall be made in applying section 72 to
other distributions in such taxable
year and subsequent taxable years.''.
(d) Effective Date.--The amendments made by this section shall
apply to distributions made after December 31, 2001.
SEC. 244. HARDSHIP EXCEPTION TO 60-DAY RULE.
(a) Exempt Trusts.--Paragraph (3) of section 402(c) (relating to
transfer must be made within 60 days of receipt) is amended to read as
follows:
``(3) Transfer must be made within 60 days of receipt.--
``(A) In general.--Except as provided in
subparagraph (B), paragraph (1) shall not apply to any
transfer of a distribution made after the 60th day
following the day on which the distributee received the
property distributed.
``(B) Hardship exception.--The Secretary may waive
the 60-day requirement under subparagraph (A) where the
failure to waive such requirement would be against
equity or good conscience, including casualty,
disaster, or other events beyond the reasonable control
of the individual subject to such requirement.''.
(b) IRAs.--Paragraph (3) of section 408(d) (relating to rollover
contributions), as amended by section 403, is amended by adding after
subparagraph (H) the following new subparagraph:
``(I) Waiver of 60-day requirement.--The Secretary
may waive the 60-day requirement under subparagraphs
(A) and (D) where the failure to waive such requirement
would be against equity or good conscience, including
casualty, disaster, or other events beyond the
reasonable control of the individual subject to such
requirement.''.
(c) Effective Date.--The amendments made by this section shall
apply to distributions after December 31, 2001.
SEC. 245. TREATMENT OF FORMS OF DISTRIBUTION.
(a) Plan Transfers.--
(1) In general.--Paragraph (6) of section 411(d) (relating
to accrued benefit not to be decreased by amendment) is amended
by adding at the end the following:
``(D) Plan transfers.--
``(i) 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,
``(V) if the transferor plan
provides for an annuity as the normal
form of distribution under the plan in
accordance with section 417, the
transfer is made with the consent of
the participant's spouse (if any), and
such consent meets requirements similar
to the requirements imposed by section
417(a)(2), and
``(VI) the transferee plan allows
the participant or beneficiary
described in 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) Exception.--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) Effective date.--The amendment made by this subsection
shall apply to years beginning after December 31, 2001.
(b) Regulations.--
(1) In general.--The last sentence of paragraph (6)(B) of
section 411(d) (relating to accrued benefit not to be decreased
by amendment) is amended to read as follows: ``The Secretary
shall by regulations provide that this subparagraph shall not
apply to any plan amendment that does not adversely affect the
rights of participants in a material manner.''.
(2) Secretary directed.--Not later than December 31, 2002,
the Secretary of the Treasury is directed to issue final
regulations under section 411(d)(6) of the Internal Revenue
Code of 1986, including the regulations required by the
amendments made by this subsection. Such regulations shall
apply to plan years beginning after December 31, 2002, or such
earlier date as is specified by the Secretary of the Treasury.
SEC. 246. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.
(a) Modification of Same Desk Exception.--
(1) Section 401(k).--
(A) Section 401(k)(2)(B)(i)(I) (relating to
qualified cash or deferred arrangements) is amended by
striking ``separation from service'' and inserting
``severance from employment''.
(B) Subparagraph (A) of section 401(k)(10)
(relating to distributions upon termination of plan or
disposition of assets or subsidiary) is amended to read
as follows:
``(A) In general.--An event described in this
subparagraph is the termination of the plan without
establishment or maintenance of another defined
contribution plan (other than an employee stock
ownership plan as defined in section 4975(e)(7)).''.
(C) Section 401(k)(10) is amended--
(i) in subparagraph (B)--
(I) by striking ``An event'' in
clause (i) and inserting ``A
termination''; and
(II) by striking ``the event'' in
clause (i) and inserting ``the
termination'';
(ii) by striking subparagraph (C); and
(iii) by striking ``or disposition of
assets or subsidiary'' in the heading.
(2) Section 403(b).--
(A) Paragraphs (7)(A)(ii) and (11)(A) of section
403(b) are each amended by striking ``separates from
service'' and inserting ``has a severance from
employment''.
(B) The heading for paragraph (11) of section
403(b) is amended by striking ``separation from
service'' and inserting ``severance from employment''.
(3) Section 457.--Clause (ii) of section 457(d)(1)(A) is
amended by striking ``is separated from service'' and inserting
``has a severance from employment''.
(b) Effective Date.--The amendments made by this section shall
apply to distributions after December 31, 2001.
SEC. 247. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT
PLANS.
(a) 403(b) Plans.--Subsection (b) of section 403 is amended by
adding at the end the following new paragraph:
``(13) Trustee-to-trustee transfers to purchase permissive
service credit.--No amount shall be includible in gross income
by reason of a direct trustee-to-trustee transfer to a defined
benefit governmental plan (as defined in section 414(d)) if
such transfer is--
``(A) for the purchase of permissive service credit
(as defined in section 415(n)(3)(A)) under such plan,
or
``(B) a repayment to which section 415 does not
apply by reason of subsection (k)(3) thereof.''.
(b) 457 Plans.--Subsection (e) of section 457 is amended by adding
after paragraph (16) the following new paragraph:
``(17) Trustee-to-trustee transfers to purchase permissive
service credit.--No amount shall be includible in gross income
by reason of a direct trustee-to-trustee transfer to a defined
benefit governmental plan (as defined in section 414(d)) if
such transfer is--
``(A) for the purchase of permissive service credit
(as defined in section 415(n)(3)(A)) under such plan,
or
``(B) a repayment to which section 415 does not
apply by reason of subsection (k)(3) thereof.''.
(c) Effective Date.--The amendments made by this section shall
apply to trustee-to-trustee transfers after December 31, 2001.
SEC. 248. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT
AMOUNTS.
(a) Qualified Plans.--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).''.
(b) Eligible Deferred Compensation Plans.--Clause (i) of section
457(e)(9)(A) is amended by striking ``such amount'' and inserting ``the
portion of such amount which is not attributable to rollover
contributions (as defined in section 411(a)(11)(D))''.
(c) Effective Date.--The amendments made by this section shall
apply to distributions after December 31, 2001.
SEC. 249. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION
457 PLANS.
(a) Minimum Distribution Requirements.--Paragraph (2) of section
457(d) (relating to distribution requirements) is amended to read as
follows:
``(2) Minimum distribution requirements.--A plan meets the
minimum distribution requirements of this paragraph if such
plan meets the requirements of section 401(a)(9).''.
(b) Inclusion in Gross Income.--
(1) Year of inclusion.--Subsection (a) of section 457
(relating to year of inclusion in gross income) is amended to
read as follows:
``(a) Year of inclusion in gross income.--
``(1) In general.--Any amount of compensation deferred
under an eligible deferred compensation plan, and any income
attributable to the amounts so deferred, shall be includible in
gross income only for the taxable year in which such
compensation or other income--
``(A) is paid to the participant or other
beneficiary, in the case of a plan of an eligible
employer described in subsection (e)(1)(A), and
``(B) is paid or otherwise made available to the
participant or other beneficiary, in the case of a plan
of an eligible employer described in subsection
(e)(1)(B).
``(2) Special rule for rollover amounts.--To the extent
provided in section 72(t)(9), section 72(t) shall apply to any
amount includible in gross income under this subsection.''.
(2) Conforming amendments.--
(A) So much of paragraph (9) of section 457(e) as
precedes subparagraph (A) is amended to read as
follows:
``(9) Benefits of tax exempt organization plans not treated
as made available by reason of certain elections, etc.--In the
case of an eligible deferred compensation plan of an employer
described in subsection (e)(1)(B)--''.
(B) Section 457(d) is amended by adding at the end
the following new paragraph:
``(3) Special rule for government plan.--An eligible
deferred compensation plan of an employer described in
subsection (e)(1)(A) shall not be treated as failing to meet
the requirements of this subsection solely by reason of making
a distribution described in subsection (e)(9)(A).''.
(c) Effective Date.--The amendments made by this section shall
apply to distributions after December 31, 2001.
CHAPTER 5--STRENGTHENING PENSION SECURITY AND ENFORCEMENT
SEC. 251. REPEAL OF 150 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.
(a) In General.--Section 412(c)(7) (relating to full-funding
limitation) is amended--
(1) by striking ``the applicable percentage'' in
subparagraph (A)(i)(I) and inserting ``in the case of plan
years beginning before January 1, 2005, 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................................... 160
2003................................... 165
2004................................... 170.''.
(b) Effective Date.--The amendments made by this section shall
apply to plan years beginning after December 31, 2001.
SEC. 252. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO
ALL DEFINED BENEFIT PLANS.
(a) In General.--Subparagraph (D) of section 404(a)(1) (relating to
special rule in case of certain plans) is amended to read as follows:
``(D) Special rule in case of certain plans.--
``(i) In general.--In the case of any
defined benefit plan, except as provided in
regulations, the maximum amount deductible
under the limitations of this paragraph shall
not be less than the unfunded termination
liability (determined as if the proposed
termination date referred to in section
4041(b)(2)(A)(i)(II) of the Employee Retirement
Income Security Act of 1974 were the last day
of the plan year).
``(ii) Plans with less than 100
participants.--For purposes of this
subparagraph, in the case of a plan which has
less than 100 participants for the plan year,
termination liability shall not include the liability attributable to
benefit increases for highly compensated employees (as defined in
section 414(q)) resulting from a plan amendment which is made or
becomes effective, whichever is later, within the last 2 years before
the termination date.
``(iii) Rule for determining number of
participants.--For purposes of determining
whether a plan has more than 100 participants,
all defined benefit plans maintained by the
same employer (or any member of such employer's
controlled group (within the meaning of section
412(l)(8)(C))) shall be treated as one plan,
but only employees of such member or employer
shall be taken into account.
``(iv) Plans established and maintained by
professional service employers.--Clause (i)
shall not apply to a plan described in section
4021(b)(13) of the Employee Retirement Income
Security Act of 1974.''.
(b) Conforming Amendment.--Paragraph (6) of section 4972(c) is
amended to read as follows:
``(6) Exceptions.--In determining the amount of
nondeductible contributions for any taxable year, there shall
not be taken into account so much of the contributions to one
or more defined contribution plans which are not deductible
when contributed solely because of section 404(a)(7) as does
not exceed the greater of--
``(A) the amount of contributions not in excess of
6 percent of compensation (within the meaning of
section 404(a)) paid or accrued (during the taxable
year for which the contributions were made) to
beneficiaries under the plans, or
``(B) the sum of--
``(i) the amount of contributions described
in section 401(m)(4)(A), plus
``(ii) the amount of contributions
described in section 402(g)(3)(A).
For purposes of this paragraph, the deductible limits under
section 404(a)(7) shall first be applied to amounts contributed
to a defined benefit plan and then to amounts described in
subparagraph (B).''.
(c) Effective Date.--The amendments made by this section shall
apply to plan years beginning after December 31, 2001.
SEC. 253. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.
(a) In General.--Subsection (c) of section 4972 (relating to
nondeductible contributions) is amended by adding at the end the
following new paragraph:
``(7) Defined benefit plan exception.--In determining the
amount of nondeductible contributions for any taxable year, an
employer may elect for such year not to take into account any
contributions to a defined benefit plan except to the extent
that such contributions exceed the full-funding limitation (as
defined in section 412(c)(7), determined without regard to
subparagraph (A)(i)(I) thereof). For purposes of this
paragraph, the deductible limits under section 404(a)(7) shall
first be applied to amounts contributed to defined contribution
plans and then to amounts described in this paragraph. If an
employer makes an election under this paragraph for a taxable
year, paragraph (6) shall not apply to such employer for such
taxable year.''.
(b) Effective Date.--The amendment made by this section shall apply
to years beginning after December 31, 2001.
SEC. 254. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT
PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT ACCRUALS.
(a) 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 failure is corrected.
``(c) Limitations on Amount of Tax.--
``(1) Overall limitation for unintentional failures.--In
the case of failures that are due to reasonable cause and not
to willful neglect, the tax imposed by subsection (a) for
failures during the taxable year of the employer (or, in the
case of a multiemployer plan, the taxable year of the trust
forming part of the plan) shall not exceed $500,000. For
purposes of the preceding sentence, all multiemployer plans of
which the same trust forms a part shall be treated as one plan.
For purposes of this paragraph, if not all persons who are
treated as a single employer for purposes of this section have
the same taxable year, the taxable years taken into account
shall be determined under principles similar to the principles
of section 1561.
``(2) Waiver by secretary.--In the case of a failure which
is due to reasonable cause and not to willful neglect, the
Secretary may waive part or all of the tax imposed by
subsection (a) to the extent that the payment of such tax would
be excessive relative to the failure involved.
``(d) Liability for Tax.--The following shall be liable for the tax
imposed by subsection (a):
``(1) In the case of a plan other than a multiemployer
plan, the employer.
``(2) In the case of a multiemployer plan, the plan.
``(e) Notice Requirements for Plans Significantly Reducing Benefit
Accruals.--
``(1) In general.--If an applicable pension plan is amended
to provide for a significant reduction in the rate of future
benefit accrual, the plan administrator shall provide written
notice to each applicable individual (and to each employee
organization representing applicable individuals).
``(2) Notice.--The notice required by paragraph (1) shall
be written in a manner calculated to be understood by the
average plan participant and shall provide sufficient
information (as determined in accordance with regulations
prescribed by the Secretary) to allow applicable individuals to
understand the effect of the plan amendment.
``(3) Timing of notice.--Except as provided in regulations,
the notice required by paragraph (1) shall be provided within a
reasonable time before the effective date of the plan
amendment.
``(4) Designees.--Any notice under paragraph (1) may be
provided to a person designated, in writing, by the person to
which it would otherwise be provided.
``(5) Notice before adoption of amendment.--A plan shall
not be treated as failing to meet the requirements of paragraph
(1) merely because notice is provided before the adoption of
the plan amendment if no material modification of the amendment
occurs before the amendment is adopted.
``(f) Applicable Individual; Applicable Pension Plan.--For purposes
of this section--
``(1) Applicable individual.--The term `applicable
individual' means, with respect to any plan amendment--
``(A) any participant in the plan, and
``(B) any beneficiary who is an alternate payee
(within the meaning of section 414(p)(8)) under an
applicable qualified domestic relations order (within
the meaning of section 414(p)(1)(A)),
who may reasonably be expected to be affected by such plan
amendment.
``(2) Applicable pension plan.--The term `applicable
pension plan' means--
``(A) any defined benefit plan, or
``(B) an individual account plan which is subject
to the funding standards of section 412,
which had 100 or more participants who had accrued a benefit,
or with respect to whom contributions were made, under the plan
(whether or not vested) as of the last day of the plan year
preceding the plan year in which the plan amendment becomes
effective. Such term shall not include a governmental plan
(within the meaning of section 414(d)) or a church plan (within
the meaning of section 414(e)) with respect to which the
election provided by section 410(d) has not been made.''.
(b) 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.''.
(c) 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 (as added by the
amendments made by this section), a plan shall be treated as
meeting the requirements of such sections if it makes a good
faith effort to comply with such requirements.
(3) Special rule.--The period for providing any notice
required by the amendments made by this section shall not end
before the date which is 3 months after the date of the
enactment of this Act.
(d) Study.--The Secretary of the Treasury shall prepare a report on
the effects of conversions of traditional defined benefit plans to cash
balance or hybrid formula plans. Such study shall examine the effect of
such conversions on longer service participants, including the
incidence and effects of ``wear away'' provisions under which
participants earn no additional benefits for a period of time after the
conversion. As soon as practicable, but not later than 60 days after
the date of the enactment of this Act, the Secretary shall submit such
report, together with recommendations thereon, to the Committee on Ways
and Means of the House of Representatives and the Committee on Finance
of the Senate.
SEC. 255. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.
(a) Compensation Limit.--Paragraph (11) of section 415(b) (relating
to limitation for defined benefit plans) is amended to read as follows:
``(11) Special limitation rule for governmental and
multiemployer plans.--In the case of a governmental plan (as
defined in section 414(d)) or a multiemployer plan (as defined
in section 414(f)), subparagraph (B) of paragraph (1) shall not
apply.''.
(b) 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
with any other plan maintained by an employer for purposes of
applying the limitations established in this section, except
that such plan shall be combined or aggregated with another
plan which is not such a multiemployer plan solely for purposes
of determining whether such other plan meets the requirements
of subsections (b)(1)(A) and (c).''.
(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) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2001.
SEC. 256. 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.--
``(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) 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), 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 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).
``(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.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this subsection.''.
(b) Coordination With Section 4975(e)(7).--The last sentence of
section 4975(e)(7) (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--
``(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) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to plan years beginning after December 31, 2001.
(2) Exception for certain plans.--In the case of any--
(A) employee stock ownership plan established after
July 11, 2000, or
(B) employee stock ownership plan established on or
before such date if employer securities held by the
plan consist of stock in a corporation with respect to
which an election under section 1362(a) of the Internal
Revenue Code of 1986 is not in effect on such date,
the amendments made by this section shall apply to plan years
ending after July 11, 2001.
CHAPTER 6--REDUCING REGULATORY BURDENS
SEC. 261. MODIFICATION OF TIMING OF PLAN VALUATIONS.
(a) In General.--Paragraph (9) of section 412(c)(9) (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.--
``(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) Election to use 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--
``(I) an election is in effect
under this clause with respect to the
plan, and
``(II) 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.
``(iv) Election.--An election under clause
(ii), once made, shall be irrevocable without
the consent of the Secretary.''.
(b) Effective Date.--The amendments made by this section shall
apply to plan years beginning after December 31, 2001.
SEC. 262. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND
DEDUCTION.
(a) In General.--Section 404(k)(2)(A) (defining applicable
dividends) is amended by striking ``or'' at the end of clause (ii), by
redesignating clause (iii) as clause (iv), and by inserting after
clause (ii) the following new clause:
``(iii) is, at the election of such
participants or their beneficiaries--
``(I) payable as provided in clause
(i) or (ii), or
``(II) paid to the plan and
reinvested in qualifying employer
securities, or''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
SEC. 263. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY
COMPENSATED EMPLOYEES.
(a) In General.--Paragraph (4) of section 1114(c) of the Tax Reform
Act of 1986 is hereby repealed.
(b) Effective Date.--The repeal made by subsection (a) shall apply
to plan years beginning after December 31, 2001.
SEC. 264. 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. 265. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT
ADVICE.
(a) In General.--Subsection (a) of section 132 (relating to
exclusion from gross income) is amended by striking ``or'' at the end
of paragraph (5), by striking the period at the end of paragraph (6)
and inserting ``, or'', and by adding at the end the following new
paragraph:
``(7) qualified retirement planning services.''.
(b) Qualified Retirement Planning Services Defined.--Section 132 is
amended by redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following:
``(m) Qualified Retirement Planning Services.--
``(1) In general.--For purposes of this section, the term
`qualified retirement planning services' means any retirement
planning service provided to an employee and his spouse by an
employer maintaining a qualified employer plan.
``(2) Nondiscrimination rule.--Subsection (a)(7) shall
apply in the case of highly compensated employees only if such
services are available on substantially the same terms to each
member of the group of employees normally provided education
and information regarding the employer's qualified employer
plan.
``(3) Qualified employer plan.--For purposes of this
subsection, the term `qualified employer plan' means a plan,
contract, pension, or account described in section
219(g)(5).''.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2001.
SEC. 266. REPORTING SIMPLIFICATION.
(a) Simplified Annual Filing Requirement for Owners and Their
Spouses.--
(1) In general.--The Secretary of the Treasury shall modify
the requirements for filing annual returns with respect to one-
participant retirement plans to ensure that such plans with
assets of $250,000 or less as of the close of the plan year
need not file a return for that year.
(2) One-participant retirement plan defined.--For purposes
of this subsection, the term ``one-participant retirement
plan'' means a retirement plan that--
(A) on the first day of the plan year--
(i) covered only the employer (and the
employer's spouse) and the employer owned the
entire business (whether or not incorporated);
or
(ii) covered only one or more partners (and
their spouses) in a business partnership
(including partners in an S or C corporation);
(B) meets the minimum coverage requirements of
section 410(b) of the Internal Revenue Code of 1986
without being combined with any other plan of the
business that covers the employees of the business;
(C) does not provide benefits to anyone except the
employer (and the employer's spouse) or the partners
(and their spouses);
(D) does not cover a business that is a member of
an affiliated service group, a controlled group of
corporations, or a group of businesses under common
control; and
(E) does not cover a business that leases
employees.
(3) Other definitions.--Terms used in paragraph (2) which
are also used in section 414 of the Internal Revenue Code of
1986 shall have the respective meanings given such terms by
such section.
(b) Simplified Annual Filing Requirement for Plans With Fewer Than
25 Employees.--In the case of a retirement plan which covers less than
25 employees on the first day of the plan year and meets the
requirements described in subparagraphs (B), (D), and (E) of subsection
(a)(2), the Secretary of the Treasury shall provide for the filing of a
simplified annual return that is substantially similar to the annual
return required to be filed by a one-participant retirement plan.
(c) Effective Date.--The provisions of this section shall take
effect on January 1, 2001.
SEC. 267. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.
The Secretary of the Treasury shall continue to update and improve
the Employee Plans Compliance Resolution System (or any successor
program) giving special attention to--
(1) increasing the awareness and knowledge of small
employers concerning the availability and use of the program;
(2) taking into account special concerns and circumstances
that small employers face with respect to compliance and
correction of compliance failures;
(3) extending the duration of the self-correction period
under the Administrative Policy Regarding Self-Correction for
significant compliance failures;
(4) expanding the availability to correct insignificant
compliance failures under the Administrative Policy Regarding
Self-Correction during audit; and
(5) assuring that any tax, penalty, or sanction that is
imposed by reason of a compliance failure is not excessive and
bears a reasonable relationship to the nature, extent, and
severity of the failure.
SEC. 268. REPEAL OF THE MULTIPLE USE TEST.
(a) In General.--Paragraph (9) of section 401(m) is amended to read
as follows:
``(9) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this subsection and subsection (k), including regulations
permitting appropriate aggregation of plans and
contributions.''.
(b) Effective Date.--The amendment made by this section shall apply
to years beginning after December 31, 2001.
SEC. 269. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF
BUSINESS RULES.
(a) Nondiscrimination.--
(1) In general.--The Secretary of the Treasury shall, by
regulation, provide that a plan shall be deemed to satisfy the
requirements of section 401(a)(4) of the Internal Revenue Code
of 1986 if such plan satisfies the facts and circumstances test
under section 401(a)(4) of such Code, as in effect before
January 1, 1994, but only if--
(A) the plan satisfies conditions prescribed by the
Secretary to appropriately limit the availability of
such test; and
(B) the plan is submitted to the Secretary for a
determination of whether it satisfies such test.
Subparagraph (B) shall only apply to the extent provided by the
Secretary.
(2) Effective dates.--
(A) Regulations.--The regulation required by
paragraph (1) shall apply to years beginning after
December 31, 2001.
(B) Conditions of availability.--Any condition of
availability prescribed by the Secretary under
paragraph (1)(A) shall not apply before the first year
beginning not less than 120 days after the date on
which such condition is prescribed.
(b) Coverage Test.--
(1) In general.--Section 410(b)(1) (relating to minimum
coverage requirements) is amended by adding at the end the
following:
``(D) In the case that the plan fails to meet the
requirements of subparagraphs (A), (B) and (C), the
plan--
``(i) satisfies subparagraph (B), as in
effect immediately before the enactment of the
Tax Reform Act of 1986,
``(ii) is submitted to the Secretary for a
determination of whether it satisfies the
requirement described in clause (i), and
``(iii) satisfies conditions prescribed by
the Secretary by regulation that appropriately
limit the availability of this subparagraph.
Clause (ii) shall apply only to the extent provided by
the Secretary.''.
(2) Effective dates.--
(A) In general.--The amendment made by paragraph
(1) shall apply to years beginning after December 31,
2001.
(B) Conditions of availability.--Any condition of
availability prescribed by the Secretary under
regulations prescribed by the Secretary under section
410(b)(1)(D) of the Internal Revenue Code of 1986 shall
not apply before the first year beginning not less than
120 days after the date on which such condition is
prescribed.
(c) Line of Business Rules.--The Secretary of the Treasury shall,
on or before December 31, 2001, modify the existing regulations issued
under section 414(r) of the Internal Revenue Code of 1986 in order to
expand (to the extent that the Secretary determines appropriate) the
ability of a pension plan to demonstrate compliance with the line of
business requirements based upon the facts and circumstances
surrounding the design and operation of the plan, even though the plan
is unable to satisfy the mechanical tests currently used to determine
compliance.
SEC. 270. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON
APPLICATION OF CERTAIN NONDISCRIMINATION RULES APPLICABLE
TO STATE AND LOCAL PLANS.
(a) In General.--
(1) Subparagraph (G) of section 401(a)(5) and subparagraph
(H) of section 401(a)(26) are each amended by striking
``section 414(d))'' and all that follows and inserting
``section 414(d)).''.
(2) Subparagraph (G) of section 401(k)(3) and paragraph (2)
of section 1505(d) of the Taxpayer Relief Act of 1997 are each
amended by striking ``maintained by a State or local government
or political subdivision thereof (or agency or instrumentality
thereof)''.
(b) Conforming Amendments.--
(1) The heading for subparagraph (G) of section 401(a)(5)
is amended to read as follows: ``Governmental plans''.
(2) The heading for subparagraph (H) of section 401(a)(26)
is amended to read as follows: ``Exception for governmental
plans''.
(3) Subparagraph (G) of section 401(k)(3) is amended by
inserting ``Governmental plans.--'' after ``(G)''.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2001.
SEC. 271. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.
(a) Expansion of Period.--
(1) In general.--Subparagraph (A) of section 417(a)(6) is
amended by striking ``90-day'' and inserting ``180-day''.
(2) Modification of regulations.--The Secretary of the
Treasury shall modify the regulations under sections 402(f),
411(a)(11), and 417 of the Internal Revenue Code of 1986 to
substitute ``180 days'' for ``90 days'' each place it appears
in Treasury Regulations sections 1.402(f)-1, 1.411(a)-11(c),
and 1.417(e)-1(b).
(3) Effective date.--The amendment made by paragraph (1)
and the modifications required by paragraph (2) shall apply to
years beginning after December 31, 2001.
(b) Consent Regulation Inapplicable to Certain Distributions.--
(1) In general.--The Secretary of the Treasury shall modify
the regulations under section 411(a)(11) of the Internal
Revenue Code of 1986 to provide that the description of a
participant's right, if any, to defer receipt of a distribution
shall also describe the consequences of failing to defer such
receipt.
(2) Effective date.--The modifications required by
paragraph (1) shall apply to years beginning after December 31,
2001.
CHAPTER 7--PLAN AMENDMENTS
SEC. 281. PROVISIONS RELATING TO PLAN AMENDMENTS.
(a) In General.--If this section applies to any plan or contract
amendment--
(1) such plan or contract shall be treated as being
operated in accordance with the terms of the plan during the
period described in subsection (b)(2)(A); and
(2) such plan shall not fail to meet the requirements of
section 411(d)(6) of the Internal Revenue Code of 1986 by
reason of such amendment.
(b) Amendments to Which Section Applies.--
(1) In general.--This section shall apply to any amendment
to any plan or annuity contract which is made--
(A) pursuant to any amendment made by this title,
or pursuant to any regulation issued under this title,
and
(B) on or before the last day of the first plan
year beginning on or after January 1, 2003.
In the case of a governmental plan (as defined in section
414(d) of the Internal Revenue Code of 1986), this paragraph
shall be applied by substituting ``2005'' for ``2003''.
(2) Conditions.--This section shall not apply to any
amendment unless--
(A) during the period--
(i) beginning on the date the legislative
or regulatory amendment described in paragraph
(1)(A) takes effect (or in the case of a plan
or contract amendment not required by such
legislative or regulatory amendment, the
effective date specified by the plan); and
(ii) ending on the date described in
paragraph (1)(B) (or, if earlier, the date the
plan or contract amendment is adopted),
the plan or contract is operated as if such plan or
contract amendment were in effect; and
(B) such plan or contract amendment applies
retroactively for such period.
TITLE III--FAMILY TAX 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 ``200 percent of the dollar amount in effect under
subparagraph (C) for the taxable year'',
(2) by adding ``or'' at the end of subparagraph (B),
(3) by striking ``in the case of'' and all that follows in
subparagraph (C) and inserting ``in any other case.'', and
(4) by striking subparagraph (D).
(b) Phase-In.--Subsection (c) of section 63 is amended by adding at
the end the following new paragraph:
``(7) Phase-in of increase in basic standard deduction.--In
the case of taxable years beginning before January 1, 2009--
``(A) paragraph (2)(A) shall be applied by
substituting for `200 percent'--
``(i) `175 percent' in the case of taxable
years beginning after 2000 and before 2007, and
``(ii) `190 percent' in the case of taxable
years beginning after 2006 and before 2009, and
``(B) the basic standard deduction for a married
individual filing a separate return shall be one-half
of the amount applicable under paragraph (2)(A).
If any amount determined under subparagraph (A) is not a
multiple of $50, such amount shall be rounded to the next
lowest multiple of $50.''.
(c) Technical Amendments.--
(1) Subparagraph (B) of section 1(f)(6) is amended by
striking ``(other than with'' and all that follows through
``shall be applied'' and inserting ``(other than with respect
to sections 63(c)(4) and 151(d)(4)(A)) shall be applied''.
(2) Paragraph (4) of section 63(c) is amended by adding at
the end the following flush sentence:
``The preceding sentence shall not apply to the amount referred
to in paragraph (2)(A).''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2000.
SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN INCOME TAX RATE BRACKETS.
(a) In General.--Subsection (f) of section 1 (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 brackets.--
``(A) In general.--With respect to taxable years
beginning after December 31, 2000, in prescribing the
tables under paragraph (1)--
``(i) the minimum and maximum taxable
income amounts in each rate bracket in the
table contained in subsection (a) shall be the
applicable percentage of the comparable taxable
income amounts 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--
2001, 2002, 2003, 2004, 2005, and 2006. 175
2007 and 2008.......................... 190
2009 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 Rate Brackets;''
before ``Adjustments''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2000.
SEC. 303. MODIFICATIONS OF CHILD TAX CREDIT.
(a) In General.--Subsection (a) of section 24 (relating to child
tax credit) 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 applicable dollar amount for the calendar year in
which such taxable year begins.
``(2) Applicable dollar amount.--For purposes of paragraph
(1), the applicable dollar amount for any calendar year shall
be determined under the following table:
Applicable
``Calendar year: Dollar Amount:
2002.......................................... $600
2003.......................................... $700
2004.......................................... $800
2005.......................................... $900
2006 and thereafter........................... $1,000.''.
(b) Increase in Phase-Out Threshold.--
(1) Before 2006.--Section 24(b)(2) is amended--
(A) by inserting ``, increased by $18,000 with
respect to each taxable year beginning after December
31, 2001'' after ``return'' in subparagraph (A),
(B) by inserting ``, increased by $25,000 with
respect to each taxable year beginning after December
31, 2001'' after ``married'' in subparagraph (B), and
(C) by inserting ``, increased by $9,000 with
respect to each taxable year beginning after December
31, 2001'' after ``return'' in subparagraph (C).
(2) After 2005.--Paragraph (2) of section 24(b) is amended
to read as follows:
``(2) Threshold amount.--For purposes of paragraph (1), the
term `threshold amount' means $200,000 ($100,000 in the case of
a married individual (as determined under section 7703) filing
a separate return).''.
(c) Reduction in Phase-Out Rate.--Section 24(b)(1) is amended by
striking ``$50'' and inserting ``$20''.
(d) Repeal of Reduction of Credit for Taxpayers Subject to
Alternative Minimum Tax.--Subsection (d) of section 24 is amended by
striking paragraph (2) and by redesignating paragraph (3) as paragraph
(2).
(e) Effective Dates.--
(1) In general.--The amendments made by subsections (a),
(b)(1), and (d) shall apply to taxable years beginning after
December 31, 2001.
(2) 2006 phase-out rate and amount.--The amendments made by
subsections (b)(2) and (c) shall apply to taxable years
beginning after December 31, 2005.
SEC. 304. EXPANSION OF EDUCATION IRAS.
(a) 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)).
Such expenses shall be reduced as provided in section
25A(g)(2).
``(B) Qualified state tuition programs.--Such term
shall include amounts paid or incurred to purchase
tuition credits or certificates, or to make
contributions to an account, under a qualified State
tuition program (as defined in section 529(b)) for the
benefit of the beneficiary of the account.''.
(2) Qualified elementary and secondary education
expenses.--Section 530(b) (relating to definitions and special
rules) is amended by adding at the end the following new
paragraph:
``(4) Qualified elementary and secondary education
expenses.--
``(A) In general.--The term `qualified elementary
and secondary education expenses' means--
``(i) expenses for tuition, fees, academic
tutoring, special needs services, books,
supplies, computer equipment (including related
software and services), and other equipment
which are incurred in connection with the
enrollment or attendance of the designated
beneficiary of the trust as an elementary or
secondary school student at a public, private,
or religious school, or
``(ii) expenses for room and board,
uniforms, transportation, and supplementary
items and services (including extended day
programs) which are required or provided by a
public, private, or religious school in
connection with such enrollment or attendance.
``(B) Special rule for homeschooling.--Such term
shall include expenses described in subparagraph (A)(i)
in connection with education provided by homeschooling
if the requirements of any applicable State or local
law are met with respect to such education.
``(C) School.--The term `school' means any school
which provides elementary education or secondary
education (kindergarten through grade 12), as
determined under State law.''.
(3) Conforming amendments.--Subsections (b)(1) and (d)(2)
of section 530 are each amended by striking ``higher'' each
place it appears in the text and heading thereof.
(b) Maximum Annual Contributions.--
(1) In general.--Section 530(b)(1)(A)(iii) (defining
education individual retirement account) is amended by striking
``$500'' and inserting ``the applicable dollar amount for the
calendar year in which such taxable year begins''.
(2) Applicable dollar amount.--Section 530(b) is amended by
adding at the end the following new paragraph:
``(4) Applicable dollar amount.--For purposes of paragraph
(1)(A)(iii), the applicable dollar amount for any calendar year
shall be determined under the following table:
Applicable
``Calendar year: Dollar Amount:
2002.......................................... $1,000
2003.......................................... $2,000
2004.......................................... $3,000
2005.......................................... $4,000
2006 and thereafter........................... $5,000.''.
(3) Conforming amendment.--Section 4973(e)(1)(A) is amended
by striking ``$500'' and inserting ``the applicable dollar
amount for the calendar year in which such taxable year
begins''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
SEC. 305. ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAINTAIN
QUALIFIED TUITION PROGRAMS.
(a) In General.--Section 529(b)(1) (defining qualified State
tuition program) is amended by inserting ``or by 1 or more eligible
educational institutions or a consortium that consists solely of
eligible educational institutions'' after ``maintained by a State or
agency or instrumentality thereof''.
(b) 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''.
(c) Conforming Amendments.--
(1) The text and headings of each of the sections 72(e)(9),
135(c)(2(C), 135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and
6693(a)(2)(C) is amended by striking ``qualified State
tuition'' each place it appears and inserting ``qualified
tuition''.
(2)(A) The section heading of section 529 is amended to
read as follows:
``SEC. 529. QUALIFIED TUITION PROGRAMS.''.
(B) 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''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
SEC. 306. EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM
QUALIFIED TUITION PROGRAMS.
(a) In General.--Section 529(c)(3)(B) (relating to distributions)
is amended to read as follows:
``(B) Distributions for qualified higher education
expenses.--
``(i) In general.--If a distributee elects
the application of this clause for any taxable
year--
``(I) 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, and
``(II) the amount which (but for
the election) would be includible in
gross income under subparagraph (A) by
reason of any other distribution shall
not be so includible in an amount which bears the same ratio to the
amount which would be so includible as such expenses bear to such
aggregate distributions.
``(ii) In-kind distributions.--Any benefit
furnished to a designated beneficiary under a
qualified State tuition program shall be
treated as a distribution to the beneficiary
for purposes of this paragraph.
``(iii) Disallowance of excluded amounts as
credit or deduction.--No deduction or credit
shall be allowed to the taxpayer under any
other section of this chapter for any qualified
higher education expenses to the extent taken
into account in determining the amount of the
exclusion under this subparagraph.''.
(b) Beneficiary May Change Program.--Section 529(c)(3)(C) (relating
to change in beneficiaries) is amended--
(1) in clause (i), by inserting ``to another qualified
tuition program for the benefit of the designated beneficiary
or'' after ``transferred'', and
(2) in the heading, by inserting ``or programs'' after
``beneficiaries''.
(c) Additional Tax on Amounts Not Used for Higher Education
Expenses.--Section 529(c)(3) (relating to distributions) is amended by
adding at the end the following:
``(E) Additional tax on amounts not used for higher
education expenses.--The tax imposed by section
530(d)(4) shall apply to payments and distributions
from qualified tuition programs in the same manner as
such tax applies to education individual retirement
accounts.''.
(d) Coordination With Education Credits.--Section 25A(e)(2)
(relating to coordination with exclusions) is amended--
(1) by inserting ``a qualified tuition program or'' before
``an education individual retirement account'', and
(2) by striking ``section 530(d)(2)'' and inserting
``section 529(c)(3)(B) or 530(d)(2)''.
(e) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to distributions
made after December 31, 2001, for education furnished in
academic periods beginning after such date.
(2) Private programs.--In the case of a qualified tuition
program established and maintained by an entity other than a
State or agency or instrumentality thereof, the amendments made
by subsections (a), (c), and (d) shall apply to distributions
made after December 31, 2005, for education furnished in
academic periods beginning after such date.
SEC. 307. QUALIFIED TUITION PROGRAMS INCLUDED IN SECURITIES EXEMPTION.
(a) Exempted Securities.--Section 3(a)(4) of the Securities Act of
1933 (15 U.S.C. 77c(a)(4)) is amended by striking ``individual;'' and
inserting ``individual or any security issued by a prepaid tuition
program described in section 529 of the Internal Revenue Code of
1986;''.
(b) Qualified Tuition Programs Not Investment Companies.--Section
3(c) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)) is
amended by adding at the end the following:
``(15) Any prepaid tuition program described in section 529
of the Internal Revenue Code of 1986.''.
SEC. 308. EXPANSION OF CREDIT FOR ADOPTION EXPENSES.
(a) Increase in Expenses Allowable for Adoption.--Paragraph (1) of
section 23(b) (relating to dollar limitation) is amended to read as
follows:
``(1) Dollar limitation.--
``(A) In general.--The aggregate amount of
qualified adoption expenses which may be taken into
account under subsection (a) for all taxable years with
respect to the adoption of a child by the taxpayer
shall not exceed the applicable amount.
``(B) Applicable amount.--For purposes of
subparagraph (A)--
``(i) Child with special needs.--In the
case of a child with special needs, the
applicable amount for a taxable year shall be
the amount determined in accordance with the
following table:
``For taxable years
The applicable
beginning in:
amount is:
2002................................... $8,000
2003................................... $10,000
2004 and thereafter.................... $12,000.
``(ii) Other children.--In the case of a
child who is not a child with special needs,
the applicable amount for a taxable year shall
be the amount determined in accordance with the
following table:
``For taxable years
The applicable
beginning in:
amount is:
2002................................... $6,000
2003................................... $7,000
2004................................... $8,000
2005................................... $9,000
2006 and thereafter.................... $10,000.''.
(b) Increase in Income Limitation.--Clause (i) of section
23(b)(2)(A) (relating to income limitation) is amended by striking
``$75,000'' and inserting ``$150,000''.
(c) Extension of Sunset.--Subparagraph (B) of section 23(d)(2)
(relating to eligible child) is amended by striking ``2001'' and
inserting ``2005''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
TITLE IV--CHARITABLE GIVING TAX RELIEF
SEC. 401. DEDUCTION FOR PORTION OF CHARITABLE CONTRIBUTIONS TO BE
ALLOWED TO INDIVIDUALS WHO DO NOT ITEMIZE DEDUCTIONS.
(a) In General.--Subsection (b) of section 63 is amended by
striking ``and'' at the end of paragraph (1), by striking the period at
the end of paragraph (2) and inserting ``, and'', and by adding at the
end the following:
``(3) the applicable percentage of the deduction provided
by section 170 (relating to charitable, etc., contributions and
gifts), in an amount not to exceed the standard deduction.
For purposes of paragraph (3), the applicable percentage shall be
determined under the following table:
``For taxable years beginning in The applicable percentage is:
calendar year:
2002.......................................... 20
2003.......................................... 40
2004.......................................... 60
2005.......................................... 80
2006 and thereafter........................... 100.''.
(b) Conforming Amendment.--Subsection (d) of section 63 is amended
by striking ``and'' at the end of paragraph (1), by striking the period
at the end of paragraph (2) and inserting ``, and'', and by adding at
the end thereof the following new paragraph:
``(3) the deduction provided by section 170 as determined
under subsection (b)(3).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
SEC. 402. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS
FOR CHARITABLE PURPOSES.
(a) In General.--Subsection (d) of section 408 (relating to
individual retirement accounts) is amended by adding at the end the
following new paragraph:
``(8) Distributions for charitable purposes.--
``(A) In general.--No amount shall be includible in
gross income by reason of a qualified charitable
distribution from an individual retirement account to
an organization described in section 170(c).
``(B) Qualified charitable distribution.--For
purposes of this paragraph, the term `qualified
charitable distribution' means any distribution from an
individual retirement account--
``(i) which is made on or after the date
that the individual for whose benefit the
account is maintained has attained age 59\1/2\,
and
``(ii) which is made directly from the
account to an organization described in section
170(c).
``(C) Denial of deduction.--The amount allowable as
a deduction under section 170 to the taxpayer for the
taxable year shall be reduced (but not below zero) by
the sum of the amounts of the qualified charitable
distributions during such year which would be
includible in the gross income of the taxpayer for such
year but for this paragraph.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2001.
SEC. 403. HIGHER LIMITATION ON CORPORATE CHARITABLE CONTRIBUTIONS.
(a) In General.--Paragraph (2) of section 170(b) (relating to
percentage limitations) is amended by striking ``10 percent'' and
inserting ``15 percent''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2001.
TITLE V--MISCELLANEOUS TAX RELIEF
SEC. 501. REPEAL OF 1993 INCOME TAX INCREASE ON SOCIAL SECURITY
BENEFITS.
(a) Reduction of Increase.--Clause (i) of section 86(a)(2)(A) is
amended by striking ``85 percent'' and inserting ``85 percent (75
percent in the case of taxable years beginning after 2001 and before
2009 and 50 percent in the case of taxable years beginning before
2010)''.
(b) Restoration of Prior Law Formula in 2010.--Subsection (a) of
section 86 is amended to read as follows:
``(a) In General.--Gross income for the taxable year of any
taxpayer described in subsection (b) (notwithstanding section 207 of
the Social Security Act) includes Social Security benefits in an amount
equal to the lesser of--
``(1) one-half of the Social Security benefits received
during the taxable year, or
``(2) one-half of the excess described in subsection
(b)(1).''
(c) Repeal of Adjusted Base Amount.--Subsection (c) of section 86
is amended to read as follows:
``(c) Base Amount.--For purposes of this section, the term `base
amount' means--
``(1) except as otherwise provided in this subsection,
$25,000,
``(2) $32,000 in the case of a joint return, and
``(3) zero in the case of a taxpayer who--
``(A) is married as of the close of the taxable
year (within the meaning of section 7703) but does not
file a joint return for such year, and
``(B) does not live apart from his spouse at all
times during the taxable year.''
(d) Conforming Amendments.--
(1) Subparagraph (A) of section 871(a)(3) is amended by
striking ``85 percent'' and inserting ``50 percent''.
(2)(A) Subparagraph (A) of section 121(e)(1) of the Social
Security Amendments of 1983 (Public Law 98-21) is amended--
(i) by striking ``(A) There'' and inserting
``There'';
(ii) by striking ``(i)'' immediately following
``amounts equivalent to''; and
(iii) by striking ``, less (ii)'' and all that
follows and inserting a period.
(B) Paragraph (1) of section 121(e) of such Act is amended
by striking subparagraph (B).
(C) Paragraph (3) of section 121(e) of such Act is amended
by striking subparagraph (B) and by redesignating subparagraph
(C) as subparagraph (B).
(D) Paragraph (2) of section 121(e) of such Act is amended
in the first sentence by striking ``paragraph (1)(A)'' and
inserting ``paragraph (1)''.
(e) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years beginning after December 31, 2009.
(2) Subsection (a).--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 2001.
(3) Subsection (c)(1).--The amendment made by subsection
(c)(1) shall apply to benefits paid after December 31, 2009.
(4) Subsection (c)(2).--The amendments made by subsection
(c)(2) shall apply to tax liabilities for taxable years
beginning after December 31, 2000.
(e) Maintenance of Transfers to Hospital Insurance Trust Fund.--
(1) In general.--There are hereby appropriated to the
Hospital Insurance Trust Fund established under section 1817 of
the Social Security Act amounts equal to the reduction in
revenues to the Treasury by reason of the enactment of this
section. Amounts appropriated by the preceding sentence shall
be transferred from the general fund at such times and in such
manner as to replicate to the extent possible the transfers
which would have occurred to such Trust Fund had this Act not
been enacted.
(2) Reports.--The Secretary of the Treasury or the
Secretary's delegate shall annually report to the Committee on
Ways and Means of the House of Representatives and the
Committee on Finance of the Senate the amounts and timing of
the transfers under this section.
SEC. 502. REPEAL OF FEDERAL COMMUNICATIONS EXCISE TAX.
(a) In General.--Chapter 33 (relating to facilities and services)
is amended by striking subchapter B.
(b) Conforming Amendments.--
(1) Section 4293 is amended by striking ``chapter 32 (other
than the taxes imposed by sections 4064 and 4121) and
subchapter B of chapter 33,'' and inserting ``and chapter 32
(other than the taxes imposed by sections 4064 and 4121),''.
(2)(A) Paragraph (1) of section 6302(e) is amended by
striking ``section 4251 or''.
(B) Paragraph (2) of section 6302(e) is amended by striking
``imposed by--'' and all that follows through ``with respect
to'' and inserting ``imposed by section 4261 or 4271 with
respect to''.
(C) The subsection heading for section 6302(e) is amended
by striking ``Communications Services and''.
(3) Section 6415 is amended by striking ``4251, 4261, or
4271'' each place it appears and inserting ``4261 or 4271''.
(4) Paragraph (2) of section 7871(a) is amended by
inserting ``or'' at the end of subparagraph (B), by striking
subparagraph (C), and by redesignating subparagraph (D) as
subparagraph (C).
(5) The table of subchapters for chapter 33 is amended by
striking the item relating to subchapter B.
(d) Effective Dates.--The amendments made by this section shall
apply to amounts paid pursuant to bills first rendered after September
30, 2001.
SEC. 503. DEDUCTION FOR 100 PERCENT OF HEALTH INSURANCE COSTS OF SELF-
EMPLOYED INDIVIDUALS.
(a) In General.--Paragraph (1) of section 162(l) is amended to read
as follows:
``(1) Allowance of deduction.--In the case of an individual
who is an employee within the meaning of section 401(c)(1),
there shall be allowed as a deduction under this section an
amount equal to 100 percent of the amount paid during the
taxable year for insurance which constitutes medical care for
the taxpayer and the taxpayer's spouse and dependents.''.
(b) Clarification of Limitations on Other Coverage.--The first
sentence of section 162(l)(2)(B) is amended to read as follows:
``Paragraph (1) shall not apply to any taxpayer for any calendar month
for which the taxpayer participates in any subsidized health plan
maintained by any employer (other than an employer described in section
401(c)(4)) of the taxpayer or the spouse of the taxpayer.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
SEC. 504. INCREASED DEDUCTION FOR MEAL EXPENSES.
(a) In General.--Paragraph (1) of section 274(n) (relating to only
50 percent of meal and entertainment expenses allowed as deduction) is
amended by striking ``50 percent'' in the text and inserting ``the
allowable percentage''.
(b) Allowable Percentages.--Subsection (n) of section 274 is
amended by redesignating paragraphs (2) and (3) as paragraphs (3) and
(4), respectively, and by inserting after paragraph (1) the following
new paragraph:
``(2) Allowable percentage.--For purposes of paragraph (1),
the allowable percentage is--
``(A) in the case of amounts for items described in
paragraph (1)(B), 50 percent, and
``(B) in the case of expenses for food or
beverages, 80 percent (60 percent for taxable years
beginning after 2001 and before 2010).''
(c) Conforming Amendment.--The heading for subsection (n) of
section 274 is amended by striking ``50 Percent'' and inserting
``Limited Percentages''.
(d) Effective Date.--
(1) The amendments made by this section shall apply to
taxable years beginning after December 31, 2002.
(2) Section 274(n)(2)(B) of the Internal Revenue Code of
1986 (as added by subsection (b)) shall apply to expenses
incurred after the date of the enactment of this Act.
SEC. 505. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.
(a) In General.--Paragraph (1) of section 179(b) (relating to
dollar limitation) is amended to read as follows:
``(1) Dollar limitation.--The aggregate cost which may be
taken into account under subsection (a) for any taxable year
shall not exceed $30,000.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2002.
SEC. 506. INCOME AVERAGING FOR FARMERS AND FISHERMEN NOT TO INCREASE
ALTERNATIVE MINIMUM TAX LIABILITY.
(a) In General.--Section 55(c) (defining regular tax) is amended by
redesignating paragraph (2) as paragraph (3) and by inserting after
paragraph (1) the following:
``(2) Coordination with income averaging for farmers and
fishermen.--Solely for purposes of this section, section 1301
(relating to averaging of farm and fishing income) shall not
apply in computing the regular tax.''.
(b) Allowing Income Averaging for Fishermen.--
(1) In general.--Section 1301(a) is amended by striking
``farming business'' and inserting ``farming business or
fishing business,''.
(2) Definition of elected farm income.--
(A) In general.--Clause (i) of section
1301(b)(1)(A) is amended by inserting ``or fishing
business'' before the semicolon.
(B) Conforming amendment.--Subparagraph (B) of
section 1301(b)(1) is amended by inserting ``or fishing
business'' after ``farming business'' both places it
occurs.
(3) Definition of fishing business.--Section 1301(b) is
amended by adding at the end the following new paragraph:
``(4) Fishing business.--The term `fishing business' means
the conduct of commercial fishing as defined in section 3 of
the Magnuson-Stevens Fishery Conservation and Management Act
(16 U.S.C. 1802).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 507. REPEAL OF OCCUPATIONAL TAXES RELATING TO DISTILLED SPIRITS,
WINE, AND BEER.
(a) Repeal of Occupational Taxes.--
(1) In general.--The following provisions of part II of
subchapter A of chapter 51 of the Internal Revenue Code of 1986
(relating to occupational taxes) are hereby repealed:
(A) Subpart A (relating to proprietors of distilled
spirits plants, bonded wine cellars, etc.).
(B) Subpart B (relating to brewer).
(C) Subpart D (relating to wholesale dealers)
(other than sections 5114 and 5116).
(D) Subpart E (relating to retail dealers) (other
than section 5124).
(E) Subpart G (relating to general provisions)
(other than sections 5142, 5143, 5145, and 5146).
(2) Nonbeverage domestic drawback.--Section 5131 is amended
by striking ``, on payment of a special tax per annum,''.
(3) Industrial use of distilled spirits.--Section 5276 is
hereby repealed.
(b) Conforming Amendments.--
(1)(A) The heading for part II of subchapter A of chapter
51 and the table of subparts for such part are amended to read
as follows:
``PART II--MISCELLANEOUS PROVISIONS
``Subpart A. Manufacturers of stills.
``Subpart B. Nonbeverage domestic
drawback claimants.
``Subpart C. Recordkeeping by dealers.
``Subpart D. Other provisions.''
(B) The table of parts for such subchapter A is amended by
striking the item relating to part II and inserting the
following new item:
``Part II. Miscellaneous provisions.''
(2) Subpart C of part II of such subchapter (relating to
manufacturers of stills) is redesignated as subpart A.
(3)(A) Subpart F of such part II (relating to nonbeverage
domestic drawback claimants) is redesignated as subpart B and
sections 5131 through 5134 are redesignated as sections 5111
through 5114, respectively.
(B) The table of sections for such subpart B, as so
redesignated, is amended--
(i) by redesignating the items relating to sections
5131 through 5134 as relating to sections 5111 through
5114, respectively, and
(ii) by striking ``and rate of tax'' in the item
relating to section 5111, as so redesignated.
(C) Section 5111, as redesignated by subparagraph (A), is
amended--
(i) by striking ``and rate of tax'' in the section
heading,
(ii) by striking ``(a) Eligibility for Drawback.--
'', and
(iii) by striking subsection (b).
(4) Part II of subchapter A of chapter 51 is amended by
adding after subpart B, as redesignated by paragraph (3), the
following new subpart:
``Subpart C--Recordkeeping by Dealers
``Sec. 5121. Recordkeeping by wholesale
dealers.
``Sec. 5122. Recordkeeping by retail
dealers.
``Sec. 5123. Preservation and inspection
of records, and entry of
premises for inspection.''
(5)(A) Section 5114 (relating to records) is moved to
subpart C of such part II and inserted after the table of
sections for such subpart.
(B) Section 5114 is amended--
(i) by striking the section heading and inserting
the following new heading:
``SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.'',
and
(ii) by redesignating subsection (c) as subsection
(d) and by inserting after subsection (b) the following
new subsection:
``(c) Wholesale Dealers.--For purposes of this part--
``(1) Wholesale dealer in liquors.--The term `wholesale
dealer in liquors' means any dealer (other than a wholesale
dealer in beer) who sells, or offers for sale, distilled
spirits, wines, or beer, to another dealer.
``(2) Wholesale dealer in beer.--The term `wholesale dealer
in beer' means any dealer who sells, or offers for sale, beer,
but not distilled spirits or wines, to another dealer.
``(3) Dealer.--The term `dealer' means any person who
sells, or offers for sale, any distilled spirits, wines, or
beer.
``(4) Presumption in case of sale of 20 wine gallons or
more.--The sale, or offer for sale, of distilled spirits,
wines, or beer, in quantities of 20 wine gallons or more to the
same person at the same time, shall be presumptive evidence
that the person making such sale, or offer for sale, is engaged
in or carrying on the business of a wholesale dealer in liquors
or a wholesale dealer in beer, as the case may be. Such
presumption may be overcome by evidence satisfactorily showing
that such sale, or offer for sale, was made to a person other
than a dealer.''
(C) Paragraph (3) of section 5121(d), as so redesignated,
is amended by striking ``section 5146'' and inserting ``section
5123''.
(6)(A) Section 5124 (relating to records) is moved to
subpart C of part II of subchapter A of chapter 51 and inserted
after section 5121.
(B) Section 5124 is amended--
(i) by striking the section heading and inserting
the following new heading:
``SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.'',
(ii) by striking ``section 5146'' in subsection (c)
and inserting ``section 5123'', and
(iii) by redesignating subsection (c) as subsection
(d) and inserting after subsection (b) the following
new subsection:
``(c) Retail Dealers.--For purposes of this section--
``(1) Retail dealer in liquors.--The term `retail dealer in
liquors' means any dealer (other than a retail dealer in beer)
who sells, or offers for sale, distilled spirits, wines, or
beer, to any person other than a dealer.
``(2) Retail dealer in beer.--The term `retail dealer in
beer' means any dealer who sells, or offers for sale, beer, but
not distilled spirits or wines, to any person other than a
dealer.
``(3) Dealer.--The term `dealer' has the meaning given such
term by section 5121(c)(3).''
(7) Section 5146 is moved to subpart C of part II of
subchapter A of chapter 51, inserted after section 5122, and
redesignated as section 5123.
(8) Part II of subchapter A of chapter 51 is amended by
inserting after subpart C the following new subpart:
``Subpart D. Other Provisions
``Sec. 5131. Packaging distilled spirits
for industrial uses.
``Sec. 5132. Prohibited purchases by
dealers.''
(9) Section 5116 is moved to subpart D of part II of
subchapter A of chapter 51, inserted after the table of
sections, redesignated as section 5131, and amended by
inserting ``(as defined in section 5121(c))'' after ``dealer''
in subsection (a).
(10) Subpart D of part II of subchapter A of chapter 51 is
amended by adding at the end thereof the following new section:
``SEC. 5132. PROHIBITED PURCHASES BY DEALERS.
``(a) In General.--Except as provided in regulations prescribed by
the Secretary, it shall be unlawful for a dealer to purchase distilled
spirits from any person other than a wholesale dealer in liquors who is
required to keep the records prescribed by section 5121.
``(b) Penalty and Forfeiture.--
``For penalty and forfeiture provisions
applicable to violations of subsection (a), see sections 5687 and
7302.''
(11) Subsection (b) of section 5002 is amended--
(A) by striking ``section 5112(a)'' and inserting
``section 5121(c)(3)'',
(B) by striking ``section 5112'' and inserting
``section 5121(c)'', and
(C) by striking ``section 5122'' and inserting
``section 5122(c)''.
(12) Subparagraph (A) of section 5010(c)(2) is amended by
striking ``section 5134'' and inserting ``section 5114''.
(13) Subsection (d) of section 5052 is amended to read as
follows:
``(d) Brewer.--For purposes of this chapter, the term `brewer'
means any person who brews beer or produces beer for sale. Such term
shall not include any person who produces only beer exempt from tax
under section 5053(e).''
(14) The text of section 5182 is amended to read as
follows:
``For provisions requiring
recordkeeping by wholesale liquor dealers, see section 5112, and by
retail liquor dealers, see section 5122.''
(15) Subsection (b) of section 5402 is amended by striking
``section 5092'' and inserting ``section 5052(d)''.
(16) Section 5671 is amended by striking ``or 5091''.
(17)(A) Part V of subchapter J of chapter 51 is hereby
repealed.
(B) The table of parts for such subchapter J is amended by
striking the item relating to part V.
(18)(A) Sections 5142, 5143, and 5145 are moved to
subchapter D of chapter 52, inserted after section 5731,
redesignated as sections 5732, 5733, and 5734, respectively,
and amended--
(i) by striking ``this part'' each place it appears
and inserting ``this subchapter'', and
(ii) by striking ``this subpart'' in section
5732(c)(2) (as so redesignated) and inserting ``this
subchapter''.
(B) Section 5732, as redesignated by subparagraph (A), is
amended by striking ``(except the tax imposed by section
5131)'' each place it appears.
(C) Subsection (c) of section 5733, as redesignated by
subparagraph (A), is amended by striking paragraph (2) and by
redesignating paragraph (3) as paragraph (2).
(D) The table of sections for subchapter D of chapter 52 is
amended by adding at the end thereof the following:
``Sec. 5732. Payment of tax.
``Sec. 5733. Provisions relating to
liability for occupational
taxes.
``Sec. 5734. Application of State laws.''
(E) Section 5731 is amended by striking subsection (c) and
by redesignating subsection (d) as subsection (c).
(19) Subsection (c) of section 6071 is amended by striking
``section 5142'' and inserting ``section 5732''.
(20) Paragraph (1) of section 7652(g) is amended--
(A) by striking ``subpart F'' and inserting
``subpart B'', and
(B) by striking ``section 5131(a)'' and inserting
``section 5111(a)''.
(21) The table of sections for subchapter D of chapter 51
is amended by striking the item relating to section 5276.
(c) Effective Date.--The amendments made by this section shall take
effect on July 1, 2002, but shall not apply to taxes imposed for
periods before such date.
SEC. 508. PERMANENT EXTENSION OF RESEARCH CREDIT.
(a) In General.--Section 41 (relating to credit for increasing
research activities) is amended by striking subsection (h).
(b) Conforming Amendment.--Paragraph (1) of section 45C(b) is
amended by striking subparagraph (D).
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred after the date of the enactment of
this Act.
SEC. 509. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.
(a) In General.--Subpart C of part II of subchapter E of chapter 1
(relating to taxable year for which deductions taken) is amended by
inserting after section 468B the following new section:
``SEC. 468C. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.
``(a) Deduction Allowed.--In the case of an individual engaged in
an eligible farming business or commercial fishing, there shall be
allowed as a deduction for any taxable year the amount paid in cash by
the taxpayer during the taxable year to a Farm, Fishing, and Ranch Risk
Management Account (hereinafter referred to as the `FFARRM Account').
``(b) Limitation.--
``(1) Contributions.--The amount which a taxpayer may pay
into the FFARRM Account for any taxable year shall not exceed
20 percent of so much of the taxable income of the taxpayer
(determined without regard to this section) which is
attributable (determined in the manner applicable under section
1301) to any eligible farming business or commercial fishing.
``(2) Distributions.--Distributions from a FFARRM Account
may not be used to purchase, lease, or finance any new fishing
vessel, add capacity to any fishery, or otherwise contribute to
the overcapitalization of any fishery. The Secretary of
Commerce shall implement regulations to enforce this paragraph.
``(c) Eligible Businesses.--For purposes of this section--
``(1) Eligible farming business.--The term `eligible
farming business' means any farming business (as defined in
section 263A(e)(4)) which is not a passive activity (within the
meaning of section 469(c)) of the taxpayer.
``(2) Commercial fishing.--The term `commercial fishing'
has the meaning given such term by section (3) of the Magnuson-
Stevens Fishery Conservation and Management Act (16 U.S.C.
1802) but only if such fishing is not a passive activity
(within the meaning of section 469(c)) of the taxpayer.
``(d) FFARRM Account.--For purposes of this section--
``(1) In general.--The term `FFARRM Account' means a trust
created or organized in the United States for the exclusive
benefit of the taxpayer, but only if the written governing
instrument creating the trust meets the following requirements:
``(A) No contribution will be accepted for any
taxable year in excess of the amount allowed as a
deduction under subsection (a) for such year.
``(B) The trustee is a bank (as defined in section
408(n)) or another person who demonstrates to the
satisfaction of the Secretary that the manner in which
such person will administer the trust will be
consistent with the requirements of this section.
``(C) The assets of the trust consist entirely of
cash or of obligations which have adequate stated
interest (as defined in section 1274(c)(2)) and which
pay such interest not less often than annually.
``(D) All income of the trust is distributed
currently to the grantor.
``(E) The assets of the trust will not be
commingled with other property except in a common trust
fund or common investment fund.
``(2) Account taxed as grantor trust.--The grantor of a
FFARRM Account shall be treated for purposes of this title as
the owner of such Account and shall be subject to tax thereon
in accordance with subpart E of part I of subchapter J of this
chapter (relating to grantors and others treated as substantial
owners).
``(e) Inclusion of Amounts Distributed.--
``(1) In general.--Except as provided in paragraph (2),
there shall be includible in the gross income of the taxpayer
for any taxable year--
``(A) any amount distributed from a FFARRM Account
of the taxpayer during such taxable year, and
``(B) any deemed distribution under--
``(i) subsection (f)(1) (relating to
deposits not distributed within 5 years),
``(ii) subsection (f)(2) (relating to
cessation in eligible farming business), and
``(iii) subparagraph (B) or (C) of
subsection (f)(3) (relating to prohibited
transactions and pledging account as security).
``(2) Exceptions.--Paragraph (1)(A) shall not apply to--
``(A) any distribution to the extent attributable
to income of the Account, and
``(B) the distribution of any contribution paid
during a taxable year to a FFARRM Account to the extent
that such contribution exceeds the limitation
applicable under subsection (b) if requirements similar
to the requirements of section 408(d)(4) are met.
For purposes of subparagraph (A), distributions shall be
treated as first attributable to income and then to other
amounts.
``(f) Special Rules.--
``(1) Tax on deposits in account which are not distributed
within 5 years.--
``(A) In general.--If, at the close of any taxable
year, there is a nonqualified balance in any FFARRM
Account--
``(i) there shall be deemed distributed
from such Account during such taxable year an
amount equal to such balance, and
``(ii) the taxpayer's tax imposed by this
chapter for such taxable year shall be
increased by 10 percent of such deemed
distribution.
The preceding sentence shall not apply if an amount
equal to such nonqualified balance is distributed from
such Account to the taxpayer before the due date
(including extensions) for filing the return of tax
imposed by this chapter for such year (or, if earlier,
the date the taxpayer files such return for such year).
``(B) Nonqualified balance.--For purposes of
subparagraph (A), the term `nonqualified balance' means
any balance in the Account on the last day of the
taxable year which is attributable to amounts deposited
in such Account before the 4th preceding taxable year.
``(C) Ordering rule.--For purposes of this
paragraph, distributions from a FFARRM Account (other
than distributions of current income) shall be treated
as made from deposits in the order in which such
deposits were made, beginning with the earliest
deposits.
``(2) Cessation in eligible business.--At the close of the
first disqualification period after a period for which the
taxpayer was engaged in an eligible farming business or
commercial fishing, there shall be deemed distributed from the
FFARRM Account of the taxpayer an amount equal to the balance
in such Account (if any) at the close of such disqualification
period. For purposes of the preceding sentence, the term
`disqualification period' means any period of 2 consecutive
taxable years for which the taxpayer is not engaged in an
eligible farming business or commercial fishing.
``(3) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this section:
``(A) Section 220(f)(8) (relating to treatment on
death).
``(B) Section 408(e)(2) (relating to loss of
exemption of account where individual engages in
prohibited transaction).
``(C) Section 408(e)(4) (relating to effect of
pledging account as security).
``(D) Section 408(g) (relating to community
property laws).
``(E) Section 408(h) (relating to custodial
accounts).
``(4) Time when payments deemed made.--For purposes of this
section, a taxpayer shall be deemed to have made a payment to a
FFARRM Account on the last day of a taxable year if such
payment is made on account of such taxable year and is made on
or before the due date (without regard to extensions) for
filing the return of tax for such taxable year.
``(5) Individual.--For purposes of this section, the term
`individual' shall not include an estate or trust.
``(6) Deduction not allowed for self-employment tax.--The
deduction allowable by reason of subsection (a) shall not be
taken into account in determining an individual's net earnings
from self-employment (within the meaning of section 1402(a))
for purposes of chapter 2.
``(g) Reports.--The trustee of a FFARRM Account shall make such
reports regarding such Account to the Secretary and to the person for
whose benefit the Account is maintained with respect to contributions,
distributions, and such other matters as the Secretary may require
under regulations. The reports required by this subsection shall be
filed at such time and in such manner and furnished to such persons at
such time and in such manner as may be required by such regulations.''.
(b) Tax on Excess Contributions.--
(1) Subsection (a) of section 4973 (relating to tax on
excess contributions to certain tax-favored accounts and
annuities) is amended by striking ``or'' at the end of
paragraph (3), by redesignating paragraph (4) as paragraph (5),
and by inserting after paragraph (3) the following new
paragraph:
``(4) a FFARRM Account (within the meaning of section
468C(d)), or''.
(2) Section 4973 is amended by adding at the end the
following new subsection:
``(g) Excess Contributions to FFARRM Accounts.--For purposes of
this section, in the case of a FFARRM Account (within the meaning of
section 468C(d)), the term `excess contributions' means the amount by
which the amount contributed for the taxable year to the Account
exceeds the amount which may be contributed to the Account under
section 468C(b) for such taxable year. For purposes of this subsection,
any contribution which is distributed out of the FFARRM Account in a
distribution to which section 468C(e)(2)(B) applies shall be treated as
an amount not contributed.''.
(3) The section heading for section 4973 is amended to read
as follows:
``SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN ACCOUNTS, ANNUITIES,
ETC.''.
(4) The table of sections for chapter 43 is amended by
striking the item relating to section 4973 and inserting the
following new item:
``Sec. 4973. Excess contributions to
certain accounts, annuities,
etc.''.
(c) Tax on Prohibited Transactions.--
(1) Subsection (c) of section 4975 (relating to tax on
prohibited transactions) is amended by adding at the end the
following new paragraph:
``(6) Special rule for ffarrm accounts.--A person for whose
benefit a FFARRM Account (within the meaning of section
468C(d)) is established shall be exempt from the tax imposed by
this section with respect to any transaction concerning such
account (which would otherwise be taxable under this section)
if, with respect to such transaction, the account ceases to be
a FFARRM Account by reason of the application of section
468C(f)(3)(A) to such account.''.
(2) Paragraph (1) of section 4975(e) is amended by
redesignating subparagraphs (E) and (F) as subparagraphs (F)
and (G), respectively, and by inserting after subparagraph (D)
the following new subparagraph:
``(E) a FFARRM Account described in section
468C(d),''.
(d) Failure To Provide Reports on FFARRM Accounts.--Paragraph (2)
of section 6693(a) (relating to failure to provide reports on certain
tax-favored accounts or annuities) is amended by redesignating
subparagraphs (C) and (D) as subparagraphs (D) and (E), respectively,
and by inserting after subparagraph (B) the following new subparagraph:
``(C) section 468C(g) (relating to FFARRM
Accounts),''.
(e) Clerical Amendment.--The table of sections for subpart C of
part II of subchapter E of chapter 1 is amended by inserting after the
item relating to section 468B the following new item:
``Sec. 468C. Farm, Fishing and Ranch Risk
Management Accounts.''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
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