Text: H.R.3448 — 104th Congress (1995-1996)All Bill Information (Except Text)

08/20/1996 Became Public Law No: 104-188

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[Congressional Bills 104th Congress]
[From the U.S. Government Printing Office]
[H.R. 3448 Enrolled Bill (ENR)]

        H.R.3448

                       One Hundred Fourth Congress

                                 of the

                        United States of America


                          AT THE SECOND SESSION

         Begun and held at the City of Washington on Wednesday,
   the third day of January, one thousand nine hundred and ninety-six


                                 An Act


 
 To provide tax relief for small businesses, to protect jobs, to create 
 opportunities, to increase the take home pay of workers, to amend the 
    Portal-to-Portal Act of 1947 relating to the payment of wages to 
 employees who use employer owned vehicles, and to amend the Fair Labor 
 Standards Act of 1938 to increase the minimum wage rate and to prevent 
job loss by providing flexibility to employers in complying with minimum 
             wage and overtime requirements under that Act.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Small Business Job 
Protection Act of 1996''.
    (b) Table of Contents.--

Sec. 1. Short title; table of contents.

            TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS

Sec. 1101. Amendment of 1986 Code.
Sec. 1102. Underpayments of estimated tax.

                       Subtitle A--Expensing; Etc.

Sec. 1111. Increase in expense treatment for small businesses.
Sec. 1112. Treatment of employee tips.
Sec. 1113. Treatment of storage of product samples.
Sec. 1114. Treatment of certain charitable risk pools.
Sec. 1115. Treatment of dues paid to agricultural or horticultural 
organizations.
Sec. 1116. Clarification of employment tax status of certain fishermen.
Sec. 1117. Modifications of tax-exempt bond rules for first-time 
farmers.
Sec. 1118. Newspaper distributors treated as direct sellers.
Sec. 1119. Application of involuntary conversion rules to presidentially 
declared disasters.
Sec. 1120. Class life for gas station convenience stores and similar 
structures.
Sec. 1121. Treatment of abandonment of lessor improvements at 
termination of lease.
Sec. 1122. Special rules relating to determination whether individuals 
are employees for purposes of employment taxes.
Sec. 1123. Treatment of housing provided to employees by academic health 
centers.

          Subtitle B--Extension of Certain Expiring Provisions

Sec. 1201. Work opportunity tax credit.
Sec. 1202. Employer-provided educational assistance programs.
Sec. 1203. FUTA exemption for alien agricultural workers.
Sec. 1204. Research credit.
Sec. 1205. Orphan drug tax credit.
Sec. 1206. Contributions of stock to private foundations.
Sec. 1207. Extension of binding contract date for biomass and coal 
facilities.
Sec. 1208. Moratorium for excise tax on diesel fuel sold for use or used 
in diesel-powered motorboats.

            Subtitle C--Provisions Relating to S Corporations

Sec. 1301. S corporations permitted to have 75 shareholders.
Sec. 1302. Electing small business trusts.
Sec. 1303. Expansion of post-death qualification for certain trusts.
Sec. 1304. Financial institutions permitted to hold safe harbor debt.
Sec. 1305. Rules relating to inadvertent terminations and invalid 
elections.
Sec. 1306. Agreement to terminate year.
Sec. 1307. Expansion of post-termination transition period.
Sec. 1308. S corporations permitted to hold subsidiaries.
Sec. 1309. Treatment of distributions during loss years.
Sec. 1310. Treatment of S corporations under subchapter C.
Sec. 1311. Elimination of certain earnings and profits.
Sec. 1312. Carryover of disallowed losses and deductions under at-risk 
rules allowed.
Sec. 1313. Adjustments to basis of inherited S stock to reflect certain 
items of income.
Sec. 1314. S corporations eligible for rules applicable to real property 
subdivided for sale by noncorporate taxpayers.
Sec. 1315. Financial institutions.
Sec. 1316. Certain exempt organizations allowed to be shareholders.
Sec. 1317. Effective date.

                   Subtitle D--Pension Simplification

                Chapter 1--Simplified Distribution Rules

Sec. 1401. Repeal of 5-year income averaging for lump-sum distributions.
Sec. 1402. Repeal of $5,000 exclusion of employees' death benefits.
Sec. 1403. Simplified method for taxing annuity distributions under 
certain employer plans.
Sec. 1404. Required distributions.

             Chapter 2--Increased Access to Retirement Plans


                    SUBCHAPTER A--SIMPLE SAVINGS PLANS

Sec. 1421. Establishment of savings incentive match plans for employees 
of small employers.
Sec. 1422. Extension of simple plan to 401(k) arrangements.


                      SUBCHAPTER B--OTHER PROVISIONS

Sec. 1426. Tax-exempt organizations eligible under section 401(k).
Sec. 1427. Homemakers eligible for full IRA deduction.

                 Chapter 3--Nondiscrimination Provisions

Sec. 1431. Definition of highly compensated employees; repeal of family 
aggregation.
Sec. 1432. Modification of additional participation requirements.
Sec. 1433. Nondiscrimination rules for qualified cash or deferred 
arrangements and matching contributions.
Sec. 1434. Definition of compensation for section 415 purposes.

                   Chapter 4--Miscellaneous Provisions

Sec. 1441. Plans covering self-employed individuals.
Sec. 1442. Elimination of special vesting rule for multiemployer plans.
Sec. 1443. Distributions under rural cooperative plans.
Sec. 1444. Treatment of governmental plans under section 415.
Sec. 1445. Uniform retirement age.
Sec. 1446. Contributions on behalf of disabled employees.
Sec. 1447. Treatment of deferred compensation plans of State and local 
governments and tax-exempt organizations.
Sec. 1448. Trust requirement for deferred compensation plans of State 
and local governments.
Sec. 1449. Transition rule for computing maximum benefits under section 
415 limitations.
Sec. 1450. Modifications of section 403(b).
Sec. 1451. Special rules relating to joint and survivor annuity 
explanations.
Sec. 1452. Repeal of limitation in case of defined benefit plan and 
defined contribution plan for same employee; excess distributions.

Sec. 1453. Tax on prohibited transactions.
Sec. 1454. Treatment of leased employees.
Sec. 1455. Uniform penalty provisions to apply to certain pension 
reporting requirements.
Sec. 1456. Retirement benefits of ministers not subject to tax on net 
earnings from self-employment.
Sec. 1457. Sample language for spousal consent and qualified domestic 
relations forms.
Sec. 1458. Treatment of length of service awards to volunteers 
performing fire fighting or prevention services, emergency medical 
services, or ambulance services.
Sec. 1459. Alternative nondiscrimination rules for certain plans that 
provide for early participation.
Sec. 1460. Clarification of application of ERISA to insurance company 
general accounts.
Sec. 1461. Special rules for chaplains and self-employed ministers.
Sec. 1462. Definition of highly compensated employee for pre-ERISA rules 
for church plans.
Sec. 1463. Rule relating to investment in contract not to apply to 
foreign missionaries.
Sec. 1464. Waiver of excise tax on failure to pay liquidity shortfall.
Sec. 1465. Date for adoption of plan amendments.

                   Subtitle E--Foreign Simplification

Sec. 1501. Repeal of inclusion of certain earnings invested in excess 
passive assets.

                       Subtitle F--Revenue Offsets

                       Part I--General Provisions

Sec. 1601. Modifications of Puerto Rico and possession tax credit.
Sec. 1602. Repeal of exclusion for interest on loans used to acquire 
employer securities.
Sec. 1603. Certain amounts derived from foreign corporations treated as 
unrelated business taxable income.
Sec. 1604. Depreciation under income forecast method.
Sec. 1605. Repeal of exclusion for punitive damages and for damages not 
attributable to physical injuries or sickness.
Sec. 1606. Repeal of diesel fuel tax rebate to purchasers of diesel-
powered automobiles and light trucks.
Sec. 1607. Extension and phasedown of luxury passenger automobile tax.
Sec. 1608. Termination of future tax-exempt bond financing for local 
furnishers of electricity and gas.
Sec. 1609. Extension of Airport and Airway Trust Fund excise taxes.
Sec. 1610. Basis adjustment to property held by corporation where stock 
in corporation is replacement property under involuntary conversion 
rules.
Sec. 1611. Treatment of certain insurance contracts on retired lives.
Sec. 1612. Treatment of modified guaranteed contracts.
Sec. 1613. Treatment of contributions in aid of construction.
Sec. 1614. Election to cease status as qualified scholarship funding 
corporation.
Sec. 1615. Certain tax benefits denied to individuals failing to provide 
taxpayer identification numbers.
Sec. 1616. Repeal of bad debt reserve method for thrift savings 
associations.
Sec. 1617. Exclusion for energy conservation subsidies limited to 
subsidies with respect to dwelling units.

           Part II--Financial Asset Securitization Investments

Sec. 1621. Financial Asset Securitization Investment Trusts.

                    Subtitle G--Technical Corrections

Sec. 1701. Coordination with other subtitles.
Sec. 1702. Amendments related to Revenue Reconciliation Act of 1990.
Sec. 1703. Amendments related to Revenue Reconciliation Act of 1993.
Sec. 1704. Miscellaneous provisions.

                      Subtitle H--Other Provisions

Sec. 1801. Exemption from diesel fuel dyeing requirements with respect 
to certain States.
Sec. 1802. Treatment of certain university accounts.
Sec. 1803. Modifications to excise tax on ozone-depleting chemicals.
Sec. 1804. Tax-exempt bonds for sale of Alaska Power Administration 
facility.
Sec. 1805. Nonrecognition treatment for certain transfers by common 
trust funds to regulated investment companies.
Sec. 1806. Qualified State tuition programs.
Sec. 1807. Adoption assistance.
Sec. 1808. Removal of barriers to interethnic adoption.
Sec. 1809. 6-month delay of electronic fund transfer requirement.

                Subtitle I--Foreign Trust Tax Compliance

Sec. 1901. Improved information reporting on foreign trusts.
Sec. 1902. Comparable penalties for failure to file return relating to 
transfers to foreign entities.
Sec. 1903. Modifications of rules relating to foreign trusts having one 
or more United States beneficiaries.
Sec. 1904. Foreign persons not to be treated as owners under grantor 
trust rules.
Sec. 1905. Information reporting regarding foreign gifts.
Sec. 1906. Modification of rules relating to foreign trusts which are 
not grantor trusts.
Sec. 1907. Residence of trusts, etc.

              Subtitle J--Generalized System of Preferences

Sec. 1951. Short title.
Sec. 1952. Generalized System of Preferences.
Sec. 1953. Effective date.
Sec. 1954. Conforming amendments.

                       TITLE II--PAYMENT OF WAGES

Sec. 2101. Short title.
Sec. 2102. Proper compensation for use of employer vehicles.
Sec. 2103. Effective date.
Sec. 2104. Minimum wage increase.
Sec. 2105. Fair Labor Standards Act Amendments.

            TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS

SEC. 1101. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this title an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Internal Revenue Code of 
1986.

SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.

    No addition to the tax shall be made under section 6654 or 6655 of 
the Internal Revenue Code of 1986 (relating to failure to pay estimated 
tax) with respect to any underpayment of an installment required to be 
paid before the date of the enactment of this Act to the extent such 
underpayment was created or increased by any provision of this title.

                      Subtitle A--Expensing; Etc.

SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.
    (a) General Rule.--Paragraph (1) of section 179(b) (relating to 
dollar limitation) is amended to read as follows:
        ``(1) Dollar limitation.--The aggregate cost which may be taken 
    into account under subsection (a) for any taxable year shall not 
    exceed the following applicable amount:

    ``If the taxable year
                                                          The applicable
      begins in:
                                                              amount is:
          1997..........................................
                                                                 18,000 
          1998..........................................
                                                                 18,500 
          1999..........................................
                                                                 19,000 
          2000..........................................
                                                                 20,000 
          2001 or 2002..................................
                                                                 24,000 
          2003 or thereafter............................
                                                              25,000.''.

    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1996.

SEC. 1112. TREATMENT OF EMPLOYEE TIPS.

    (a) Employee Cash Tips.--
        (1) Reporting requirement not considered.--Subparagraph (A) of 
    section 45B(b)(1) (relating to excess employer social security tax) 
    is amended by inserting ``(without regard to whether such tips are 
    reported under section 6053)'' after ``section 3121(q)''.
        (2) Taxes paid.--Subsection (d) of section 13443 of the Revenue 
    Reconciliation Act of 1993 is amended by inserting ``, with respect 
    to services performed before, on, or after such date'' after 
    ``1993''.
        (3) Effective date.--The amendments made by this subsection 
    shall take effect as if included in the amendments made by, and the 
    provisions of, section 13443 of the Revenue Reconciliation Act of 
    1993.
    (b) Tips for Employees Delivering Food or Beverages.--
        (1) In general.--Paragraph (2) of section 45B(b) is amended to 
    read as follows:
        ``(2) Only tips received for food or beverages taken into 
    account.--In applying paragraph (1), there shall be taken into 
    account only tips received from customers in connection with the 
    providing, delivering, or serving of food or beverages for 
    consumption if the tipping of employees delivering or serving food 
    or beverages by customers is customary.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to tips received for services performed after December 31, 
    1996.

SEC. 1113. TREATMENT OF STORAGE OF PRODUCT SAMPLES.

    (a) In General.--Paragraph (2) of section 280A(c) is amended by 
striking ``inventory'' and inserting ``inventory or product samples''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1995.

SEC. 1114. TREATMENT OF CERTAIN CHARITABLE RISK POOLS.

    (a) General Rule.--Section 501 (relating to exemption from tax on 
corporations, certain trusts, etc.) is amended by redesignating 
subsection (n) as subsection (o) and by inserting after subsection (m) 
the following new subsection:
    ``(n) Charitable Risk Pools.--
        ``(1) In general.--For purposes of this title--
            ``(A) a qualified charitable risk pool shall be treated as 
        an organization organized and operated exclusively for 
        charitable purposes, and
            ``(B) subsection (m) shall not apply to a qualified 
        charitable risk pool.
        ``(2) Qualified charitable risk pool.--For purposes of this 
    subsection, the term `qualified charitable risk pool' means any 
    organization--
            ``(A) which is organized and operated solely to pool 
        insurable risks of its members (other than risks related to 
        medical malpractice) and to provide information to its members 
        with respect to loss control and risk management,
            ``(B) which is comprised solely of members that are 
        organizations described in subsection (c)(3) and exempt from 
        tax under subsection (a), and
            ``(C) which meets the organizational requirements of 
        paragraph (3).
        ``(3) Organizational requirements.--An organization 
    (hereinafter in this subsection referred to as the `risk pool') 
    meets the organizational requirements of this paragraph if--
            ``(A) such risk pool is organized as a nonprofit 
        organization under State law provisions authorizing risk 
        pooling arrangements for charitable organizations,
            ``(B) such risk pool is exempt from any income tax imposed 
        by the State (or will be so exempt after such pool qualifies as 
        an organization exempt from tax under this title),
            ``(C) such risk pool has obtained at least $1,000,000 in 
        startup capital from nonmember charitable organizations,
            ``(D) such risk pool is controlled by a board of directors 
        elected by its members, and
            ``(E) the organizational documents of such risk pool 
        require that--
                ``(i) each member of such pool shall at all times be an 
            organization described in subsection (c)(3) and exempt from 
            tax under subsection (a),
                ``(ii) any member which receives a final determination 
            that it no longer qualifies as an organization described in 
            subsection (c)(3) shall immediately notify the pool of such 
            determination and the effective date of such determination, 
            and
                ``(iii) each policy of insurance issued by the risk 
            pool shall provide that such policy will not cover the 
            insured with respect to events occurring after the date 
            such final determination was issued to the insured.
    An organization shall not cease to qualify as a qualified 
    charitable risk pool solely by reason of the failure of any of its 
    members to continue to be an organization described in subsection 
    (c)(3) if, within a reasonable period of time after such pool is 
    notified as required under subparagraph (C)(ii), such pool takes 
    such action as may be reasonably necessary to remove such member 
    from such pool.
        ``(4) Other definitions.--For purposes of this subsection--
            ``(A) Startup capital.--The term `startup capital' means 
        any capital contributed to, and any program-related investments 
        (within the meaning of section 4944(c)) made in, the risk pool 
        before such pool commences operations.
            ``(B) Nonmember charitable organization.--The term 
        `nonmember charitable organization' means any organization 
        which is described in subsection (c)(3) and exempt from tax 
        under subsection (a) and which is not a member of the risk pool 
        and does not benefit (directly or indirectly) from the 
        insurance coverage provided by the pool to its members.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
SEC. 1115. TREATMENT OF DUES PAID TO AGRICULTURAL OR HORTICULTURAL 
ORGANIZATIONS.
    (a) General Rule.--Section 512 (defining unrelated business taxable 
income) is amended by adding at the end the following new subsection:
    ``(d) Treatment of Dues of Agricultural or Horticultural 
Organizations.--
        ``(1) In general.--If--
            ``(A) an agricultural or horticultural organization 
        described in section 501(c)(5) requires annual dues to be paid 
        in order to be a member of such organization, and
            ``(B) the amount of such required annual dues does not 
        exceed $100,
    in no event shall any portion of such dues be treated as derived by 
    such organization from an unrelated trade or business by reason of 
    any benefits or privileges to which members of such organization 
    are entitled.
        ``(2) Indexation of $100 amount.--In the case of any taxable 
    year beginning in a calendar year after 1995, the $100 amount in 
    paragraph (1) shall be increased by an amount equal to--
            ``(A) $100, multiplied by
            ``(B) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which the taxable year 
        begins, by substituting `calendar year 1994' for `calendar year 
        1992' in subparagraph (B) thereof.
        ``(3) Dues.--For purposes of this subsection, the term `dues' 
    means any payment (whether or not designated as dues) which is 
    required to be made in order to be recognized by the organization 
    as a member of the organization.''.
    (b) Effective Dates.--
        (1) In general.--The amendment made by this section shall apply 
    to taxable years beginning after December 31, 1986.
        (2) Transitional rule.--If--
            (A) for purposes of applying part III of subchapter F of 
        chapter 1 of the Internal Revenue Code of 1986 to any taxable 
        year beginning before January 1, 1987, an agricultural or 
        horticultural organization did not treat any portion of 
        membership dues received by it as income derived in an 
        unrelated trade or business, and
            (B) such organization had a reasonable basis for not 
        treating such dues as income derived in an unrelated trade or 
        business,
    then, for purposes of applying such part III to any such taxable 
    year, in no event shall any portion of such dues be treated as 
    derived in an unrelated trade or business.
        (3) Reasonable basis.--For purposes of paragraph (2), an 
    organization shall be treated as having a reasonable basis for not 
    treating membership dues as income derived in an unrelated trade or 
    business if the taxpayer's treatment of such dues was in reasonable 
    reliance on any of the following:
            (A) Judicial precedent, published rulings, technical advice 
        with respect to the organization, or a letter ruling to the 
        organization.
            (B) A past Internal Revenue Service audit of the 
        organization in which there was no assessment attributable to 
        the reclassification of membership dues for purposes of the tax 
        on unrelated business income.
            (C) Long-standing recognized practice of agricultural or 
        horticultural organizations.
SEC. 1116. CLARIFICATION OF EMPLOYMENT TAX STATUS OF CERTAIN FISHERMEN.
    (a) Clarification of Employment Tax Status.--
        (1) Amendments of internal revenue code of 1986.--
            (A) Determination of size of crew.--Subsection (b) of 
        section 3121 (defining employment) is amended by adding at the 
        end the following new sentence:
``For purposes of paragraph (20), the operating crew of a boat shall be 
treated as normally made up of fewer than 10 individuals if the average 
size of the operating crew on trips made during the preceding 4 
calendar quarters consisted of fewer than 10 indi- viduals.''.
            (B) Certain cash remuneration permitted.--Subparagraph (A) 
        of section 3121(b)(20) is amended to read as follows:
            ``(A) such individual does not receive any cash 
        remuneration other than as provided in subparagraph (B) and 
        other than cash remuneration--
                ``(i) which does not exceed $100 per trip;
                ``(ii) which is contingent on a minimum catch; and
                ``(iii) which is paid solely for additional duties 
            (such as mate, engineer, or cook) for which additional cash 
            remuneration is traditional in the industry,''.
            (C) Conforming amendment.--Section 6050A(a) is amended by 
        striking ``and'' at the end of paragraph (3), by striking the 
        period at the end of paragraph (4) and inserting ``; and'', and 
        by adding at the end the following new paragraph:
        ``(5) any cash remuneration described in section 
    3121(b)(20)(A).''.
        (2) Amendment of social security act.--
            (A) Determination of size of crew.--Subsection (a) of 
        section 210 of the Social Security Act is amended by adding at 
        the end the following new sentence:
``For purposes of paragraph (20), the operating crew of a boat shall be 
treated as normally made up of fewer than 10 individuals if the average 
size of the operating crew on trips made during the preceding 4 
calendar quarters consisted of fewer than 10 indi- viduals.''.
            (B) Certain cash remuneration permitted.--Subparagraph (A) 
        of section 210(a)(20) of such Act is amended to read as 
        follows:
            ``(A) such individual does not receive any additional 
        compensation other than as provided in subparagraph (B) and 
        other than cash remuneration--
                ``(i) which does not exceed $100 per trip;
                ``(ii) which is contingent on a minimum catch; and
                ``(iii) which is paid solely for additional duties 
            (such as mate, engineer, or cook) for which additional cash 
            remuneration is traditional in the industry,''.
        (3) Effective Dates.--
            (A) In general.--The amendments made by this subsection 
        shall apply to remuneration paid--
                (i) after December 31, 1994, and
                (ii) after December 31, 1984, and before January 1, 
            1995, unless the payor treated such remuneration (when 
            paid) as being subject to tax under chapter 21 of the 
            Internal Revenue Code of 1986.
            (B) Reporting requirement.--The amendment made by paragraph 
        (1)(C) shall apply to remuneration paid after December 31, 
        1996.
    (b) Information Reporting.--
        (1) In general.--Subpart B of part III of subchapter A of 
    chapter 68 (relating to information concerning transactions with 
    other persons) is amended by inserting after section 6050Q the 
    following new section:

``SEC. 6050R. RETURNS RELATING TO CERTAIN PURCHASES OF FISH.

    ``(a) Requirement of Reporting.--Every person--
        ``(1) who is engaged in the trade or business of purchasing 
    fish for resale from any person engaged in the trade or business of 
    catching fish; and
        ``(2) who makes payments in cash in the course of such trade or 
    business to such a person of $600 or more during any calendar year 
    for the purchase of fish,
shall make a return (at such times as the Secretary may prescribe) 
described in subsection (b) with respect to each person to whom such a 
payment was made during such calendar year.
    ``(b) Return.--A return is described in this subsection if such 
return--
        ``(1) is in such form as the Secretary may prescribe, and
        ``(2) contains--
            ``(A) the name, address, and TIN of each person to whom a 
        payment described in subsection (a)(2) was made during the 
        calendar year;
            ``(B) the aggregate amount of such payments made to such 
        person during such calendar year and the date and amount of 
        each such payment, and
            ``(C) such other information as the Secretary may require.
    ``(c) Statement To Be Furnished With Respect to Whom Information Is 
Required.--Every person required to make a return under subsection (a) 
shall furnish to each person whose name is required to be set forth in 
such return a written statement showing--
        ``(1) the name and address of the person required to make such 
    a return, and
        ``(2) the aggregate amount of payments to the person required 
    to be shown on the return.
The written statement required under the preceding sentence shall be 
furnished to the person on or before January 31 of the year following 
the calendar year for which the return under subsection (a) is required 
to be made.
    ``(d) Definitions.--For purposes of this section:
        ``(1) Cash.--The term `cash' has the meaning given such term by 
    section 6050I(d).
        ``(2) Fish.--The term `fish' includes other forms of aquatic 
    life.''.
        (2) Technical amendments.--
            (A) Subparagraph (A) of section 6724(d)(1) is amended by 
        striking ``or'' at the end of clause (vi), by striking ``and'' 
        at the end of clause (vii) and inserting ``or'', and by adding 
        at the end the following new clause:
                ``(viii) section 6050R (relating to returns relating to 
            certain purchases of fish), and''.
            (B) Paragraph (2) of section 6724(d) is amended by 
        redesignating subparagraphs (R) through (U) as subparagraphs 
        (S) through (V), respectively, and by inserting after 
        subparagraph (Q) the following new subparagraph:
            ``(R) section 6050R(c) (relating to returns relating to 
        certain purchases of fish),''.
            (C) The table of sections for subpart B of part III of 
        subchapter A of chapter 68 is amended by inserting after the 
        item relating to 6050Q the following new item:
``Sec. 6050R. Returns relating to certain purchases of fish.''.

        (3) Effective date.--The amendments made by this subsection 
    shall apply to payments made after December 31, 1997.
SEC. 1117. MODIFICATIONS OF TAX-EXEMPT BOND RULES FOR FIRST-TIME 
FARMERS.
    (a) Acquisition From Related Person Allowed.--Section 147(c)(2) 
(relating to exception for first-time farmers) is amended by adding at 
the end the following new subparagraph:
            ``(G) Acquisition from related person.--For purposes of 
        this paragraph and section 144(a), the acquisition by a first-
        time farmer of land or personal property from a related person 
        (within the meaning of section 144(a)(3)) shall not be treated 
        as an acquisition from a related person, if--
                ``(i) the acquisition price is for the fair market 
            value of such land or property, and
                ``(ii) subsequent to such acquisition, the related 
            person does not have a financial interest in the farming 
            operation with respect to which the bond proceeds are to be 
            used.''.
    (b) Substantial Farmland Amount Doubled.--Clause (i) of section 
147(c)(2)(E) (defining substantial farmland) is amended by striking 
``15 percent'' and inserting ``30 percent''.
    (c) Effective Date.--The amendments made by this section shall 
apply to bonds issued after the date of the enactment of this Act.

SEC. 1118. NEWSPAPER DISTRIBUTORS TREATED AS DIRECT SELLERS.

    (a) In General.--Section 3508(b)(2)(A) is amended by striking 
``or'' at the end of clause (i), by inserting ``or'' at the end of 
clause (ii), and by inserting after clause (ii) the following new 
clause:
                ``(iii) is engaged in the trade or business of the 
            delivering or distribution of newspapers or shopping news 
            (including any services directly related to such trade or 
            business),''.
    (b) Effective Date.--The amendments made by this section shall 
apply to services performed after December 31, 1995.
SEC. 1119. APPLICATION OF INVOLUNTARY CONVERSION RULES TO 
PRESIDENTIALLY DECLARED DISASTERS.
    (a) In General.--Section 1033(h) is amended by redesignating 
paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by 
inserting after paragraph (1) the following new paragraph:
        ``(2) Trade or business and investment property.--If a 
    taxpayer's property held for productive use in a trade or business 
    or for investment is compulsorily or involuntarily converted as a 
    result of a Presidentially declared disaster, tangible property of 
    a type held for productive use in a trade or business shall be 
    treated for purposes of subsection (a) as property similar or 
    related in service or use to the property so converted.''.
    (b) Conforming Amendments.--Section 1033(h) is amended--
        (1) by striking ``residence'' in paragraph (3) (as redesignated 
    by subsection (a)) and inserting ``property'',
        (2) by striking ``Principal Residences'' in the heading and 
    inserting ``Property'', and
        (3) by striking ``(1) In general.--'' and inserting ``(1) 
    Principal residences.--''.
    (c) Expansion of Oklahoma City Enterprise Community.--
Notwithstanding sections 1391 and 1392(a)(3)(D) of the Internal Revenue 
Code of 1986, the boundaries of the enterprise community for Oklahoma 
City, Oklahoma, designated by the Secretary of Housing and Urban 
Development on December 21, 1994, may be extended with respect to 
census tracts located in the area damaged due to the bombing of the 
Alfred P. Murrah Federal Building in Oklahoma City on April 19, 1995, 
primarily in the area bounded on the south by Robert S. Kerr Avenue, on 
the north by North 13th Street, on the east by Oklahoma Avenue, and on 
the west by Shartel Avenue.
    (d) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to disasters declared after December 31, 1994, in taxable 
    years ending after such date.
        (2) Subsection (c).--Subsection (c) shall take effect on the 
    date of the enactment of this Act.
SEC. 1120. CLASS LIFE FOR GAS STATION CONVENIENCE STORES AND SIMILAR 
STRUCTURES.
    (a) In General.--Section 168(e)(3)(E) (classifying certain property 
as 15-year property) is amended by striking ``and'' at the end of 
clause (i), by striking the period at the end of clause (ii) and 
inserting ``, and'', and by adding at the end the following new clause:
                ``(iii) any section 1250 property which is a retail 
            motor fuels outlet (whether or not food or other 
            convenience items are sold at the outlet).''.
    (b) Conforming Amendment.--Subparagraph (B) of section 168(g)(3) is 
amended by inserting after the item relating to subparagraph (E)(ii) in 
the table contained therein the following new item:
        ``(E)(iii)................. 20''.

    (c) Effective Date.--The amendments made by this section shall 
apply to property which is placed in service on or after the date of 
the enactment of this Act and to which section 168 of the Internal 
Revenue Code of 1986 applies after the amendment made by section 201 of 
the Tax Reform Act of 1986. A taxpayer may elect (in such form and 
manner as the Secretary of the Treasury may prescribe) to have such 
amendments apply with respect to any property placed in service before 
such date and to which such section so applies.
SEC. 1121. TREATMENT OF ABANDONMENT OF LESSOR IMPROVEMENTS AT 
TERMINATION OF LEASE.
    (a) In General.--Paragraph (8) of section 168(i) is amended to read 
as follows:
        ``(8) Treatment of leasehold improvements.--
            ``(A) In general.--In the case of any building erected (or 
        improvements made) on leased property, if such building or 
        improvement is property to which this section applies, the 
        depreciation deduction shall be determined under the provisions 
        of this section.
            ``(B) Treatment of lessor improvements which are abandoned 
        at termination of lease.--An improvement--
                ``(i) which is made by the lessor of leased property 
            for the lessee of such property, and
                ``(ii) which is irrevocably disposed of or abandoned by 
            the lessor at the termination of the lease by such lessee,
        shall be treated for purposes of determining gain or loss under 
        this title as disposed of by the lessor when so disposed of or 
        abandoned.''.
    (b) Effective Date.--Subparagraph (B) of section 168(i)(8) of the 
Internal Revenue Code of 1986, as added by the amendment made by 
subsection (a), shall apply to improvements disposed of or abandoned 
after June 12, 1996.
SEC. 1122. SPECIAL RULES RELATING TO DETERMINATION WHETHER INDIVIDUALS 
ARE EMPLOYEES FOR PURPOSES OF EMPLOYMENT TAXES.
    (a) In General.--Section 530 of the Revenue Act of 1978 is amended 
by adding at the end the following new subsection:
    ``(e) Special Rules for Application of Section.--
        ``(1) Notice of availability of section.--An officer or 
    employee of the Internal Revenue Service shall, before or at the 
    commencement of any audit inquiry relating to the employment status 
    of one or more individuals who perform services for the taxpayer, 
    provide the taxpayer with a written notice of the provisions of 
    this section.
        ``(2) Rules relating to statutory standards.--For purposes of 
    subsection (a)(2)--
            ``(A) a taxpayer may not rely on an audit commenced after 
        December 31, 1996, for purposes of subparagraph (B) thereof 
        unless such audit included an examination for employment tax 
        purposes of whether the individual involved (or any individual 
        holding a position substantially similar to the position held 
        by the individual involved) should be treated as an employee of 
        the taxpayer,
            ``(B) in no event shall the significant segment requirement 
        of subparagraph (C) thereof be construed to require a 
        reasonable showing of the practice of more than 25 percent of 
        the industry (determined by not taking into account the 
        taxpayer), and
            ``(C) in applying the long-standing recognized practice 
        requirement of subparagraph (C) thereof--
                ``(i) such requirement shall not be construed as 
            requiring the practice to have continued for more than 10 
            years, and
                ``(ii) a practice shall not fail to be treated as long-
            standing merely because such practice began after 1978.
        ``(3) Availability of safe harbors.--Nothing in this section 
    shall be construed to provide that subsection (a) only applies 
    where the individual involved is otherwise an employee of the 
    taxpayer.
        ``(4) Burden of proof.--
            ``(A) In general.--If--
                ``(i) a taxpayer establishes a prima facie case that it 
            was reasonable not to treat an individual as an employee 
            for purposes of this section, and
                ``(ii) the taxpayer has fully cooperated with 
            reasonable requests from the Secretary of the Treasury or 
            his delegate,
        then the burden of proof with respect to such treatment shall 
        be on the Secretary.
            ``(B) Exception for other reasonable basis.--In the case of 
        any issue involving whether the taxpayer had a reasonable basis 
        not to treat an individual as an employee for purposes of this 
        section, subparagraph (A) shall only apply for purposes of 
        determining whether the taxpayer meets the requirements of 
        subparagraph (A), (B), or (C) of subsection (a)(2).
        ``(5) Preservation of prior period safe harbor.--If--
            ``(A) an individual would (but for the treatment referred 
        to in subparagraph (B)) be deemed not to be an employee of the 
        taxpayer under subsection (a) for any prior period, and
            ``(B) such individual is treated by the taxpayer as an 
        employee for employment tax purposes for any subsequent period,
    then, for purposes of applying such taxes for such prior period 
    with respect to the taxpayer, the individual shall be deemed not to 
    be an employee.
        ``(6) Substantially similar position.--For purposes of this 
    section, the determination as to whether an individual holds a 
    position substantially similar to a position held by another 
    individual shall include consideration of the relationship between 
    the taxpayer and such individuals.''.
    (b) Effective Dates.--
        (1) In general.--The amendment made by this section shall apply 
    to periods after December 31, 1996.
        (2) Notice by internal revenue service.--Section 530(e)(1) of 
    the Revenue Act of 1978 (as added by subsection (a)) shall apply to 
    audits which commence after December 31, 1996.
        (3) Burden of proof.--
            (A) In general.--Section 530(e)(4) of the Revenue Act of 
        1978 (as added by subsection (a)) shall apply to disputes 
        involving periods after December 31, 1996.
            (B) No inference.--Nothing in the amendments made by this 
        section shall be construed to infer the proper treatment of the 
        burden of proof with respect to disputes involving periods 
        before January 1, 1997.
SEC. 1123. TREATMENT OF HOUSING PROVIDED TO EMPLOYEES BY ACADEMIC 
HEALTH CENTERS.
    (a) In General.--Paragraph (4) of section 119(d) (relating to 
lodging furnished by certain educational institutions to employees) is 
amended to read as follows:
        ``(4) Educational institution, etc.--For purposes of this 
    subsection--
            ``(A) In general.--The term `educational institution' 
        means--
                ``(i) an institution described in section 
            170(b)(1)(A)(ii) (or an entity organized under State law 
            and composed of public institutions so described), or
                ``(ii) an academic health center.
            ``(B) Academic health center.--For purposes of subparagraph 
        (A), the term `academic health center' means an entity--
                ``(i) which is described in section 170(b)(1)(A)(iii),
                ``(ii) which receives (during the calendar year in 
            which the taxable year of the taxpayer begins) payments 
            under subsection (d)(5)(B) or (h) of section 1886 of the 
            Social Security Act (relating to graduate medical 
            education), and
                ``(iii) which has as one of its principal purposes or 
            functions the providing and teaching of basic and clinical 
            medical science and research with the entity's own 
            faculty.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1995.

          Subtitle B--Extension of Certain Expiring Provisions

SEC. 1201. WORK OPPORTUNITY TAX CREDIT.

    (a) Amount of Credit.--Subsection (a) of section 51 (relating to 
amount of credit) is amended by striking ``40 percent'' and inserting 
``35 percent''.
    (b) Members of Targeted Groups.--Subsection (d) of section 51 is 
amended to read as follows:
    ``(d) Members of Targeted Groups.--For purposes of this subpart--
        ``(1) In general.--An individual is a member of a targeted 
    group if such individual is--
            ``(A) a qualified IV-A recipient,
            ``(B) a qualified veteran,
            ``(C) a qualified ex-felon,
            ``(D) a high-risk youth,
            ``(E) a vocational rehabilitation referral,
            ``(F) a qualified summer youth employee, or
            ``(G) a qualified food stamp recipient.
        ``(2) Qualified iv-a recipient.--
            ``(A) In general.--The term `qualified IV-A recipient' 
        means any individual who is certified by the designated local 
        agency as being a member of a family receiving assistance under 
        a IV-A program for at least a 9-month period ending during the 
        9-month period ending on the hiring date.
            ``(B) IV-A program.--For purposes of this paragraph, the 
        term `IV-A program' means any program providing assistance 
        under a State plan approved under part A of title IV of the 
        Social Security Act (relating to assistance for needy families 
        with minor children) and any successor of such program.
        ``(3) Qualified veteran.--
            ``(A) In general.--The term `qualified veteran' means any 
        veteran who is certified by the designated local agency as 
        being--
                ``(i) a member of a family receiving assistance under a 
            IV-A program (as defined in paragraph (2)(B)) for at least 
            a 9-month period ending during the 12-month period ending 
            on the hiring date, or
                ``(ii) a member of a family receiving assistance under 
            a food stamp program under the Food Stamp Act of 1977 for 
            at least a 3-month period ending during the 12-month period 
            ending on the hiring date.
            ``(B) Veteran.--For purposes of subparagraph (A), the term 
        `veteran' means any individual who is certified by the 
        designated local agency as--
                ``(i)(I) having served on active duty (other than 
            active duty for training) in the Armed Forces of the United 
            States for a period of more than 180 days, or
                ``(II) having been discharged or released from active 
            duty in the Armed Forces of the United States for a 
            service-connected disability, and
                ``(ii) not having any day during the 60-day period 
            ending on the hiring date which was a day of extended 
            active duty in the Armed Forces of the United States.
        For purposes of clause (ii), the term `extended active duty' 
        means a period of more than 90 days during which the individual 
        was on active duty (other than active duty for training).
        ``(4) Qualified ex-felon.--The term `qualified ex-felon' means 
    any individual who is certified by the designated local agency--
            ``(A) as having been convicted of a felony under any 
        statute of the United States or any State,
            ``(B) as having a hiring date which is not more than 1 year 
        after the last date on which such individual was so convicted 
        or was released from prison, and
            ``(C) as being a member of a family which had an income 
        during the 6 months immediately preceding the earlier of the 
        month in which such income determination occurs or the month in 
        which the hiring date occurs, which, on an annual basis, would 
        be 70 percent or less of the Bureau of Labor Statistics lower 
        living standard.
    Any determination under subparagraph (C) shall be valid for the 45-
    day period beginning on the date such determination is made.
        ``(5) High-risk youth.--
            ``(A) In general.--The term `high-risk youth' means any 
        individual who is certified by the designated local agency--
                ``(i) as having attained age 18 but not age 25 on the 
            hiring date, and
                ``(ii) as having his principal place of abode within an 
            empowerment zone or enterprise community.
            ``(B) Youth must continue to reside in zone.--In the case 
        of a high-risk youth, the term `qualified wages' shall not 
        include wages paid or incurred for services performed while 
        such youth's principal place of abode is outside an empowerment 
        zone or enterprise community.
        ``(6) Vocational rehabilitation referral.--The term `vocational 
    rehabilitation referral' means any individual who is certified by 
    the designated local agency as--
            ``(A) having a physical or mental disability which, for 
        such individual, constitutes or results in a substantial 
        handicap to employment, and
            ``(B) having been referred to the employer upon completion 
        of (or while receiving) rehabilitative services pursuant to--
                ``(i) an individualized written rehabilitation plan 
            under a State plan for vocational rehabilitation services 
            approved under the Rehabilitation Act of 1973, or
                ``(ii) a program of vocational rehabilitation carried 
            out under chapter 31 of title 38, United States Code.
        ``(7) Qualified summer youth employee.--
            ``(A) In general.--The term `qualified summer youth 
        employee' means any individual--
                ``(i) who performs services for the employer between 
            May 1 and September 15,
                ``(ii) who is certified by the designated local agency 
            as having attained age 16 but not 18 on the hiring date (or 
            if later, on May 1 of the calendar year involved),
                ``(iii) who has not been an employee of the employer 
            during any period prior to the 90-day period described in 
            subparagraph (B)(i), and
                ``(iv) who is certified by the designated local agency 
            as having his principal place of abode within an 
            empowerment zone or enterprise community.
            ``(B) Special rules for determining amount of credit.--For 
        purposes of applying this subpart to wages paid or incurred to 
        any qualified summer youth employee--
                ``(i) subsection (b)(2) shall be applied by 
            substituting `any 90-day period between May 1 and September 
            15' for `the 1-year period beginning with the day the 
            individual begins work for the employer', and
                ``(ii) subsection (b)(3) shall be applied by 
            substituting `$3,000' for `$6,000'.
        The preceding sentence shall not apply to an individual who, 
        with respect to the same employer, is certified as a member of 
        another targeted group after such individual has been a 
        qualified summer youth employee.
            ``(C) Youth must continue to reside in zone.--Paragraph 
        (5)(B) shall apply for purposes of subparagraph (A)(iv).
        ``(8) Qualified food stamp recipient.--
            ``(A) In general.--The term `qualified food stamp 
        recipient' means any individual who is certified by the 
        designated local agency--
                ``(i) as having attained age 18 but not age 25 on the 
            hiring date, and
                ``(ii) as being a member of a family--

                    ``(I) receiving assistance under a food stamp 
                program under the Food Stamp Act of 1977 for the 6-
                month period ending on the hiring date, or
                    ``(II) receiving such assistance for at least 3 
                months of the 5-month period ending on the hiring date, 
                in the case of a member of a family who ceases to be 
                eligible for such assistance under section 6(o) of the 
                Food Stamp Act of 1977.

            ``(B) Participation information.--Notwithstanding any other 
        provision of law, the Secretary of the Treasury and the 
        Secretary of Agriculture shall enter into an agreement to 
        provide information to designated local agencies with respect 
        to participation in the food stamp program.
        ``(9) Hiring date.--The term `hiring date' means the day the 
    individual is hired by the employer.
        ``(10) Designated local agency.--The term `designated local 
    agency' means a State employment security agency established in 
    accordance with the Act of June 6, 1933, as amended (29 U.S.C. 49-
    49n).
        ``(11) Special rules for certifications.--
            ``(A) In general.--An individual shall not be treated as a 
        member of a targeted group unless--
                ``(i) on or before the day on which such individual 
            begins work for the employer, the employer has received a 
            certification from a designated local agency that such 
            individual is a member of a targeted group, or
                ``(ii)(I) on or before the day the individual is 
            offered employment with the employer, a pre-screening 
            notice is completed by the employer with respect to such 
            individual, and
                ``(II) not later than the 21st day after the individual 
            begins work for the employer, the employer submits such 
            notice, signed by the employer and the individual under 
            penalties of perjury, to the designated local agency as 
            part of a written request for such a certification from 
            such agency.
        For purposes of this paragraph, the term `pre-screening notice' 
        means a document (in such form as the Secretary shall 
        prescribe) which contains information provided by the 
        individual on the basis of which the employer believes that the 
        individual is a member of a targeted group.
            ``(B) Incorrect certifications.--If--
                ``(i) an individual has been certified by a designated 
            local agency as a member of a targeted group, and
                ``(ii) such certification is incorrect because it was 
            based on false information provided by such individual,
        the certification shall be revoked and wages paid by the 
        employer after the date on which notice of revocation is 
        received by the employer shall not be treated as qualified 
        wages.
            ``(C) Explanation of denial of request.--If a designated 
        local agency denies a request for certification of membership 
        in a targeted group, such agency shall provide to the person 
        making such request a written explanation of the reasons for 
        such denial.''.
    (c) Minimum Employment Period.--Paragraph (3) of section 51(i) 
(relating to certain individuals ineligible) is amended to read as 
follows:
        ``(3) Individuals not meeting minimum employment period.--No 
    wages shall be taken into account under subsection (a) with respect 
    to any individual unless such individual either--
            ``(A) is employed by the employer at least 180 days (20 
        days in the case of a qualified summer youth employee), or
            ``(B) has completed at least 400 hours (120 hours in the 
        case of a qualified summer youth employee) of services 
        performed for the employer.''.
    (d) Termination.--Paragraph (4) of section 51(c) (relating to wages 
defined) is amended to read as follows:
        ``(4) Termination.--The term `wages' shall not include any 
    amount paid or incurred to an individual who begins work for the 
    employer--
            ``(A) after December 31, 1994, and before October 1, 1996, 
        or
            ``(B) after September 30, 1997.''.
    (e) Redesignation of Credit.--
        (1) Sections 38(b)(2), 41(b)(2)(D)(iii), 45A(b)(1)(B), 51 (a) 
    and (g), and 196(c) are each amended in the text by striking 
    ``targeted jobs credit'' each place it appears and inserting ``work 
    opportunity credit''.
        (2) The subpart heading for subpart F of part IV of subchapter 
    A of chapter 1 is amended by striking ``Targeted Jobs Credit'' and 
    inserting ``Work Opportunity Credit''.
        (3) The table of subparts for such part IV is amended by 
    striking ``targeted jobs credit'' and inserting ``work opportunity 
    credit''.
        (4) The headings for sections 41(b)(2)(D)(iii) and 1396(c)(3) 
    are each amended by striking ``targeted jobs credit'' and inserting 
    ``work opportunity credit''.
        (5) The heading for subsection (j) of section 51 is amended by 
    striking ``Targeted Jobs Credit'' and inserting ``Work Opportunity 
    Credit''.
    (f) Technical Amendment.--Paragraph (1) of section 51(c) is amended 
by striking ``, subsection (d)(8)(D),''.
    (g) Effective Date.--The amendments made by this section shall 
apply to individuals who begin work for the employer after September 
30, 1996.
SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE PROGRAMS.
    (a) Extension.--Subsection (d) of section 127 (relating to 
educational assistance programs) is amended by striking ``December 31, 
1994.'' and inserting ``May 31, 1997. In the case of any taxable year 
beginning in 1997, only expenses paid with respect to courses beginning 
before July 1, 1997, shall be taken into account in determining the 
amount excluded under this section.''.
    (b) Limitation to Education Below Graduate Level.--The last 
sentence of section 127(c)(1) is amended by inserting before the period 
the following: ``, and such term also does not include any payment for, 
or the provision of any benefits with respect to, any graduate level 
course of a kind normally taken by an individual pursuing a program 
leading to a law, business, medical, or other advanced academic or 
professional degree''.
    (c) Effective Dates.--
        (1) Extension.--The amendment made by subsection (a) shall 
    apply to taxable years beginning after December 31, 1994.
        (2) Graduate education.--The amendment made by subsection (b) 
    shall apply with respect to expenses relating to courses beginning 
    after June 30, 1996.
        (3) Expedited procedures.--The Secretary of the Treasury shall 
    establish expedited procedures for the refund of any overpayment of 
    taxes imposed by the Internal Revenue Code of 1986 which is 
    attributable to amounts excluded from gross income during 1995 or 
    1996 under section 127 of such Code, including procedures waiving 
    the requirementthat an employer obtain an employee's signature 
where the employer demonstrates to the satisfaction of the Secretary 
that any refund collected by the employer on behalf of the employee 
will be paid to the employee.
SEC. 1203. FUTA EXEMPTION FOR ALIEN AGRICULTURAL WORKERS.
    (a) In General.--Subparagraph (B) of section 3306(c)(1) (defining 
employment) is amended by striking ``before January 1, 1995,''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to services performed after December 31, 1994.

SEC. 1204. RESEARCH CREDIT.

    (a) In General.--Subsection (h) of section 41 (relating to credit 
for research activities) is amended to read as follows:
    ``(h) Termination.--
        ``(1) In general.--This section shall not apply to any amount 
    paid or incurred--
            ``(A) after June 30, 1995, and before July 1, 1996, or
            ``(B) after May 31, 1997.
    Notwithstanding the preceding sentence, in the case of a taxpayer 
    making an election under subsection (c)(4) for its first taxable 
    year beginning after June 30, 1996, and before July 1, 1997, this 
    section shall apply to amounts paid or incurred during the first 11 
    months of such taxable year.
        ``(2) Computation of base amount.--In the case of any taxable 
    year with respect to which this section applies to a number of days 
    which is less than the total number of days in such taxable year, 
    the base amount with respect to such taxable year shall be the 
    amount which bears the same ratio to the base amount for such year 
    (determined without regard to this paragraph) as the number of days 
    in such taxable year to which this section applies bears to the 
    total number of days in such taxable year.''.
    (b) Base Amount for Start-Up Companies.--Clause (i) of section 
41(c)(3)(B) (relating to start-up companies) is amended to read as 
follows:
                ``(i)  Taxpayers to which subparagraph applies.--The 
            fixed-base percentage shall be determined under this 
            subparagraph if--

                    ``(I) the first taxable year in which a taxpayer 
                had both gross receipts and qualified research expenses 
                begins after December 31, 1983, or
                    ``(II) there are fewer than 3 taxable years 
                beginning after December 31, 1983, and before January 
                1, 1989, in which the taxpayer had both gross receipts 
                and qualified research expenses.''.

    (c) Election of Alternative Incremental Credit.--Subsection (c) of 
section 41 is amended by redesignating paragraphs (4) and (5) as 
paragraphs (5) and (6), respectively, and by inserting after paragraph 
(3) the following new paragraph:
        ``(4) Election of alternative incremental credit.--
            ``(A) In general.--At the election of the taxpayer, the 
        credit determined under subsection (a)(1) shall be equal to the 
        sum of--
                ``(i) 1.65 percent of so much of the qualified research 
            expenses for the taxable year as exceeds 1 percent of the 
            average described in subsection (c)(1)(B) but does not 
            exceed 1.5 percent of such average,
                ``(ii) 2.2 percent of so much of such expenses as 
            exceeds 1.5 percent of such average but does not exceed 2 
            percent of such average, and
                ``(iii) 2.75 percent of so much of such expenses as 
            exceeds 2 percent of such average.
            ``(B) Election.--An election under this paragraph may be 
        made only for the first taxable year of the taxpayer beginning 
        after June 30, 1996. Such an election shall apply to the 
        taxable year for which made and all succeeding taxable years 
        unless revoked with the consent of the Secretary.''.
    (d) Increased Credit for Contract Research Expenses With Respect to 
Certain Research Consortia.--Paragraph (3) of section 41(b) is amended 
by adding at the end the following new subparagraph:
            ``(C) Amounts paid to certain research consortia.--
                ``(i) In general.--Subparagraph (A) shall be applied by 
            substituting `75 percent' for `65 percent' with respect to 
            amounts paid or incurred by the taxpayer to a qualified 
            research consortium for qualified research on behalf of the 
            taxpayer and 1 or more unrelated taxpayers. For purposes of 
            the preceding sentence, all persons treated as a single 
            employer under subsection (a) or (b) of section 52 shall be 
            treated as related taxpayers.
                ``(ii) Qualified research consortium.--The term 
            `qualified research consortium' means any organization 
            which--

                    ``(I) is described in section 501(c)(3) or 
                501(c)(6) and is exempt from tax under section 501(a),
                    ``(II) is organized and operated primarily to 
                conduct scientific research, and
                    ``(III) is not a private foundation.''.

    (e)  Conforming Amendment.--Subparagraph (D) of section 28(b)(1) is 
amended by inserting ``, and before July 1, 1996, and periods after May 
31, 1997'' after ``June 30, 1995''.
    (f) Effective Dates.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to taxable years ending 
    after June 30, 1996.
        (2) Subsections (c) and (d).--The amendments made by 
    subsections (c) and (d) shall apply to taxable years beginning 
    after June 30, 1996.
        (3) Estimated tax.--The amendments made by this section shall 
    not be taken into account under section 6654 or 6655 of the 
    Internal Revenue Code of 1986 (relating to failure to pay estimated 
    tax) in determining the amount of any installment required to be 
    paid for a taxable year beginning in 1997.

SEC. 1205. ORPHAN DRUG TAX CREDIT.

    (a) Recategorized as a Business Credit.--
        (1) In general.--Section 28 (relating to clinical testing 
    expenses for certain drugs for rare diseases or conditions) is 
    transferred to subpart D of part IV of subchapter A of chapter 1, 
    inserted after section 45B, and redesignated as section 45C.
        (2) Conforming amendment.--Subsection (b) of section 38 
    (relating to general business credit) is amended by striking 
    ``plus'' at the end of paragraph (10), by striking the period at 
    the end of paragraph (11) and inserting ``, plus'', and by adding 
    at the end the following new paragraph:
        ``(12) the orphan drug credit determined under section 
    45C(a).''.
        (3) Clerical amendments.--
            (A) The table of sections for subpart B of such part IV is 
        amended by striking the item relating to section 28.
            (B) The table of sections for subpart D of such part IV is 
        amended by adding at the end the following new item:
``Sec. 45C. Clinical testing expenses for certain drugs for rare 
          diseases or conditions.''.

    (b) Credit Termination.--Subsection (e) of section 45C, as 
redesignated by subsection (a)(1), is amended to read as follows:
    ``(e) Termination.--This section shall not apply to any amount paid 
or incurred--
        ``(1) after December 31, 1994, and before July 1, 1996, or
        ``(2) after May 31, 1997.''.
    (c) No Pre-July 1, 1996 Carrybacks.--Subsection (d) of section 39 
(relating to carryback and carryforward of unused credits) is amended 
by adding at the end the following new paragraph:
        ``(7) No carryback of section 45c credit before july 1, 1996.--
    No portion of the unused business credit for any taxable year which 
    is attributable to the orphan drug credit determined under section 
    45C may be carried back to a taxable year ending before July 1, 
    1996.''.
    (d) Additional Conforming Amendments.--
        (1) Section 45C(a), as redesignated by subsection (a)(1), is 
    amended by striking ``There shall be allowed as a credit against 
    the tax imposed by this chapter for the taxable year'' and 
    inserting ``For purposes of section 38, the credit determined under 
    this section for the taxable year is''.
        (2) Section 45C(d), as so redesignated, is amended by striking 
    paragraph (2) and by redesignating paragraphs (3), (4), and (5) as 
    paragraphs (2), (3), and (4).
        (3) Section 29(b)(6)(A) is amended by striking ``sections 27 
    and 28'' and inserting ``section 27''.
        (4) Section 30(b)(3)(A) is amended by striking ``sections 27, 
    28, and 29'' and inserting ``sections 27 and 29''.
        (5) Section 53(d)(1)(B) is amended--
            (A) by striking ``or not allowed under section 28 solely by 
        reason of the application of section 28(d)(2)(B),'' in clause 
        (iii), and
            (B) by striking ``or not allowed under section 28 solely by 
        reason of the application of section 28(d)(2)(B)'' in clause 
        (iv)(II).
        (6) Section 55(c)(2) is amended by striking ``28(d)(2),''.
        (7) Section 280C(b) is amended--
            (A) by striking ``section 28(b)'' in paragraph (1) and 
        inserting ``section 45C(b)'',
            (B) by striking ``section 28'' in paragraphs (1) and (2)(A) 
        and inserting ``section 45C'', and
            (C) by striking ``subsection (d)(2) thereof'' in paragraphs 
        (1) and (2)(A) and inserting ``section 38(c)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years ending after June 
30, 1996.

SEC. 1206. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.

    (a) In General.--Subparagraph (D) of section 170(e)(5) (relating to 
special rule for contributions of stock for which market quotations are 
readily available) is amended to read as follows:
            ``(D) Termination.--This paragraph shall not apply to 
        contributions made--
                ``(i) after December 31, 1994, and before July 1, 1996, 
            or
                ``(ii) after May 31, 1997.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions made after June 30, 1996.
SEC. 1207. EXTENSION OF BINDING CONTRACT DATE FOR BIOMASS AND COAL 
FACILITIES.
    (a) In General.--Subparagraph (A) of section 29(g)(1) (relating to 
extension of certain facilities) is amended by striking ``January 1, 
1997'' and inserting ``July 1, 1998'' and by striking ``January 1, 
1996'' and inserting ``January 1, 1997''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.
SEC. 1208. MORATORIUM FOR EXCISE TAX ON DIESEL FUEL SOLD FOR USE OR 
USED IN DIESEL-POWERED MOTORBOATS.
    Subparagraph (D) of section 4041(a)(1) (relating to the imposition 
of tax on diesel fuel and special motor fuels) is amended by 
redesignating clauses (i) and (ii) as clauses (ii) and (iii), 
respectively, and by inserting before clause (ii) (as redesignated) the 
following new clause:
                ``(i) no tax shall be imposed by subsection (a) or 
            (d)(1) during the period beginning on the date which is 7 
            days after the date of the enactment of the Small Business 
            Job Protection Act of 1996 and ending on December 31, 
            1997,''.

           Subtitle C--Provisions Relating to S Corporations

SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75 SHAREHOLDERS.

    Subparagraph (A) of section 1361(b)(1) (defining small business 
corporation) is amended by striking ``35 shareholders'' and inserting 
``75 shareholders''.

SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.

    (a) General Rule.--Subparagraph (A) of section 1361(c)(2) (relating 
to certain trusts permitted as shareholders) is amended by inserting 
after clause (iv) the following new clause:
                ``(v) An electing small business trust.''.
    (b) Current Beneficiaries Treated as Shareholders.--Subparagraph 
(B) of section 1361(c)(2) is amended by adding at the end the following 
new clause:
                ``(v) In the case of a trust described in clause (v) of 
            subparagraph (A), each potential current beneficiary of 
            such trust shall be treated as a shareholder; except that, 
            if for any period there is no potential current beneficiary 
            of such trust, such trust shall be treated as the 
            shareholder during such period.''.
    (c) Electing Small Business Trust Defined.--Section 1361 (defining 
S corporation) is amended by adding at the end the following new 
subsection:
    ``(e) Electing Small Business Trust Defined.--
        ``(1) Electing small business trust.--For purposes of this 
    section--
            ``(A) In general.--Except as provided in subparagraph (B), 
        the term `electing small business trust' means any trust if--
                ``(i) such trust does not have as a beneficiary any 
            person other than (I) an individual, (II) an estate, or 
            (III) an organization described in paragraph (2), (3), (4), 
            or (5) of section 170(c) which holds a contingent interest 
            and is not a potential current beneficiary,
                ``(ii) no interest in such trust was acquired by 
            purchase, and
                ``(iii) an election under this subsection applies to 
            such trust.
            ``(B) Certain trusts not eligible.--The term `electing 
        small business trust' shall not include--
                ``(i) any qualified subchapter S trust (as defined in 
            subsection (d)(3)) if an election under subsection (d)(2) 
            applies to any corporation the stock of which is held by 
            such trust, and
                ``(ii) any trust exempt from tax under this subtitle.
            ``(C) Purchase.--For purposes of subparagraph (A), the term 
        `purchase' means any acquisition if the basis of the property 
        acquired is determined under section 1012.
        ``(2) Potential current beneficiary.--For purposes of this 
    section, the term `potential current beneficiary' means, with 
    respect to any period, any person who at any time during such 
    period is entitled to, or at the discretion of any person may 
    receive, a distribution from the principal or income of the trust. 
    If a trust disposes of all of the stock which it holds in an S 
    corporation, then, with respect to such corporation, the term 
    `potential current beneficiary' does not include any person who 
    first met the requirements of the preceding sentence during the 60-
    day period ending on the date of such disposition.
        ``(3) Election.--An election under this subsection shall be 
    made by the trustee. Any such election shall apply to the taxable 
    year of the trust for which made and all subsequent taxable years 
    of such trust unless revoked with the consent of the Secretary.
        ``(4) Cross reference.--
          ``For special treatment of electing small business trusts, see 
        section 641(d).''.

    (d) Taxation of Electing Small Business Trusts.--Section 641 
(relating to imposition of tax on trusts) is amended by adding at the 
end the following new subsection:
    ``(d) Special Rules for Taxation of Electing Small Business 
Trusts.--
        ``(1) In general.--For purposes of this chapter--
            ``(A) the portion of any electing small business trust 
        which consists of stock in 1 or more S corporations shall be 
        treated as a separate trust, and
            ``(B) the amount of the tax imposed by this chapter on such 
        separate trust shall be determined with the modifications of 
        paragraph (2).
        ``(2) Modifications.--For purposes of paragraph (1), the 
    modifications of this paragraph are the following:
            ``(A) Except as provided in section 1(h), the amount of the 
        tax imposed by section 1(e) shall be determined by using the 
        highest rate of tax set forth in section 1(e).
            ``(B) The exemption amount under section 55(d) shall be 
        zero.
            ``(C) The only items of income, loss, deduction, or credit 
        to be taken into account are the following:
                ``(i) The items required to be taken into account under 
            section 1366.
                ``(ii) Any gain or loss from the disposition of stock 
            in an S corporation.
                ``(iii) To the extent provided in regulations, State or 
            local income taxes or administrative expenses to the extent 
            allocable to items described in clauses (i) and (ii).
        No deduction or credit shall be allowed for any amount not 
        described in this paragraph, and no item described in this 
        paragraph shall be apportioned to any beneficiary.
            ``(D) No amount shall be allowed under paragraph (1) or (2) 
        of section 1211(b).
        ``(3) Treatment of remainder of trust and distributions.--For 
    purposes of determining--
            ``(A) the amount of the tax imposed by this chapter on the 
        portion of any electing small business trust not treated as a 
        separate trust under paragraph (1), and
            ``(B) the distributable net income of the entire trust,
    the items referred to in paragraph (2)(C) shall be excluded. Except 
    as provided in the preceding sentence, this subsection shall not 
    affect the taxation of any distribution from the trust.
        ``(4) Treatment of unused deductions where termination of 
    separate trust.--If a portion of an electing small business trust 
    ceases to be treated as a separate trust under paragraph (1), any 
    carryover or excess deduction of the separate trust which is 
    referred to in section 642(h) shall be taken into account by the 
    entire trust.
        ``(5) Electing small business trust.--For purposes of this 
    subsection, the term `electing small business trust' has the 
    meaning given such term by section 1361(e)(1).''.
    (e) Technical Amendment.--Paragraph (1) of section 1366(a) is 
amended by inserting ``, or of a trust or estate which terminates,'' 
after ``who dies''.
SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION FOR CERTAIN TRUSTS.
    Subparagraph (A) of section 1361(c)(2) (relating to certain trusts 
permitted as shareholders) is amended--
        (1) by striking ``60-day period'' each place it appears in 
    clauses (ii) and (iii) and inserting ``2-year period'', and
        (2) by striking the last sentence in clause (ii).
SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD SAFE HARBOR DEBT.
    Clause (iii) of section 1361(c)(5)(B) (defining straight debt) is 
amended by striking ``or a trust described in paragraph (2)'' and 
inserting ``a trust described in paragraph (2), or a person which is 
actively and regularly engaged in the business of lending money''.
SEC. 1305. RULES RELATING TO INADVERTENT TERMINATIONS AND INVALID 
ELECTIONS.
    (a) General Rule.--Subsection (f) of section 1362 (relating to 
inadvertent terminations) is amended to read as follows:
    ``(f) Inadvertent Invalid Elections or Terminations.--If--
        ``(1) an election under subsection (a) by any corporation--
            ``(A) was not effective for the taxable year for which made 
        (determined without regard to subsection (b)(2)) by reason of a 
        failure to meet the requirements of section 1361(b) or to 
        obtain shareholder consents, or
            ``(B) was terminated under paragraph (2) or (3) of 
        subsection (d),
        ``(2) the Secretary determines that the circumstances resulting 
    in such ineffectiveness or termination were inadvertent,
        ``(3) no later than a reasonable period of time after discovery 
    of the circumstances resulting in such ineffectiveness or 
    termination, steps were taken--
            ``(A) so that the corporation is a small business 
        corporation, or
            ``(B) to acquire the required shareholder consents, and
        ``(4) the corporation, and each person who was a shareholder in 
    the corporation at any time during the period specified pursuant to 
    this subsection, agrees to make such adjustments (consistent with 
    the treatment of the corporation as an S corporation) as may be 
    required by the Secretary with respect to such period,
then, notwithstanding the circumstances resulting in such 
ineffectiveness or termination, such corporation shall be treated as an 
S corporation during the period specified by the Secretary.''.
    (b) Late Elections, Etc.--Subsection (b) of section 1362 is amended 
by adding at the end the following new paragraph:
        ``(5) Authority to treat late elections, etc., as timely.--If--
            ``(A) an election under subsection (a) is made for any 
        taxable year (determined without regard to paragraph (3)) after 
        the date prescribed by this subsection for making such election 
        for such taxable year or no such election is made for any 
        taxable year, and
            ``(B) the Secretary determines that there was reasonable 
        cause for the failure to timely make such election,
    the Secretary may treat such an election as timely made for such 
    taxable year (and paragraph (3) shall not apply).''.
    (c) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply with respect to elections for taxable years beginning after 
December 31, 1982.

SEC. 1306. AGREEMENT TO TERMINATE YEAR.

    Paragraph (2) of section 1377(a) (relating to pro rata share) is 
amended to read as follows:
        ``(2) Election to terminate year.--
            ``(A) In general.--Under regulations prescribed by the 
        Secretary, if any shareholder terminates the shareholder's 
        interest in the corporation during the taxable year and all 
        affected shareholders and the corporation agree to the 
        application of this paragraph, paragraph (1) shall be applied 
        to the affected shareholders as if the taxable year consisted 
        of 2 taxable years the first of which ends on the date of the 
        termination.
            ``(B) Affected shareholders.--For purposes of subparagraph 
        (A), the term `affected shareholders' means the shareholder 
        whose interest is terminated and all shareholders to whom such 
        shareholder has transferred shares during the taxable year. If 
        such shareholder has transferred shares to the corporation, the 
        term `affected shareholders' shall include all persons who are 
        shareholders during the taxable year.''.

SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION PERIOD.

    (a) In General.--Paragraph (1) of section 1377(b) (relating to 
post-termination transition period) is amended by striking ``and'' at 
the end of subparagraph (A), by redesignating subparagraph (B) as 
subparagraph (C), and by inserting after subparagraph (A) the following 
new subparagraph:
            ``(B) the 120-day period beginning on the date of any 
        determination pursuant to an audit of the taxpayer which 
        follows the termination of the corporation's election and which 
        adjusts a subchapter S item of income, loss, or deduction of 
        the corporation arising during the S period (as defined in 
        section 1368(e)(2)), and''.
    (b) Determination Defined.--Paragraph (2) of section 1377(b) is 
amended by striking subparagraphs (A) and (B), by redesignating 
subparagraph (C) as subparagraph (B), and by inserting before 
subparagraph (B) (as so redesignated) the following new subparagraph:
            ``(A) a determination as defined in section 1313(a), or''.
    (c) Repeal of Special Audit Provisions for Sub- chapter S Items.--
        (1) General rule.--Subchapter D of chapter 63 (relating to tax 
    treatment of subchapter S items) is hereby repealed.
        (2) Consistent treatment required.--Section 6037 (relating to 
    return of S corporation) is amended by adding at the end the 
    following new subsection:
    ``(c) Shareholder's Return Must Be Consistent With Corporate Return 
or Secretary Notified of Inconsistency.--
        ``(1) In general.--A shareholder of an S corporation shall, on 
    such shareholder's return, treat a subchapter S item in a manner 
    which is consistent with the treatment of such item on the 
    corporate return.
        ``(2) Notification of inconsistent treatment.--
            ``(A) In general.--In the case of any subchapter S item, 
        if--
                ``(i)(I) the corporation has filed a return but the 
            shareholder's treatment on his return is (or may be) 
            inconsistent with the treatment of the item on the 
            corporate return, or
                ``(II) the corporation has not filed a return, and
                ``(ii) the shareholder files with the Secretary a 
            statement identifying the inconsistency,
        paragraph (1) shall not apply to such item.
            ``(B) Shareholder receiving incorrect information.--A 
        shareholder shall be treated as having complied with clause 
        (ii) of subparagraph (A) with respect to a subchapter S item if 
        the shareholder--
                ``(i) demonstrates to the satisfaction of the Secretary 
            that the treatment of the subchapter S item on the 
            shareholder's return is consistent with the treatment of 
            the item on the schedule furnished to the shareholder by 
            the corporation, and
                ``(ii) elects to have this paragraph apply with respect 
            to that item.
        ``(3) Effect of failure to notify.--In any case--
            ``(A) described in subparagraph (A)(i)(I) of paragraph (2), 
        and
            ``(B) in which the shareholder does not comply with 
        subparagraph (A)(ii) of paragraph (2),
    any adjustment required to make the treatment of the items by such 
    shareholder consistent with the treatment of the items on the 
    corporate return shall be treated as arising out of mathematical or 
    clerical errors and assessed according to section 6213(b)(1). 
    Paragraph (2) of section 6213(b) shall not apply to any assessment 
    referred to in the preceding sentence.
        ``(4) Subchapter s item.--For purposes of this subsection, the 
    term `subchapter S item' means any item of an S corporation to the 
    extent that regulations prescribed by the Secretary provide that, 
    for purposes of this subtitle, such item is more appropriately 
    determined at the corporation level than at the shareholder level.
        ``(5) Addition to tax for failure to comply with section.--
          ``For addition to tax in the case of a shareholder's 
        negligence in connection with, or disregard of, the requirements 
        of this section, see part II of subchapter A of chapter 68.''.

        (3) Conforming amendments.--
            (A) Section 1366 is amended by striking sub- section (g).
            (B) Subsection (b) of section 6233 is amended to read as 
        follows:
    ``(b) Similar Rules in Certain Cases.--If a partnership return is 
filed for any taxable year but it is determined that there is no entity 
for such taxable year, to the extent provided in regulations, rules 
similar to the rules of subsection (a) shall apply.''.
            (C) The table of subchapters for chapter 63 is amended by 
        striking the item relating to subchapter D.

SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUBSIDIARIES.

    (a) In General.--Paragraph (2) of section 1361(b) (defining 
ineligible corporation) is amended by striking subparagraph (A) and by 
redesignating subparagraphs (B), (C), (D), and (E) as subparagraphs 
(A), (B), (C), and (D), respectively.
    (b) Treatment of Certain Wholly Owned S Corporation Subsidiaries.--
Section 1361(b) (defining small business corporation) is amended by 
adding at the end the following new paragraph:
        ``(3) Treatment of certain wholly owned subsidiaries.--
            ``(A) In general.--For purposes of this title--
                ``(i) a corporation which is a qualified subchapter S 
            subsidiary shall not be treated as a separate corporation, 
            and
                ``(ii) all assets, liabilities, and items of income, 
            deduction, and credit of a qualified subchapter S 
            subsidiary shall be treated as assets, liabilities, and 
            such items (as the case may be) of the S corporation.
            ``(B) Qualified subchapter s subsidiary.--For purposes of 
        this paragraph, the term `qualified subchapter S subsidiary' 
        means any domestic corporation which is not an ineligible 
        corporation (as defined in paragraph (2)), if--
                ``(i) 100 percent of the stock of such corporation is 
            held by the S corporation, and
                ``(ii) the S corporation elects to treat such 
            corporation as a qualified subchapter S subsidiary.
            ``(C) Treatment of terminations of qualified subchapter s 
        subsidiary status.--For purposes of this title, if any 
        corporation which was a qualified subchapter S subsidiary 
        ceases to meet the requirements of subparagraph (B), such 
        corporation shall be treated as a new corporation acquiring all 
        of its assets (and assuming all of its liabilities) immediately 
        before such cessation from the S corporation in exchange for 
        its stock.
            ``(D) Election after termination.--If a corporation's 
        status as a qualified subchapter S subsidiary terminates, such 
        corporation (and any successor corporation) shall not be 
        eligible to make--
                ``(i) an election under subparagraph (B)(ii) to be 
            treated as a qualified subchapter S subsidiary, or
                ``(ii) an election under section 1362(a) to be treated 
            as an S corporation,
        before its 5th taxable year which begins after the 1st taxable 
        year for which such termination was effective, unless the 
        Secretary consents to such election.''.
    (c) Certain Dividends Not Treated as Passive Investment Income.--
Paragraph (3) of section 1362(d) is amended by adding at the end the 
following new subparagraph:
            ``(F) Treatment of certain dividends.--If an S corporation 
        holds stock in a C corporation meeting the requirements of 
        section 1504(a)(2), the term `passive investment income' shall 
        not include dividends from such C corporation to the extent 
        such dividends are attributable to the earnings and profits of 
        such C corporation derived from the active conduct of a trade 
        or business.''.
    (d) Conforming Amendments.--
        (1) Subsection (c) of section 1361 is amended by striking 
    paragraph (6).
        (2) Subsection (b) of section 1504 (defining includible 
    corporation) is amended by adding at the end the following new 
    paragraph:
        ``(8) An S corporation.''.

SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.

    (a) Adjustments for Distributions Taken Into Account Before 
Losses.--
        (1) Subparagraph (A) of section 1366(d)(1) (relating to losses 
    and deductions cannot exceed shareholder's basis in stock and debt) 
    is amended by striking ``paragraph (1)'' and inserting ``paragraphs 
    (1) and (2)(A)''.
        (2) Subsection (d) of section 1368 (relating to certain 
    adjustments taken into account) is amended by adding at the end the 
    following new flush sentence:
``In the case of any distribution made during any taxable year, the 
adjusted basis of the stock shall be determined with regard to the 
adjustments provided in paragraph (1) of section 1367(a) for the 
taxable year.''.
    (b) Accumulated Adjustments Account.--Paragraph (1) of section 
1368(e) (relating to accumulated adjustments account) is amended by 
adding at the end the following new subparagraph:
        ``(C) Net loss for year disregarded.--
            ``(i) In general.--In applying this section to 
        distributions made during any taxable year, the amount in the 
        accumulated adjustments account as of the close of such taxable 
        year shall be determined without regard to any net negative 
        adjustment for such taxable year.
            ``(ii) Net negative adjustment.--For purposes of clause 
        (i), the term `net negative adjustment' means, with respect to 
        any taxable year, the excess (if any) of--
                ``(I) the reductions in the account for the taxable 
            year (other than for distributions), over
                ``(II) the increases in such account for such taxable 
            year.''.
    (c) Conforming Amendments.--Subparagraph (A) of section 1368(e)(1) 
is amended--
        (1) by striking ``as provided in subparagraph (B)'' and 
    inserting ``as otherwise provided in this paragraph'', and
        (2) by striking ``section 1367(b)(2)(A)'' and inserting 
    ``section 1367(a)(2)''.
SEC. 1310. TREATMENT OF S CORPORATIONS UNDER SUBCHAPTER C.
    Subsection (a) of section 1371 (relating to application of 
subchapter C rules) is amended to read as follows:
    ``(a) Application of Subchapter C Rules.--Except as otherwise 
provided in this title, and except to the extent inconsistent with this 
subchapter, subchapter C shall apply to an S corporation and its 
shareholders.''.

SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND PROFITS.

    (a) In General.--If--
        (1) a corporation was an electing small business corporation 
    under subchapter S of chapter 1 of the Internal Revenue Code of 
    1986 for any taxable year beginning before January 1, 1983, and
        (2) such corporation is an S corporation under subchapter S of 
    chapter 1 of such Code for its first taxable year beginning after 
    December 31, 1996,
the amount of such corporation's accumulated earnings and profits (as 
of the beginning of such first taxable year) shall be reduced by an 
amount equal to the portion (if any) of such accumulated earnings and 
profits which were accumulated in any taxable year beginning before 
January 1, 1983, for which such corporation was an electing small 
business corporation under such subchapter S.
    (b) Conforming Amendments.--
        (1) Paragraph (3) of section 1362(d), as amended by section 
    1308, is amended--
            (A) by striking ``subchapter c'' in the paragraph heading 
        and inserting ``accumulated'',
            (B) by striking ``subchapter C'' in subparagraph (A)(i)(I) 
        and inserting ``accumulated'', and
            (C) by striking subparagraph (B) and redesignating the 
        following subparagraphs accordingly.
        (2)(A) Subsection (a) of section 1375 is amended by striking 
    ``subchapter C'' in paragraph (1) and inserting ``accumulated''.
        (B) Paragraph (3) of section 1375(b) is amended to read as 
    follows:
        ``(3) Passive investment income, etc.--The terms `passive 
    investment income' and `gross receipts' have the same respective 
    meanings as when used in paragraph (3) of section 1362(d).''.
        (C) The section heading for section 1375 is amended by striking 
    ``subchapter C'' and inserting ``accumulated''.
        (D) The table of sections for part III of subchapter S of 
    chapter 1 is amended by striking ``subchapter C'' in the item 
    relating to section 1375 and inserting ``accumulated''.
        (3) Clause (i) of section 1042(c)(4)(A) is amended by striking 
    ``section 1362(d)(3)(D)'' and inserting ``section 1362(d)(3)(C)''.
SEC. 1312. CARRYOVER OF DISALLOWED LOSSES AND DEDUCTIONS UNDER AT-RISK 
RULES ALLOWED.
    Paragraph (3) of section 1366(d) (relating to carryover of 
disallowed losses and deductions to post-termination transition period) 
is amended by adding at the end the following new subparagraph:
            ``(D) At-risk limitations.--To the extent that any increase 
        in adjusted basis described in subparagraph (B) would have 
        increased the shareholder's amount at risk under section 465 if 
        such increase had occurred on the day preceding the 
        commencement of the post-termination transition period, rules 
        similar to the rules described in subparagraphs (A) through (C) 
        shall apply to any losses disallowed by reason of section 
        465(a).''.
SEC. 1313. ADJUSTMENTS TO BASIS OF INHERITED S STOCK TO REFLECT CERTAIN 
ITEMS OF INCOME.
    (a) In General.--Subsection (b) of section 1367 (relating to 
adjustments to basis of stock of shareholders, etc.) is amended by 
adding at the end the following new paragraph:
        ``(4) Adjustments in case of inherited stock.--
            ``(A) In general.--If any person acquires stock in an S 
        corporation by reason of the death of a decedent or by bequest, 
        devise, or inheritance, section 691 shall be applied with 
        respect to any item of income of the S corporation in the same 
        manner as if the decedent had held directly his pro rata share 
        of such item.
            ``(B) Adjustments to basis.--The basis determined under 
        section 1014 of any stock in an S corporation shall be reduced 
        by the portion of the value of the stock which is attributable 
        to items constituting income in respect of the decedent.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply in the case of decedents dying after the date of the enactment of 
this Act.
SEC. 1314. S CORPORATIONS ELIGIBLE FOR RULES APPLICABLE TO REAL 
PROPERTY SUBDIVIDED FOR SALE BY NONCORPORATE TAXPAYERS.
    (a) In General.--Subsection (a) of section 1237 (relating to real 
property subdivided for sale) is amended by striking ``other than a 
corporation'' in the material preceding paragraph (1) and inserting 
``other than a C corporation''.
    (b) Conforming Amendment.--Subparagraph (A) of section 1237(a)(2) 
is amended by inserting ``an S corporation which included the taxpayer 
as a shareholder,'' after ``controlled by the taxpayer,''.

SEC. 1315. FINANCIAL INSTITUTIONS.

    Subparagraph (A) of section 1361(b)(2) (defining ineligible 
corporation), as redesignated by section 1308(a), is amended to read as 
follows:
            ``(A) a financial institution which uses the reserve method 
        of accounting for bad debts described in section 585,''.
SEC. 1316. CERTAIN EXEMPT ORGANIZATIONS ALLOWED TO BE SHAREHOLDERS.
    (a) Eligibility To Be Shareholders.--
        (1) In general.--Subparagraph (B) of section 1361(b)(1) 
    (defining small business corporation) is amended to read as 
    follows:
            ``(B) have as a shareholder a person (other than an estate, 
        a trust described in subsection (c)(2), or an organization 
        described in subsection (c)(7)) who is not an individual,''.
        (2) Eligible exempt organizations.--Section 1361(c) (relating 
    to special rules for applying subsection (b)) is amended by adding 
    at the end the following new paragraph:
        ``(7) Certain exempt organizations permitted as shareholders.--
    For purposes of subsection (b)(1)(B), an organization which is--
            ``(A) described in section 401(a) or 501(c)(3), and
            ``(B) exempt from taxation under section 501(a),
    may be a shareholder in an S corporation.''.
    (b) Contributions of S Corporation Stock.--Section 170(e)(1) 
(relating to certain contributions of ordinary income and capital gain 
property) is amended by adding at the end the following new sentence: 
``For purposes of applying this paragraph in the case of a charitable 
contribution of stock in an S corporation, rules similar to the rules 
of section 751 shall apply in determining whether gain on such stock 
would have been long-term capital gain if such stock were sold by the 
taxpayer.''.
    (c) Treatment of Income.--Section 512 (relating to unrelated 
business taxable income), as amended by section 1113, is amended by 
adding at the end the following new subsection:
    ``(e) Special Rules Applicable to S Corporations.--
        ``(1) In general.--If an organization described in section 
    1361(c)(7) holds stock in an S corporation--
            ``(A) such interest shall be treated as an interest in an 
        unrelated trade or business, and
            ``(B) notwithstanding any other provision of this part--
                ``(i) all items of income, loss, or deduction taken 
            into account under section 1366(a), and
                ``(ii) any gain or loss on the disposition of the stock 
            in the S corporation,
    shall be taken into account in computing the unrelated business 
    taxable income of such organization.
        ``(2) Basis reduction.--Except as provided in regulations, for 
    purposes of paragraph (1), the basis of any stock acquired by 
    purchase (within the meaning of section 1012) shall be reduced by 
    the amount of any dividends received by the organization with 
    respect to the stock.''.
    (d) Certain Benefits not Applicable to S Corporations.--
        (1) Contribution to esops.--Paragraph (9) of section 404(a) 
    (relating to certain contributions to employee ownership plans) is 
    amended by inserting at the end the following new subparagraph:
            ``(C) S corporations.--This paragraph shall not apply to an 
        S corporation.''.
        (2) Dividends on employer securities.--Paragraph (1) of section 
    404(k) (relating to deduction for dividends on certain employer 
    securities) is amended by striking ``a corporation'' and inserting 
    ``a C corporation''.
        (3) Exchange treatment.--Subparagraph (A) of section 1042(c)(1) 
    (defining qualified securities) is amended by striking ``domestic 
    corporation'' and inserting ``domestic C corporation''.
    (e) Conforming Amendment.--Clause (i) of section 1361(e)(1)(A), as 
added by section 1302, is amended by striking ``which holds a 
contingent interest and is not a potential current beneficiary''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 1317. EFFECTIVE DATE.

    (a) In General.--Except as otherwise provided in this subtitle, the 
amendments made by this subtitle shall apply to taxable years beginning 
after December 31, 1996.
    (b) Treatment of Certain Elections Under Prior Law.--For purposes 
of section 1362(g) of the Internal Revenue Code of 1986 (relating to 
election after termination), any termination under section 1362(d) of 
such Code in a taxable year beginning before January 1, 1997, shall not 
be taken into account.

                   Subtitle D--Pension Simplification

                CHAPTER 1--SIMPLIFIED DISTRIBUTION RULES

SEC. 1401. REPEAL OF 5-YEAR INCOME AVERAGING FOR LUMP-SUM 
DISTRIBUTIONS.
    (a) In General.--Subsection (d) of section 402 (relating to 
taxability of beneficiary of employees' trust) is amended to read as 
follows:
    ``(d) Taxability of Beneficiary of Certain Foreign Situs Trusts.--
For purposes of subsections (a), (b), and (c), a stock bonus, pension, 
or profit-sharing trust which would qualify for exemption from tax 
under section 501(a) except for the fact that it is a trust created or 
organized outside the United States shall be treated as if it were a 
trust exempt from tax under section 501(a).''.
    (b) Conforming Amendments.--
        (1) Subparagraph (D) of section 402(e)(4) (relating to other 
    rules applicable to exempt trusts) is amended to read as follows:
            ``(D) Lump-sum distribution.--For purposes of this 
        paragraph--
                ``(i) In general.--The term `lump-sum distribution' 
            means the distribution or payment within one taxable year 
            of the recipient of the balance to the credit of an 
            employee which becomes payable to the recipient--

                    ``(I) on account of the employee's death,
                    ``(II) after the employee attains age 59\1/2\,
                    ``(III) on account of the employee's separation 
                from service, or
                    ``(IV) after the employee has become disabled 
                (within the meaning of section 72(m)(7)),

            from a trust which forms a part of a plan described in 
            section 401(a) and which is exempt from tax under section 
            501 or from a plan described in section 403(a). Subclause 
            (III) of this clause shall be applied only with respect to 
            an individual who is an employee without regard to section 
            401(c)(1), and subclause (IV) shall be applied only with 
            respect to an employee within the meaning of section 
            401(c)(1). For purposes of this clause, a distribution to 
            two or more trusts shall be treated as a distribution to 
            one recipient. For purposes of this paragraph, the balance 
            to the credit of the employee does not include the 
            accumulated deductible employee contributions under the 
            plan (within the meaning of section 72(o)(5)).
                ``(ii) Aggregation of certain trusts and plans.--For 
            purposes of determining the balance to the credit of an 
            employee under clause (i)--

                    ``(I) all trusts which are part of a plan shall be 
                treated as a single trust, all pension plans maintained 
                by the employer shall be treated as a single plan, all 
                profit-sharing plans maintained by the employer shall 
                be treated as a single plan, and all stock bonus plans 
                maintained by the employer shall be treated as a single 
                plan, and
                    ``(II) trusts which are not qualified trusts under 
                section 401(a) and annuity contracts which do not 
                satisfy the requirements of section 404(a)(2) shall not 
                be taken into account.

                ``(iii) Community property laws.--The provisions of 
            this paragraph shall be applied without regard to community 
            property laws.
                ``(iv) Amounts subject to penalty.--This paragraph 
            shall not apply to amounts described in subparagraph (A) of 
            section 72(m)(5) to the extent that section 72(m)(5) 
            applies to such amounts.
                ``(v) Balance to credit of employee not to include 
            amounts payable under qualified domestic relations order.--
            For purposes of this paragraph, the balance to the credit 
            of an employee shall not include any amount payable to an 
            alternate payee under a qualified domestic relations order 
            (within the meaning of section 414(p)).
                ``(vi) Transfers to cost-of-living arrangement not 
            treated as distribution.--For purposes of this paragraph, 
            the balance to the credit of an employee under a defined 
            contribution plan shall not include any amount transferred 
            from such defined contribution plan to a qualified cost-of-
            living arrangement (within the meaning of section 
            415(k)(2)) under a defined benefit plan.
                ``(vii) Lump-sum distributions of alternate payees.--If 
            any distribution or payment of the balance to the credit of 
            an employee would be treated as a lump-sum distribution, 
            then, for purposes of this paragraph, the payment under a 
            qualified domestic relations order (within the meaning of 
            section 414(p)) of the balance to the credit of an 
            alternate payee who is the spouse or former spouse of the 
            employee shall be treated as a lump-sum distribution. For 
            purposes of this clause, the balance to the credit of the 
            alternate payee shall not include any amount payable to the 
            employee.''.
        (2) Section 402(c) (relating to rules applicable to rollovers 
    from exempt trusts) is amended by striking paragraph (10).
        (3) Paragraph (1) of section 55(c) (defining regular tax) is 
    amended by striking ``shall not include any tax imposed by section 
    402(d) and''.
        (4) Paragraph (8) of section 62(a) (relating to certain portion 
    of lump-sum distributions from pension plans taxed under section 
    402(d)) is hereby repealed.
        (5) Section 401(a)(28)(B) (relating to coordination with 
    distribution rules) is amended by striking clause (v).
        (6) Subparagraph (B)(ii) of section 401(k)(10) (relating to 
    distributions that must be lump-sum distributions) is amended to 
    read as follows:
                ``(ii) Lump-sum distribution.--For purposes of this 
            subparagraph, the term `lump-sum distribution' has the 
            meaning given such term by section 402(e)(4)(D) (without 
            regard to subclauses (I), (II), (III), and (IV) of clause 
            (i) thereof).''.
        (7) Section 406(c) (relating to termination of status as deemed 
    employee not to be treated as separation from service for purposes 
    of limitation of tax) is hereby repealed.
        (8) Section 407(c) (relating to termination of status as deemed 
    employee not to be treated as separation from service for purposes 
    of limitation of tax) is hereby repealed.
        (9) Section 691(c) (relating to deduction for estate tax) is 
    amended by striking paragraph (5).
        (10) Paragraph (1) of section 871(b) (relating to imposition of 
    tax) is amended by striking ``section 1, 55, or 402(d)(1)'' and 
    inserting ``section 1 or 55''.
        (11) Subsection (b) of section 877 (relating to alternative 
    tax) is amended by striking ``section 1, 55, or 402(d)(1)'' and 
    inserting ``section 1 or 55''.
        (12) Section 4980A(c)(4) is amended--
            (A) by striking ``to which an election under section 
        402(d)(4)(B) applies'' and inserting ``(as defined in section 
        402(e)(4)(D)) with respect to which the individual elects to 
        have this paragraph apply'',
            (B) by adding at the end the following new flush sentence:
    ``An individual may elect to have this paragraph apply to only one 
    lump-sum distribution.'', and
            (C) by striking the heading and inserting:
        ``(4) Special one-time election.--''.
        (13) Section 402(e) is amended by striking paragraph (5).
    (c) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to taxable years beginning after December 31, 1999.
        (2) Retention of certain transition rules.--The amendments made 
    by this section shall not apply to any distribution for which the 
    taxpayer is eligible to elect the benefits of section 1122(h) (3) 
    or (5) of the Tax Reform Act of 1986. Notwithstanding the preceding 
    sentence, individuals who elect such benefits after December 31, 
    1999, shall not be eligible for 5-year averaging under section 
    402(d) of the Internal Revenue Code of 1986 (as in effect 
    immediately before such amendments).
SEC. 1402. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES' DEATH BENEFITS.
    (a) In General.--Subsection (b) of section 101 is hereby repealed.
    (b) Conforming Amendments.--
        (1) Subsection (c) of section 101 is amended by striking 
    ``subsection (a) or (b)'' and inserting ``subsection (a)''.
        (2) Sections 406(e) and 407(e) are each amended by striking 
    paragraph (2) and by redesignating paragraph (3) as paragraph (2).
        (3) Section 7701(a)(20) is amended by striking ``, for the 
    purpose of applying the provisions of section 101(b) with respect 
    to employees' death benefits''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to decedents dying after the date of the enactment 
of this Act.
SEC. 1403. SIMPLIFIED METHOD FOR TAXING ANNUITY DISTRIBUTIONS UNDER 
CERTAIN EMPLOYER PLANS.
    (a) General Rule.--Subsection (d) of section 72 (relating to 
annuities; certain proceeds of endowment and life insurance contracts) 
is amended to read as follows:
    ``(d) Special Rules for Qualified Employer Retirement Plans.--
        ``(1) Simplified method of taxing annuity payments.--
            ``(A) In general.--In the case of any amount received as an 
        annuity under a qualified employer retirement plan--
                ``(i) subsection (b) shall not apply, and
                ``(ii) the investment in the contract shall be 
            recovered as provided in this paragraph.
            ``(B) Method of recovering investment in contract.--
                ``(i) In general.--Gross income shall not include so 
            much of any monthly annuity payment under a qualified 
            employer retirement plan as does not exceed the amount 
            obtained by dividing--

                    ``(I) the investment in the contract (as of the 
                annuity starting date), by
                    ``(II) the number of anticipated payments 
                determined under the table contained in clause (iii) 
                (or, in the case of a contract to which subsection 
                (c)(3)(B) applies, the number of monthly annuity 
                payments under such contract).

                ``(ii) Certain rules made applicable.--Rules similar to 
            the rules of paragraphs (2) and (3) of subsection (b) shall 
            apply for purposes of this paragraph.
                ``(iii) Number of anticipated payments.--

                 ``If the age of the
                                                                        
                   primary annuitant on
                                                              The number
                   the annuity starting
                                                          of anticipated
                   date is:
                                                            payments is:
                   Not more than 55.....................
                                                                    360 
                   More than 55 but not more than 60....
                                                                    310 
                   More than 60 but not more than 65....
                                                                    260 
                   More than 65 but not more than 70....
                                                                    210 
                   More than 70.........................
                                                                    160.

            ``(C) Adjustment for refund feature not applicable.--For 
        purposes of this paragraph, investment in the contract shall be 
        determined under subsection (c)(1) without regard to subsection 
        (c)(2).
            ``(D) Special rule where lump sum paid in connection with 
        commencement of annuity payments.--If, in connection with the 
        commencement of annuity payments under any qualified employer 
        retirement plan, the taxpayer receives a lump-sum payment--
                ``(i) such payment shall be taxable under subsection 
            (e) as if received before the annuity starting date, and
                ``(ii) the investment in the contract for purposes of 
            this paragraph shall be determined as if such payment had 
            been so received.
            ``(E) Exception.--This paragraph shall not apply in any 
        case where the primary annuitant has attained age 75 on the 
        annuity starting date unless there are fewer than 5 years of 
        guaranteed payments under the annuity.
            ``(F) Adjustment where annuity payments not on monthly 
        basis.--In any case where the annuity payments are not made on 
        a monthly basis, appropriate adjustments in the application of 
        this paragraph shall be made to take into account the period on 
        the basis of which such payments are made.
            ``(G) Qualified employer retirement plan.--For purposes of 
        this paragraph, the term `qualified employer retirement plan' 
        means any plan or contract described in paragraph (1), (2), or 
        (3) of section 4974(c).
        ``(2) Treatment of employee contributions under defined 
    contribution plans.--For purposes of this section, employee 
    contributions (and any income allocable thereto) under a defined 
    contribution plan may be treated as a separate contract.''.
    (b) Effective Date.--The amendment made by this section shall apply 
in cases where the annuity starting date is after the 90th day after 
the date of the enactment of this Act.

SEC. 1404. REQUIRED DISTRIBUTIONS.

    (a) In General.--Section 401(a)(9)(C) (defining required beginning 
date) is amended to read as follows:
            ``(C) Required beginning date.--For purposes of this 
        paragraph--
                ``(i) In general.--The term `required beginning date' 
            means April 1 of the calendar year following the later of--

                    ``(I) the calendar year in which the employee 
                attains age 70\1/2\, or
                    ``(II) the calendar year in which the employee 
                retires.

                ``(ii) Exception.--Subclause (II) of clause (i) shall 
            not apply--

                    ``(I) except as provided in section 409(d), in the 
                case of an employee who is a 5-percent owner (as 
                defined in section 416) with respect to the plan year 
                ending in the calendar year in which the employee 
                attains age 70\1/2\, or
                    ``(II) for purposes of section 408 (a)(6) or 
                (b)(3).

                ``(iii) Actuarial adjustment.--In the case of an 
            employee to whom clause (i)(II) applies who retires in a 
            calendar year after the calendar year in which the employee 
            attains age 70\1/2\, the employee's accrued benefit shall 
            be actuarially increased to take into account the period 
            after age 70\1/2\ in which the employee was not receiving 
            any benefits under the plan.
                ``(iv) Exception for governmental and church plans.--
            Clauses (ii) and (iii) shall not apply in the case of a 
            governmental plan or church plan. For purposes of this 
            clause, the term `church plan' means a plan maintained by a 
            church for church employees, and the term `church' means 
            any church (as defined in section 3121(w)(3)(A)) or 
            qualified church-controlled organization (as defined in 
            section 3121(w)(3)(B)).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 1996.

            CHAPTER 2--INCREASED ACCESS TO RETIREMENT PLANS

                   Subchapter A--Simple Savings Plans

SEC. 1421. ESTABLISHMENT OF SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES 
OF SMALL EMPLOYERS.
    (a) In General.--Section 408 (relating to individual retirement 
accounts) is amended by redesignating subsection (p) as subsection (q) 
and by inserting after subsection (o) the following new subsection:
    ``(p) Simple Retirement Accounts.--
        ``(1) In general.--For purposes of this title, the term `simple 
    retirement account' means an individual retirement plan (as defined 
    in section 7701(a)(37))--
            ``(A) with respect to which the requirements of paragraphs 
        (3), (4), and (5) are met; and
            ``(B) with respect to which the only contributions allowed 
        are contributions under a qualified salary reduction 
        arrangement.
        ``(2) Qualified salary reduction arrangement.--
            ``(A) In general.--For purposes of this subsection, the 
        term `qualified salary reduction arrangement' means a written 
        arrangement of an eligible employer under which--
                ``(i) an employee eligible to participate in the 
            arrangement may elect to have the employer make payments--

                    ``(I) as elective employer contributions to a 
                simple retirement account on behalf of the employee, or
                    ``(II) to the employee directly in cash,

                ``(ii) the amount which an employee may elect under 
            clause (i) for any year is required to be expressed as a 
            percentage of compensation and may not exceed a total of 
            $6,000 for any year,
                ``(iii) the employer is required to make a matching 
            contribution to the simple retirement account for any year 
            in an amount equal to so much of the amount the employee 
            elects under clause (i)(I) as does not exceed the 
            applicable percentage of compensation for the year, and
                ``(iv) no contributions may be made other than 
            contributions described in clause (i) or (iii).
            ``(B) Employer may elect 2-percent nonelective 
        contribution.--
                ``(i) In general.--An employer shall be treated as 
            meeting the requirements of subparagraph (A)(iii) for any 
            year if, in lieu of the contributions described in such 
            clause, the employer elects to make nonelective 
            contributions of 2 percent of compensation for each 
            employee who is eligible to participate in the arrangement 
            and who has at least $5,000 of compensation from the 
            employer for the year. If an employer makes an election 
            under this subparagraph for any year, the employer shall 
            notify employees of such election within a reasonable 
            period of time before the 60-day period for such year under 
            paragraph (5)(C).
                ``(ii) Compensation limitation.--The compensation taken 
            into account under clause (i) for any year shall not exceed 
            the limitation in effect for such year under section 
            401(a)(17).
            ``(C) Definitions.--For purposes of this subsection--
                ``(i) Eligible employer.--

                    ``(I) In general.--The term `eligible employer' 
                means, with respect to any year, an employer which had 
                no more than 100 employees who received at least $5,000 
                of compensation from the employer for the preceding 
                year.
                    ``(II) 2-year grace period.--An eligible employer 
                who establishes and maintains a plan under this 
                subsection for 1 or more years and who fails to be an 
                eligible employer for any subsequent year shall be 
                treated as an eligible employer for the 2 years 
                following the last year the employer was an eligible 
                employer. If such failure is due to any acquisition, 
                disposition, or similar transaction involving an 
                eligible employer, the preceding sentence shall apply 
                only in accordance with rules similar to the rules of 
                section 410(b)(6)(C)(i).

                ``(ii) Applicable percentage.--

                    ``(I) In general.--The term `applicable percentage' 
                means 3 percent.
                    ``(II) Election of lower percentage.--An employer 
                may elect to apply a lower percentage (not less than 1 
                percent) for any year for all employees eligible to 
                participate in the plan for such year if the employer 
                notifies the employees of such lower percentage within 
                a reasonable period of time before the 60-day election 
                period for such year under paragraph (5)(C). An 
                employer may not elect a lower percentage under this 
                subclause for any year if that election would result in 
                the applicable percentage being lower than 3 percent in 
                more than 2 of the years in the 5-year period ending 
                with such year.
                    ``(III) Special rule for years arrangement not in 
                effect.--If any year in the 5-year period described in 
                subclause (II) is a year prior to the first year for 
                which any qualified salary reduction arrangement is in 
                effect with respect to the employer (or any 
                predecessor), the employer shall be treated as if the 
                level of the employer matching contribution was at3 
percent of compensation for such prior year.
            ``(D) Arrangement may be only plan of employer.--
                ``(i) In general.--An arrangement shall not be treated 
            as a qualified salary reduction arrangement for any year if 
            the employer (or any predecessor employer) maintained a 
            qualified plan with respect to which contributions were 
            made, or benefits were accrued, for service in any year in 
            the period beginning with the year such arrangement became 
            effective and ending with the year for which the 
            determination is being made.
                ``(ii) Qualified plan.--For purposes of this 
            subparagraph, the term `qualified plan' means a plan, 
            contract, pension, or trust described in subparagraph (A) 
            or (B) of section 219(g)(5).
            ``(E) Cost-of-living adjustment.--The Secretary shall 
        adjust the $6,000 amount under subparagraph (A)(ii) at the same 
        time and in the same manner as under section 415(d), except 
        that the base period taken into account shall be the calendar 
        quarter ending September 30, 1996, and any increase under this 
        subparagraph which is not a multiple of $500 shall be rounded 
        to the next lower multiple of $500.
        ``(3) Vesting requirements.--The requirements of this paragraph 
    are met with respect to a simple retirement account if the 
    employee's rights to any contribution to the simple retirement 
    account are nonforfeitable. For purposes of this paragraph, rules 
    similar to the rules of subsection (k)(4) shall apply.
        ``(4) Participation requirements.--
            ``(A) In general.--The requirements of this paragraph are 
        met with respect to any simple retirement account for a year 
        only if, under the qualified salary reduction arrangement, all 
        employees of the employer who--
                ``(i) received at least $5,000 in compensation from the 
            employer during any 2 preceding years, and
                ``(ii) are reasonably expected to receive at least 
            $5,000 in compensation during the year,
        are eligible to make the election under paragraph (2)(A)(i) or 
        receive the nonelective contribution described in paragraph 
        (2)(B).
            ``(B) Excludable employees.--An employer may elect to 
        exclude from the requirement under subparagraph (A) employees 
        described in section 410(b)(3).
        ``(5) Administrative requirements.--The requirements of this 
    paragraph are met with respect to any simplified retirement account 
    if, under the qualified salary reduction arrangement--
            ``(A) an employer must--
                ``(i) make the elective employer contributions under 
            paragraph (2)(A)(i) not later than the close of the 30-day 
            period following the last day of the month with respect to 
            which the contributions are to be made, and
                ``(ii) make the matching contributions under paragraph 
            (2)(A)(iii) or the nonelective contributions under 
            paragraph (2)(B) not later than the date described in 
            section 404(m)(2)(B),
            ``(B) an employee may elect to terminate participation in 
        such arrangement at any time during the year, except that if an 
        employee so terminates, the arrangement may provide that the 
        employee may not elect to resume participation until the 
        beginning of the next year, and
            ``(C) each employee eligible to participate may elect, 
        during the 60-day period before the beginning of any year (and 
        the 60-day period before the first day such employee is 
        eligible to participate), to participate in the arrangement, or 
        to modify the amounts subject to such arrangement, for such 
        year.
        ``(6) Definitions.--For purposes of this subsection--
            ``(A) Compensation.--
                ``(i) In general.--The term `compensation' means 
            amounts described in paragraphs (3) and (8) of section 
            6051(a).
                ``(ii) Self-employed.--In the case of an employee 
            described in subparagraph (B), the term `compensation' 
            means net earnings from self-employment determined under 
            section 1402(a) without regard to any contribution under 
            this subsection.
            ``(B) Employee.--The term `employee' includes an employee 
        as defined in section 401(c)(1).
            ``(C) Year.--The term `year' means the calendar year.
        ``(7) Use of designated financial institution.--A plan shall 
    not be treated as failing to satisfy the requirements of this 
    subsection or any other provision of this title merely because the 
    employer makes all contributions to the individual retirement 
    accounts or annuities of a designated trustee or issuer. The 
    preceding sentence shall not apply unless each plan participant is 
    notified in writing (either separately or as part of the notice 
    under subsection (l)(2)(C)) that the participant's balance may be 
    transferred without cost or penalty to another individual account 
    or annuity in accordance with subsection (d)(3)(G).''.
    (b) Tax Treatment of Simple Retirement Accounts.--
        (1) Deductibility of contributions by employees.--
            (A) Section 219(b) (relating to maximum amount of 
        deduction) is amended by adding at the end the following new 
        paragraph:
        ``(4) Special rule for simple retirement accounts.--This 
    section shall not apply with respect to any amount contributed to a 
    simple retirement account established under section 408(p).''.
            (B) Section 219(g)(5)(A) (defining active participant) is 
        amended by striking ``or'' at the end of clause (iv) and by 
        adding at the end the following new clause:
                ``(vi) any simple retirement account (within the 
            meaning of section 408(p)), or''.
        (2) Deductibility of employer contributions.--Section 404 
    (relating to deductions for contributions of an employer to 
    pension, etc. plans) is amended by adding at the end the following 
    new subsection:
    ``(m) Special Rules for Simple Retirement Accounts.--
        ``(1) In general.--Employer contributions to a simple 
    retirement account shall be treated as if they are made to a plan 
    subject to the requirements of this section.
        ``(2) Timing.--
            ``(A) Deduction.--Contributions described in paragraph (1) 
        shall be deductible in the taxable year of the employer with or 
        within which the calendar year for which the contributions were 
        made ends.
            ``(B) Contributions after end of year.--For purposes of 
        this subsection, contributions shall be treated as made for a 
        taxable year if they are made on account of the taxable year 
        and are made not later than the time prescribed by law for 
        filing the return for the taxable year (including extensions 
        thereof).''.
        (3) Contributions and distributions.--
            (A) Section 402 (relating to taxability of beneficiary of 
        employees' trust) is amended by adding at the end the following 
        new subsection:
    ``(k) Treatment of Simple Retirement Accounts.--Rules similar to 
the rules of paragraphs (1) and (3) of subsection (h) shall apply to 
contributions and distributions with respect to a simple retirement 
account under section 408(p).''.
            (B) Section 408(d)(3) is amended by adding at the end the 
        following new subparagraph:
            ``(G) Simple retirement accounts.--This paragraph shall not 
        apply to any amount paid or distributed out of a simple 
        retirement account (as defined in subsection (p)) unless--
                ``(i) it is paid into another simple retirement 
            account, or
                ``(ii) in the case of any payment or distribution to 
            which section 72(t)(6) does not apply, it is paid into an 
            individual retirement plan.''.
            (C) Clause (i) of section 457(c)(2)(B) is amended by 
        striking ``section 402(h)(1)(B)'' and inserting ``section 402 
        (h)(1)(B) or (k)''.
        (4) Penalties.--
            (A) Early withdrawals.--Section 72(t) (relating to 
        additional tax in early distributions) is amended by adding at 
        the end the following new paragraph:
        ``(6) Special rules for simple retirement accounts.--In the 
    case of any amount received from a simple retirement account 
    (within the meaning of section 408(p)) during the 2-year period 
    beginning on the date such individual first participated in any 
    qualified salary reduction arrangement maintained by the 
    individual's employer under section 408(p)(2), paragraph (1) shall 
    be applied by substituting `25 percent' for `10 percent'.''.
            (B) Failure to report.--Section 6693 is amended by 
        redesignating subsection (c) as subsection (d) and by inserting 
        after subsection (b) the following new subsection:
    ``(c) Penalties Relating to Simple Retirement Accounts.--
        ``(1) Employer penalties.--An employer who fails to provide 1 
    or more notices required by section 408(l)(2)(C) shall pay a 
    penalty of $50 for each day on which such failures continue.
        ``(2) Trustee penalties.--A trustee who fails--
            ``(A) to provide 1 or more statements required by the last 
        sentence of section 408(i) shall pay a penalty of $50 for each 
        day on which such failures continue, or
            ``(B) to provide 1 or more summary descriptions required by 
        section 408(l)(2)(B) shall pay a penalty of $50 for each day on 
        which such failures continue.
        ``(3) Reasonable cause exception.--No penalty shall be imposed 
    under this subsection with respect to any failure which the 
    taxpayer shows was due to reasonable cause.''.
        (5) Reporting requirements.--
            (A) Section 408(l) is amended by adding at the end the 
        following new paragraph:
        ``(2) Simple retirement accounts.--
            ``(A) No employer reports.--Except as provided in this 
        paragraph, no report shall be required under this section by an 
        employer maintaining a qualified salary reduction arrangement 
        under subsection (p).
            ``(B) Summary description.--The trustee of any simple 
        retirement account established pursuant to a qualified salary 
        reduction arrangement under subsection (p) shall provide to the 
        employer maintaining the arrangement, each year a description 
        containing the following information:
                ``(i) The name and address of the employer and the 
            trustee.
                ``(ii) The requirements for eligibility for 
            participation.
                ``(iii) The benefits provided with respect to the 
            arrangement.
                ``(iv) The time and method of making elections with 
            respect to the arrangement.
                ``(v) The procedures for, and effects of, withdrawals 
            (including rollovers) from the arrangement.
            ``(C) Employee notification.--The employer shall notify 
        each employee immediately before the period for which an 
        election described in subsection (p)(5)(C) may be made of the 
        employee's opportunity to make such election. Such notice shall 
        include a copy of the description described in subparagraph 
        (B).''.
            (B) Section 408(l) is amended by striking ``An employer'' 
        and inserting the following:
        ``(1) In general.--An employer''.
        (6) Reporting requirements.--Section 408(i) is amended by 
    adding at the end the following new flush sentence:
``In the case of a simple retirement account under subsection (p), only 
one report under this subsection shall be required to be submitted each 
calendar year to the Secretary (at the time provided under paragraph 
(2)) but, in addition to the report under this subsection, there shall 
be furnished, within 30 days after each calendar year, to the 
individual on whose behalf the account is maintained a statement with 
respect to the account balance as of the close of, and the account 
activity during, such calendar year.''.
        (7) Exemption from top-heavy plan rules.--Section 416(g)(4) 
    (relating to special rules for top-heavy plans) is amended by 
    adding at the end the following new subparagraph:
            ``(G) Simple retirement accounts.--The term `top-heavy 
        plan' shall not include a simple retirement account under 
        section 408(p).''.
        (8) Employment taxes.--
            (A) Paragraph (5) of section 3121(a) is amended by striking 
        ``or'' at the end of subparagraph (F), by inserting ``or'' at 
        the end of subparagraph (G), and by adding at the end the 
        following new subparagraph:
            ``(H) under an arrangement to which section 408(p) applies, 
        other than any elective contributions under paragraph (2)(A)(i) 
        thereof,''.
            (B) Section 209(a)(4) of the Social Security Act is amended 
        by inserting ``; or (J) under an arrangement to which section 
        408(p) of such Code applies, other than any elective 
        contributions under paragraph (2)(A)(i) thereof'' before the 
        semicolon at the end thereof.
            (C) Paragraph (5) of section 3306(b) is amended by striking 
        ``or'' at the end of subparagraph (F), by inserting ``or'' at 
        the end of subparagraph (G), and by adding at the end the 
        following new subparagraph:
            ``(H) under an arrangement to which section 408(p) applies, 
        other than any elective contributions under paragraph (2)(A)(i) 
        thereof,''.
            (D) Paragraph (12) of section 3401(a) is amended by adding 
        the following new subparagraph:
            ``(D) under an arrangement to which section 408(p) applies; 
        or''.
        (9) Conforming amendments.--
            (A) Section 280G(b)(6) is amended by striking ``or'' at the 
        end of subparagraph (B), by striking the period at the end of 
        subparagraph (C) and inserting ``, or'' and by adding after 
        subparagraph (C) the following new subparagraph:
            ``(D) a simple retirement account described in section 
        408(p).''.
            (B) Section 402(g)(3) is amended by striking ``and'' at the 
        end of subparagraph (B), by striking the period at the end of 
        subparagraph (C) and inserting ``, and'', and by adding after 
        subparagraph (C) the following new subparagraph:
            ``(D) any elective employer contribution under section 
        408(p)(2)(A)(i).''.
            (C) Subsections (b), (c), (m)(4)(B), and (n)(3)(B) of 
        section 414 are each amended by inserting ``408(p),'' after 
        ``408(k),''.
            (D) Section 4972(d)(1)(A) is amended by striking ``and'' at 
        the end of clause (ii), by striking the period at the end of 
        clause (iii) and inserting ``, and'', and by adding after 
        clause (iii) the following new clause:
                ``(iv) any simple retirement account (within the 
            meaning of section 408(p)).''.
    (c) Repeal of Salary Reduction Simplified Employee Pensions.--
Section 408(k)(6) is amended by adding at the end the following new 
subparagraph:
            ``(H) Termination.--This paragraph shall not apply to years 
        beginning after December 31, 1996. The preceding sentence shall 
        not apply to a simplified employee pension if the terms of such 
        pension, as in effect on December 31, 1996, provide that an 
        employee may make the election described in subparagraph 
        (A).''.
    (d) Modifications of ERISA.--
        (1) Reporting requirements.--Section 101 of the Employee 
    Retirement Income Security Act of 1974 (29 U.S.C. 1021) is amended 
    by redesignating subsection (g) as subsection (h) and by inserting 
    after subsection (f) the following new subsection:
    ``(g) Simple Retirement Accounts.--
        ``(1) No employer reports.--Except as provided in this 
    subsection, no report shall be required under this section by an 
    employer maintaining a qualified salary reduction arrangement under 
    section 408(p) of the Internal Revenue Code of 1986.
        ``(2) Summary description.--The trustee of any simple 
    retirement account established pursuant to a qualified salary 
    reduction arrangement under section 408(p) of such Code shall 
    provide to the employer maintaining the arrangement each year a 
    description containing the following information:
            ``(A) The name and address of the employer and the trustee.
            ``(B) The requirements for eligibility for participation.
            ``(C) The benefits provided with respect to the 
        arrangement.
            ``(D) The time and method of making elections with respect 
        to the arrangement.
            ``(E) The procedures for, and effects of, withdrawals 
        (including rollovers) from the arrangement.
        ``(3) Employee notification.--The employer shall notify each 
    employee immediately before the period for which an election 
    described in section 408(p)(5)(C) of such Code may be made of the 
    employee's opportunity to make such election. Such notice shall 
    include a copy of the description described in paragraph (2).''
        (2) Fiduciary duties.--Section 404(c) of such Act (29 U.S.C. 
    1104(c)) is amended by inserting ``(1)'' after ``(c)'', by 
    redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), 
    respectively, and by adding at the end the following new paragraph:
        ``(2) In the case of a simple retirement account established 
    pursuant to a qualified salary reduction arrangement under section 
    408(p) of the Internal Revenue Code of 1986, a participant or 
    beneficiary shall, for purposes of paragraph (1), be treated as 
    exercising control over the assets in the account upon the earliest 
    of--
            ``(A) an affirmative election among investment options with 
        respect to the initial investment of any contribution,
            ``(B) a rollover to any other simple retirement account or 
        individual retirement plan, or
            ``(C) one year after the simple retirement account is 
        established.
    No reports, other than those required under section 101(g), shall 
    be required with respect to a simple retirement account established 
    pursuant to such a qualified salary reduction arrangement.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 1422. EXTENSION OF SIMPLE PLAN TO 401(k) ARRANGEMENTS.

    (a) Alternative Method of Satisfying Section 401(k) 
Nondiscrimination Tests.--Section 401(k) (relating to cash or deferred 
arrangements) is amended by adding at the end the following new 
paragraph:
        ``(11) Adoption of simple plan to meet nondiscrimination 
    tests.--
            ``(A) In general.--A cash or deferred arrangement 
        maintained by an eligible employer shall be treated as meeting 
        the requirements of paragraph (3)(A)(ii) if such arrangement 
        meets--
                ``(i) the contribution requirements of subparagraph 
            (B),
                ``(ii) the exclusive plan requirements of subparagraph 
            (C), and
                ``(iii) the vesting requirements of section 408(p)(3).
            ``(B) Contribution requirements.--
                ``(i) In general.--The requirements of this 
            subparagraph are met if, under the arrangement--

                    ``(I) an employee may elect to have the employer 
                make elective contributions for the year on behalf of 
                the employee to a trust under the plan in an amount 
                which is expressed as a percentage of compensation of 
                the employee but which in no event exceeds $6,000,
                    ``(II) the employer is required to make a matching 
                contribution to the trust for the year in an amount 
                equal to so much of the amount the employee elects 
                under subclause (I) as does not exceed 3 percent of 
                compensation for the year, and
                    ``(III) no other contributions may be made other 
                than contributions described in subclause (I) or (II).

                ``(ii) Employer may elect 2-percent nonelective 
            contribution.--An employer shall be treated as meeting the 
            requirements of clause (i)(II) for any year if, in lieu of 
            the contributions described in such clause, the employer 
            elects (pursuant to the terms of the arrangement) to make 
            nonelective contributions of 2 percent of compensation for 
            each employee who is eligible to participate in the 
            arrangement and who has at least $5,000 of compensation 
            from the employer for the year. If an employer makes an 
            election under this subparagraph for any year, the employer 
            shall notify employees of such election within a reasonable 
            period of time before the 60th day before the beginning of 
            such year.
            ``(C) Exclusive plan requirement.--The requirements of this 
        subparagraph are met for any year to which this paragraph 
        applies if no contributions were made, or benefits were 
        accrued, for services during such year under any qualified plan 
        of the employer on behalf of any employee eligible to 
        participate in the cash or deferred arrangement, other than 
        contributions described in subparagraph (B).
            ``(D) Definitions and special rule.--
                ``(i) Definitions.--For purposes of this paragraph, any 
            term used in this paragraph which is also used in section 
            408(p) shall have the meaning given such term by such 
            section.
                ``(ii) Coordination with top-heavy rules.--A plan 
            meeting the requirements of this paragraph for any year 
            shall not be treated as a top-heavy plan under section 416 
            for such year.''.
    (b) Alternative Methods of Satisfying Section 401(m) 
Nondiscrimination Tests.--Section 401(m) (relating to nondiscrimination 
test for matching contributions and employee contributions) is amended 
by redesignating paragraph (10) as paragraph (11) and by adding after 
paragraph (9) the following new paragraph:
        ``(10) Alternative method of satisfying tests.--A defined 
    contribution plan shall be treated as meeting the requirements of 
    paragraph (2) with respect to matching contributions if the plan--
            ``(A) meets the contribution requirements of subparagraph 
        (B) of subsection (k)(11),
            ``(B) meets the exclusive plan requirements of subsection 
        (k)(11)(C), and
            ``(C) meets the vesting requirements of section 
        408(p)(3).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 1996.

                     Subchapter B--Other Provisions

SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER SECTION 401(k).
    (a) In General.--Subparagraph (B) of section 401(k)(4) is amended 
to read as follows:
            ``(B) Eligibility of state and local governments and tax-
        exempt organizations.--
                ``(i) Tax-exempts eligible.--Except as provided in 
            clause (ii), any organization exempt from tax under this 
            subtitle may include a qualified cash or deferred 
            arrangement as part of a plan maintained by it.
                ``(ii) Governments ineligible.--A cash or deferred 
            arrangement shall not be treated as a qualified cash or 
            deferred arrangement if it is part of a plan maintained by 
            a State or local government or political subdivision 
            thereof, or any agency or instrumentality thereof. This 
            clause shall not apply to a rural cooperative plan or to a 
            plan of an employer described in clause (iii).
                ``(iii) Treatment of indian tribal governments.--An 
            employer which is an Indian tribal government (as defined 
            in section 7701(a)(40)), a subdivision of an Indian tribal 
            government (determined in accordance with section 7871(d)), 
            an agency or instrumentality of an Indian tribal government 
            or subdivision thereof, or a corporation chartered under 
            Federal, State, or tribal law which is owned in whole or in 
            part by any of the foregoing may include a qualified cash 
            or deferred arrangement as part of a plan maintained by the 
            employer.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to plan years beginning after December 31, 1996, but shall not apply to 
any cash or deferred arrangement to which clause (i) of section 
1116(f)(2)(B) of the Tax Reform Act of 1986 applies.

SEC. 1427. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUCTION.

    (a) Spousal IRA Computed on Basis of Compensation of Both 
Spouses.--Subsection (c) of section 219 (relating to special rules for 
certain married individuals) is amended to read as follows:
    ``(c) Special Rules for Certain Married Individuals.--
        ``(1) In general.--In the case of an individual to whom this 
    paragraph applies for the taxable year, the limitation of paragraph 
    (1) of subsection (b) shall be equal to the lesser of--
            ``(A) the dollar amount in effect under subsection 
        (b)(1)(A) for the taxable year, or
            ``(B) the sum of--
                ``(i) the compensation includible in such individual's 
            gross income for the taxable year, plus
                ``(ii) the compensation includible in the gross income 
            of such individual's spouse for the taxable year reduced by 
            the amount allowed as a deduction under subsection (a) to 
            such spouse for such taxable year.
        ``(2) Individuals to whom paragraph (1) applies.--Paragraph (1) 
    shall apply to any individual if--
            ``(A) such individual files a joint return for the taxable 
        year, and
            ``(B) the amount of compensation (if any) includible in 
        such individual's gross income for the taxable year is less 
        than the compensation includible in the gross income of such 
        individual's spouse for the taxable year.''.
    (b) Conforming Amendments.--
        (1) Paragraph (2) of section 219(f) (relating to other 
    definitions and special rules) is amended by striking ``subsections 
    (b) and (c)'' and inserting ``subsection (b)''.
        (2) Section 219(g)(1) is amended by striking ``(c)(2)'' and 
    inserting ``(c)(1)(A)''.
        (3) Section 408(d)(5) is amended by striking ``$2,250'' and 
    inserting ``the dollar amount in effect under section 
    219(b)(1)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

                CHAPTER 3--NONDISCRIMINATION PROVISIONS

SEC. 1431. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES; REPEAL OF FAMILY 
AGGREGATION.
    (a) In General.--Paragraph (1) of section 414(q) (defining highly 
compensated employee) is amended to read as follows:
        ``(1) In general.--The term `highly compensated employee' means 
    any employee who--
            ``(A) was a 5-percent owner at any time during the year or 
        the preceding year, or
            ``(B) for the preceding year--
                ``(i) had compensation from the employer in excess of 
            $80,000, and
                ``(ii) if the employer elects the application of this 
            clause for such preceding year, was in the top-paid group 
            of employees for such preceding year.
    The Secretary shall adjust the $80,000 amount under subparagraph 
    (B) at the same time and in the same manner as under section 
    415(d), except that the base period shall be the calendar quarter 
    ending September 30, 1996.''.
    (b) Repeal of Family Aggregation Rules.--
        (1) In general.--Paragraph (6) of section 414(q) is hereby 
    repealed.
        (2) Compensation limit.--Paragraph (17)(A) of section 401(a) is 
    amended by striking the last sentence.
        (3) Deduction.--Subsection (l) of section 404 is amended by 
    striking the last sentence.
    (c) Conforming Amendments.--
        (1)(A) Subsection (q) of section 414 is amended by striking 
    paragraphs (2), (5), and (12) and by redesignating paragraphs (3), 
    (4), (7), (8), (9), (10), and (11) as paragraphs (2) through (8), 
    respectively.
        (B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii), 408(k)(2)(C), and 
    416(i)(1)(D) are each amended by striking ``section 414(q)(7)'' and 
    inserting ``section 414(q)(4)''.
        (C) Section 416(i)(1)(A) is amended by striking ``section 
    414(q)(8)'' and inserting ``section 414(q)(5)''.
        (D) Subparagraph (A) of section 414(r)(2) is amended by 
    striking ``subsection (q)(8)'' and inserting ``subsection (q)(5)''.
        (E) Section 414(q)(5), as redesignated by subparagraph (A), is 
    amended by striking ``under paragraph (4), or the number of 
    officers taken into account under paragraph (5)''.
        (2) Section 1114(c)(4) of the Tax Reform Act of 1986 is amended 
    by adding at the end the following new sentence: ``Any reference in 
    this paragraph to section 414(q) shall be treated as a reference to 
    such section as in effect on the day before the date of the 
    enactment of the Small Business Job Protection Act of 1996.''.
    (d) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to years beginning after December 31, 1996, except that in 
    determining whether an employee is a highly compensated employee 
    for years beginning in 1997, such amendments shall be treated as 
    having been in effect for years beginning in 1996.
        (2) Family aggregation.--The amendments made by subsection (b) 
    shall apply to years beginning after December 31, 1996.
SEC. 1432. MODIFICATION OF ADDITIONAL PARTICIPATION REQUIREMENTS.
    (a) General Rule.--Section 401(a)(26)(A) (relating to additional 
participation requirements) is amended to read as follows:
            ``(A) In general.--In the case of a trust which is a part 
        of a defined benefit plan, such trust shall not constitute a 
        qualified trust under this subsection unless on each day of the 
        plan year such trust benefits at least the lesser of--
                ``(i) 50 employees of the employer, or
                ``(ii) the greater of--

                    ``(I) 40 percent of all employees of the employer, 
                or
                    ``(II) 2 employees (or if there is only 1 employee, 
                such employee).''.

    (b) Separate Line of Business Test.--Section 401(a)(26)(G) 
(relating to separate line of business) is amended by striking 
``paragraph (7)'' and inserting ``paragraph (2)(A) or (7)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1996.
SEC. 1433. NONDISCRIMINATION RULES FOR QUALIFIED CASH OR DEFERRED 
ARRANGEMENTS AND MATCHING CONTRIBUTIONS.
    (a) Alternative Methods of Satisfying Section 401(k) 
Nondiscrimination Tests.--Section 401(k) (relating to cash or deferred 
arrangements), as amended by section 1422, is amended by adding at the 
end the following new paragraph:
        ``(12) Alternative methods of meeting nondiscrimination 
    requirements.--
            ``(A) In general.--A cash or deferred arrangement shall be 
        treated as meeting the requirements of paragraph (3)(A)(ii) if 
        such arrangement--
                ``(i) meets the contribution requirements of 
            subparagraph (B) or (C), and
                ``(ii) meets the notice requirements of subparagraph 
            (D).
            ``(B) Matching contributions.--
                ``(i) In general.--The requirements of this 
            subparagraph are met if, under the arrangement, the 
            employer makes matching contributions on behalf of each 
            employee who is not a highly compensated employee in an 
            amount equal to--

                    ``(I) 100 percent of the elective contributions of 
                the employee to the extent such elective contributions 
                do not exceed 3 percent of the employee's compensation, 
                and
                    ``(II) 50 percent of the elective contributions of 
                the employee to the extent that such elective 
                contributions exceed 3 percent but do not exceed 5 
                percent of the employee's compensation.

                ``(ii) Rate for highly compensated employees.--The 
            requirements of this subparagraph are not met if, under the 
            arrangement, the rate of matching contribution with respect 
            to any elective contribution of a highly compensated 
            employee at any rate of elective contribution is greater 
            than that with respect to an employee who is not a highly 
            compensated employee.
                ``(iii) Alternative plan designs.--If the rate of any 
            matching contribution with respect to any rate of elective 
            contribution is not equal to the percentage required under 
            clause (i), an arrangement shall not be treated as failing 
            to meet the requirements of clause (i) if--

                    ``(I) the rate of an employer's matching 
                contribution does not increase as an employee's rate of 
                elective contributions increase, and
                    ``(II) the aggregate amount of matching 
                contributions at such rate of elective contribution is 
                at least equal to the aggregate amount of matching 
                contributions which would be made if matching 
                contributions were made on the basis of the percentages 
                described in clause (i).

            ``(C) Nonelective contributions.--The requirements of this 
        subparagraph are met if, under the arrangement, the employer is 
        required, without regard to whether the employee makes an 
        elective contribution or employee contribution, to make a 
        contribution to a defined contribution plan on behalf of each 
        employee who is not a highly compensated employee and who is 
        eligible to participate in the arrangement in an amount equal 
        to at least 3 percent of the employee's compensation.
            ``(D) Notice requirement.--An arrangement meets the 
        requirements of this paragraph if, under the arrangement, each 
        employee eligible to participate is, within a reasonable period 
        before any year, given written notice of the employee's rights 
        and obligations under the arrangement which--
                ``(i) is sufficiently accurate and comprehensive to 
            apprise the employee of such rights and obligations, and
                ``(ii) is written in a manner calculated to be 
            understood by the average employee eligible to participate.
            ``(E) Other requirements.--
                ``(i) Withdrawal and vesting restrictions.--An 
            arrangement shall not be treated as meeting the 
            requirements of subparagraph (B) or (C) of this paragraph 
            unless the requirements of subparagraphs (B) and (C) of 
            paragraph (2) are met with respect to all employer 
            contributions (including matching contributions) taken into 
            account in determining whether the requirements of 
            subparagraphs (B) and (C) of this paragraph are met.
                ``(ii) Social security and similar contributions not 
            taken into account.--An arrangement shall not be treated as 
            meeting the requirements of subparagraph (B) or (C) unless 
            such requirements are met without regard to subsection (l), 
            and, for purposes of subsection (l), employer contributions 
            under subparagraph (B) or (C) shall not be taken into 
            account.
            ``(F) Other plans.--An arrangement shall be treated as 
        meeting the requirements under subparagraph (A)(i) if any other 
        plan maintained by the employer meets such requirements with 
        respect to employees eligible under the arrangement.''.
    (b) Alternative Methods of Satisfying Section 401(m) 
Nondiscrimination Tests.--Section 401(m) (relating to nondiscrimination 
test for matching contributions and employee contributions), as amended 
by section 1422(b), is amended by redesignating paragraph (11) as 
paragraph (12) and by adding after paragraph (10) the following new 
paragraph:
        ``(11) Alternative method of satisfying tests.--
            ``(A) In general.--A defined contribution plan shall be 
        treated as meeting the requirements of paragraph (2) with 
        respect to matching contributions if the plan--
                ``(i) meets the contribution requirements of 
            subparagraph (B) or (C) of subsection (k)(12),
                ``(ii) meets the notice requirements of subsection 
            (k)(12)(D), and
                ``(iii) meets the requirements of subparagraph (B).
            ``(B) Limitation on matching contributions.--The 
        requirements of this subparagraph are met if--
                ``(i) matching contributions on behalf of any employee 
            may not be made with respect to an employee's contributions 
            or elective deferrals in excess of 6 percent of the 
            employee's compensation,
                ``(ii) the rate of an employer's matching contribution 
            does not increase as the rate of an employee's 
            contributions or elective deferrals increase, and
                ``(iii) the matching contribution with respect to any 
            highly compensated employee at any rate of an employee 
            contribution or rate of elective deferral is not greater 
            than that with respect to an employee who is not a highly 
            compensated employee.''.
    (c) Year for Computing Nonhighly Compensated Employee Percentage.--
        (1) Cash or deferred arrangements.--Section 401(k)(3)(A) is 
    amended--
            (A) by striking ``such year'' in clause (ii) and inserting 
        ``the plan year'',
            (B) by striking ``for such plan year'' in clause (ii) and 
        inserting ``for the preceding plan year'', and
            (C) by adding at the end the following new sentence: ``An 
        arrangement may apply clause (ii) by using the plan year rather 
        than the preceding plan year if the employer so elects, except 
        that if such an election is made, it may not be changed except 
        as provided by the Secretary.''.
        (2) Matching and employee contributions.--Section 401(m)(2)(A) 
    is amended--
            (A) by inserting ``for such plan year'' after ``highly 
        compensated employees'',
            (B) by inserting ``for the preceding plan year'' after 
        ``eligible employees'' each place it appears in clause (i) and 
        clause (ii), and
            (C) by adding at the end the following flush sentence:
        ``This subparagraph may be applied by using the plan year 
        rather than the preceding plan year if the employer so elects, 
        except that if such an election is made, it may not be changed 
        except as provided by the Secretary.''.
    (d) Special Rule for Determining Average Deferral Percentage for 
First Plan Year, Etc.--
        (1) Paragraph (3) of section 401(k) is amended by adding at the 
    end the following new subparagraph:
            ``(E) For purposes of this paragraph, in the case of the 
        first plan year of any plan (other than a successor plan), the 
        amount taken into account as the actual deferral percentage of 
        nonhighly compensated employees for the preceding plan year 
        shall be--
                ``(i) 3 percent, or
                ``(ii) if the employer makes an election under this 
            subclause, the actual deferral percentage of nonhighly 
            compensated employees determined for such first plan 
            year.''.
        (2) Paragraph (3) of section 401(m) is amended by adding at the 
    end the following: ``Rules similar to the rules of subsection 
    (k)(3)(E) shall apply for purposes of this subsection.''.
    (e) Distribution of Excess Contributions and Excess Aggregate 
Contributions.--
        (1) Subparagraph (C) of section 401(k)(8) (relating to 
    arrangement not disqualified if excess contributions distributed) 
    is amended by striking ``on the basis of the respective portions of 
    the excess contributions attributable to each of such employees'' 
    and inserting ``on the basis of the amount of contributions by, or 
    on behalf of, each of such employees''.
        (2) Subparagraph (C) of section 401(m)(6) (relating to method 
    of distributing excess aggregate contributions) is amended by 
    striking ``on the basisof the respective portions of such amounts 
attributable to each of such employees'' and inserting ``on the basis 
of the amount of contributions on behalf of, or by, each such 
employee''.
    (f) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to years beginning after December 31, 1998.
        (2) Exceptions.--The amendments made by subsections (c), (d), 
    and (e) shall apply to years beginning after December 31, 1996.
SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION 415 PURPOSES.
    (a) General Rule.--Section 415(c)(3) (defining participant's 
compensation) is amended by adding at the end the following new 
subparagraph:
            ``(D) Certain deferrals included.--The term `participant's 
        compensation' shall include--
                ``(i) any elective deferral (as defined in section 
            402(g)(3)), and
                ``(ii) any amount which is contributed or deferred by 
            the employer at the election of the employee and which is 
            not includible in the gross income of the employee by 
            reason of section 125 or 457.''.
    (b) Conforming Amendments.--
        (1) Section 414(q)(4), as redesignated by section 1431, is 
    amended to read as follows:
        ``(4) Compensation.--For purposes of this subsection, the term 
    `compensation' has the meaning given such term by section 
    415(c)(3).''.
        (2) Section 414(s)(2) is amended by inserting ``not'' after 
    ``elect'' in the text and heading thereof.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1997.

                  CHAPTER 4--MISCELLANEOUS PROVISIONS

SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.

    (a) Aggregation Rules.--Section 401(d) (relating to additional 
requirements for qualification of trusts and plans benefiting owner-
employees) is amended to read as follows:
    ``(d) Contribution Limit on Owner-Employees.--A trust forming part 
of a pension or profit-sharing plan which provides contributions or 
benefits for employees some or all of whom are owner-employees shall 
constitute a qualified trust under this section only if, in addition to 
meeting the requirements of subsection (a), the plan provides that 
contributions on behalf of any owner-employee may be made only with 
respect to the earned income of such owner-employee which is derived 
from the trade or business with respect to which such plan is 
established.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1996.
SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR MULTIEMPLOYER PLANS.
    (a) Amendments to 1986 Code.--Paragraph (2) of section 411(a) 
(relating to minimum vesting standards) is amended--
        (1) by striking ``subparagraph (A), (B), or (C)'' and inserting 
    ``subparagraph (A) or (B)''; and
        (2) by striking subparagraph (C).
    (b) Amendments to ERISA.--Paragraph (2) of section 203(a) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)) is 
amended--
        (1) by striking ``subparagraph (A), (B), or (C)'' and inserting 
    ``subparagraph (A) or (B)''; and
        (2) by striking subparagraph (C).
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning on or after the earlier of--
        (1) the later of--
            (A) January 1, 1997, or
            (B) the date on which the last of the collective bargaining 
        agreements pursuant to which the plan is maintained terminates 
        (determined without regard to any extension thereof after the 
        date of the enactment of this Act), or
        (2) January 1, 1999.
Such amendments shall not apply to any individual who does not have 
more than 1 hour of service under the plan on or after the 1st day of 
the 1st plan year to which such amendments apply.
SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.
    (a) Distributions for Hardship or After a Certain Age.--Section 
401(k)(7) is amended by adding at the end the following new 
subparagraph:
            ``(C) Special rule for certain distributions.--A rural 
        cooperative plan which includes a qualified cash or deferred 
        arrangement shall not be treated as violating the requirements 
        of section 401(a) or of paragraph (2) merely by reason of a 
        hardship distribution or a distribution to a participant after 
        attainment of age 59\1/2\. For purposes of this section, the 
        term `hardship distribution' means a distribution described in 
        paragraph (2)(B)(i)(IV) (without regard to the limitation of 
        its application to profit-sharing or stock bonus plans).''.
    (b) Public Utility Districts.--Clause (i) of section 401(k)(7)(B) 
(defining rural cooperative) is amended to read as follows:
                ``(i) any organization which--

                    ``(I) is engaged primarily in providing electric 
                service on a mutual or cooperative basis, or
                    ``(II) is engaged primarily in providing electric 
                service to the public in its area of service and which 
                is exempt from tax under this subtitle or which is a 
                State or local government (or an agency or 
                instrumentality thereof), other than a municipality (or 
                an agency or instrumentality thereof),''.

    (c) Effective Dates.--
        (1) Distributions.--The amendments made by subsection (a) shall 
    apply to distributions after the date of the enactment of this Act.
        (2) Public utility districts.--The amendments made by 
    subsection (b) shall apply to plan years beginning after December 
    31, 1996.
SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER SECTION 415.
    (a) Compensation Limit.--Subsection (b) of section 415 is amended 
by adding immediately after paragraph (10) the following new paragraph:
        ``(11) Special limitation rule for governmental plans.--In the 
    case of a governmental plan (as defined in section 414(d)), 
    subparagraph (B) of paragraph (1) shall not apply.''.
    (b) Treatment of Certain Excess Benefit Plans.--
        (1) In general.--Section 415 is amended by adding at the end 
    the following new subsection:
    ``(m) Treatment of Qualified Governmental Excess Benefit 
Arrangements.--
        ``(1) Governmental plan not affected.--In determining whether a 
    governmental plan (as defined in section 414(d)) meets the 
    requirements of this section, benefits provided under a qualified 
    governmental excess benefit arrangement shall not be taken into 
    account. Income accruing to a governmental plan (or to a trust that 
    is maintained solely for the purpose of providing benefits under a 
    qualified governmental excess benefit arrangement) in respect of a 
    qualified governmental excess benefit arrangement shall constitute 
    income derived from the exercise of an essential governmental 
    function upon which such governmental plan (or trust) shall be 
    exempt from tax under section 115.
        ``(2) Taxation of participant.--For purposes of this chapter--
            ``(A) the taxable year or years for which amounts in 
        respect of a qualified governmental excess benefit arrangement 
        are includible in gross income by a participant, and
            ``(B) the treatment of such amounts when so includible by 
        the participant,
    shall be determined as if such qualified governmental excess 
    benefit arrangement were treated as a plan for the deferral of 
    compensation which is maintained by a corporation not exempt from 
    tax under this chapter and which does not meet the requirements for 
    qualification under section 401.
        ``(3) Qualified governmental excess benefit arrangement.--For 
    purposes of this subsection, the term `qualified governmental 
    excess benefit arrangement' means a portion of a governmental plan 
    if--
            ``(A) such portion is maintained solely for the purpose of 
        providing to participants in the plan that part of the 
        participant's annual benefit otherwise payable under the terms 
        of the plan that exceeds the limitations on benefits imposed by 
        this section,
            ``(B) under such portion no election is provided at any 
        time to the participant (directly or indirectly) to defer 
        compensation, and
            ``(C) benefits described in subparagraph (A) are not paid 
        from a trust forming a part of such governmental plan unless 
        such trust is maintained solely for the purpose of providing 
        such benefits.''.
        (2) Coordination with section 457.--Subsection (e) of section 
    457 is amended by adding at the end the following new paragraph:
        ``(14) Treatment of qualified governmental excess benefit 
    arrangements.--Subsections (b)(2) and (c)(1) shall not apply to any 
    qualified governmental excess benefit arrangement (as defined in 
    section 415(m)(3)), and benefits provided under such an arrangement 
    shall not be taken into account in determining whether any other 
    plan is an eligible deferred compensation plan.''.
        (3) Conforming amendment.--Paragraph (2) of section 457(f) is 
    amended by striking ``and'' at the end of subparagraph (C), by 
    striking the period at the end of subparagraph (D) and inserting 
    ``, and'', and by inserting immediately thereafter the following 
    new subparagraph:
            ``(E) a qualified governmental excess benefit arrangement 
        described in section 415(m).''.
    (c) Exemption for Survivor and Disability Benefits.--Paragraph (2) 
of section 415(b) is amended by adding at the end the following new 
subparagraph:
            ``(I) Exemption for survivor and disability benefits 
        provided under governmental plans.--Subparagraph (C) of this 
        paragraph and paragraph (5) shall not apply to--
                ``(i) income received from a governmental plan (as 
            defined in section 414(d)) as a pension, annuity, or 
            similar allowance as the result of the recipient becoming 
            disabled by reason of personal injuries or sickness, or
                ``(ii) amounts received from a governmental plan by the 
            beneficiaries, survivors, or the estate of an employee as 
            the result of the death of the employee.''.
    (d) Revocation of Grandfather Election.--
        (1) In general.--Subparagraph (C) of section 415(b)(10) is 
    amended by adding at the end the following new clause:
                ``(ii) Revocation of election.--An election under 
            clause (i) may be revoked not later than the last day of 
            the third plan year beginning after the date of the 
            enactment of this clause. The revocation shall apply to all 
            plan years to which the election applied and to all 
            subsequent plan years. Any amount paid by a plan in a 
            taxable year ending after the revocation shall be 
            includible in income in such taxable year under the rules 
            of this chapter in effect for such taxable year, except 
            that, for purposes of applying the limitations imposed by 
            this section, any portion of such amount which is 
            attributable to any taxable year during which the election 
            was in effect shall be treated as received in such taxable 
            year.''.
        (2) Conforming amendment.--Subparagraph (C) of section 
    415(b)(10) is amended by striking ``This'' and inserting:
                ``(i) In general.--This''.
    (e) Effective Date.--
        (1) In general.--The amendments made by subsections (a), (b), 
    and (c) shall apply to years beginning after December 31, 1994. The 
    amendments made by subsection (d) shall apply with respect to 
    revocations adopted after the date of the enactment of this Act.
        (2) Treatment for years beginning before january 1, 1995.--
    Nothing in the amendments made by this section shall be construed 
    to imply that a governmental plan (as defined in section 414(d) of 
    the Internal Revenue Code of 1986) fails to satisfy the 
    requirements of section 415 of such Code for any taxable year 
    beginning before January 1, 1995.

SEC. 1445. UNIFORM RETIREMENT AGE.

    (a) Discrimination Testing.--Paragraph (5) of section 401(a) 
(relating to special rules relating to nondiscrimination requirements) 
is amended by adding at the end the following new subparagraph:
            ``(F) Social security retirement age.--For purposes of 
        testing for discrimination under paragraph (4)--
                ``(i) the social security retirement age (as defined in 
            section 415(b)(8)) shall be treated as a uniform retirement 
            age, and
                ``(ii) subsidized early retirement benefits and joint 
            and survivor annuities shall not be treated as being 
            unavailable to employees on the same terms merely because 
            such benefits or annuities are based in whole or in part on 
            an employee's social security retirement age (as so 
            defined).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 1996.

SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.

    (a) All Disabled Participants Receiving Contributions.--Section 
415(c)(3)(C) is amended by adding at the end the following: ``If a 
defined contribution plan provides for the continuation of 
contributions on behalf of all participants described in clause (i) for 
a fixed or determinable period, this subparagraph shall be applied 
without regard to clauses (ii) and (iii).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 1996.
SEC. 1447. TREATMENT OF DEFERRED COMPENSATION PLANS OF STATE AND LOCAL 
GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.
    (a) Special Rules for Plan Distributions.--Paragraph (9) of section 
457(e) (relating to other definitions and special rules) is amended to 
read as follows:
        ``(9) Benefits not treated as made available by reason of 
    certain elections, etc.--
            ``(A) Total amount payable is $3,500 or less.--The total 
        amount payable to a participant under the plan shall not be 
        treated as made available merely because the participant may 
        elect to receive such amount (or the plan may distribute such 
        amount without the participant's consent) if--
                ``(i) such amount does not exceed $3,500, and
                ``(ii) such amount may be distributed only if--

                    ``(I) no amount has been deferred under the plan 
                with respect to such participant during the 2-year 
                period ending on the date of the distribution, and
                    ``(II) there has been no prior distribution under 
                the plan to such participant to which this subparagraph 
                applied.

        A plan shall not be treated as failing to meet the distribution 
        requirements of subsection (d) by reason of a distribution to 
        which this subparagraph applies.
            ``(B) Election to defer commencement of distributions.--The 
        total amount payable to a participant under the plan shall not 
        be treated as made available merely because the participant may 
        elect to defer commencement of distributions under the plan 
        if--
                ``(i) such election is made after amounts may be 
            available under the plan in accordance with subsection 
            (d)(1)(A) and before commencement of such distributions, 
            and
                ``(ii) the participant may make only 1 such 
            election.''.
    (b) Cost-of-Living Adjustment of Maximum Deferral Amount.--
Subsection (e) of section 457, as amended by section 1444(b)(2) 
(relating to governmental plans), is amended by adding at the end the 
following new paragraph:
        ``(15) Cost-of-living adjustment of maximum deferral amount.--
    The Secretary shall adjust the $7,500 amount specified in 
    subsections (b)(2) and (c)(1) at the same time and in the same 
    manner as under section 415(d), except that the base period shall 
    be the calendar quarter ending September 30, 1994, and any increase 
    under this paragraph which is not a multiple of $500 shall be 
    rounded to the next lowest multiple of $500.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.
SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COMPENSATION PLANS OF STATE 
AND LOCAL GOVERNMENTS.
    (a) In General.--Section 457 is amended by adding at the end the 
following new subsection:
    ``(g) Governmental Plans Must Maintain Set-Asides for Exclusive 
Benefit of Participants.--
        ``(1) In general.--A plan maintained by an eligible employer 
    described in subsection (e)(1)(A) shall not be treated as an 
    eligible deferred compensation plan unless all assets and income of 
    the plan described in subsection (b)(6) are held in trust for the 
    exclusive benefit of participants and their beneficiaries.
        ``(2) Taxability of trusts and participants.--For purposes of 
    this title--
            ``(A) a trust described in paragraph (1) shall be treated 
        as an organization exempt from taxation under section 501(a), 
        and
            ``(B) notwithstanding any other provision of this title, 
        amounts in the trust shall be includible in the gross income of 
        participants and beneficiaries only to the extent, and at the 
        time, provided in this section.
        ``(3) Custodial accounts and contracts.--For purposes of this 
    subsection, custodial accounts and contracts described in section 
    401(f) shall be treated as trusts under rules similar to the rules 
    under section 401(f).''.
    (b) Conforming Amendment.--Paragraph (6) of section 457(b) is 
amended by inserting ``except as provided in subsection (g),'' before 
``which provides that''.
    (c) Effective Dates.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to assets and income 
    described in section 457(b)(6) of the Internal Revenue Code of 1986 
    held by a plan on and after the date of the enactment of this Act.
        (2) Transition rule.--In the case of a plan in existence on the 
    date of the enactment of this Act, a trust need not be established 
    by reason of the amendments made by this section before January 1, 
    1999.
SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM BENEFITS UNDER SECTION 
415 LIMITATIONS.
    (a) In General.--Subparagraph (A) of section 767(d)(3) of the 
Uruguay Round Agreements Act is amended to read as follows:
            ``(A) Exception.--A plan that was adopted and in effect 
        before December 8, 1994, shall not be required to apply the 
        amendments made by subsection (b) with respect to benefits 
        accrued before the earlier of--
                ``(i) the later of the date a plan amendment applying 
            the amendments made by subsection (b) is adopted or made 
            effective, or
                ``(ii) the first day of the first limitation year 
            beginning after December 31, 1999.
        Determinations under section 415(b)(2)(E) of the Internal 
        Revenue Code of 1986 before such earlier date shall be made 
        with respect to such benefits on the basis of such section as 
        in effect on December 7, 1994 (except that the modification 
        made by section 1449(b) of the Small Business Job Protection 
        Act of 1996 shall be taken into account), and the provisions of 
        the plan as in effect on December 7, 1994, but only if such 
        provisions of the plan meet the requirements of such section 
        (as so in effect).''.
    (b) Modification of Certain Assumptions for Adjusting Benefits of 
Defined Benefit Plans for Early Retirees.--Subparagraph (E) of section 
415(b)(2) (relating to limitation on certain assumptions) is amended--
        (1) by striking ``Except as provided in clause (ii), for 
    purposes of adjusting any benefit or limitation under subparagraph 
    (B) or (C),'' in clause (i) and inserting ``For purposes of 
    adjusting any limitation under subparagraph (C) and, except as 
    provided in clause (ii), for purposes of adjusting any benefit 
    under subparagraph (B),'', and
        (2) by striking ``For purposes of adjusting the benefit or 
    limitation of any form of benefit subject to section 417(e)(3),'' 
    in clause (ii) and inserting ``For purposes of adjusting any 
    benefit under subparagraph (B) for any form of benefit subject to 
    section 417(e)(3),''.
    (c) Effective Date.--The amendments made by this section shall take 
effect as if included in the provisions of section 767 of the Uruguay 
Round Agreements Act.
    (d) Transitional Rule.--In the case of a plan that was adopted and 
in effect before December 8, 1994, if--
        (1) a plan amendment was adopted or made effective on or before 
    the date of the enactment of this Act applying the amendments made 
    by section 767 of the Uruguay Round Agreements Act, and
        (2) within 1 year after the date of the enactment of this Act, 
    a plan amendment is adopted which repeals the amendment referred to 
    in paragraph (1),
the amendment referred to in paragraph (1) shall not be taken into 
account in applying section 767(d)(3)(A) of the Uruguay Round 
Agreements Act, as amended by subsection (a).

SEC. 1450. MODIFICATIONS OF SECTION 403(b).

    (a) Multiple Salary Reduction Agreements Permitted.--
        (1) General rule.--For purposes of section 403(b) of the 
    Internal Revenue Code of 1986, the frequency that an employee is 
    permitted to enter into a salary reduction agreement, the salary to 
    which such an agreement may apply, and the ability to revoke such 
    an agreement shall be determined under the rules applicable to cash 
    or deferred elections under section 401(k) of such Code.
        (2) Constructive receipt.--Section 402(e)(3) is amended by 
    inserting ``or which is part of a salary reduction agreement under 
    section 403(b)'' after ``section 401(k)(2))''.
        (3) Effective date.--This subsection shall apply to taxable 
    years beginning after December 31, 1995.
    (b) Treatment of Indian Tribal Governments.--
        (1) In general.--In the case of any contract purchased in a 
    plan year beginning before January 1, 1995, section 403(b) of the 
    Internal Revenue Code of 1986 shall be applied as if any reference 
    to an employer described in section 501(c)(3) of the Internal 
    Revenue Code of 1986 which is exempt from tax under section 501 of 
    such Code included a reference to an employer which is an Indian 
    tribal government (as defined by section 7701(a)(40) of such Code), 
    a subdivision of an Indian tribal government (determined in 
    accordance with section 7871(d) of such Code), an agency or 
    instrumentality of an Indian tribal government or subdivision 
    thereof, or a corporation chartered under Federal, State, or tribal 
    law which is owned in whole or in part by any of the foregoing.
        (2) Rollovers.--Solely for purposes of applying section 
    403(b)(8) of such Code to a contract to which paragraph (1) 
    applies, a qualified cash or deferred arrangement under section 
    401(k) of such Code shall be treated as if it were a plan or 
    contract described in clause (ii) of section 403(b)(8)(A) of such 
    Code.
    (c) Elective Deferrals.--
        (1) In general.--Subparagraph (E) of section 403(b)(1) is 
    amended to read as follows:
            ``(E) in the case of a contract purchased under a salary 
        reduction agreement, the contract meets the requirements of 
        section 401(a)(30),''.
        (2) Effective date.--The amendment made by this subsection 
    shall apply to years beginning after December 31, 1995, except a 
    contract shall not be required to meet any change in any 
    requirement by reason of such amendment before the 90th day after 
    the date of the enactment of this Act.
SEC. 1451. SPECIAL RULES RELATING TO JOINT AND SURVIVOR ANNUITY 
EXPLANATIONS.
    (a) Amendment to Internal Revenue Code.--Section 417(a) is amended 
by adding at the end the following new paragraph:
        ``(7) Special rules relating to time for written ex- 
    planation.--Notwithstanding any other provision of this 
    subsection--
            ``(A) Explanation may be provided after annuity starting 
        date.--
                ``(i) In general.--A plan may provide the written 
            explanation described in paragraph (3)(A) after the annuity 
            starting date. In any case to which this subparagraph 
            applies, the applicable election period under paragraph (6) 
            shall not end before the 30th day after the date on which 
            such explanation is provided.
                ``(ii) Regulatory authority.--The Secretary may by 
            regulations limit the application of clause (i), except 
            that such regulations may not limit the period of time by 
            which the annuity starting date precedes the provision of 
            the written explanation other than by providing that the 
            annuity starting date may not be earlier than termination 
            of employment.
            ``(B) Waiver of 30-day period.--A plan may permit a 
        participant to elect (with any applicable spousal consent) to 
        waive any requirement that the written explanation be provided 
        at least 30 days before the annuity starting date (or to waive 
        the 30-day requirement under subparagraph (A)) if the 
        distribution commences more than 7 days after such explanation 
        is provided.''.
    (b) Amendment to ERISA.--Section 205(c) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1055(c)) is amended by adding at 
the end the following new paragraph:
        ``(8) Notwithstanding any other provision of this subsection--
            ``(A)(i) A plan may provide the written explanation 
        described in paragraph (3)(A) after the annuity starting date. 
        In any case to which this subparagraph applies, the applicable 
        election period under paragraph (7) shall not end before the 
        30th day after the date on which such explanation is provided.
            ``(ii) The Secretary may by regulations limit the 
        application of clause (i), except that such regulations may not 
        limit the period of time by which the annuity starting date 
        precedes the provision of the written explanation other than by 
        providing that the annuity starting date may not be earlier 
        than termination of employment.
            ``(B) A plan may permit a participant to elect (with any 
        applicable spousal consent) to waive any requirement that the 
        written explanation be provided at least 30 days before the 
        annuity starting date (or to waive the 30-day requirement under 
        subparagraph (A)) if the distribution commences more than 7 
        days after such explanation is provided.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 1996.
SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED BENEFIT PLAN AND 
DEFINED CONTRIBUTION PLAN FOR SAME EMPLOYEE; EXCESS DISTRIBUTIONS.
    (a) In General.--Section 415(e) is repealed.
    (b) Excess Distributions.--Section 4980A is amended by adding at 
the end the following new subsection:
    ``(g) Limitation on Application.--This section shall not apply to 
distributions during years beginning after December 31, 1996, and 
before January 1, 2000, and such distributions shall be treated as made 
first from amounts not described in subsection (f).''.
    (c) Conforming Amendments.--
        (1) Paragraph (1) of section 415(a) is amended--
            (A) by adding ``or'' at the end of subparagraph (A),
            (B) by striking ``, or'' at the end of subparagraph (B) and 
        inserting a period, and
            (C) by striking subparagraph (C).
        (2) Subparagraph (B) of section 415(b)(5) is amended by 
    striking ``and subsection (e)''.
        (3) Paragraph (1) of section 415(f) is amended by striking 
    ``subsections (b), (c), and (e)'' and inserting ``subsections (b) 
    and (c)''.
        (4) Subsection (g) of section 415 is amended by striking 
    ``subsections (e) and (f)'' in the last sentence and inserting 
    ``subsection (f)''.
        (5) Clause (i) of section 415(k)(2)(A) is amended to read as 
    follows:
                ``(i) any contribution made directly by an employee 
            under such an arrangement shall not be treated as an annual 
            addition for purposes of subsection (c), and''.
        (6) Clause (ii) of section 415(k)(2)(A) is amended by striking 
    ``subsections (c) and (e)'' and inserting ``subsection (c)''.
        (7) Section 416 is amended by striking subsection (h).
    (d) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to limitation years 
    beginning after December 31, 1999.
        (2) Excess distributions.--The amendment made by subsection (b) 
    shall apply to years beginning after December 31, 1996.

SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.

    (a) In General.--Section 4975(a) is amended by striking ``5 
percent'' and inserting ``10 percent''.
    (b) Effective Date.--The amendment made by this section shall apply 
to prohibited transactions occurring after the date of the enactment of 
this Act.

SEC. 1454. TREATMENT OF LEASED EMPLOYEES.

    (a) General Rule.--Subparagraph (C) of section 414(n)(2) (defining 
leased employee) is amended to read as follows:
            ``(C) such services are performed under primary direction 
        or control by the recipient.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 1996, but shall not apply 
to any relationship determined under an Internal Revenue Service ruling 
issued before the date of the enactment of this Act pursuant to section 
414(n)(2)(C) of the Internal Revenue Code of 1986 (as in effect on the 
day before such date) not to involve a leased employee.
SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO CERTAIN PENSION 
REPORTING REQUIREMENTS.
    (a) Penalties.--
        (1) Statements.--Paragraph (1) of section 6724(d) is amended by 
    striking ``and'' at the end of subparagraph (A), by striking the 
    period at the end of subparagraph (B) and inserting ``, and'', and 
    by inserting after subparagraph (B) the following new subparagraph:
            ``(C) any statement of the amount of payments to another 
        person required to be made to the Secretary under--
                ``(i) section 408(i) (relating to reports with respect 
            to individual retirement accounts or annuities), or
                ``(ii) section 6047(d) (relating to reports by 
            employers, plan administrators, etc.).''.
        (2) Reports.--Paragraph (2) of section 6724(d) is amended by 
    striking ``or'' at the end of subparagraph (U), by striking the 
    period at the end of subparagraph (V) and inserting a comma, and by 
    inserting after subparagraph (V) the following new subparagraphs:
            ``(W) section 408(i) (relating to reports with respect to 
        individual retirement plans) to any person other than the 
        Secretary with respect to the amount of payments made to such 
        person, or
            ``(X) section 6047(d) (relating to reports by plan 
        administrators) to any person other than the Secretary with 
        respect to the amount of payments made to such person.''.
    (b) Modification of Reportable Designated Distributions.--
        (1) Section 408.--Subsection (i) of section 408 (relating to 
    individual retirement account reports) is amended by inserting 
    ``aggregating $10 or more in any calendar year'' after 
    ``distributions''.
        (2) Section 6047.--Paragraph (1) of section 6047(d) (relating 
    to reports by employers, plan administrators, etc.) is amended by 
    adding at the end the following new sentence: ``No return or report 
    may be required under the preceding sentence with respect to 
    distributions to any person during any year unless such 
    distributions aggregate $10 or more.''.
    (c) Qualifying Rollover Distributions.--Section 6652(i) is 
amended--
        (1) by striking ``the $10'' and inserting ``$100'', and
        (2) by striking ``$5,000'' and inserting ``$50,000''.
    (d) Conforming Amendments.--
        (1) Paragraph (1) of section 6047(f) is amended to read as 
    follows:
          ``(1) For provisions relating to penalties for failures to 
        file returns and reports required under this section, see 
        sections 6652(e), 6721, and 6722.''.

        (2) Subsection (e) of section 6652 is amended by adding at the 
    end the following new sentence: ``This subsection shall not apply 
    to any return or statement which is an information return described 
    in section 6724(d)(1)(C)(ii) or a payee statement described in 
    section 6724(d)(2)(X).''.
        (3) Subsection (a) of section 6693 is amended by adding at the 
    end the following new sentence: ``This subsection shall not apply 
    to any report which is an information return described in section 
    6724(d)(1)(C)(i) or a payee statement described in section 
    6724(d)(2)(W).''.
    (e) Effective Date.--The amendments made by this section shall 
apply to returns, reports, and other statements the due date for which 
(determined without regard to extensions) is after December 31, 1996.
SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUBJECT TO TAX ON NET 
EARNINGS FROM SELF-EMPLOYMENT.
    (a) In General.--Section 1402(a)(8) (defining net earnings from 
self-employment) is amended by inserting ``, but shall not include in 
such net earnings from self-employment the rental value of any 
parsonage or any parsonage allowance (whether or not excludable under 
section 107) provided after the individual retires, or any other 
retirement benefit received by such individual from a church plan (as 
defined in section 414(e)) after the individual retires'' before the 
semicolon at the end.
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning before, on, or after December 31, 1994.
SEC. 1457. SAMPLE LANGUAGE FOR SPOUSAL CONSENT AND QUALIFIED DOMESTIC 
RELATIONS FORMS.
    (a) Development of Sample Language.--Not later than January 1, 
1997, the Secretary of the Treasury shall develop--
        (1) sample language for inclusion in a form for the spousal 
    consent required under section 417(a)(2) of the Internal Revenue 
    Code of 1986 and section 205(c)(2) of the Employee Retirement 
    Income Security Act of 1974 which--
            (A) is written in a manner calculated to be understood by 
        the average person, and
            (B) discloses in plain form--
                (i) whether the waiver to which the spouse consents is 
            irrevocable, and
                (ii) whether such waiver may be revoked by a qualified 
            domestic relations order, and
        (2) sample language for inclusion in a form for a qualified 
    domestic relations order described in section 414(p)(1)(A) of such 
    Code and section 206(d)(3)(B)(i) of such Act which--
            (A) meets the requirements contained in such sections, and
            (B) the provisions of which focus attention on the need to 
        consider the treatment of any lump sum payment, qualified joint 
        and survivor annuity, or qualified preretirement survivor 
        annuity.
    (b) Publicity.--The Secretary of the Treasury shall include 
publicity for the sample language developed under subsection (a) in the 
pension outreach efforts undertaken by the Secretary.
SEC. 1458. TREATMENT OF LENGTH OF SERVICE AWARDS TO VOLUNTEERS 
PERFORMING FIRE FIGHTING OR PREVENTION SERVICES, EMERGENCY MEDICAL 
SERVICES, OR AMBULANCE SERVICES.
    (a) In General.--Paragraph (11) of section 457(e) (relating to 
deferred compensation plans of State and local governments and tax-
exempt organizations) is amended to read as follows:
        ``(11) Certain plans excluded.--
            ``(A) In general.--The following plans shall be treated as 
        not providing for the deferral of compensation:
                ``(i) Any bona fide vacation leave, sick leave, 
            compensatory time, severance pay, disability pay, or death 
            benefit plan.
                ``(ii) Any plan paying solely length of service awards 
            to bona fide volunteers (or their beneficiaries) on account 
            of qualified services performed by such volunteers.
            ``(B) Special rules applicable to length of service award 
        plans.--
                ``(i) Bona fide volunteer.--An individual shall be 
            treated as a bona fide volunteer for purposes of 
            subparagraph (A)(ii) if the only compensation received by 
            such individual for performing qualified services is in the 
            form of--

                    ``(I) reimbursement for (or a reasonable allowance 
                for) reasonable expenses incurred in the performance of 
                such services, or
                    ``(II) reasonable benefits (including length of 
                service awards), and nominal fees for such services, 
                customarily paid by eligible employers in connection 
                with the performance of such services by volunteers.

                ``(ii) Limitation on accruals.--A plan shall not be 
            treated as described in subparagraph (A)(ii) if the 
            aggregate amount of length of service awards accruing with 
            respect to any year of service for any bona fide volunteer 
            exceeds $3,000.
            ``(C) Qualified services.--For purposes of this paragraph, 
        the term `qualified services' means fire fighting and 
        prevention services, emergency medical services, and ambulance 
        services.''.
    (b) Exemption From Social Security Taxes.--
        (1) Subsection (a)(5) of section 3121, as amended by section 
    1421, is amended by striking ``(or)'' at the end of subparagraph 
    (G), by inserting ``or'' at the end of subparagraph (H), and by 
    adding at the end the following new subparagraph:
            ``(I) under a plan described in section 457(e)(11)(A)(ii) 
        and maintained by an eligible employer (as defined in section 
        457(e)(1)).''.
        (2) Section 209(a)(4) of the Social Security Act is amended by 
    inserting ``; or (K) under a plan described in section 
    457(e)(11)(A)(ii) of the Internal Revenue Code of 1986 and 
    maintained by an eligible employer (as defined in section 457(e)(1) 
    of such Code)'' before the semicolon at the end thereof.
    (c) Effective Date.--
        (1) Subsection (a).--The amendment made by subsection (a) shall 
    apply to accruals of length of service awards after December 31, 
    1996.
        (2) Subsection (b).--The amendments made by subsection (b) 
    shall apply to remuneration paid after December 31, 1996.
SEC. 1459. ALTERNATIVE NONDISCRIMINATION RULES FOR CERTAIN PLANS THAT 
PROVIDE FOR EARLY PARTICIPATION.
    (a) Cash or Deferred Arrangements.--Paragraph (3) of section 401(k) 
(relating to application of participation and discrimination 
standards), as amended by section 1433(d)(1) of this Act, is amended by 
adding at the end the following new subparagraph:
            ``(F) Special rule for early participation.--If an employer 
        elects to apply section 410(b)(4)(B) in determining whether a 
        cash or deferred arrangement meets the requirements of 
        subparagraph (A)(i), the employer may, in determining whether 
        the arrangement meets the requirements of subparagraph (A)(ii), 
        exclude from consideration all eligible employees (other than 
        highly compensated employees) who have not met the minimum age 
        and service requirements of section 410(a)(1)(A).''.
    (b) Matching Contributions.--Paragraph (5) of section 401(m) 
(relating to employees taken into consideration) is amended by adding 
at the end the following new subparagraph:
            ``(C) Special rule for early participation.--If an employer 
        elects to apply section 410(b)(4)(B) in determining whether a 
        plan meets the requirements of section 410(b), the employer 
        may, in determining whether the plan meets the requirements of 
        paragraph (2), exclude from consideration all eligible 
        employees (other than highly compensated employees) who have 
        not met the minimum age and service requirements of section 
        410(a)(1)(A).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 1998.
SEC. 1460. CLARIFICATION OF APPLICATION OF ERISA TO INSURANCE COMPANY 
GENERAL ACCOUNTS.
    (a) In General.--Section 401 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1101) is amended by adding at the end 
the following new subsection:
    ``(c)(1)(A) Not later than June 30, 1997, the Secretary shall issue 
proposed regulations to provide guidance for the purpose of 
determining, in cases where an insurer issues 1 or more policies to or 
for the benefit of an employee benefit plan (and such policies are 
supported by assets of such insurer's general account), which assets 
held by the insurer (other than plan assets held in its separate 
accounts) constitute assets of the plan for purposes of this part and 
section 4975 of the Internal Revenue Code of 1986 and to provide 
guidance with respect to the application of this title to the general 
account assets of insurers.
    ``(B) The proposed regulations under subparagraph (A) shall be 
subject to public notice and comment until September 30, 1997.
    ``(C) The Secretary shall issue final regulations providing the 
guidance described in subparagraph (A) not later than December 31, 
1997.
    ``(D) Such regulations shall only apply with respect to policies 
which are issued by an insurer on or before December 31, 1998, to or 
for the benefit of an employee benefit plan which is supported by 
assets of such insurer's general account. With respect to policies 
issued on or before December 31, 1998, such regulations shall take 
effect at the end of the 18-month period following the date on which 
such regulations become final.
    ``(2) The Secretary shall ensure that the regulations issued under 
paragraph (1)--
        ``(A) are administratively feasible, and
        ``(B) protect the interests and rights of the plan and of its 
    participants and beneficiaries (including meeting the requirements 
    of paragraph (3)).
    ``(3) The regulations prescribed by the Secretary pursuant to 
paragraph (1) shall require, in connection with any policy issued by an 
insurer to or for the benefit of an employee benefit plan to the extent 
that the policy is not a guaranteed benefit policy (as defined in 
subsection (b)(2)(B))--
        ``(A) that a plan fiduciary totally independent of the insurer 
    authorize the purchase of such policy (unless such purchase is a 
    transaction exempt under section 408(b)(5)),
        ``(B) that the insurer describe (in such form and manner as 
    shall be prescribed in such regulations), in annual reports and in 
    policies issued to the policyholder after the date on which such 
    regulations are issued in final form pursuant to paragraph (1)(C)--
            ``(i) a description of the method by which any income and 
        expenses of the insurer's general account are allocated to the 
        policy during the term of the policy and upon the termination 
        of the policy, and
            ``(ii) for each report, the actual return to the plan under 
        the policy and such other financial information as the 
        Secretary may deem appropriate for the period covered by each 
        such annual report,
        ``(C) that the insurer disclose to the plan fiduciary the 
    extent to which alternative arrangements supported by assets of 
    separate accounts of the insurer (which generally hold plan assets) 
    are available, whether there is a right under the policy to 
    transfer funds to a separate account and the terms governing any 
    such right, and the extent to which support by assets of the 
    insurer's general account and support by assets of separate 
    accounts of the insurer might pose differing risks to the plan, and
        ``(D) that the insurer manage those assets of the insurer which 
    are assets of such insurer's general account (irrespective of 
    whether any such assets are plan assets) with the care, skill, 
    prudence, and diligence under the circumstances then prevailing 
    that a prudent man acting in a like capacity and familiar with such 
    matters would use in the conduct of an enterprise of a like 
    character and with like aims, taking into account all obligations 
    supported by such enterprise.
    ``(4) Compliance by the insurer with all requirements of the 
regulations issued by the Secretary pursuant to paragraph (1) shall be 
deemed compliance by such insurer with sections 404, 406, and 407 with 
respect to those assets of the insurer's general account which support 
a policy described in paragraph (3).
    ``(5)(A) Subject to subparagraph (B), any regulations issued under 
paragraph (1) shall not take effect before the date on which such 
regulations become final.
    ``(B) No person shall be subject to liability under this part or 
section 4975 of the Internal Revenue Code of 1986 for conduct which 
occurred before the date which is 18 months following the date 
described in subparagraph (A) on the basis of a claim that the assets 
of an insurer (other than plan assets held in a separate account) 
constitute assets of the plan, except--
        ``(i) as otherwise provided by the Secretary in regulations 
    intended to prevent avoidance of the regulations issued under 
    paragraph (1), or
        ``(ii) as provided in an action brought by the Secretary 
    pursuant to paragraph (2) or (5) of section 502(a) for a breach of 
    fiduciary responsibilities which would also constitute a violation 
    of Federal or State criminal law.
The Secretary shall bring a cause of action described in clause (ii) if 
a participant, beneficiary, or fiduciary demonstrates to the 
satisfaction of the Secretary that a breach described in clause (ii) 
has occurred.
    ``(6) Nothing in this subsection shall preclude the application of 
any Federal criminal law.
    ``(7) For purposes of this subsection, the term `policy' includes a 
contract.''.
    (b) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendment made by this section shall take effect on January 1, 
    1975.
        (2) Civil actions.--The amendment made by this section shall 
    not apply to any civil action commenced before November 7, 1995.
SEC. 1461. SPECIAL RULES FOR CHAPLAINS AND SELF-EMPLOYED MINISTERS.
    (a) In General.--Section 414(e) (defining church plan) is amended 
by adding at the end the following new paragraph:
        ``(5) Special rules for chaplains and self-employed 
    ministers.--
            ``(A) Certain ministers may participate.--For purposes of 
        this part--
                ``(i) In general.--An employee of a church or a 
            convention or association of churches shall include a duly 
            ordained, commissioned, or licensed minister of a church 
            who, in connection with the exercise of his or her 
            ministry--

                    ``(I) is a self-employed individual (within the 
                meaning of section 401(c)(1)(B)), or
                    ``(II) is employed by an organization other than an 
                organization described in section 501(c)(3).

                ``(ii) Treatment as employer and employee.--

                    ``(I) Self-employed.--A minister described in 
                clause (i)(I) shall be treated as his or her own 
                employer which is an organization described in section 
                501(c)(3) and which is exempt from tax under section 
                501(a).
                    ``(II) Others.--A minister described in clause 
                (i)(II) shall be treated as employed by an organization 
                described in section 501(c)(3) and exempt from tax 
                under section 501(a).

            ``(B) Special rules for applying section 403(b) to self-
        employed ministers.--In the case of a minister described in 
        subparagraph (A)(i)(I)--
                ``(i) the minister's includible compensation under 
            section 403(b)(3) shall be determined by reference to the 
            minister's earned income (within the meaning of section 
            401(c)(2)) from such ministry rather than the amount of 
            compensation which is received from an employer, and
                ``(ii) the years (and portions of years) in which such 
            minister was a self-employed individual (within the meaning 
            of section 401(c)(1)(B)) with respect to such ministry 
            shall be included for purposes of section 403(b)(4).
            ``(C) Effect on non-denominational plans.--If a duly 
        ordained, commissioned, or licensed minister of a church in the 
        exercise of his or her ministry participates in a church plan 
        (within the meaning of this section) and in the exercise of 
        such ministry is employed by an employer not eligible to 
        participate in such church plan, then such employer may exclude 
        such minister from being treated as an employee of such 
        employer for purposes of applying sections 401(a)(3), 
        401(a)(4), and 401(a)(5), as in effect on September 1, 1974, 
        and sections 401(a)(4), 401(a)(5), 401(a)(26), 401(k)(3), 
        401(m), 403(b)(1)(D) (including section 403(b)(12)), and 410 to 
        any stock bonus, pension, profit-sharing, or annuity plan 
        (including an annuity described in section 403(b) or a 
        retirement income account described in section 403(b)(9)). The 
        Secretary shall prescribe such regulations as may be necessary 
        or appropriate to carry out the purpose of, and prevent the 
        abuse of, this subparagraph.
            ``(D) Compensation taken into account only once.--If any 
        compensation is taken into account in determining the amount of 
        any contributions made to, or benefits to be provided under, 
        any church plan, such compensation shall not also be taken into 
        account in determining the amount of any contributions made to, 
        or benefits to be provided under, any other stock bonus, 
        pension, profit-sharing, or annuity plan which is not a church 
        plan.''.
    (b) Contributions by Certain Ministers to Retirement Income 
Accounts.--Section 404(a) (relating to deduction for contributions of 
an employer to an employees' trust or annuity plan and compensation 
under a deferred-payment plan) is amended by adding at the end the 
following new paragraph:
        ``(10) Contributions by certain ministers to retirement income 
    accounts.--In the case of contributions made by a minister 
    described in section 414(e)(5) to a retirement income account 
    described in section 403(b)(9) and not by a person other than such 
    minister, such contributions--
            ``(A) shall be treated as made to a trust which is exempt 
        from tax under section 501(a) and which is part of a plan which 
        is described in section 401(a), and
            ``(B) shall be deductible under this subsection to the 
        extent such contributions do not exceed the limit on elective 
        deferrals under section 402(g), the exclusion allowance under 
        section 403(b)(2), or the limit on annual additions under 
        section 415.
    For purposes of this paragraph, all plans in which the minister is 
    a participant shall be treated as one plan.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1996.
SEC. 1462. DEFINITION OF HIGHLY COMPENSATED EMPLOYEE FOR PRE-ERISA 
RULES FOR CHURCH PLANS.
    (a) In General.--Section 414(q) (defining highly compensated 
employee), as amended by section 1431(c)(1)(A) of this Act, is amended 
by adding at the end the following new paragraph:
        ``(7) Certain employees not considered highly compensated and 
    excluded employees under pre-erisa rules for church plans.--In the 
    case of a church plan (as defined in subsection (e)), no employee 
    shall be considered an officer, a person whose principal duties 
    consist of supervising the work of other employees, or a highly 
    compensated employee for any year unless such employee is a highly 
    compensated employee under paragraph (1) for such year.''.
    (b) Safeharbor Authority.--The Secretary of the Treasury may design 
nondiscrimination and coverage safe harbors for church plans.
    (c) Effective Date.--The amendments made by subsection (a) shall 
apply to years beginning after December 31, 1996.
SEC. 1463. RULE RELATING TO INVESTMENT IN CONTRACT NOT TO APPLY TO 
FOREIGN MISSIONARIES.
    (a) In General.--The last sentence of section 72(f) is amended by 
inserting ``, or to the extent such credits are attributable to 
services performed as a foreign missionary (within the meaning of 
section 403(b)(2)(D)(iii))'' before the last period.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1996.
SEC. 1464. WAIVER OF EXCISE TAX ON FAILURE TO PAY LIQUIDITY SHORTFALL.
    (a) In General.--Section 4971(f) (relating to failure to pay 
liquidity shortfall) is amended by adding at the end the following new 
paragraph:
        ``(4) Waiver by secretary.--If the taxpayer establishes to the 
    satisfaction of the Secretary that--
            ``(A) the liquidity shortfall described in paragraph (1) 
        was due to reasonable cause and not willful neglect, and
            ``(B) reasonable steps have been taken to remedy such 
        liquidity shortfall,
    the Secretary may waive all or part of the tax imposed by this 
    subsection.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the amendment made by clause (ii) of section 
751(a)(9)(B) of the Retirement Protection Act of 1994 (108 Stat. 5020).

SEC. 1465. DATE FOR ADOPTION OF PLAN AMENDMENTS.

    If any amendment made by this subtitle requires an amendment to any 
plan or annuity contract, such amendment shall not be required to be 
made before the first day of the first plan year beginning on or after 
January 1, 1998, if--
        (1) during the period after such amendment takes effect and 
    before such first plan year, the plan or contract is operated in 
    accordance with the requirements of such amendment, and
        (2) such amendment applies retroactively to such period.
In the case of a governmental plan (as defined in section 414(d) of the 
Internal Revenue Code of 1986), this section shall be applied by 
substituting ``2000'' for ``1998''.

                   Subtitle E--Foreign Simplification

SEC. 1501. REPEAL OF INCLUSION OF CERTAIN EARNINGS INVESTED IN EXCESS 
PASSIVE ASSETS.
    (a) In General.--
        (1) Repeal of inclusion.--Paragraph (1) of section 951(a) 
    (relating to amounts included in gross income of United States 
    shareholders) is amended by striking subparagraph (C), by striking 
    ``; and'' at the end of subparagraph (B) and inserting a period, 
    and by adding ``and'' at the end of subparagraph (A).
        (2) Repeal of inclusion amount.--Section 956A (relating to 
    earnings invested in excess passive assets) is repealed.
    (b) Conforming Amendments.--
        (1) Subparagraph (G) of section 904(d)(3), as amended by 
    section 1703(i)(1), is amended by striking ``subparagraph (B) or 
    (C) of section 951(a)(1)'' and inserting ``section 951(a)(1)(B)''.
        (2) Paragraph (1) of section 956(b) is amended to read as 
    follows:
        ``(1) Applicable earnings.--For purposes of this section, the 
    term `applicable earnings' means, with respect to any controlled 
    foreign corporation, the sum of--
            ``(A) the amount (not including a deficit) referred to in 
        section 316(a)(1), and
            ``(B) the amount referred to in section 316(a)(2),
    but reduced by distributions made during the taxable year and by 
    earnings and profits described in section 959(c)(1).''.
        (3) Paragraph (3) of section 956(b) is amended to read as 
    follows:
        ``(3) Special rule where corporation ceases to be controlled 
    foreign corporation.--If any foreign corporation ceases to be a 
    controlled foreign corporation during any taxable year--
            ``(A) the determination of any United States shareholder's 
        pro rata share shall be made on the basis of stock owned 
        (within the meaning of section 958(a)) by such shareholder on 
        the last day during the taxable year on which the foreign 
        corporation is a controlled foreign corporation,
            ``(B) the average referred to in subsection (a)(1)(A) for 
        such taxable year shall be determined by only taking into 
        account quarters ending on or before such last day, and
            ``(C) in determining applicable earnings, the amount taken 
        into account by reason of being described in paragraph (2) of 
        section 316(a) shall be the portion of the amount so described 
        which is allocable (on a pro rata basis) to the part of such 
        year during which the corporation is a controlled foreign 
        corporation.''.
        (4) Subsection (a) of section 959 (relating to exclusion from 
    gross income of previously taxed earnings and profits) is amended 
    by adding ``or'' at the end of paragraph (1), by striking ``or'' at 
    the end of paragraph (2), and by striking paragraph (3).
        (5) Subsection (a) of section 959 is amended by striking 
    ``paragraphs (2) and (3)'' in the last sentence and inserting 
    ``paragraph (2)''.
        (6) Subsection (c) of section 959 is amended by adding at the 
    end the following flush sentence:
``References in this subsection to section 951(a)(1)(C) and subsection 
(a)(3) shall be treated as references to such provisions as in effect 
on the day before the date of the enactment of the Small Business Job 
Protection Act of 1996.''.
        (7) Paragraph (1) of section 959(f) is amended to read as 
    follows:
        ``(1) In general.--For purposes of this section, amounts that 
    would be included under subparagraph (B) of section 951(a)(1) 
    (determined without regard to this section) shall be treated as 
    attributable first to earnings described in subsection (c)(2), and 
    then to earnings described in subsection (c)(3).''.
        (8) Paragraph (2) of section 959(f) is amended by striking 
    ``subparagraphs (B) and (C) of section 951(a)(1)'' and inserting 
    ``section 951(a)(1)(B)''.
        (9) Subsection (b) of section 989 is amended by striking 
    ``subparagraph (B) or (C) of section 951(a)(1)'' and inserting 
    ``section 951(a)(1)(B)''.
        (10) Paragraph (9) of section 1297(b) is amended by striking 
    ``subparagraph (B) or (C) of section 951(a)(1)'' and inserting 
    ``section 951(a)(1)(B)''.
        (11) Subsections (d)(3)(B) and (e)(2)(B)(ii) of section 1297 
    are each amended by striking ``or section 956A''.
        (12) Subparagraph (G) of section 904(d)(3) is amended by 
    striking ``subparagraph (B) or (C) of section 951(a)(1)'' and 
    inserting ``section 951(a)(1)(B)''.
    (c) Clerical Amendment.--The table of sections for subpart F of 
part III of subchapter N of chapter 1 is amended by striking the item 
relating to section 956A.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 1996, and to taxable years of United States shareholders within 
which or with which such taxable years of foreign corporations end.

                      Subtitle F--Revenue Offsets

                       PART I--GENERAL PROVISIONS

SEC. 1601. TERMINATION OF PUERTO RICO AND POSSESSION TAX CREDIT.
    (a) In General.--Section 936 is amended by adding at the end the 
following new subsection:
    ``(j) Termination.--
        ``(1) In general.--Except as otherwise provided in this 
    subsection, this section shall not apply to any taxable year 
    beginning after December 31, 1995.
        ``(2) Transition rules for active business income credit.--
    Except as provided in paragraph (3)--
            ``(A) Economic activity credit.--In the case of an existing 
        credit claimant--
                ``(i) with respect to a possession other than Puerto 
            Rico, and
                ``(ii) to which subsection (a)(4)(B) does not apply,
        the credit determined under subsection (a)(1)(A) shall be 
        allowed for taxable years beginning after December 31, 1995, 
        and before January 1, 2002.
            ``(B) Special rule for reduced credit.--
                ``(i) In general.--In the case of an existing credit 
            claimant to which subsection (a)(4)(B) applies, the credit 
            determined under subsection (a)(1)(A) shall be allowed for 
            taxable years beginning after December 31, 1995, and before 
            January 1, 1998.
                ``(ii) Election irrevocable after 1997.--An election 
            under subsection (a)(4)(B)(iii) which is in effect for the 
            taxpayer's last taxable year beginning before 1997 may not 
            be revoked unless it is revoked for the taxpayer's first 
            taxable year beginning in 1997 and all subsequent taxable 
            years.
            ``(C) Economic activity credit for puerto rico.--
          ``For economic activity credit for Puerto Rico, see section 
        30A.

        ``(3) Additional restricted credit.--
            ``(A) In general.--In the case of an existing credit 
        claimant--
                ``(i) the credit under subsection (a)(1)(A) shall be 
            allowed for the period beginning with the first taxable 
            year after the last taxable year to which subparagraph (A) 
            or (B) of paragraph (2), whichever is appropriate, applied 
            and ending with the last taxable year beginning before 
            January 1, 2006, except that
                ``(ii) the aggregate amount of taxable income taken 
            into account under subsection (a)(1)(A) for any such 
            taxable year shall not exceed the adjusted base period 
            income of such claimant.
            ``(B) Coordination with subsection (a)(4).--The amount of 
        income described in subsection (a)(1)(A) which is taken into 
        account in applying subsection (a)(4) shall be such income as 
        reduced under this paragraph.
        ``(4) Adjusted base period income.--For purposes of paragraph 
    (3)--
            ``(A) In general.--The term `adjusted base period income' 
        means the average of the inflation-adjusted possession incomes 
        of the corporation for each base period year.
            ``(B) Inflation-adjusted possession income.--For purposes 
        of subparagraph (A), the inflation-adjusted possession income 
        of any corporation for any base period year shall be an amount 
        equal to the sum of--
                ``(i) the possession income of such corporation for 
            such base period year, plus
                ``(ii) such possession income multiplied by the 
            inflation adjustment percentage for such base period year.
            ``(C) Inflation adjustment percentage.--For purposes of 
        subparagraph (B), the inflation adjustment percentage for any 
        base period year means the percentage (if any) by which--
                ``(i) the CPI for 1995, exceeds
                ``(ii) the CPI for the calendar year in which the base 
            period year for which the determination is being made ends.
        For purposes of the preceding sentence, the CPI for any 
        calendar year is the CPI (as defined in section 1(f)(5)) for 
        such year under section 1(f)(4).
            ``(D) Increase in inflation adjustment percentage for 
        growth during base years.--The inflation adjustment percentage 
        (determined under subparagraph (C) without regard to this 
        subparagraph) for each of the 5 taxable years referred to in 
        paragraph (5)(A) shall be increased by--
                ``(i) 5 percentage points in the case of a taxable year 
            ending during the 1-year period ending on October 13, 1995;
                ``(ii) 10.25 percentage points in the case of a taxable 
            year ending during the 1-year period ending on October 13, 
            1994;
                ``(iii) 15.76 percentage points in the case of a 
            taxable year ending during the 1-year period ending on 
            October 13, 1993;
                ``(iv) 21.55 percentage points in the case of a taxable 
            year ending during the 1-year period ending on October 13, 
            1992; and
                ``(v) 27.63 percentage points in the case of a taxable 
            year ending during the 1-year period ending on October 13, 
            1991.
        ``(5) Base period year.--For purposes of this subsection--
            ``(A) In general.--The term `base period year' means each 
        of 3 taxable years which are among the 5 most recent taxable 
        years of the corporation ending before October 14, 1995, 
        determined by disregarding--
                ``(i) one taxable year for which the corporation had 
            the largest inflation-adjusted possession income, and
                ``(ii) one taxable year for which the corporation had 
            the smallest inflation-adjusted possession income.
            ``(B) Corporations not having significant possession income 
        throughout 5-year period.--
                ``(i) In general.--If a corporation does not have 
            significant possession income for each of the most recent 5 
            taxable years ending before October 14, 1995, then, in lieu 
            of applying subparagraph (A), the term `base period year' 
            means only those taxable years (of such 5 taxable years) 
            for which the corporation has significant possession 
            income; except that, if such corporation has significant 
            possession income for 4 of such 5 taxable years, the rule 
            of subparagraph (A)(ii) shall apply.
                ``(ii) Special rule.--If there is no year (of such 5 
            taxable years) for which a corporation has significant 
            possession income--

                    ``(I) the term `base period year' means the first 
                taxable year ending on or after October 14, 1995, but
                    ``(II) the amount of possession income for such 
                year which is taken into account under paragraph (4) 
                shall be the amount which would be determined if such 
                year were a short taxable year ending on September 30, 
                1995.

                ``(iii) Significant possession income.--For purposes of 
            this subparagraph, the term `significant possession income' 
            means possession income which exceeds 2 percent of the 
            possession income of the taxpayer for the taxable year (of 
            the period of 6 taxable years ending with the first taxable 
            year ending on or after October 14, 1995) having the 
            greatest possession income.
            ``(C) Election to use one base period year.--
                ``(i) In general.--At the election of the taxpayer, the 
            term `base period year' means--

                    ``(I) only the last taxable year of the corporation 
                ending in calendar year 1992, or
                    ``(II) a deemed taxable year which includes the 
                first ten months of calendar year 1995.

                ``(ii) Base period income for 1995.--In determining the 
            adjusted base period income of the corporation for the 
            deemed taxable year under clause (i)(II), the possession 
            income shall be annualized and shall be determined without 
            regard to any extraordinary item.
                ``(iii) Election.--An election under this subparagraph 
            by any possession corporation may be made only for the 
            corporation's first taxable year beginning after December 
            31, 1995, for which it is a possession corporation. The 
            rules of subclauses (II) and (III) of subsection 
            (a)(4)(B)(iii) shall apply to the election under this 
            subparagraph.
            ``(D) Acquisitions and dispositions.--Rules similar to the 
        rules of subparagraphs (A) and (B) of section 41(f)(3) shall 
        apply for purposes of this subsection.
        ``(6) Possession income.--For purposes of this subsection, the 
    term `possession income' means, with respect to any possession, the 
    income referred to in subsection (a)(1)(A) determined with respect 
    to that possession. In no event shall possession income be treated 
    as being less than zero.
        ``(7) Short years.--If the current year or a base period year 
    is a short taxable year, the application of this subsection shall 
    be made with such annualizations as the Secretary shall prescribe.
        ``(8) Special rules for certain possessions.--
            ``(A) In general.--In the case of an existing credit 
        claimant with respect to an applicable possession, this section 
        (other than the preceding paragraphs of this subsection) shall 
        apply to such claimant with respect to such applicable 
        possession for taxable years beginning after December 31, 1995, 
        and before January 1, 2006.
            ``(B) Applicable possession.--For purposes of this 
        paragraph, the term `applicable possession' means Guam, 
        American Samoa, andthe Commonwealth of the Northern Mariana 
Islands.
        ``(9) Existing credit claimant.--For purposes of this 
    subsection--
            ``(A) In general.--The term `existing credit claimant' 
        means a corporation--
                ``(i)(I) which was actively conducting a trade or 
            business in a possession on October 13, 1995, and
                ``(II) with respect to which an election under this 
            section is in effect for the corporation's taxable year 
            which includes October 13, 1995, or
                ``(ii) which acquired all of the assets of a trade or 
            business of a corporation which--

                    ``(I) satisfied the requirements of subclause (I) 
                of clause (i) with respect to such trade or busi- ness, 
                and
                    ``(II) satisfied the requirements of subclause (II) 
                of clause (i).

            ``(B) New lines of business prohibited.--If, after October 
        13, 1995, a corporation which would (but for this subparagraph) 
        be an existing credit claimant adds a substantial new line of 
        business (other than in an acquisition described in 
        subparagraph (A)(ii)), such corporation shall cease to be 
        treated as an existing credit claimant as of the close of the 
        taxable year ending before the date of such addition.
            ``(C) Binding contract exception.--If, on October 13, 1995, 
        and at all times thereafter, there is in effect with respect to 
        a corporation a binding contract for the acquisition of assets 
        to be used in, or for the sale of assets to be produced from, a 
        trade or business, the corporation shall be treated for 
        purposes of this paragraph as actively conducting such trade or 
        business on October 13, 1995. The preceding sentence shall not 
        apply if such trade or business is not actively conducted 
        before January 1, 1996.
        ``(10) Separate application to each possession.--For purposes 
    of determining--
            ``(A) whether a taxpayer is an existing credit claim- ant, 
        and
            ``(B) the amount of the credit allowed under this section,
    this subsection (and so much of this section as relates to this 
    subsection) shall be applied separately with respect to each 
    possession.''.
    (b) Economic Activity Credit for Puerto Rico.--
        (1) In general.--Subpart B of part IV of subchapter A of 
    chapter 1 is amended by adding at the end the following new 
    section:

``SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.

    ``(a) Allowance of Credit.--
        ``(1) In general.--Except as otherwise provided in this 
    section, if the conditions of both paragraph (1) and paragraph (2) 
    of subsection (b) are satisfied with respect to a qualified 
    domestic corporation, there shall be allowed as a credit against 
    the tax imposed by this chapter an amount equal to the portion of 
    the tax which is attributable to the taxable income, from sources 
    without the United States, from--
            ``(A) the active conduct of a trade or business within 
        Puerto Rico, or
            ``(B) the sale or exchange of substantially all of the 
        assets used by the taxpayer in the active conduct of such trade 
        or business.
    In the case of any taxable year beginning after December 31, 2001, 
    the aggregate amount of taxable income taken into account under the 
    preceding sentence (and in applying subsection (d)) shall not 
    exceed the adjusted base period income of such corporation, as 
    determined in the same manner as under section 936(j).
        ``(2) Qualified domestic corporation.--For purposes of 
    paragraph (1), the term `qualified domestic corporation' means a 
    domestic corporation--
            ``(A) which is an existing credit claimant with respect to 
        Puerto Rico, and
            ``(B) with respect to which section 936(a)(4)(B) does not 
        apply for the taxable year.
        ``(3) Separate application.--For purposes of deter- mining--
            ``(A) whether a taxpayer is an existing credit claimant 
        with respect to Puerto Rico, and
            ``(B) the amount of the credit allowed under this section,
    this section (and so much of section 936 as relates to this 
    section) shall be applied separately with respect to Puerto Rico.
    ``(b) Conditions Which Must Be Satisfied.--The conditions referred 
to in subsection (a) are--
        ``(1) 3-year period.--If 80 percent or more of the gross income 
    of the qualified domestic corporation for the 3-year period 
    immediately preceding the close of the taxable year (or for such 
    part of such period immediately preceding the close of such taxable 
    year as may be applicable) was derived from sources within a 
    possession (determined without regard to section 904(f)).
        ``(2) Trade or business.--If 75 percent or more of the gross 
    income of the qualified domestic corporation for such period or 
    such part thereof was derived from the active conduct of a trade or 
    business within a possession.
    ``(c) Credit Not Allowed Against Certain Taxes.--The credit 
provided by subsection (a) shall not be allowed against the tax imposed 
by--
        ``(1) section 59A (relating to environmental tax),
        ``(2) section 531 (relating to the tax on accumulated 
    earnings),
        ``(3) section 541 (relating to personal holding company tax), 
    or
        ``(4) section 1351 (relating to recoveries of foreign 
    expropriation losses).
    ``(d) Limitations on Credit for Active Business Income.--The amount 
of the credit determined under subsection (a) for any taxable year 
shall not exceed the sum of the following amounts:
        ``(1) 60 percent of the sum of--
            ``(A) the aggregate amount of the qualified domestic 
        corporation's qualified possession wages for such taxable year, 
        plus
            ``(B) the allocable employee fringe benefit expenses of the 
        qualified domestic corporation for such taxable year.
        ``(2) The sum of--
            ``(A) 15 percent of the depreciation allowances for the 
        taxable year with respect to short-life qualified tangible 
        property,
            ``(B) 40 percent of the depreciation allowances for the 
        taxable year with respect to medium-life qualified tangible 
        property, and
            ``(C) 65 percent of the depreciation allowances for the 
        taxable year with respect to long-life qualified tangible 
        property.
        ``(3) If the qualified domestic corporation does not have an 
    election to use the method described in section 936(h)(5)(C)(ii) 
    (relating to profit split) in effect for the taxable year, the 
    amount of the qualified possession income taxes for the taxable 
    year allocable to nonsheltered income.
    ``(e) Administrative Provisions.--For purposes of this title--
        ``(1) the provisions of section 936 (including any applicable 
    election thereunder) shall apply in the same manner as if the 
    credit under this section were a credit under section 936(a)(1)(A) 
    for a domestic corporation to which section 936(a)(4)(A) applies,
        ``(2) the credit under this section shall be treated in the 
    same manner as the credit under section 936, and
        ``(3) a corporation to which this section applies shall be 
    treated in the same manner as if it were a corporation electing the 
    application of section 936.
    ``(f) Definitions.--For purposes of this section, any term used in 
this section which is also used in section 936 shall have the same 
meaning given such term by section 936.
    ``(g) Application of Section.--This section shall apply to taxable 
years beginning after December 31, 1995, and before January 1, 2006.''.
        (2) Conforming amendments.--
            (A) Paragraph (1) of section 55(c) is amended by striking 
        ``and the section 936 credit allowable under section 27(b)'' 
        and inserting ``, the section 936 credit allowable under 
        section 27(b), and the Puerto Rican economic activity credit 
        under section 30A''.
            (B) Subclause (I) of section 56(g)(4)(C)(ii) is amended--
                (i) by inserting ``30A,'' before ``936'', and
                (ii) by striking ``and (i)'' and inserting ``, (i), and 
            (j)''.
            (C) Clause (iii) of section 56(g)(4)(C) is amended by 
        adding at the end the following new subclause:

                    ``(VI) Application to section 30a corporations.--
                References in this clause to section 936 shall be 
                treated as including references to section 30A.''.

            (D) Subsection (b) of section 59 is amended by striking 
        ``section 936,'' and all that follows and inserting ``section 
        30A or 936, alternative minimum taxable income shall not 
        include any income with respect to which a credit is determined 
        under section 30A or 936.''.
            (E) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following new item:
``Sec. 30A. Puerto Rican economic activity credit.''.

            (F)(i) The heading for subpart B of part IV of subchapter A 
        of chapter 1 is amended to read as follows:

                     ``Subpart B--Other Credits''.

            (ii) The table of subparts for part IV of subchapter A of 
        chapter 1 is amended by striking the item relating to subpart B 
        and inserting the following new item:
        ``Subpart B. Other credits.''.

    (c) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to taxable years 
    beginning after December 31, 1995.
        (2) Special rule for qualified possession source investment 
    income.--The amendments made by this section shall not apply to 
    qualified possession source investment income received or accrued 
    before July 1, 1996, without regard to the taxable year in which 
    received or accrued.
        (3) Special transition rule for payment of estimated tax 
    installment.--In determining the amount of any installment due 
    under section 6655 of the Internal Revenue Code of 1986 after the 
    date of the enactment of this Act and before October 1, 1996, only 
    \1/2\ of any increase in tax (for the taxable year for which such 
    installment is made) by reason of the amendments made by 
    subsections (a) and (b) shall be taken into account. Any reduction 
    in such installment by reason of the preceding sentence shall be 
    recaptured by increasing the next required installment for such 
    year by the amount of such reduction.
SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON LOANS USED TO ACQUIRE 
EMPLOYER SECURITIES.
    (a) In General.--Section 133 (relating to interest on certain loans 
used to acquire employer securities) is hereby repealed.
    (b) Conforming Amendments.--
        (1) Subparagraph (B) of section 291(e)(1) is amended by 
    striking clause (iv) and by redesignating clause (v) as clause 
    (iv).
        (2) Section 812 is amended by striking subsection (g).
        (3) Paragraph (5) of section 852(b) is amended by striking 
    subparagraph (C).
        (4) Paragraph (2) of section 4978(b) is amended by striking 
    subparagraph (A) and all that follows and inserting the following:
            ``(A) first from qualified securities to which section 1042 
        applied acquired during the 3-year period ending on the date of 
        the disposition, beginning with the securities first so 
        acquired, and
            ``(B) then from any other employer securities.
    If subsection (d) applies to a disposition, the disposition shall 
    be treated as made from employer securities in the opposite order 
    of the preceding sentence.''.
        (5)(A) Section 4978B (relating to tax on disposition of 
    employer securities to which section 133 applied) is hereby 
    repealed.
        (B) The table of sections for chapter 43 is amended by striking 
    the item relating to section 4978B.
        (6) Subsection (e) of section 6047 is amended by striking 
    paragraphs (1), (2), and (3) and inserting the following new 
    paragraphs:
        ``(1) any employer maintaining, or the plan administrator 
    (within the meaning of section 414(g)) of, an employee stock 
    ownership plan which holds stock with respect to which section 
    404(k) applies to dividends paid on such stock, or
        ``(2) both such employer or plan administrator,''.
        (7) Subsection (f) of section 7872 is amended by striking 
    paragraph (12).
        (8) The table of sections for part III of subchapter B of 
    chapter 1 is amended by striking the item relating to section 133.
    (c) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to loans made after the date of the enactment of this Act.
        (2) Refinancings.--The amendments made by this section shall 
    not apply to loans made after the date of the enactment of this Act 
    to refinance securities acquisition loans (determined without 
    regard to section 133(b)(1)(B) of the Internal Revenue Code of 
    1986, as in effect on the day before the date of the enactment of 
    this Act) made on or before such date or to refinance loans 
    described in this paragraph if--
            (A) the refinancing loans meet the requirements of section 
        133 of such Code (as so in effect),
            (B) immediately after the refinancing the principal amount 
        of the loan resulting from the refinancing does not exceed the 
        principal amount of the refinanced loan (immediately before the 
        refinancing), and
            (C) the term of such refinancing loan does not extend 
        beyond the last day of the term of the original securities 
        acquisition loan.
    For purposes of this paragraph, the term ``securities acquisition 
    loan'' includes a loan from a corporation to an employee stock 
    ownership plan described in section 133(b)(3) of such Code (as so 
    in effect).
        (3) Exception.--Any loan made pursuant to a binding written 
    contract in effect before June 10, 1996, and at all times 
    thereafter before such loan is made, shall be treated for purposes 
    of paragraphs (1) and (2) as a loan made on or before the date of 
    the enactment of this Act.
SEC. 1603. CERTAIN AMOUNTS DERIVED FROM FOREIGN CORPORATIONS TREATED AS 
UNRELATED BUSINESS TAXABLE INCOME.
    (a) General Rule.--Subsection (b) of section 512 (relating to 
modifications) is amended by adding at the end the following new 
paragraph:
        ``(17) Treatment of certain amounts derived from foreign 
    corporations.--
            ``(A) In general.--Notwithstanding paragraph (1), any 
        amount included in gross income under section 951(a)(1)(A) 
        shall be included as an item of gross income derived from an 
        unrelated trade or business to the extent the amount so 
        included is attributable to insurance income (as defined in 
        section 953) which, if derived directly by the organization, 
        would be treated as gross income from an unrelated trade or 
        business. There shall be allowed all deductions directly 
        connected with amounts included in gross income under the 
        preceding sentence.
            ``(B) Exception.--
                ``(i) In general.--Subparagraph (A) shall not apply to 
            income attributable to a policy of insurance or reinsurance 
            with respect to which the person (directly or indirectly) 
            insured is--

                    ``(I) such organization,

                    ``(II) an affiliate of such organization which is 
                exempt from tax under section 501(a), or
                    ``(III) a director or officer of, or an individual 
                who (directly or indirectly) performs services for, 
                such organization or affiliate but only if the 
                insurance covers primarily risks associated with the 
                performance of services in connection with such 
                organization or affiliate.

                ``(ii) Affiliate.--For purposes of this subparagraph--

                    ``(I) In general.--The determination as to whether 
                an entity is an affiliate of an organization shall be 
                made under rules similar to the rules of section 
                168(h)(4)(B).
                    ``(II) Special Rule.--Two or more organizations 
                (and any affiliates of such organizations) shall be 
                treated as affiliates if such organizations are 
                colleges or universities described in section 
                170(b)(1)(A)(ii) or organizations described in section 
                170(b)(1)(A)(iii) and participate in an insurance 
                arrangement that provides for any profits from such 
                arrangement to be returned to the policyholders in 
                their capacity as such.

            ``(C) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this paragraph, including regulations for the 
        application of this paragraph in the case of income paid 
        through 1 or more entities or between 2 or more chains of 
        entities.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts included in gross income in any taxable year beginning after 
December 31, 1995.

SEC. 1604. DEPRECIATION UNDER INCOME FORECAST METHOD.

    (a) General Rule.--Section 167 (relating to depreciation) is 
amended by redesignating subsection (g) as subsection (h) and by 
inserting after subsection (f) the following new subsection:
    ``(g) Depreciation Under Income Forecast Method.--
        ``(1) In general.--If the depreciation deduction allowable 
    under this section to any taxpayer with respect to any property is 
    determined under the income forecast method or any similar method--
            ``(A) the income from the property to be taken into account 
        in determining the depreciation deduction under such method 
        shall be equal to the amount of income earned in connection 
        with the property before the close of the 10th taxable year 
        following the taxable year in which the property was placed in 
        service,
            ``(B) the adjusted basis of the property shall only include 
        amounts with respect to which the requirements of section 
        461(h) are satisfied,
            ``(C) the depreciation deduction under such method for the 
        10th taxable year beginning after the taxable year in which the 
        property was placed in service shall be equal to the adjusted 
        basis of such property as of the beginning of such 10th taxable 
        year, and
            ``(D) such taxpayer shall pay (or be entitled to receive) 
        interest computed under the look-back method of paragraph (2) 
        for any recomputation year.
        ``(2) Look-back method.--The interest computed under the look-
    back method of this paragraph for any recomputation year shall be 
    determined by--
            ``(A) first determining the depreciation deductions under 
        this section with respect to such property which would have 
        been allowable for prior taxable years if the determination of 
        the amounts so allowable had been made on the basis of the sum 
        of the following (instead of the estimated income from such 
        property)--
                ``(i) the actual income earned in connection with such 
            property for periods before the close of the recomputation 
            year, and
                ``(ii) an estimate of the future income to be earned in 
            connection with such property for periods after the 
            recomputation year and before the close of the 10th taxable 
            year following the taxable year in which the property was 
            placed in service,
            ``(B) second, determining (solely for purposes of computing 
        such interest) the overpayment or underpayment of tax for each 
        such prior taxable year which would result solely from the 
        application of subparagraph (A), and
            ``(C) then using the adjusted overpayment rate (as defined 
        in section 460(b)(7)), compounded daily, on the overpayment or 
        underpayment determined under subparagraph (B).
    For purposes of the preceding sentence, any cost incurred after the 
    property is placed in service (which is not treated as a separate 
    property under paragraph (5)) shall be taken into account by 
    discounting (using the Federal mid-term rate determined under 
    section 1274(d) as of the time such cost is incurred) such cost to 
    its value as of the date the property is placed in service. The 
    taxpayer may elect with respect to any property to have the 
    preceding sentence not apply to such property.
        ``(3) Exception from look-back method.--Paragraph (1)(D) shall 
    not apply with respect to any property which had a cost basis of 
    $100,000 or less.
        ``(4) Recomputation year.--For purposes of this subsection, 
    except as provided in regulations, the term `recomputation year' 
    means, with respect to any property, the 3d and the 10th taxable 
    years beginning after the taxable year in which the property was 
    placed in service, unless the actual income earned in connection 
    with the property for the period before the close of such 3d or 
    10th taxable year is within 10 percent of the income earned in 
    connection with the property for such period which was taken into 
    account under paragraph (1)(A).
        ``(5) Special rules.--
            ``(A) Certain costs treated as separate property.--For 
        purposes of this subsection, the following costs shall be 
        treated as separate properties:
                ``(i) Any costs incurred with respect to any property 
            after the 10th taxable year beginning after the taxable 
            year in which the property was placed in service.
                ``(ii) Any costs incurred after the property is placed 
            in service and before the close of such 10th taxable year 
            if such costs are significant and give rise to a 
            significant increase in the income from the property which 
            was not included in the estimated income from the property.
            ``(B) Syndication income from television series.--In the 
        case of property whichis 1 or more episodes in a television 
series, income from syndicating such series shall not be required to be 
taken into account under this subsection before the earlier of--
                ``(i) the 4th taxable year beginning after the date the 
            first episode in such series is placed in service, or
                ``(ii) the earliest taxable year in which the taxpayer 
            has an arrangement relating to the future syndication of 
            such series.
            ``(C) Special rules for financial exploitation of 
        characters, etc.--For purposes of this subsection, in the case 
        of television and motion picture films, the income from 
theproperty shall include income from the exploitation of characters, 
designs, scripts, scores, and other incidental income associated with 
such films, but only to the extent that such income is earned in 
connection with the ultimate use of such items by, or the ultimate sale 
of merchandise to, persons who are not related persons (within the 
meaning of section 267(b)) to the taxpayer.
            ``(D) Collection of interest.--For purposes of subtitle F 
        (other than sections 6654 and 6655), any interest required to 
        be paid by the taxpayer under paragraph (1) for any 
        recomputation year shall be treated as an increase in the tax 
        imposed by this chapter for such year.
            ``(E) Determinations.--For purposes of paragraph (2), 
        determinations of the amount of income earned in connection 
        with any property shall be made in the same manner as for 
        purposes of applying the income forecast method; except that 
        any income from the disposition of such property shall be taken 
        into account.
            ``(F) Treatment of pass-thru entities.--Rules similar to 
        the rules of section 460(b)(4) shall apply for purposes of this 
        subsection.''
    (b) Effective Date.--
        (1) In general.--The amendment made by subsection (a) shall 
    apply to property placed in service after September 13, 1995.
        (2) Binding contracts.--The amendment made by subsection (a) 
    shall not apply to any property produced or acquired by the 
    taxpayer pursuant to a written contract which was binding on 
    September 13, 1995, and at all times thereafter before such 
    production or acquisition.
        (3) Underpayments of income tax.--No addition to tax shall be 
    made under section 6662 of such Code as a result of the application 
    of subsection (d) of that section (relating to substantial 
    understatements of income tax) with respect to any underpayment of 
    income tax for any taxable year ending before such date of 
    enactment, to the extent such underpayment was created or increased 
    by the amendments made by subsection (a).
SEC. 1605. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES AND FOR DAMAGES NOT 
ATTRIBUTABLE TO PHYSICAL INJURIES OR SICKNESS.
    (a) In General.--Paragraph (2) of section 104(a) (relating to 
compensation for injuries or sickness) is amended to read as follows:
        ``(2) the amount of any damages (other than punitive damages) 
    received (whether by suit or agreement and whether as lump sums or 
    as periodic payments) on account of personal physical injuries or 
    physical sickness;''.
    (b) Emotional Distress as Such Treated as Not Physical Injury or 
Physical Sickness.--Section 104(a) is amended by striking the last 
sentence and inserting the following new sentence: ``For purposes of 
paragraph (2), emotional distress shall not be treated as a physical 
injury or physical sickness. The preceding sentence shall not apply to 
an amount of damages not in excess of the amount paid for medical care 
(described in subparagraph (A) or (B) of section 213(d)(1)) 
attributable to emotional distress.''.
    (c) Application of Prior Law for States in Which Only Punitive 
Damages May Be Awarded in Wrongful Death Actions.--Section 104 is 
amended by redesignating subsection (c) as subsection (d) and by 
inserting after subsection (b) the following new subsection:
    ``(c) Application of Prior Law in Certain Cases.--The phrase 
`(other than punitive damages)' shall not apply to punitive damages 
awarded in a civil action--
        ``(1) which is a wrongful death action, and
        ``(2) with respect to which applicable State law (as in effect 
    on September 13, 1995 and without regard to any modification after 
    such date) provides, or has been construed to provide by a court of 
    competent jurisdiction pursuant to a decision issued on or before 
    September 13, 1995, that only punitive damages may be awarded in 
    such an action.
This subsection shall cease to apply to any civil action filed on or 
after the first date on which the applicable Statelaw ceases to provide 
(or is no longer construed to provide) the treatment described in 
paragraph (2).''.
    (d) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to amounts received 
    after the date of the enactment of this Act, in taxable years 
    ending after such date.
        (2) Exception.--The amendments made by this section shall not 
    apply to any amount received under a written binding agreement, 
    court decree, or mediation award in effect on (or issued on or 
    before) September 13, 1995.
SEC. 1606. REPEAL OF DIESEL FUEL TAX REBATE TO PURCHASERS OF DIESEL-
POWERED AUTOMOBILES AND LIGHT TRUCKS.
    (a) In General.--Section 6427 (relating to fuels not used for 
taxable purposes) is amended by striking subsection (g).
    (b) Conforming Amendments.--
        (1) Paragraph (3) of section 34(a) is amended to read as 
    follows:
        ``(3) under section 6427 with respect to fuels used for 
    nontaxable purposes or resold during the taxable year (determined 
    without regard to section 6427(k)).''.
        (2) Paragraphs (1) and (2)(A) of section 6427(i) are each 
    amended--
            (A) by striking ``(g),'', and
            (B) by striking ``(or a qualified diesel powered highway 
        vehicle purchased)'' each place it appears.
    (c) Effective Date.--The amendments made by this section shall 
apply to vehicles purchased after the date of the enactment of this 
Act.
SEC. 1607. EXTENSION AND PHASEDOWN OF LUXURY PASSENGER AUTOMOBILE TAX.
    (a) Extension.--Subsection (f) of section 4001 is amended by 
striking ``1999'' and inserting ``2002''.
    (b) Phasedown.--Section 4001 is amended by redesignating subsection 
(f) (as amended by subsection (a) of this section) as subsection (g) 
and by inserting after subsection (e) the following new subsection:
    ``(f) Phasedown.--For sales occurring in calendar years after 1995 
and before 2003, subsection (a) shall be applied by substituting for 
`10 percent' the percentage determined in accordance with the following 
table:
``If the calendar year is:
                                                      The percentage is:
  1996..................................................
                                                        9 percent       
  1997..................................................
                                                        8 percent       
  1998..................................................
                                                        7 percent       
  1999..................................................
                                                        6 percent       
  2000..................................................
                                                        5 percent       
  2001..................................................
                                                        4 percent       
  2002..................................................
                                                      3 percent     .''.

    (c) Effective Date.--The amendments made by this section shall 
apply with respect to sales occurring after the date which is 7 days 
after the date of the enactment of this Act.
SEC. 1608. TERMINATION OF FUTURE TAX-EXEMPT BOND FINANCING FOR LOCAL 
FURNISHERS OF ELECTRICITY AND GAS.
    (a) In General.--Section 142(f) (relating to local furnishing of 
electric energy or gas) is amended by adding at the end the following 
new paragraphs:
        ``(3) Termination of future financing.--For purposes of this 
    section, no bond may be issued as part of an issue described in 
    subsection (a)(8) with respect to a facility for the local 
    furnishing of electric energy or gas on or after the date of the 
    enactment of this paragraph unless--
            ``(A) the facility will--
                ``(i) be used by a person who is engaged in the local 
            furnishing of that energy source on January 1, 1997, and
                ``(ii) be used to provide service within the area 
            served by such person on January 1, 1997, (or within a 
            county or city any portion of which is within such area), 
            or
            ``(B) the facility will be used by a successor in interest 
        to such person for the same use and within the same service 
        area as described in subparagraph (A).
        ``(4) Election to terminate tax-exempt bond financing by 
    certain furnishers.--
            ``(A) In general.--In the case of a facility financed with 
        bonds issued before the date of the enactment of this paragraph 
        which would cease to be tax-exempt by reason of the failure to 
        meet the local furnishing requirement of subsection (a)(8) as a 
        result of a service area expansion, such bonds shall not cease 
        to be tax-exempt bonds (and section 150(b)(4) shall not apply) 
        if the person engaged in such local furnishing by such facility 
        makes an election described in subparagraph (B).
            ``(B) Election.--An election is described in this 
        subparagraph if it is an election made in such manner as the 
        Secretary prescribes, and such person (or its predecessor in 
        interest) agrees that--
                ``(i) such election is made with respect to all 
            facilities for the local furnishing of electric energy or 
            gas, or both, by such person,
                ``(ii) no bond exempt from tax under section 103 and 
            described in subsection (a)(8) may be issued on or after 
            the date of the enactment of this paragraph with respect to 
            all such facilities of such person,
                ``(iii) any expansion of the service area--

                    ``(I) is not financed with the proceeds of any 
                exempt facility bond described in subsection (a)(8), 
                and
                    ``(II) is not treated as a nonqualifying use under 
                the rules of paragraph (2), and

                ``(iv) all outstanding bonds used to finance the 
            facilities for such person are redeemed not later than 6 
            months after the later of--

                    ``(I) the earliest date on which such bonds may be 
                redeemed, or
                    ``(II) the date of the election.

            ``(C) Related persons.--For purposes of this paragraph, the 
        term `person' includes a group of related persons (within the 
        meaning of section 144(a)(3)) which includes such person.''.
    (b) No Inference With Respect To Outstanding Bonds.--The use of the 
term ``person'' in section 142(f)(3) of the Internal Revenue Code of 
1986, as added by subsection (a), shall not be construed to affect the 
tax-exempt status of interest on any bonds issued before the date of 
the enactment of this Act.
SEC. 1609. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND EXCISE TAXES.
    (a) Fuel Tax.--
        (1) Subparagraph (A) of section 4091(b)(3) is amended to read 
    as follows:
            ``(A) The rate of tax specified in paragraph (1) shall be 
        4.3 cents per gallon--
                ``(i) after December 31, 1995, and before the date 
            which is 7 calendar days after the date of the enactment of 
            the Small Business Job Protection Act of 1996, and
                ``(ii) after December 31, 1996.''.
        (2) Section 4081(d) is amended--
            (A) by adding at the end the following new paragraph:
        ``(3) Aviation gasoline.--After December 31, 1996, the rate of 
    tax specified in subsection (a)(2)(A)(i) on aviation gasoline shall 
    be 4.3 cents per gallon.'', and
            (B) by inserting ``(other than the tax on aviation 
        gasoline)'' after ``subsection (a)(2)(A)''.
        (3) Section 4041(c)(5) is amended by inserting ``, and during 
    the period beginning on the date which is 7 calendar days after the 
    date of the enactment of the Small Business Job Protection Act of 
    1996 and ending on December 31, 1996'' after ``December 31, 1995''.
    (b) Ticket Taxes.--Sections 4261(g) and 4271(d) are each amended by 
striking ``January 1, 1996'' and inserting ``January 1, 1996, and to 
transportation beginning on or after the date which is 7 calendar days 
after the date of the enactment of the Small Business Job Protection 
Act of 1996 and before January 1, 1997''.
    (c) Transfers to Airport and Airway Trust Fund.--
        (1) Subsection (b) of section 9502 is amended by striking 
    ``January 1, 1996'' each place it appears and inserting ``January 
    1, 1997''.
        (2) Paragraph (3) of section 9502(f) is amended to read as 
    follows:
        ``(3) Termination.--Notwithstanding the preceding provisions of 
    this subsection, the Airport and Airway Trust Fund financing rate 
    shall be zero with respect to--
            ``(A) taxes imposed after December 31, 1995, and before the 
        date which is 7 calendar days after the date of the enactment 
        of the Small Business Job Protection Act of 1996, and
            ``(B) taxes imposed after December 31, 1996.''.
        (3) Subsection (d) of section 9502 is amended by adding at the 
    end the following new paragraph:
        ``(5) Transfers from airport and airway trust fund on account 
    of refunds of taxes on transportation by air.--The Secretary of the 
    Treasury shall pay from time to time from the Airport and Airway 
    Trust Fund into the general fund of the Treasury amounts equivalent 
    to the amounts paid after December 31, 1995, under section 6402 
    (relating to authority to make credits or refunds) or section 6415 
    (relating to credits or refunds to persons who collected certain 
    taxes) in respect of taxes under sections 4261 and 4271.''.
    (d) Excise Tax Exemption for Certain Emergency Medical 
Transportation by Air Ambulance.--Subsection (f) of section 4261 
(relating to imposition of tax on transportation by air) is amended to 
read as follows:
    ``(f) Exemption for Air Ambulances Providing Certain Emergency 
Medical Transportation.--No tax shall be imposed under this section or 
section 4271 on any air transportation for the purpose of providing 
emergency medical services--
        ``(1) by helicopter, or
        ``(2) by a fixed-wing aircraft equipped for and exclusively 
    dedicated to acute care emergency medical services.''.
    (e) Exemption for Certain Helicopter Uses.--Subsection (e) of 
section 4261 is amended by adding at the end the following new 
sentence: ``In the case of helicopter transportation described in 
paragraph (1), this subsection shall be applied by treating each flight 
segment as a distinct flight.''.
    (f) Flight-By-Flight Determination of Availability for Hire for 
Affiliated Groups.--Section 4282 is amended by redesignating subsection 
(b) as subsection (c) and by inserting after subsection (a) the 
following new subsection:
    ``(b) Availability for Hire.--For purposes of subsection (a), the 
determination of whether an aircraft is available for hire by persons 
who are not members of an affiliated group shall be made on a flight-
by-flight basis.''
    (g) Consolidation of Taxes on Aviation Gasoline.--
        (1) In General.--Subparagraph (A) of section 4081(a)(2) 
    (relating to imposition of tax on gasoline and diesel fuel) is 
    amended by redesignating clause (ii) as clause (iii) and by 
    striking clause (i) and inserting the following:
                ``(i) in the case of gasoline other than aviation 
            gasoline, 18.3 cents per gallon,
                ``(ii) in the case of aviation gasoline, 19.3 cents per 
            gallon, and''.
        (2) Termination.--Subsection (d) of section 4081 is amended by 
    redesignating paragraph (2) as paragraph (3) and by inserting after 
    paragraph (1) the following new paragraph:
        ``(2) Aviation gasoline.--On and after January 1, 1997, the 
    rate specified in subsection (a)(2)(A)(ii) shall be 4.3 cents per 
    gallon.''
        (3) Repeal of Retail Level Tax.--
            (A) Subsection (c) of section 4041 is amended by striking 
        paragraphs (2) and (3) and by redesignating paragraphs (4) and 
        (5) as paragraphs (2) and (3), respectively.
            (B) Paragraph (3) of section 4041(c), as redesignated by 
        paragraph (1), is amended by striking ``paragraphs (1) and 
        (2)'' and inserting ``paragraph (1)''.
        (4) Conforming Amendments.--
            (A) Paragraph (1) of section 4041(k) is amended by adding 
        ``and'' at the end of subparagraph (A), by striking ``, and'' 
        at the end of subparagraph (B) and inserting a period, and by 
        striking subparagraph (C).
            (B) Paragraph (1) of section 4081(d) is amended by striking 
        ``each rate of tax specified in subsection (a)(2)(A)'' and 
        inserting ``the rates of tax specified in clauses (i) and (iii) 
        of subsection (a)(2)(A)''.
            (C) Sections 6421(f)(2)(A) and 9502(f)(1)(A) are each 
        amended by striking ``section 4041(c)(4)'' and inserting 
        ``section 4041(c)(2)''.
            (D) Paragraph (2) of section 9502(b) is amended by striking 
        ``14 cents'' and inserting ``15 cents''.
    (h) Floor Stocks Taxes on Aviation Fuel.--
        (1) Imposition of tax.--In the case of aviation fuel on which 
    tax was imposed under section 4091 of the Internal Revenue Code of 
    1986 before the tax-increase date described in paragraph (3)(A)(i) 
    and which is held on such date by any person, there is hereby 
    imposed a floor stocks tax of 17.5 cents per gallon.
        (2) Liability for tax and method of payment.--
            (A) Liability for tax.--A person holding aviation fuel on a 
        tax-increase date to which the tax imposed by paragraph (1) 
        applies shall be liable for such tax.
            (B) Method of payment.--The tax imposed by paragraph (1) 
        shall be paid in such manner as the Secretary shall prescribe.
            (C) Time for payment.--The tax imposed by paragraph (1) 
        with respect to any tax-increase date shall be paid on or 
        before the first day of the 7th month beginning after such tax-
        increase date.
        (3) Definitions.--For purposes of this subsection--
            (A) Tax increase date.--The term ``tax-increase date'' 
        means the date which is 7 calendar days after the date of the 
        enactment of this Act.
            (B) Aviation fuel.--The term ``aviation fuel'' has the 
        meaning given such term by section 4093 of such Code.
            (C) Held by a person.--Aviation fuel shall be considered as 
        ``held by a person'' if title thereto has passed to such person 
        (whether or not delivery to the person has been made).
            (D) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury or his delegate.
        (4) Exception for exempt uses.--The tax imposed by paragraph 
    (1) shall not apply to aviation fuel held by any person on any tax-
    increase date exclusively for any use for which a credit or refund 
    of the entire tax imposed by section 4091 of such Code is allowable 
    for aviation fuel purchased on or after such tax-increase date for 
    such use.
        (5) Exception for certain amounts of fuel.--
            (A) In general.--No tax shall be imposed by paragraph (1) 
        on aviation fuel held on any tax-increase date by any person if 
        the aggregate amount of aviation fuel held by such person on 
        such date does not exceed 2,000 gallons. The preceding sentence 
        shall apply only if such person submits to the Secretary (at 
        the time and in the manner required by the Secretary) such 
        information as the Secretary shall require for purposes of this 
        paragraph.
            (B) Exempt fuel.--For purposes of subparagraph (A), there 
        shall not be taken into account fuel held by any person which 
        is exempt from the tax imposed by paragraph (1) by reason of 
        paragraph (4).
            (C) Controlled groups.--For purposes of this paragraph--
                (i) Corporations.--

                    (I) In general.--All persons treated as a 
                controlled group shall be treated as 1 person.
                    (II) Controlled group.--The term ``controlled 
                group'' has the meaning given to such term by 
                subsection (a) of section 1563 of such Code; except 
                that for such purposes the phrase ``more than 50 
                percent'' shall be substituted for the phrase ``at 
                least 80 percent'' each place it appears in such 
                subsection.

                (ii) Nonincorporated persons under common control.--
            Under regulations prescribed by the Secretary, principles 
            similar to the principles of clause (i) shall apply to a 
            group of persons under common control where 1 or more of 
            such persons is not a corporation.
        (6) Other law applicable.--All provisions of law, including 
    penalties, applicable with respect to the taxes imposed by section 
    4091 of such Code shall, insofar as applicable and not inconsistent 
    with the provisions of this subsection, apply with respect to the 
    floor stock taxes imposed by paragraph (1) to the same extent as if 
    such taxes were imposed by such section 4091.
    (i) Effective Date.--The amendments made by this section shall take 
effect on the 7th calendar day after the date of the enactment of this 
Act, except that the amendments made by subsection (b) shall not apply 
to any amount paid before such date.
SEC. 1610. BASIS ADJUSTMENT TO PROPERTY HELD BY CORPORATION WHERE STOCK 
IN CORPORATION IS REPLACEMENT PROPERTY UNDER INVOLUNTARY CONVERSION 
RULES.
    (a) In General.--Subsection (b) of section 1033 is amended to read 
as follows:
    ``(b) Basis of Property Acquired Through Involuntary Conversion.--
        ``(1) Conversions described in subsection (a)(1).--If the 
    property was acquired as the result of a compulsory or involuntary 
    conversion described in subsection (a)(1), the basis shall be the 
    same as in the case of the property so converted--
            ``(A) decreased in the amount of any money received by the 
        taxpayer which was not expended in accordance with the 
        provisions of law (applicable to the year in which such 
        conversion was made) determining the taxable status of the gain 
        or loss upon such conversion, and
            ``(B) increased in the amount of gain or decreased in the 
        amount of loss to the taxpayer recognized upon such conversion 
        under the law applicable to the year in which such conversion 
        was made.
        ``(2) Conversions described in subsection (a)(2).--In the case 
    of property purchased by the taxpayer in a transaction described in 
    subsection (a)(2) which resulted in the nonrecognition of any part 
    of the gain realized as the result of a compulsory or involuntary 
    conversion, the basis shall be the cost of such property decreased 
    in the amount of the gain not so recognized; and if the property 
    purchased consists of more than 1 piece of property, the basis 
    determined under this sentence shall be allocated to the purchased 
    properties in proportion to their respective costs.
        ``(3) Property held by corporation the stock of which is 
    replacement property.--
            ``(A) In general.--If the basis of stock in a corporation 
        is decreased under paragraph (2), an amount equal to such 
        decrease shall also be applied to reduce the basis of property 
        held by the corporation at the time the taxpayer acquired 
        control (as defined in subsection (a)(2)(E)) of such 
        corporation.
            ``(B) Limitation.--Subparagraph (A) shall not apply to the 
        extent that it would (but for this subparagraph) require a 
        reduction in the aggregate adjusted bases of the property of 
        the corporation below the taxpayer's adjusted basis of the 
        stock in the corporation (determined immediately after such 
        basis is decreased under paragraph (2)).
            ``(C) Allocation of basis reduction.--The decrease required 
        under subparagraph (A) shall be allocated--
                ``(i) first to property which is similar or related in 
            service or use to the converted property,
                ``(ii) second to depreciable property (as defined in 
            section 1017(b)(3)(B)) not described in clause (i), and
                ``(iii) then to other property.
            ``(D) Special rules.--
                ``(i) Reduction not to exceed adjusted basis of 
            property.--No reduction in the basis of any property under 
            this paragraph shall exceed the adjusted basis of such 
            property (determined without regard to such reduction).
                ``(ii) Allocation of reduction among properties.--If 
            more than 1 property is described in a clause of 
            subparagraph (C), the reduction under this paragraph shall 
            be allocated among such property in proportion to the 
            adjusted bases of such property (as so determined).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to involuntary conversions occurring after the date of the enactment of 
this Act.
SEC. 1611. TREATMENT OF CERTAIN INSURANCE CONTRACTS ON RETIRED LIVES.
    (a) General Rule.--
        (1) Paragraph (2) of section 817(d) (defining variable 
    contract) is amended by striking ``or'' at the end of subparagraph 
    (A), by striking ``and'' at the end of subparagraph (B) and 
    inserting ``or'', and by inserting after subparagraph (B) the 
    following new subparagraph:
            ``(C) provides for funding of insurance on retired lives as 
        described in section 807(c)(6), and''.
        (2) Paragraph (3) of section 817(d) is amended by striking 
    ``or'' at the end of subparagraph (A), by striking the period at 
    the end of subparagraph (B) and inserting ``, or'', and by 
    inserting after subparagraph (B) the following new subparagraph:
            ``(C) in the case of funds held under a contract described 
        in paragraph (2)(C), the amounts paid in, or the amounts paid 
        out, reflect the investment return and the market value of the 
        segregated asset account.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 1612. TREATMENT OF MODIFIED GUARANTEED CONTRACTS.

    (a) General Rule.--Subpart E of part I of subchapter L of chapter 1 
(relating to definitions and special rules) is amended by inserting 
after section 817 the following new section:

``SEC. 817A. SPECIAL RULES FOR MODIFIED GUARANTEED CONTRACTS.

    ``(a) Computation of Reserves.--In the case of a modified 
guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not 
apply.
    ``(b) Segregated Assets Under Modified Guaranteed Contracts Marked 
to Market.--
        ``(1) In general.--In the case of any life insurance company, 
    for purposes of this subtitle--
            ``(A) Any gain or loss with respect to a segregated asset 
        shall be treated as ordinary income or loss, as the case may 
        be.
            ``(B) If any segregated asset is held by such company as of 
        the close of any taxable year--
                ``(i) such company shall recognize gain or loss as if 
            such asset were sold for its fair market value on the last 
            business day of such taxable year, and
                ``(ii) any such gain or loss shall be taken into 
            account for such taxable year.
        Proper adjustment shall be made in the amount of any gain or 
        loss subsequently realized for gain or loss taken into account 
        under the preceding sentence. The Secretary may provide by 
        regulations for the application of this subparagraph at times 
        other than the times provided in this subparagraph.
        ``(2) Segregated asset.--For purposes of paragraph (1), the 
    term `segregated asset' means any asset held as part of a 
    segregated account referred to in subsection (d)(1) under a 
    modified guaranteed contract.
    ``(c) Special Rule in Computing Life Insurance Reserves.--For 
purposes of applying section 816(b)(1)(A) to any modified guaranteed 
contract, an assumed rate of interest shall include a rate of interest 
determined, from time to time, with reference to a market rate of 
interest.
    ``(d) Modified Guaranteed Contract Defined.--For purposes of this 
section, the term `modified guaranteed contract' means a contract not 
described in section 817--
        ``(1) all or part of the amounts received under which are 
    allocated to an account which, pursuant to State law or regulation, 
    is segregated from the general asset accounts of the company and is 
    valued from time to time with reference to market values,
        ``(2) which--
            ``(A) provides for the payment of annuities,
            ``(B) is a life insurance contract, or
            ``(C) is a pension plan contract which is not a life, 
        accident, or health, property, casualty, or liability contract,
        ``(3) for which reserves are valued at market for annual 
    statement purposes, and
        ``(4) which provides for a net surrender value or a 
    policyholder's fund (as defined in section 807(e)(1)).
If only a portion of a contract is not described in section 817, such 
portion shall be treated for purposes of this section as a separate 
contract.
    ``(e) Regulations.--The Secretary may prescribe regulations--
        ``(1) to provide for the treatment of market value adjustments 
    under sections 72, 7702, 7702A, and 807(e)(1)(B),
        ``(2) to determine the interest rates applicable under sections 
    807(c)(3), 807(d)(2)(B), and 812 with respect to a modified 
    guaranteed contract annually, in a manner appropriate for modified 
    guaranteed contracts and, to the extent appropriate for such a 
    contract, to modify or waive the applicability of section 811(d),
        ``(3) to provide rules to limit ordinary gain or loss treatment 
    to assets constituting reserves for modified guaranteed contracts 
    (and not other assets) of the company,
        ``(4) to provide appropriate treatment of transfers of assets 
    to and from the segregated account, and
        ``(5) as may be necessary or appropriate to carry out the 
    purposes of this section.''.
    (b) Clerical Amendment.--The table of sections for subpart E of 
part I of subchapter L of chapter 1 is amended by inserting after the 
item relating to section 817 the following new item:
``Sec. 817A. Special rules for modified guaranteed contracts.''.

    (c) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply to taxable years beginning after December 31, 1995.
        (2) Treatment of net adjustments.--Except as provided in 
    paragraph (3), in the case of any taxpayer required by the 
    amendments made by this section to change its calculation of 
    reserves to take into account market value adjustments and to mark 
    segregated assets to market for any taxable year--
            (A) such changes shall be treated as a change in method of 
        accounting initiated by the taxpayer,
            (B) such changes shall be treated as made with the consent 
        of the Secretary, and
            (C) the adjustments required by reason of section 481 of 
        the Internal Revenue Code of 1986, shall be taken into account 
        as ordinary income by the taxpayer for the taxpayer's first 
        taxable year beginning after December 31, 1995.
        (3) Limitation on loss recognition and on deduction for reserve 
    increases.--
            (A) Limitation on loss recognition.--
                (i) In general.--The aggregate loss recognized by 
            reason of the application of section 481 of the Internal 
            Revenue Code of 1986 with respect to section 817A(b) of 
            such Code (as added by this section) for the first taxable 
            year of the taxpayer beginning after December 31, 1995, 
            shall not exceed the amount included in the taxpayer's 
            gross income for such year by reason of the excess (if any) 
            of--

                    (I) the amount of life insurance reserves as of the 
                close of the prior taxable year, over
                    (II) the amount of such reserves as of the 
                beginning of such first taxable year,

            to the extent such excess is attributable to subsection (a) 
            of such section 817A. Notwithstanding the preceding 
            sentence, the adjusted basis of each segregated asset shall 
            be determined as if all such losses were recognized.
                (ii) Disallowed loss allowed over period.--The amount 
            of the loss which is not allowed under clause (i) shall be 
            allowed ratably over the period of 7 taxable years 
            beginning with the taxpayer's first taxable year beginning 
            after December 31, 1995.
            (B) Limitation on deduction for increase in reserves.--
                (i) In general.--The deduction allowed for the first 
            taxable year of the taxpayer beginning after December 31, 
            1995, by reason of the application of section 481 of such 
            Code with respect to section 817A(a) of such Code (as added 
            by this section) shall not exceed the aggregate built-in 
            gain recognized by reason of the application of such 
            section 481 with respect to section 817A(b) of such Code 
            (as added by this section) for such first taxable year.
                (ii) Disallowed deduction allowed over period.--The 
            amount of the deduction which is disallowed under clause 
            (i) shall be allowed ratably over the period of 7 taxable 
            years beginning with the taxpayer's first taxable year 
            beginning after December 31, 1995.
                (iii) Built-in gain.--For purposes of this 
            subparagraph, the built-in gain on an asset is the amount 
            equal to the excess of--

                    (I) the fair market value of the asset as of the 
                beginning of the first taxable year of the taxpayer 
                beginning after December 31, 1995, over
                    (II) the adjusted basis of such asset as of such 
                time.

SEC. 1613. TREATMENT OF CONTRIBUTIONS IN AID OF CONSTRUCTION.

    (a) Treatment of Contributions in Aid of Construction.--
        (1) In general.--Section 118 (relating to contributions to the 
    capital of a corporation) is amended--
            (A) by redesignating subsection (c) as subsection (e), and
            (B) by inserting after subsection (b) the following new 
        subsections:
    ``(c) Special Rules for Water and Sewerage Disposal Utilities.--
        ``(1) General rule.--For purposes of this section, the term 
    `contribution to the capital of the taxpayer' includes any amount 
    of money or other property received from any person (whether or not 
    a shareholder) by a regulated public utility which provides water 
    or sewerage disposal services if--
            ``(A) such amount is a contribution in aid of con- 
        struction,
            ``(B) in the case of contribution of property other than 
        water or sewerage disposal facilities, such amount meets the 
        requirements of the expenditure rule of paragraph (2), and
            ``(C) such amount (or any property acquired or constructed 
        with such amount) is not included in the taxpayer's rate base 
        for ratemaking purposes.
        ``(2) Expenditure rule.--An amount meets the requirements of 
    this paragraph if--
            ``(A) an amount equal to such amount is expended for the 
        acquisition or construction of tangible property described in 
        section 1231(b)--
                ``(i) which is the property for which the contribu- 
            tion was made or is of the same type as such property, and
                ``(ii) which is used predominantly in the trade or 
            business of furnishing water or sewerage disposal services,
            ``(B) the expenditure referred to in subparagraph (A) 
        occurs before the end of the second taxable year after the year 
        in which such amount was received, and
            ``(C) accurate records are kept of the amounts contributed 
        and expenditures made, the expenditures to which contributions 
        are allocated, and the year in which the contributions and 
        expenditures are received and made.
        ``(3) Definitions.--For purposes of this subsection--
            ``(A) Contribution in aid of construction.--The term 
        `contribution in aid of construction' shall be defined by 
        regulations prescribed by the Secretary, except that such term 
        shall not include amounts paid as service charges for starting 
        or stopping services.
            ``(B) Predominantly.--The term `predominantly' means 80 
        percent or more.
            ``(C) Regulated public utility.--The term `regulated public 
        utility' has the meaning given such term by section 
        7701(a)(33), except that such term shall not include any 
        utility which is not required to provide water or sewerage 
        disposal services to members of the general public in its 
        service area.
        ``(4) Disallowance of deductions and credits; adjusted basis.--
    Notwithstanding any other provision of this subtitle, no deduction 
    or credit shall be allowed for, or by reason of, any expenditure 
    which constitutes a contribution in aid of construction to which 
    this subsection applies. The adjusted basis of any property 
    acquired with contributions in aid of construction to which this 
    subsection applies shall be zero.
    ``(d) Statute of Limitations.--If the taxpayer for any taxable year 
treats an amount as a contribution to the capital of the taxpayer 
described in subsection (c), then--
        ``(1) the statutory period for the assessment of any deficiency 
    attributable to any part of such amount shall not expire before the 
    expiration of 3 years from the date the Secretary is notified by 
    the taxpayer (in such manner as the Secretary may prescribe) of--
            ``(A) the amount of the expenditure referred to in 
        subparagraph (A) of subsection (c)(2),
            ``(B) the taxpayer's intention not to make the expenditures 
        referred to in such subparagraph, or
            ``(C) a failure to make such expenditure within the period 
        described in subparagraph (B) of subsection (c)(2), and
        ``(2) such deficiency may be assessed before the expiration of 
    such 3-year period notwithstanding the provisions of any other law 
    or rule of law which would otherwise prevent such assessment.''.
        (2) Conforming amendment.--Section 118(b) is amended by 
    inserting ``except as provided in subsection (c),'' before ``the 
    term''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to amounts received after June 12, 1996.
    (b) Recovery Method and Period for Water Utility Property.--
        (1) Requirement to use straight line method.--Section 168(b)(3) 
    is amended by adding at the end the following new subparagraph:
            ``(F) Water utility property described in subsection 
        (e)(5).''.
        (2) 25-year recovery period.--The table contained in section 
    168(c)(1) is amended by inserting the following item after the item 
    relating to 20-year property:

    ``Water utility property..................................


                                                             25 years''.

        (3) Water utility property.--
            (A) In general.--Section 168(e) is amended by adding at the 
        end the following new paragraph:
        ``(5) Water utility property.--The term `water utility 
    property' means property--
            ``(A) which is an integral part of the gathering, 
        treatment, or commercial distribution of water, and which, 
        without regard to this paragraph, would be 20-year property, 
        and
            ``(B) any municipal sewer.''.
            (B) Conforming amendments.--Section 168 is amended--
                (i) by striking subparagraph (F) of subsection (e)(3), 
            and
                (ii) by striking the item relating to subparagraph (F) 
            in the table in subsection (g)(3).
        (4) Alternative system.--Clause (iv) of section 168(g)(2)(C) is 
    amended by inserting ``or water utility property'' after ``tunnel 
    bore''.
        (5) Effective date.--The amendments made by this subsection 
    shall apply to property placed in service after June 12, 1996, 
    other than property placed in service pursuant to a binding 
    contract in effect before June 10, 1996, and at all times 
    thereafter before the property is placed in service.
SEC. 1614. ELECTION TO CEASE STATUS AS QUALIFIED SCHOLARSHIP FUNDING 
CORPORATION.
    (a) In General.--Subsection (d) of section 150 (relating to 
definitions and special rules) is amended by adding at the end the 
following new paragraph:
        ``(3) Election to cease status as qualified scholarship funding 
    corporation.--
            ``(A) In general.--Any qualified scholarship funding bond, 
        and qualified student loan bond, outstanding on the date of the 
        issuer's election under this paragraph (and any bond (or series 
        of bonds) issued to refund such a bond) shall not fail to be a 
        tax-exempt bond solely because the issuer ceases to be 
        described in subparagraphs (A) and (B) of paragraph (2) if the 
        issuer meets the requirements of subparagraphs (B) and (C) of 
        this paragraph.
            ``(B) Assets and liabilities of issuer transferred to 
        taxable subsidiary.--The requirements of this subparagraph are 
        met by an issuer if--
                ``(i) all of the student loan notes of the issuer and 
            other assets pledged to secure the repayment of qualified 
            scholarship funding bond indebtedness of the issuer are 
            transferred to another corporation within a reasonable 
            period after the election is made under this paragraph;
                ``(ii) such transferee corporation assumes or otherwise 
            provides for the payment of all of the qualified 
            scholarship funding bond indebtedness of the issuer within 
            a reasonable period after the election is made under this 
            paragraph;
                ``(iii) to the extent permitted by law, such transferee 
            corporation assumes all of the responsibilities, and 
            succeeds to all of the rights, of the issuer under the 
            issuer's agreements with the Secretary of Education in 
            respect of student loans;
                ``(iv) immediately after such transfer, the issuer, 
            together with any other issuer which has made an election 
            under this paragraph in respect of such transferee, hold 
            all of the senior stock in such transferee corporation; and
                ``(v) such transferee corporation is not exempt from 
            tax under this chapter.
            ``(C) Issuer to operate as independent organization 
        described in section 501(c)(3).--The requirements of this 
        subparagraph are met by an issuer if, within a reasonable 
        period after the transfer referred to in subparagraph (B)--
                ``(i) the issuer is described in section 501(c)(3) and 
            exempt from tax under section 501(a);
                ``(ii) the issuer no longer is described in 
            subparagraphs (A) and (B) of paragraph (2); and
                ``(iii) at least 80 percent of the members of the board 
            of directors of the issuer are independent members.
            ``(D) Senior stock.--For purposes of this paragraph, the 
        term `senior stock' means stock--
                ``(i) which participates pro rata and fully in the 
            equity value of the corporation with all other common stock 
            of the corporation but which has the right to payment of 
            liquidation proceeds prior to payment of liquidation 
            proceeds in respect of other common stock of the 
            corporation;
                ``(ii) which has a fixed right upon liquidation and 
            upon redemption to an amount equal to the greater of--

                    ``(I) the fair market value of such stock on the 
                date of liquidation or redemption (whichever is 
                applicable); or
                    ``(II) the fair market value of all assets 
                transferred in exchange for such stock and reduced by 
                the amount of all liabilities of the corporation which 
                has made an election under this paragraph assumed by 
                the transferee corporation in such transfer;

                ``(iii) the holder of which has the right to require 
            the transferee corporation to redeem on a date that is not 
            later than 10 years after the date on which an election 
            under this paragraph was made and pursuant to such election 
            such stock was issued; and
                ``(iv) in respect of which, during the time such stock 
            is outstanding, there is not outstanding any equity 
            interest in the corporation having any liquidation, 
            redemption or dividend rights in the corporation which are 
            superior to those of such stock.
            ``(E) Independent member.--The term `independent member' 
        means a member of the board of directors of the issuer who 
        (except for services as a member of such board) receives no 
        compensation directly or indirectly--
                ``(i) for services performed in connection with such 
            transferee corporation, or
                ``(ii) for services as a member of the board of 
            directors or as an officer of such transferee corporation.
        For purposes of clause (ii), the term `officer' includes any 
        individual having powers or responsibilities similar to those 
        of officers.
            ``(F) Coordination with certain private foundation taxes.--
        For purposes of sections 4942 (relating to the excise tax on a 
        failure to distribute income) and 4943 (relating to the excise 
        tax on excess business holdings), the transferee corporation 
        referred to in subparagraph (B) shall be treated as a 
        functionally related business (within the meaning of section 
        4942(j)(4)) with respect to the issuer during the period 
        commencing with the date on which an election is made under 
        this paragraph and ending on the date that is the earlier of--
                ``(i) the last day of the last taxable year for which 
            more than 50 percent of the gross income of such transferee 
            corporation is derived from, or more than 50 percent of the 
            assets (by value) of such transferee corporation consists 
            of, student loan notes incurred under the Higher Education 
            Act of 1965; or
                ``(ii) the last day of the taxable year of the issuer 
            during which occurs the date which is 10 years after the 
            date on which the election under this paragraph is made.
            ``(G) Election.--An election under this paragraph may be 
        revoked only with the consent of the Secretary.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.
SEC. 1615. CERTAIN TAX BENEFITS DENIED TO INDIVIDUALS FAILING TO 
PROVIDE TAXPAYER IDENTIFICATION NUMBERS.
    (a) Personal Exemption.--
        (1) In general.--Section 151 (relating to allowance of 
    deductions for personal exemptions) is amended by adding at the end 
    the following new subsection:
    ``(e) Identifying Information Required.--No exemption shall be 
allowed under this section with respect to any individual unless the 
TIN of such individual is included on the return claiming the 
exemption.''.
        (2) Conforming amendments.--
            (A) Subsection (e) of section 6109 is repealed.
            (B) Section 6724(d)(3) is amended by adding ``and'' at the 
        end of subparagraph (C), by striking subparagraph (D), and by 
        redesignating subparagraph (E) as subparagraph (D).
    (b) Dependent Care Credit.--Subsection (e) of section 21 (relating 
to expenses for household and dependent care services necessary for 
gainful employment) is amended by adding at the end the following new 
paragraph:
        ``(10) Identifying information required with respect to 
    qualifying individuals.--No credit shall be allowed under this 
    section with respect to any qualifying individual unless the TIN of 
    such individual is included on the return claiming the credit.''.
    (c) Extension of Procedures Applicable to Mathematical or Clerical 
Errors.--Section 6213(g)(2) (relating to the definition of mathematical 
or clerical errors), as amended by the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996, is amended by striking ``and'' 
at the end of subparagraph (F), by striking the period at the end of 
subparagraph (G) and inserting ``, and'', and by inserting at the end 
the following new subparagraph:
            ``(H) an omission of a correct TIN required under section 
        21 (relating to expenses for household and dependent care 
        services necessary for gainful employment) or section 151 
        (relating to allowance of deductions for personal 
        exemptions).''.
    (d) Effective Date.--
        (1) In general.--The amendments made by this section shall 
    apply with respect to returns the due date for which (without 
    regard to extensions) is on or after the 30th day after the date of 
    the enactment of this Act.
        (2) Special rule for 1995 and 1996.--In the case of returns for 
    taxable years beginning in 1995 or 1996, a taxpayer shall not be 
    required by the amendments made by this section to provide a 
    taxpayer identification number for a child who is born after 
    October 31, 1995, in the case of a taxable year beginning in 1995 
    or November 30, 1996, in the case of a taxable year beginning in 
    1996.
SEC. 1616. REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT SAVINGS 
ASSOCIATIONS.
    (a) In General.--Section 593 (relating to reserves for losses on 
loans) is amended by adding at the end the following new subsections:
    ``(f) Termination of Reserve Method.--Subsections (a), (b), (c), 
and (d) shall not apply to any taxable year beginning after December 
31, 1995.
    ``(g) 6-Year Spread of Adjustments.--
        ``(1) In general.--In the case of any taxpayer who is required 
    by reason of subsection (f) to change its method of computing 
    reserves for bad debts--
            ``(A) such change shall be treated as a change in a method 
        of accounting,
            ``(B) such change shall be treated as initiated by the 
        taxpayer and as having been made with the consent of the 
        Secretary, and
            ``(C) the net amount of the adjustments required to be 
        taken into account by the taxpayer under section 481(a)--
                ``(i) shall be determined by taking into account only 
            applicable excess reserves, and
                ``(ii) as so determined, shall be taken into account 
            ratably over the 6-taxable year period beginning with the 
            first taxable year beginning after December 31, 1995.
        ``(2) Applicable excess reserves.--
            ``(A) In general.--For purposes of paragraph (1), the term 
        `applicable excess reserves' means the excess (if any) of--
                ``(i) the balance of the reserves described in 
            subsection (c)(1) (other than the supplemental reserve) as 
            of the close of the taxpayer's last taxable year beginning 
            before January 1, 1996, over
                ``(ii) the lesser of--

                    ``(I) the balance of such reserves as of the close 
                of the taxpayer's last taxable year beginning before 
                January 1, 1988, or
                    ``(II) the balance of the reserves described in 
                subclause (I), reduced in the same manner as under 
                section 585(b)(2)(B)(ii) on the basis of the taxable 
                years described in clause (i) and this clause.

            ``(B) Special rule for thrifts which become small banks.--
        In the case of a bank (as defined in section 581) which was not 
        a large bank (as defined in section 585(c)(2)) for its first 
        taxable year beginning after December 31, 1995--
                ``(i) the balance taken into account under subparagraph 
            (A)(ii) shall not be less than the amount which would be 
            the balance of such reserves as of the close of its last 
            taxable year beginning before such date if the additions to 
            such reserves for all taxable years had been determined 
            under section 585(b)(2)(A), and
                ``(ii) the opening balance of the reserve for bad debts 
            as of the beginning of such first taxable year shall be the 
            balance taken into account under subparagraph (A)(ii) 
            (determined after the application of clause (i) of this 
            subparagraph).
        The preceding sentence shall not apply for purposes of 
        paragraphs (5) and (6) or subsection (e)(1).
        ``(3) Recapture of pre-1988 reserves where taxpayer ceases to 
    be bank.--If, during any taxable year beginning after December 31, 
    1995, a taxpayer to which paragraph (1) applied is not a bank (as 
    defined in section 581), paragraph (1) shall apply to the reserves 
    described in paragraph (2)(A)(ii) and the supplemental reserve; 
    except that such reserves shall be taken into account ratably over 
    the 6-taxable year period beginning with such taxable year.
        ``(4) Suspension of recapture if residential loan requirement 
    met.--
            ``(A) In general.--In the case of a bank which meets the 
        residential loan requirement of subparagraph (B) for the first 
        taxable year beginning after December 31, 1995, or for the 
        following taxable year--
                ``(i) no adjustment shall be taken into account under 
            paragraph (1) for such taxable year, and
                ``(ii) such taxable year shall be disregarded in 
            determining--

                    ``(I) whether any other taxable year is a taxable 
                year for which an adjustment is required to be taken 
                into account under paragraph (1), and
                    ``(II) the amount of such adjustment.

            ``(B) Residential loan requirement.--A taxpayer meets the 
        residential loan requirement of this subparagraph for any 
        taxable year if the principal amount of the residential loans 
        made by the taxpayer during such year is not less than the base 
        amount for such year.
            ``(C) Residential loan.--For purposes of this paragraph, 
        the term `residential loan' means any loan described in clause 
        (v) of section 7701(a)(19)(C) but only if such loan is incurred 
        in acquiring, constructing, or improving the property described 
        in such clause.
            ``(D) Base amount.--For purposes of subparagraph (B), the 
        base amount is the average of the principal amounts of the 
        residential loans made by the taxpayer during the 6 most recent 
        taxable years beginning on or before December 31, 1995. At the 
        election of the taxpayer who made such loans during each of 
        such 6 taxable years, the preceding sentence shall be applied 
        without regard to the taxable year in which such principal 
        amount was the highest and the taxable year in such principal 
        amount was the lowest. Such an election may be made only for 
        the first taxable year beginning after such date, and, if made 
        for such taxable year, shall apply to the succeeding taxable 
        year unless revoked with the consent of the Secretary.
            ``(E) Controlled groups.--In the case of a taxpayer which 
        is a member of any controlled group of corporations described 
        in section 1563(a)(1), subparagraph (B) shall be applied with 
        respect to such group.
        ``(5) Continued application of fresh start under section 585 
    transitional rules.--In the case of a taxpayer to which paragraph 
    (1) applied and which was not a large bank (as defined in section 
    585(c)(2)) for its first taxable year beginning after December 31, 
    1995:
            ``(A) In general.--For purposes of determining the net 
        amount of adjustments referred to in section 585(c)(3)(A)(iii), 
        there shall be taken into account only the excess (if any) of 
        the reserve for bad debts as of the close of the last taxable 
        year before the disqualification year over the balance taken 
        into account by such taxpayer under paragraph (2)(A)(ii) of 
        this subsection.
            ``(B) Treatment under elective cut-off method.--For 
        purposes of applying section 585(c)(4)--
                ``(i) the balance of the reserve taken into account 
            under subparagraph (B) thereof shall be reduced by the 
            balance taken into account by such taxpayer under paragraph 
            (2)(A)(ii) of this subsection, and
                ``(ii) no amount shall be includible in gross income by 
            reason of such reduction.
        ``(6) Suspended reserve included as section 381(c) items.--The 
    balance taken into account by a taxpayer under paragraph (2)(A)(ii) 
    of this subsection and the supplemental reserve shall be treated as 
    items described in section 381(c).
        ``(7) Conversions to credit unions.--In the case of a taxpayer 
    to which paragraph (1) applied which becomes a credit union 
    described in section 501(c) and exempt from taxation under section 
    501(a)--
            ``(A) any amount required to be included in the gross 
        income of the credit union by reason of this subsection shall 
        be treated as derived from an unrelated trade or business (as 
        defined in section 513), and
            ``(B) for purposes of paragraph (3), the credit union shall 
        not be treated as if it were a bank.
        ``(8) Regulations.--The Secretary shall prescribe such 
    regulations as may be necessary to carry out this subsection and 
    subsection (e), including regulations providing for the application 
    of such subsections in the case of acquisitions, mergers, spin-
    offs, and other reorganizations.''.
    (b) Conforming Amendments.--
        (1) Subsection (d) of section 50 is amended by adding at the 
    end the following new sentence:
``Paragraphs (1)(A), (2)(A), and (4) of the section 46(e) referred to 
in paragraph (1) of this subsection shall not apply to any taxable year 
beginning after December 31, 1995.''
        (2) Subsection (e) of section 52 is amended by striking 
    paragraph (1) and by redesignating paragraphs (2) and (3) as 
    paragraphs (1) and (2), respectively.
        (3) Subsection (a) of section 57 is amended by striking 
    paragraph (4).
        (4) Section 246 is amended by striking subsection (f).
        (5) Clause (i) of section 291(e)(1)(B) is amended by striking 
    ``or to which section 593 applies''.
        (6) Subparagraph (A) of section 585(a)(2) is amended by 
    striking ``other than an organization to which section 593 
    applies''.
        (7)(A) The material preceding subparagraph (A) of section 
    593(e)(1) is amended by striking ``by a domestic building and loan 
    association or an institution that is treated as a mutual savings 
    bank under section 591(b)'' and inserting ``by a taxpayer having a 
    balance described in subsection (g)(2)(A)(ii)''.
        (B) Subparagraph (B) of section 593(e)(1) is amended to read as 
    follows:
            ``(B) then out of the balance taken into account under 
        subsection (g)(2)(A)(ii) (properly adjusted for amounts charged 
        against such reserves for taxable years beginning after 
        December 31, 1987),''.
        (C) The second sentence of section 593(e)(1) is amended by 
    striking ``the association or an institution that is treated as a 
    mutual savings bank under section 591(b)'' and inserting ``a 
    taxpayer having a balance described in subsection (g)(2)(A)(ii)''.
        (D) The third sentence of section 593(e)(1) is amended by 
    striking ``an association'' and inserting ``a taxpayer having a 
    balance described in subsection (g)(2)(A)(ii)''.
        (E) Paragraph (1) of section 593(e) is amended by adding at the 
    end the following new sentence: ``This paragraph shall not apply to 
    any distribution of all of the stock of a bank (as defined in 
    section 581) to another corporation if, immediately after the 
    distribution, such bank and such other corporation are members of 
    the same affiliated group (as defined in section 1504) and the 
    provisions of section 5(e) of the Federal Deposit Insurance Act (as 
    in effect on December 31, 1995) or similar provisions are in 
    effect.''.
        (8) Section 595 is hereby repealed.
        (9) Section 596 is hereby repealed.
        (10) Subsection (a) of section 860E is amended--
            (A) by striking ``Except as provided in paragraph (2), 
        the'' in paragraph (1) and inserting ``The'',
            (B) by striking paragraphs (2) and (4) and redesignating 
        paragraphs (3), (5), and (6) as paragraphs (2), (3), and (4), 
        respectively,
            (C) by striking in paragraph (2) (as so redesignated) all 
        that follows ``subsection'' and inserting a period, and
            (D) by striking the last sentence of paragraph (4) (as so 
        redesignated).
        (11) Paragraph (3) of section 992(d) is amended by striking 
    ``or 593''.
        (12) Section 1038 is amended by striking subsection (f).
        (13) Clause (ii) of section 1042(c)(4)(B) is amended by 
    striking ``or 593''.
        (14) Subsection (c) of section 1277 is amended by striking ``or 
    to which section 593 applies''.
        (15) Subparagraph (B) of section 1361(b)(2) is amended by 
    striking ``or to which section 593 applies''.
        (16) The table of sections for part II of subchapter H of 
    chapter 1 is amended by striking the items relating to sections 595 
    and 596.
    (c) Effective Dates.--
        (1) In general.--Except as otherwise provided in this 
    subsection, the amendments made by this section shall apply to 
    taxable years beginning after December 31, 1995.
        (2) Subsection (b)(7)(B).--The amendments made by subsection 
    (b)(7)(B) shall not apply to any distribution with respect to 
    preferred stock if--
            (A) such stock is outstanding at all times after October 
        31, 1995, and before the distribution, and
            (B) such distribution is made before the date which is 1 
        year after the date of the enactment of this Act (or, in the 
        case of stock which may be redeemed, if later, the date which 
        is 30 days after the earliest date that such stock may be 
        redeemed).
        (3) Subsection (b)(8).--The amendment made by subsection (b)(8) 
    shall apply to property acquired in taxable years beginning after 
    December 31, 1995.
        (4) Subsection (b)(10).--The amendments made by subsection 
    (b)(10) shall not apply to any residual interest held by a taxpayer 
    if such interest has been held by such taxpayer at all times after 
    October 31, 1995.
SEC. 1617. EXCLUSION FOR ENERGY CONSERVATION SUBSIDIES LIMITED TO 
SUBSIDIES WITH RESPECT TO DWELLING UNITS.
    (a) In General.--Paragraph (1) of section 136(c) (defining energy 
conservation measure) is amended by striking ``energy demand--'' and 
all that follows and inserting ``energy demand with respect to a 
dwelling unit.''.
    (b) Conforming Amendments.--
        (1) Subsection (a) of section 136 is amended to read as 
    follows:
    ``(a) Exclusion.--Gross income shall not include the value of any 
subsidy provided (directly or indirectly) by a public utility to a 
customer for the purchase or installation of any energy conservation 
measure.''.
        (2) Paragraph (2) of section 136(c) is amended--
            (A) by striking subparagraph (A) and by redesignating 
        subparagraphs (B) and (C) as subparagraphs (A) and (B), 
        respectively, and
            (B) by striking ``and special rules'' in the paragraph 
        heading.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts received after December 31, 1996, unless received 
pursuant to a written binding contract in effect on September 13, 1995, 
and at all times thereafter.

          PART II--FINANCIAL ASSET SECURITIZATION INVESTMENTS

SEC. 1621. FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS.

    (a) In General.--Subchapter M of chapter 1 is amended by adding at 
the end the following new part:

       ``PART V--FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS

        ``Sec. 860H. Taxation of a FASIT; other general rules.
        ``Sec. 860I. Gain recognition on contributions to a FASIT and in 
                  other cases.
        ``Sec. 860J. Non-FASIT losses not to offset certain FASIT 
                  inclusions.
        ``Sec. 860K. Treatment of transfers of high-yield interests to 
                  disqualified holders.
        ``Sec. 860L. Definitions and other special rules.

``SEC. 860H. TAXATION OF A FASIT; OTHER GENERAL RULES.

    ``(a) Taxation of FASIT.--A FASIT as such shall not be subject to 
taxation under this subtitle (and shall not be treated as a trust, 
partnership, corporation, or taxable mortgage pool).
    ``(b) Taxation of Holder of Ownership Interest.--In determining the 
taxable income of the holder of the ownership interest in a FASIT--
        ``(1) all assets, liabilities, and items of income, gain, 
    deduction, loss, and credit of a FASIT shall be treated as assets, 
    liabilities, and such items (as the case may be) of such holder,
        ``(2) the constant yield method (including the rules of section 
    1272(a)(6)) shall be applied under an accrual method of accounting 
    in determining all interest, acquisition discount, original issue 
    discount, and market discount and all premium deductions or 
    adjustments with respect to each debt instrument of the FASIT,
        ``(3) there shall not be taken into account any item of income, 
    gain, or deduction allocable to a prohibited transaction, and
        ``(4) interest accrued by the FASIT which is exempt from tax 
    imposed by this subtitle shall, when taken into account by such 
    holder, be treated as ordinary income.
    ``(c) Treatment of Regular Interests.--For purposes of this title--
        ``(1) a regular interest in a FASIT, if not otherwise a debt 
    instrument, shall be treated as a debt instrument,
        ``(2) section 163(e)(5) shall not apply to such an interest, 
    and
        ``(3) amounts includible in gross income with respect to such 
    an interest shall be determined under an accrual method of 
    accounting.
``SEC. 860I. GAIN RECOGNITION ON CONTRIBUTIONS TO A FASIT AND IN OTHER 
CASES.
    ``(a) Treatment of Property Acquired by FASIT.--
        ``(1) Property acquired from holder of ownership interest or 
    related person.--If property is sold or contributed to a FASIT by 
    the holder of the ownership interest in such FASIT (or by a related 
    person) gain (if any) shall be recognized to such holder (or 
    person) in an amount equal to the excess (if any) of such 
    property's value under subsection (d) on the date of such sale or 
    contribution over its adjusted basis on such date.
        ``(2) Property acquired other than from holder of ownership 
    interest or related person.--Property which is acquired by a FASIT 
    other than in a transaction to which paragraph (1) applies shall be 
    treated--
            ``(A) as having been acquired by the holder of the 
        ownership interest in the FASIT for an amount equal to the 
        FASIT's cost of acquiring such property, and
            ``(B) as having been sold by such holder to the FASIT at 
        its value under subsection (d) on such date.
    ``(b) Gain Recognition on Property Outside FASIT Which Supports 
Regular Interests.--If property held by the holder of the ownership 
interest in a FASIT (or by any person related to such holder) supports 
any regular interest in such FASIT--
        ``(1) gain shall be recognized to such holder (or person) in 
    the same manner as if such holder (or person) had sold such 
    property at its value under subsection (d) on the earliest date 
    such property supports such an interest, and
        ``(2) such property shall be treated as held by such FASIT for 
    purposes of this part.
    ``(c) Deferral of Gain Recognition.--The Secretary may prescribe 
regulations which--
        ``(1) provide that gain otherwise recognized under subsection 
    (a) or (b) shall not be recognized before the earliest date on 
    which such property supports any regular interest in such FASIT or 
    any indebtedness of the holder of the ownership interest (or of any 
    person related to such holder), and
        ``(2) provide such adjustments to the other provisions of this 
    part to the extent appropriate in the context of the treatment 
    provided under paragraph (1).
    ``(d) Valuation.--For purposes of this section--
        ``(1) In general.--The value of any property under this 
    subsection shall be--
            ``(A) in the case of a debt instrument which is not traded 
        on an established securities market, the sum of the present 
        values of the reasonably expected payments under such 
        instrument determined (in the manner provided by regulations 
        prescribed by the Secretary)--
                ``(i) as of the date of the event resulting in the gain 
            recognition under this section, and
                ``(ii) by using a discount rate equal to 120 percent of 
            the applicable Federal rate (as defined in section 
            1274(d)), or such other discount rate specified in such 
            regulations, compounded semiannually, and
            ``(B) in the case of any other property, its fair market 
        value.
        ``(2) Special rule for revolving loan accounts.--For purposes 
    of paragraph (1)--
            ``(A) each extension of credit (other than the accrual of 
        interest) on a revolving loan account shall be treated as a 
        separate debt instrument, and
            ``(B) payments on such extensions of credit having 
        substantially the same terms shall be applied to such 
        extensions beginning with the earliest such extension.
    ``(e) Special Rules.--
        ``(1) Nonrecognition rules not to apply.--Gain required to be 
    recognized under this section shall be recognized notwithstanding 
    any other provision of this subtitle.
        ``(2) Basis adjustments.--The basis of any property on which 
    gain is recognized under this section shall be increased by the 
    amount of gain so recognized.
``SEC. 860J. NON-FASIT LOSSES NOT TO OFFSET CERTAIN FASIT INCLUSIONS.
    ``(a) In General.--The taxable income of the holder of the 
ownership interest or any high-yield interest in a FASIT for any 
taxable year shall in no event be less than the sum of--
        ``(1) such holder's taxable income determined solely with 
    respect to such interests (including gains and losses from sales 
    and exchanges of such interests), and
        ``(2) the excess inclusion (if any) under section 860E(a)(1) 
    for such taxable year.
    ``(b) Coordination With Section 172.--Any increase in the taxable 
income of any holder of the ownership interest or a high-yield interest 
in a FASIT for any taxable year by reason of subsection (a) shall be 
disregarded--
        ``(1) in determining under section 172 the amount of any net 
    operating loss for such taxable year, and
        ``(2) in determining taxable income for such taxable year for 
    purposes of the second sentence of section 172(b)(2).
    ``(c) Coordination With Minimum Tax.--For purposes of part VI of 
subchapter A of this chapter--
        ``(1) the reference in section 55(b)(2) to taxable income shall 
    be treated as a reference to taxable income determined without 
    regard to this section,
        ``(2) the alternative minimum taxable income of any holder of 
    the ownership interest or a high-yield interest in a FASIT for any 
    taxable year shall in no event be less than such holder's taxable 
    income determined solely with respect to such interests, and
        ``(3) any increase in taxable income under this section shall 
    be disregarded for purposes of computing the alternative tax net 
    operating loss deduction.
    ``(d) Affiliated Groups.--All members of an affiliated group filing 
a consolidated return shall be treated as one taxpayer for purposes of 
this section.
``SEC. 860K. TREATMENT OF TRANSFERS OF HIGH-YIELD INTERESTS TO 
DISQUALIFIED HOLDERS.
    ``(a) General Rule.--In the case of any high-yield interest which 
is held by a disqualified holder--
        ``(1) the gross income of such holder shall not include any 
    income (other than gain) attributable to such interest, and
        ``(2) amounts not includible in the gross income of such holder 
    by reason of paragraph (1) shall be included (at the time otherwise 
    includible under paragraph (1)) in the gross income of the most 
    recent holder of such interest which is not a disqualified holder.
    ``(b) Exceptions.--Rules similar to the rules of paragraphs (4) and 
(7) of section 860E(e) shall apply to the tax imposed by reason of the 
inclusion in gross income under subsection (a).
    ``(c) Disqualified Holder.--For purposes of this section, the term 
`disqualified holder' means any holder other than--
        ``(1) an eligible corporation (as defined in section 
    860L(a)(2)), or
        ``(2) a FASIT.
    ``(d) Treatment of Interests Held By Securities Dealers.--
        ``(1) In general.--Subsection (a) shall not apply to any high-
    yield interest held by a disqualified holder if such holder is a 
    dealer in securities who acquired such interest exclusively for 
    sale to customers in the ordinary course of business (and not for 
    investment).
        ``(2) Change in dealer status.--
            ``(A) In general.--In the case of a dealer in securities 
        which is not an eligible corporation (as defined in section 
        860L(a)(2)), if--
                ``(i) such dealer ceases to be a dealer in securities, 
            or
                ``(ii) such dealer commences holding the high-yield 
            interest for investment,
        there is hereby imposed (in addition to other taxes) an excise 
        tax equal to the product of the highest rate of tax specified 
        in section 11(b)(1) and the income of such dealer attributable 
        to such interest for periods after the date of such cessation 
        or commencement.
            ``(B) Holding for 31 days or less.--For purposes of 
        subparagraph (A)(ii), a dealer shall not be treated as holding 
        an interest for investment before the thirty-second day after 
        the date such dealer acquired such interest unless such 
        interest is so held as part of a plan to avoid the purposes of 
        this paragraph.
            ``(C) Administrative provisions.--The deficiency procedures 
        of subtitle F shall apply to the tax imposed by this paragraph.
    ``(e) Treatment of High-Yield Interests in Pass-Thru Entities.--
        ``(1) In general.--If a pass-thru entity (as defined in section 
    860E(e)(6)) issues a debt or equity interest--
            ``(A) which is supported by any regular interest in a 
        FASIT, and
            ``(B) which has an original yield to maturity which is 
        greater than each of--
                ``(i) the sum determined under clauses (i) and (ii) of 
            section 163(i)(1)(B) with respect to such debt or equity 
            interest, and
                ``(ii) the yield to maturity to such entity on such 
            regular interest (determined as of the date such entity 
            acquired such interest),
    there is hereby imposed on the pass-thru entity a tax (in addition 
    to other taxes) equal to the product of the highest rate of tax 
    specified in section 11(b)(1) and the income of the holder of such 
    debt or equity interest which is properly attributable to such 
    regular interest. For purposes of the preceding sentence, the yield 
    to maturity of any equity interest shall be determined under 
    regulations prescribed by the Secretary.
        ``(2) Exception.--Paragraph (1) shall not apply to arrangements 
    not having as a principal purpose the avoidance of the purposes of 
    this subsection.

``SEC. 860L. DEFINITIONS AND OTHER SPECIAL RULES.

    ``(a) FASIT.--
        ``(1) In general.--For purposes of this title, the terms 
    `financial asset securitization investment trust' and `FASIT' mean 
    any entity--
            ``(A) for which an election to be treated as a FASIT 
        applies for the taxable year,
            ``(B) all of the interests in which are regular interests 
        or the ownership interest,
            ``(C) which has only one ownership interest and such 
        ownership interest is held directly by an eligible corporation,
            ``(D) as of the close of the third month beginning after 
        the day of its formation and at all times thereafter, 
        substantially all of the assets of which (including assets 
        treated as held by the entity under section 860I(b)(2)) consist 
        of permitted assets, and
            ``(E) which is not described in section 851(a).
    A rule similar to the rule of the last sentence of section 860D(a) 
    shall apply for purposes of this paragraph.
        ``(2) Eligible corporation.--For purposes of paragraph (1)(C), 
    the term `eligible corporation' means any domestic C corporation 
    other than--
            ``(A) a corporation which is exempt from, or is not subject 
        to, tax under this chapter,
            ``(B) an entity described in section 851(a) or 856(a),
            ``(C) a REMIC, and
            ``(D) an organization to which part I of subchapter T 
        applies.
        ``(3) Election.--An entity (otherwise meeting the requirements 
    of paragraph (1)) may elect to be treated as a FASIT. Except as 
    provided in paragraph (5), such an election shall apply to the 
    taxable year for which made and all subsequent taxable years unless 
    revoked with the consent of the Secretary.
        ``(4) Termination.--If any entity ceases to be a FASIT at any 
    time during the taxable year, such entity shall not be treated as a 
    FASIT after the date of such cessation.
        ``(5) Inadvertent terminations, etc.--Rules similar to the 
    rules of section 860D(b)(2)(B) shall apply to inadvertent failures 
    to qualify or remain qualified as a FASIT.
        ``(6) Permitted assets not treated as interest in fasit.--
    Except as provided in regulations prescribed by the Secretary, any 
    asset which is a permitted asset at the time acquired by a FASIT 
    shall not be treated at any time as an interest in such FASIT.
    ``(b) Interests in FASIT.--For purposes of this part--
        ``(1) Regular interest.--
            ``(A) In general.--The term `regular interest' means any 
        interest which is issued by a FASIT after the startup date with 
        fixed terms and which is designated as a regular interest if--
                ``(i) such interest unconditionally entitles the holder 
            to receive a specified principal amount (or other similar 
            amount),
                ``(ii) interest payments (or other similar amounts), if 
            any, with respect to such interest are determined based on 
            a fixed rate, or, except as otherwise provided by the 
            Secretary, at a variable rate permitted under section 
            860G(a)(1)(B)(i),
                ``(iii) such interest does not have a stated maturity 
            (including options to renew) greater than 30 years (or such 
            longer period as may be permitted by regulations),
                ``(iv) the issue price of such interest does not exceed 
            125 percent of its stated principal amount, and
                ``(v) the yield to maturity on such interest is less 
            than the sum determined under section 163(i)(1)(B) with 
            respect to such interest.
        An interest shall not fail to meet the requirements of clause 
        (i) merely because the timing (but not the amount) of the 
        principal payments (or other similar amounts) may be contingent 
        on the extent that payments on debt instruments held by the 
        FASIT are made in advance of anticipated payments and on the 
        amount of income from permitted assets.
            ``(B) High-yield interests.--
                ``(i) In general.--The term `regular interest' includes 
            any high-yield interest.
                ``(ii) High-yield interest.--The term `high-yield 
            interest' means any interest which would be described in 
            subparagraph (A) but for--

                    ``(I) failing to meet the requirements of one or 
                more of clauses (i), (iv), or (v) thereof, or
                    ``(II) failing to meet the requirement of clause 
                (ii) thereof but only if interest payments (or other 
                similar amounts), if any, with respect to such interest 
                consist of a specified portion of the interest payments 
                on permitted assets and such portion does not vary 
                during the period such interest is outstanding.

        ``(2) Ownership interest.--The term `ownership interest' means 
    the interest issued by a FASIT after the startup day which is 
    designated as an ownership interest and which is not a regular 
    interest.
    ``(c) Permitted Assets.--For purposes of this part--
        ``(1) In general.--The term `permitted asset' means--
            ``(A) cash or cash equivalents,
            ``(B) any debt instrument (as defined in section 
        1275(a)(1)) under which interest payments (or other similar 
        amounts), if any, at or before maturity meet the requirements 
        applicable under clause (i) or (ii) of section 860G(a)(1)(B),
            ``(C) foreclosure property,
            ``(D) any asset--
                ``(i) which is an interest rate or foreign currency 
            notional principal contract, letter of credit, insurance, 
            guarantee against payment defaults, or other similar 
            instrument permitted by the Secretary, and
                ``(ii) which is reasonably required to guarantee or 
            hedge against the FASIT's risks associated with being the 
            obligor on interests issued by the FASIT,
            ``(E) contract rights to acquire debt instruments described 
        in subparagraph (B) or assets described in subparagraph (D),
            ``(F) any regular interest in another FASIT, and
            ``(G) any regular interest in a REMIC.
        ``(2) Debt issued by holder of ownership interest not permitted 
    asset.--The term `permitted asset' shall not include any debt 
    instrument issued by the holder of the ownership interest in the 
    FASIT or by any person related to such holder or any direct or 
    indirect interest in such a debt instrument. The preceding sentence 
    shall not apply to cash equivalents and to any other investment 
    specified in regulations prescribed by the Secretary.
        ``(3) Foreclosure property.--
            ``(A) In general.--The term `foreclosure property' means 
        property--
                ``(i) which would be foreclosure property under section 
            856(e) (determined without regard to paragraph (5) thereof) 
            if such property were real property acquired by a real 
            estate investment trust, and
                ``(ii) which is acquired in connection with the default 
            or imminent default of a debt instrument held by the FASIT 
            unless the security interest in such property was created 
            for the principal purpose of permitting the FASIT to invest 
            in such property.
        Solely for purposes of subsection (a)(1), the determination of 
        whether any property is foreclosure property shall be made 
        without regard to section 856(e)(4).
            ``(B) Authority to reduce grace period.--In the case of 
        property other than real property and other than personal 
        property incident to real property, the Secretary may by 
        regulation reduce for purposes of subparagraph (A) the periods 
        otherwise applicable under paragraphs (2) and (3) of section 
        856(e).
    ``(d) Startup Day.--For purposes of this part--
        ``(1) In general.--The term `startup day' means the date 
    designated in the election under subsection (a)(3) as the startup 
    day of the FASIT. Such day shall be the beginning of the first 
    taxable year of the FASIT.
        ``(2) Treatment of property held on startup day.--All property 
    held (or treated as held under section 860I(c)(2)) by an entity as 
    of the startup day shall be treated as contributed to such entity 
    on such day by the holder of the ownership interest in such entity.
    ``(e) Tax on Prohibited Transactions.--
        ``(1) In general.--There is hereby imposed for each taxable 
    year of a FASIT a tax equal to 100 percent of the net income 
    derived from prohibited transactions. Such tax shall be paid by the 
    holder of the ownership interest in the FASIT.
        ``(2) Prohibited transactions.--For purposes of this part, the 
    term `prohibited transaction' means--
            ``(A) the receipt of any income derived from any asset that 
        is not a permitted asset,
            ``(B) except as provided in paragraph (3), the disposition 
        of any permitted asset,
            ``(C) the receipt of any income derived from any loan 
        originated by the FASIT, and
            ``(D) the receipt of any income representing a fee or other 
        compensation for services (other than any fee received as 
        compensation for a waiver, amendment, or consent under 
        permitted assets (other than foreclosure property) held by the 
        FASIT).
        ``(3) Exception for income from certain dispositions.--
            ``(A) In general.--Paragraph (2)(B) shall not apply to a 
        disposition which would not be a prohibited transaction (as 
        defined in section 860F(a)(2)) by reason of--
                ``(i) clause (ii), (iii), or (iv) of section 
            860F(a)(2)(A), or
                ``(ii) section 860F(a)(5), if the FASIT were treated as 
            a REMIC and debt instruments described in subsection 
            (c)(1)(B) were treated as qualified mortgages.
            ``(B) Substitution of debt instruments; reduction of over-
        collateralization.--Paragraph (2)(B) shall not apply to--
                ``(i) the substitution of a debt instrument described 
            in subsection (c)(1)(B) for another debt instrument which 
            is a permitted asset, or
                ``(ii) the distribution of a debt instrument con- 
            tributed by the holder of the ownership interest to such 
            holder in order to reduce over-collateralization of the 
            FASIT,
        but only if a principal purpose of acquiring the debt 
        instrument which is disposed of was not the recognition of gain 
        (or the reduction of a loss) as a result of an increase in the 
        market value of the debt instrument after its acquisition by 
        the FASIT.
            ``(C) Liquidation of class of regular interests.--Paragraph 
        (2)(B) shall not apply to the complete liquidation of any class 
        of regular interests.
        ``(4) Net income.--For purposes of this subsection, net income 
    shall be determined in accordance with section 860F(a)(3).
    ``(f) Coordination With Other Provisions.--
        ``(1) Wash sales rules.--Rules similar to the rules of section 
    860F(d) shall apply to the ownership interest in a FASIT.
        ``(2) Section 475.--Except as provided by the Secretary by 
    regulations, if any security which is sold or contributed to a 
    FASIT by the holder of the ownership interest in such FASIT was 
    required to be marked-to-market under section 475 by such holder, 
    section 475 shall continue to apply to such security; except that 
    in applying section 475 while such security is held by the FASIT, 
    the fair market value of such security for purposes of section 475 
    shall not be less than its value under section 860I(d).
    ``(g) Related Person.--For purposes of this part, a person 
(hereinafter in this subsection referred to as the `related person') is 
related to any person if--
        ``(1) the related person bears a relationship to such person 
    specified in section 267(b) or section 707(b)(1), or
        ``(2) the related person and such person are engaged in trades 
    or businesses under common control (within the meaning of 
    subsections (a) and (b) of section 52).
For purposes of paragraph (1), in applying section 267(b) or 707(b)(1), 
`20 percent' shall be substituted for `50 percent'.
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
part, including regulations to prevent the abuse of the purposes of 
this part through transactions which are not primarily related to 
securitization of debt instruments by a FASIT.''.
    (b) Technical Amendments.--
        (1) Paragraph (2) of section 26(b) is amended by striking 
    ``and'' at the end of subparagraph (M), by striking the period at 
    the end of subparagraph (N) and inserting ``, and'', and by adding 
    at the end the following new subparagraph:
            ``(O) section 860K (relating to treatment of transfers of 
        high-yield interests to disqualified holders).''.
        (2) Paragraph (6) of section 56(g) is amended by striking ``or 
    REMIC'' and inserting ``REMIC, or FASIT''.
        (3) Clause (ii) of section 382(l)(4)(B) is amended by striking 
    ``or a REMIC to which part IV of subchapter M applies'' and 
    inserting ``a REMIC to which part IV of subchapter M applies, or a 
    FASIT to which part V of subchapter M applies''.
        (4) Paragraph (1) of section 582(c) is amended by inserting ``, 
    and any regular interest in a FASIT,'' after ``REMIC''.
        (5) Subparagraph (E) of section 856(c)(6) is amended by adding 
    at the end the following new sentence: ``The principles of the 
    preceding provisions of this subparagraph shall apply to regular 
    interests in a FASIT.''.
        (6) Paragraph (3) of section 860G(a) is amended by striking 
    ``and'' at the end of subparagraph (B), by striking the period at 
    the end of subparagraph (C) and inserting ``, and'', and by 
    inserting after subparagraph (C) the following new subparagraph:
            ``(D) any regular interest in a FASIT which is transferred 
        to, or purchased by, the REMIC as described in clauses (i) and 
        (ii) of subparagraph (A) but only if 95 percent or more of the 
        value of the assets of such FASIT is at all times attributable 
        to obligations described in subparagraph (A) (without regard to 
        such clauses).''.
        (7) Subparagraph (C) of section 1202(e)(4) is amended by 
    striking ``or REMIC'' and inserting ``REMIC, or FASIT''.
        (8) Clause (xi) of section 7701(a)(19)(C) is amended to read as 
    follows:
                ``(xi) any regular or residual interest in a REMIC, and 
            any regular interest in a FASIT, but only in the proportion 
            which the assets of such REMIC or FASIT consist of property 
            described in any of the preceding clauses of this 
            subparagraph; except that if 95 percent or more of the 
            assets of such REMIC or FASIT are assets described in 
            clauses (i) through (x), the entire interest in the REMIC 
            or FASIT shall qualify.''.
        (9) Subparagraph (A) of section 7701(i)(2) is amended by 
    inserting ``or a FASIT'' after ``a REMIC''.
    (c) Clerical Amendment.--The table of parts for subchapter M of 
chapter 1 is amended by adding at the end the following new item:
        ``Part V. Financial asset securitization investment trusts.''.

    (d) Effective Date.--The amendments made by this section shall take 
effect on September 1, 1997.
    (e) Treatment of Existing Securitization Entities.--
        (1) In general.--In the case of the holder of the ownership 
    interest in a pre-effective date FASIT--
            (A) gain shall not be recognized under section 860L(d)(2) 
        of the Internal Revenue Code of 1986 on property deemed 
        contributed to the FASIT, and
            (B) gain shall not be recognized under section 860I of such 
        Code on property contributed to such FASIT,
    until such property (or portion thereof) ceases to be properly 
    allocable to a pre-FASIT interest.
        (2) Allocation of property to pre-fasit interest.--For purposes 
    of paragraph (1), property shall be allocated to a pre-FASIT 
    interest in such manner as the Secretary of the Treasury may 
    prescribe, except that all property in a FASIT shall be treated as 
    properly allocable to pre-FASIT interests if the fair market value 
    of all such property does not exceed 107 percent of the aggregate 
    principal amount of all outstanding pre-FASIT interests.
        (3) Definitions.--For purposes of this subsection--
            (A) Pre-effective date fasit.--The term ``pre-effective 
        date FASIT'' means any FASIT if the entity (with respect to 
        which the election under section 860L(a)(3) of such Code was 
        made) is in existence on August 31, 1997.
            (B) Pre-fasit interest.--The term ``pre-FASIT interest'' 
        means any interest in the entity referred to in subparagraph 
        (A) which was issued before the startup day (other than any 
        interest held by the holder of the ownership interest in the 
        FASIT).

                   Subtitle G--Technical Corrections

SEC. 1701. COORDINATION WITH OTHER SUBTITLES.

    For purposes of applying the amendments made by any subtitle of 
this title other than this subtitle, the provisions of this subtitle 
shall be treated as having been enacted immediately before the 
provisions of such other subtitles.
SEC. 1702. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT OF 1990.
    (a) Amendments Related to Subtitle A.--
        (1) Subparagraph (B) of section 59(j)(3) is amended by striking 
    ``section 1(i)(3)(B)'' and inserting ``section 1(g)(3)(B)''.
        (2) Clause (i) of section 151(d)(3)(C) is amended by striking 
    ``joint of a return'' and inserting ``joint return''.
    (b) Amendments Related to Subtitle B.--
        (1) Paragraph (1) of section 11212(e) of the Revenue 
    Reconciliation Act of 1990 is amended by striking ``Paragraph (1) 
    of section 6724(d)'' and inserting ``Subparagraph (B) of section 
    6724(d)(1)''.
        (2)(A) Subparagraph (B) of section 4093(c)(2), as in effect 
    before the amendments made by the Revenue Reconciliation Act of 
    1993, is amended by inserting before the period ``unless such fuel 
    is sold for exclusive use by a State or any political subdivision 
    thereof''.
        (B) Paragraph (4) of section 6427(l), as in effect before the 
    amendments made by the Revenue Reconciliation Act of 1993, is 
    amended by inserting before the period ``unless such fuel was used 
    by a State or any political subdivision thereof''.
        (3) Paragraph (1) of section 6416(b) is amended by striking 
    ``chapter 32 or by section 4051'' and inserting ``chapter 31 or 
    32''.
        (4) Section 7012 is amended--
            (A) by striking ``production or importation of gasoline'' 
        in paragraph (3) and inserting ``taxes on gasoline and diesel 
        fuel'', and
            (B) by striking paragraph (4) and redesignating paragraphs 
        (5) and (6) as paragraphs (4) and (5), respectively.
        (5) Subsection (c) of section 5041 is amended by striking 
    paragraph (6) and by inserting the following new paragraphs:
        ``(6) Credit for transferee in bond.--If--
            ``(A) wine produced by any person would be eligible for any 
        credit under paragraph (1) if removed by such person during the 
        calendar year,
            ``(B) wine produced by such person is removed during such 
        calendar year by any other person (hereafter in this paragraph 
        referred to as the `transferee') to whom such wine was 
        transferred in bond and who is liable for the tax imposed by 
        this section with respect to such wine, and
            ``(C) such producer holds title to such wine at the time of 
        its removal and provides to the transferee such information as 
        is necessary to properly determine the transferee's credit 
        under this paragraph,
    then, the transferee (and not the producer) shall be allowed the 
    credit under paragraph (1) which would be allowed to the producer 
    if the wine removed by the transferee had been removed by the 
    producer on that date.
        ``(7) Regulations.--The Secretary may prescribe such 
    regulations as may be necessary to carry out the purposes of this 
    subsection, including regulations--
            ``(A) to prevent the credit provided in this subsection 
        from benefiting any person who produces more than 250,000 wine 
        gallons of wine during a calendar year, and
            ``(B) to assure proper reduction of such credit for persons 
        producing more than 150,000 wine gallons of wine during a 
        calendar year.''.
        (6) Paragraph (3) of section 5061(b) is amended to read as 
    follows:
        ``(3) section 5041(f),''.
        (7) Section 5354 is amended by inserting ``(taking into account 
    the appropriate amount of credit with respect to such wine under 
    section 5041(c))'' after ``any one time''.
    (c) Amendments Related to Subtitle C.--
        (1) Paragraph (4) of section 56(g) is amended by redesignating 
    subparagraphs (I) and (J) as subparagraphs (H) and (I), 
    respectively.
        (2) Subparagraph (B) of section 6724(d)(1) is amended--
            (A) by striking ``or'' at the end of clause (xii), and
            (B) by striking the period at the end of clause (xiii) and 
        inserting ``, or''.
        (3) Subsection (g) of section 6302 is amended by in- serting 
    ``, 22,'' after ``chapters 21''.
        (4) The earnings and profits of any insurance company to which 
    section 11305(c)(3) of the Revenue Reconciliation Act of 1990 
    applies shall be determined without regard to any deduction allowed 
    under such section; except that, for pur- poses of applying 
    sections 56 and 902, and subpart F of part III of subchapter N of 
    chapter 1 of the Internal Revenue Code of 1986, such deduction 
    shall be taken into account.
        (5) Subparagraph (D) of section 6038A(e)(4) is amended--
            (A) by striking ``any transaction to which the summons 
        relates'' and inserting ``any affected taxable year'', and
            (B) by adding at the end thereof the following new 
        sentence: ``For purposes of this subparagraph, the term 
        `affected taxable year' means any taxable year if the 
        determination of the amount of tax imposed for such taxable 
        year is affected by the treatment of the transaction to which 
        the summons relates.''.
        (6) Subparagraph (A) of section 6621(c)(2) is amended by adding 
    at the end thereof the following new flush sentence:
        ``The preceding sentence shall be applied without regard to any 
        such letter or notice which is withdrawn by the Secretary.''.
        (7) Clause (i) of section 6621(c)(2)(B) is amended by striking 
    ``this subtitle'' and inserting ``this title''.
    (d) Amendments Related to Subtitle D.--
        (1) Notwithstanding section 11402(c) of the Revenue 
    Reconciliation Act of 1990, the amendment made by section 
    11402(b)(1) of such Act shall apply to taxable years ending after 
    December 31, 1989.
        (2) Clause (ii) of section 143(m)(4)(C) is amended--
            (A) by striking ``any month of the 10-year period'' and 
        inserting ``any year of the 4-year period'',
            (B) by striking ``succeeding months'' and inserting 
        ``succeeding years'', and
            (C) by striking ``over the remainder of such period (or, if 
        lesser, 5 years)'' and inserting ``to zero over the succeeding 
        5 years''.
    (e) Amendments Related to Subtitle E.--
        (1)(A) Clause (ii) of section 56(d)(1)(B) is amended to read as 
    follows:
                ``(ii) appropriate adjustments in the application of 
            section 172(b)(2) shall be made to take into account the 
            limitation of subparagraph (A).''.
        (B) For purposes of applying sections 56(g)(1) and 56(g)(3) of 
    the Internal Revenue Code of 1986 with respect to taxable years 
    beginning in 1991 and 1992, the reference in such sections to the 
    alternative tax net operating loss deduction shall be treated as 
    including a reference to the deduction under section 56(h) of such 
    Code as in effect before the amendments made by section 1915 of the 
    Energy Policy Act of 1992.
        (2) Clause (i) of section 613A(c)(3)(A) is amended by striking 
    ``the table contained in''.
        (3) Section 6501 is amended--
            (A) by striking subsection (m) (relating to deficiency 
        attributable to election under section 44B) and by 
        redesignating subsections (n) and (o) as subsections (m) and 
        (n), respectively, and
            (B) by striking ``section 40(f) or 51(j)'' in subsection 
        (m) (as redesignated by subparagraph (A)) and inserting 
        ``section 40(f), 43, or 51(j)''.
        (4) Subparagraph (C) of section 38(c)(2) (as in effect on the 
    day before the date of the enactment of the Revenue Reconciliation 
    Act of 1990) is amended by inserting before the period at the end 
    of the first sentence the following: ``and without regard to the 
    deduction under section 56(h)''.
        (5) The amendment made by section 1913(b)(2)(C)(i) of the 
    Energy Policy Act of 1992 shall apply to taxable years beginning 
    after December 31, 1990.
    (f) Amendments Related to Subtitle F.--
        (1)(A) Section 2701(a)(3) is amended by adding at the end 
    thereof the following new subparagraph:
            ``(C) Valuation of qualified payments where no liquidation, 
        etc. rights.--In the case of an applicable retained interest 
        which is described in subparagraph (B)(i) but not subparagraph 
        (B)(ii), the value of the distribution right shall be 
        determined without regard to this section.''.
        (B) Section 2701(a)(3)(B) is amended by inserting ``certain'' 
    before ``qualified'' in the heading thereof.
        (C) Sections 2701 (d)(1) and (d)(4) are each amended by 
    striking ``subsection (a)(3)(B)'' and inserting ``subsection (a)(3) 
    (B) or (C)''.
        (2) Clause (i) of section 2701(a)(4)(B) is amended by inserting 
    ``(or, to the extent provided in regulations, the rights as to 
    either income or capital)'' after ``income and capital''.
        (3)(A) Section 2701(b)(2) is amended by adding at the end 
    thereof the following new subparagraph:
            ``(C) Applicable family member.--For purposes of this 
        subsection, the term `applicable family member' includes any 
        lineal descendant of any parent of the transferor or the 
        transferor's spouse.''.
        (B) Section 2701(e)(3) is amended--
            (i) by striking subparagraph (B), and
            (ii) by striking so much of paragraph (3) as precedes 
        ``shall be treated as holding'' and inserting:
        ``(3) Attribution of indirect holdings and transfers.--An 
    individual''.
        (C) Section 2704(c)(3) is amended by striking ``section 
    2701(e)(3)(A)'' and inserting ``section 2701(e)(3)''.
        (4) Clause (i) of section 2701(c)(1)(B) is amended to read as 
    follows:
                ``(i) a right to distributions with respect to any 
            interest which is junior to the rights of the transferred 
            interest,''.
        (5)(A) Clause (i) of section 2701(c)(3)(C) is amended to read 
    as follows:
                ``(i) In general.--Payments under any interest held by 
            a transferor which (without regard to this subparagraph) 
            are qualified payments shall be treated as qualified 
            payments unless the transferor elects not to treat such 
            payments as qualified payments. Payments described in the 
            preceding sentence which are held by an applicable family 
            member shall be treated as qualified payments only if such 
            member elects to treat such payments as qualified 
            payments.''.
        (B) The first sentence of section 2701(c)(3)(C)(ii) is amended 
    to read as follows: ``A transferor or applicable family member 
    holding any distribution right which (without regard to this 
    subparagraph) is not a qualified payment may elect to treat such 
    right as a qualified payment, to be paid in the amounts and at the 
    times specified in such election.''.
        (C) The time for making an election under the second sentence 
    of section 2701(c)(3)(C)(i) of the Internal Revenue Code of 1986 
    (as amended by subparagraph (A)) shall not expire before the due 
    date (including extensions) for filing the transferor's return of 
    the tax imposed by section 2501 of such Code for the first calendar 
    year ending after the date of enactment.
        (6) Section 2701(d)(3)(A)(iii) is amended by striking ``the 
    period ending on the date of''.
        (7) Subclause (I) of section 2701(d)(3)(B)(ii) is amended by 
    inserting ``or the exclusion under section 2503(b),'' after 
    ``section 2523,''.
        (8) Section 2701(e)(5) is amended--
            (A) by striking ``such contribution to capital or such 
        redemption, recapitalization, or other change'' in subparagraph 
        (A) and inserting ``such transaction'', and
            (B) by striking ``the transfer'' in subparagraph (B) and 
        inserting ``such transaction''.
        (9) Section 2701(d)(4) is amended by adding at the end thereof 
    the following new subparagraph:
            ``(C) Transfer to transferors.--In the case of a taxable 
        event described in paragraph (3)(A)(ii) involving a transfer of 
        an applicable retained interest from an applicable family 
        member to a transferor, this subsection shall continue to apply 
        to the transferor during any period the transferor holds such 
        interest.''.
        (10) Section 2701(e)(6) is amended by inserting ``or to reflect 
    the application of subsection (d)'' before the period at the end 
    thereof.
        (11)(A) Section 2702(a)(3)(A) is amended--
            (i) by striking ``to the extent'' and inserting ``if'' in 
        clause (i),
            (ii) by striking ``or'' at the end of clause (i),
            (iii) by striking the period at the end of clause (ii) and 
        inserting ``, or'', and
            (iv) by adding at the end thereof the following new clause:
                ``(iii) to the extent that regulations provide that 
            such transfer is not inconsistent with the purposes of this 
            section.''.
        (B)(i) Section 2702(a)(3) is amended by striking ``incomplete 
    transfer'' each place it appears and inserting ``incomplete gift''.
        (ii) The heading for section 2702(a)(3)(B) is amended by 
    striking ``Incomplete transfer'' and inserting ``Incomplete gift''.
    (g) Amendments Related to Subtitle G.--
        (1)(A) Subsection (a) of section 1248 is amended--
            (i) by striking ``, or if a United States person receives a 
        distribution from a foreign corporation which, under section 
        302 or 331, is treated as an exchange of stock'' in paragraph 
        (1), and
            (ii) by adding at the end thereof the following new 
        sentence: ``For purposes of this section, a United States 
        person shall be treated as having sold or exchanged any stock 
        if, under any provision of this subtitle, such person is 
        treated as realizing gain from the sale or exchange of such 
        stock.''.
        (B) Paragraph (1) of section 1248(e) is amended by striking ``, 
    or receives a distribution from a domestic corporation which, under 
    section 302 or 331, is treated as an exchange of stock''.
        (C) Subparagraph (B) of section 1248(f)(1) is amended by 
    striking ``or 361(c)(1)'' and inserting ``355(c)(1), or 
    361(c)(1)''.
        (D) Paragraph (1) of section 1248(i) is amended to read as 
    follows:
        ``(1) In general.--If any shareholder of a 10-percent corporate 
    shareholder of a foreign corporation exchanges stock of the 10-
    percent corporate shareholder for stock of the foreign corporation, 
    such 10-percent corporate shareholder shall recognize gain in the 
    same manner as if the stock of the foreign corporation received in 
    such exchange had been--
            ``(A) issued to the 10-percent corporate share- holder, and
            ``(B) then distributed by the 10-percent corporate 
        shareholder to such shareholder in redemption or liquidation 
        (whichever is appropriate).
    The amount of gain recognized by such 10-percent corporate 
    shareholder under the preceding sentence shall not exceed the 
    amount treated as a dividend under this section.''.
        (2) Section 897 is amended by striking subsection (f).
        (3) Paragraph (13) of section 4975(d) is amended by striking 
    ``section 408(b)'' and inserting ``section 408(b)(12)''.
        (4) Clause (iii) of section 56(g)(4)(D) is amended by inserting 
    ``, but only with respect to taxable years beginning after December 
    31, 1989'' before the period at the end thereof.
        (5)(A) Paragraph (11) of section 11701(a) of the Revenue 
    Reconciliation Act of 1990 (and the amendment made by such 
    paragraph) are hereby repealed, and section 7108(r)(2) of the 
    Revenue Reconciliation Act of 1989 shall be applied as if such 
    paragraph (and amendment) had never been enacted.
        (B) Subparagraph (A) shall not apply to any building if the 
    owner of such building establishes to the satisfaction of the 
    Secretary of the Treasury or his delegate that such owner 
    reasonably relied on the amendment made by such paragraph (11).
    (h) Amendments Related to Subtitle H.--
        (1)(A) Clause (vi) of section 168(e)(3)(B) is amended by 
    striking ``or'' at the end of subclause (I), by striking the period 
    at the end of subclause (II) and inserting ``, or'', and by adding 
    at the end thereof the following new subclause:

                    ``(III) is described in section 48(l)(3)(A)(ix) (as 
                in effect on the day before the date of the enactment 
                of the Revenue Reconciliation Act of 1990).''.

        (B) Subparagraph (B) of section 168(e)(3) (relating to 5-year 
    property) is amended by adding at the end the following flush 
    sentence:
        ``Nothing in any provision of law shall be construed to treat 
        property as not being described in clause (vi)(I) (or the 
        corresponding provisions of prior law) by reason of being 
        public utility property (within the meaning of section 
        48(a)(3)).''.
        (C) Subparagraph (K) of section 168(g)(4) is amended by 
    striking ``section 48(a)(3)(A)(iii)'' and inserting ``section 
    48(l)(3)(A)(ix) (as in effect on the day before the date of the 
    enactment of the Revenue Reconciliation Act of 1990)''.
        (2) Clause (ii) of section 172(b)(1)(E) is amended by striking 
    ``subsection (m)'' and inserting ``subsection (h)''.
        (3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II), and 
    832(b)(5)(D)(ii)(II) are each amended by striking ``243(b)(5)'' and 
    inserting ``243(b)(2)''.
        (4) Subparagraph (A) of section 243(b)(3) is amended by 
    inserting ``of'' after ``In the case''.
        (5) The subsection heading for subsection (a) of section 280F 
    is amended by striking ``Investment Tax Credit and''.
        (6) Clause (i) of section 1504(c)(2)(B) is amended by inserting 
    ``section'' before ``243(b)(2)''.
        (7) Paragraph (3) of section 341(f) is amended by striking 
    ``351, 361, 371(a), or 374(a)'' and inserting ``351, or 361''.
        (8) Paragraph (2) of section 243(b) is amended to read as 
    follows:
        ``(2) Affiliated group.--For purposes of this subsection:
            ``(A) In general.--The term `affiliated group' has the 
        meaning given such term by section 1504(a), except that for 
        such purposes sections 1504(b)(2), 1504(b)(4), and 1504(c) 
        shall not apply.
            ``(B) Group must be consistent in foreign tax treatment.--
        The requirements of paragraph (1)(A) shall not be treated as 
        being met with respect to any dividend received by a 
        corporation if, for any taxable year which includes the day on 
        which such dividend is received--
                ``(i) 1 or more members of the affiliated group 
            referred to in paragraph (1)(A) choose to any extent to 
            take the benefits of section 901, and
                ``(ii) 1 or more other members of such group claim to 
            any extent a deduction for taxes otherwise creditable under 
            section 901.''.
        (9) The amendment made by section 11813(b)(17) of the Revenue 
    Reconciliation Act of 1990 shall be applied as if the material 
    stricken by such amendment included the closing parenthesis after 
    ``section 48(a)(5)''.
        (10) Paragraph (1) of section 179(d) is amended by striking 
    ``in a trade or business'' and inserting ``a trade or business''.
        (11) Subparagraph (E) of section 50(a)(2) is amended by 
    striking ``section 48(a)(5)(A)'' and inserting ``section 
    48(a)(5)''.
        (12) The amendment made by section 11801(c)(9)(G)(ii) of the 
    Revenue Reconciliation Act of 1990 shall be applied as if it struck 
    ``Section 422A(c)(2)'' and inserted ``Section 422(c)(2)''.
        (13) Subparagraph (B) of section 424(c)(3) is amended by 
    striking ``a qualified stock option, an incentive stock option, an 
    option granted under an employee stock purchase plan, or a 
    restricted stock option'' and inserting ``an incentive stock option 
    or an option granted under an employee stock purchase plan''.
        (14) Subparagraph (E) of section 1367(a)(2) is amended by 
    striking ``section 613A(c)(13)(B)'' and inserting ``section 
    613A(c)(11)(B)''.
        (15) Subparagraph (B) of section 460(e)(6) is amended by 
    striking ``section 167(k)'' and inserting ``section 
    168(e)(2)(A)(ii)''.
        (16) Subparagraph (C) of section 172(h)(4) is amended by 
    striking ``subsection (b)(1)(M)'' and inserting ``subsection 
    (b)(1)(E)''.
        (17) Section 6503 is amended--
            (A) by redesignating the subsection relating to extension 
        in case of certain summonses as subsection (j), and
            (B) by redesignating the subsection relating to cross 
        references as subsection (k).
        (18) Paragraph (4) of section 1250(e) is hereby repealed.
        (19) Paragraph (1) of section 179(d) is amended by adding at 
    the end the following new sentence: ``Such term shall not include 
    any property described in section 50(b) and shall not include air 
    conditioning or heating units.''.
    ``(i) Effective Date.--Except as otherwise expressly provided, any 
amendment made by this section shall take effect as if included in the 
provision of the Revenue Reconciliation Act of 1990 to which such 
amendment relates.''.
SEC. 1703. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT OF 1993.
    (a) Amendment Related to Section 13114.--Paragraph (2) of section 
1044(c) is amended to read as follows:
        ``(2) Purchase.--The taxpayer shall be considered to have 
    purchased any property if, but for subsection (d), the unadjusted 
    basis of such property would be its cost within the meaning of 
    section 1012.''.
    (b) Amendments Related to Section 13142.--
        (1) Subparagraph (B) of section 13142(b)(6) of the Revenue 
    Reconciliation Act of 1993 is amended to read as follows:
            ``(B) Full-time students, waiver authority, and prohibited 
        discrimination.--The amendments made by paragraphs (2), (3), 
        and (4) shall take effect on the date of the enactment of this 
        Act.''.
        (2) Subparagraph (C) of section 13142(b)(6) of such Act is 
    amended by striking ``paragraph (2)'' and inserting ``paragraph 
    (5)''.
    (c) Amendment Related to Section 13161.--
        (1) In general.--Subsection (e) of section 4001 (relating to 
    inflation adjustment) is amended to read as follows:
    ``(e) Inflation Adjustment.--
        ``(1) In general.--The $30,000 amount in subsection (a) and 
    section 4003(a) shall be increased by an amount equal to--
            ``(A) $30,000, multiplied by
            ``(B) the cost-of-living adjustment under section 1(f)(3) 
        for the calendar year in which the vehicle is sold, determined 
        by substituting `calendar year 1990' for `calendar year 1992' 
        in subparagraph (B) thereof.
        ``(2) Rounding.--If any amount as adjusted under paragraph (1) 
    is not a multiple of $2,000, such amount shall be rounded to the 
    next lowest multiple of $2,000.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect on the date of the enactment of this Act.
    (d) Amendment Related to Section 13201.--Clause (ii) of section 
135(b)(2)(B) is amended by inserting before the period at the end 
thereof the following: ``, determined by substituting `calendar year 
1989' for `calendar year 1992' in subparagraph (B) thereof''.
    (e) Amendments Related to Section 13203.--Subsection (a) of section 
59 is amended--
        (1) by striking ``the amount determined under section 
    55(b)(1)(A)'' in paragraph (1)(A) and (2)(A)(i) and inserting ``the 
    pre-credit tentative minimum tax'',
        (2) by striking ``specified in section 55(b)(1)(A)'' in 
    paragraph (1)(C) and inserting ``specified in subparagraph (A)(i) 
    or (B)(i) of section 55(b)(1) (whichever applies)'',
        (3) by striking ``which would be determined under section 
    55(b)(1)(A)'' in paragraph (2)(A)(ii) and inserting ``which would 
    be the pre-credit tentative minimum tax'', and
        (4) by adding at the end thereof the following new paragraph:
        ``(3) Pre-credit tentative minimum tax.--For purposes of this 
    subsection, the term `pre-credit tentative minimum tax' means--
            ``(A) in the case of a taxpayer other than a corporation, 
        the amount determined under the first sentence of section 
        55(b)(1)(A)(i), or
            ``(B) in the case of a corporation, the amount determined 
        under section 55(b)(1)(B)(i).''.
    (f) Amendment Related to Section 13221.--Sections 1201(a) and 
1561(a) are each amended by striking ``last sentence'' each place it 
appears and inserting ``last 2 sentences''.
    (g) Amendments Related to Section 13222.--
        (1) Subparagraph (B) of section 6033(e)(1) is amended by adding 
    at the end thereof the following new clause:
                ``(iii) Coordination with section 527(f).--This 
            subsection shall not apply to any amount on which tax is 
            imposed by reason of section 527(f).''.
        (2) Clause (i) of section 6033(e)(1)(B) is amended by striking 
    ``this subtitle'' and inserting ``section 501''.
    (h) Amendment Related to Section 13225.--Paragraph (3) of section 
6655(g) is amended by striking all that follows ```3rd month''' in the 
sentence following subparagraph (C) and inserting ``, subsection 
(e)(2)(A) shall be applied by substituting `2 months' for `3 months' in 
clause (i)(I), the election under clause (i) of subsection (e)(2)(C) 
may be made separately for each installment, and clause (ii) of 
subsection (e)(2)(C) shall not apply.''.
    (i) Amendments Related to Section 13231.--
        (1) Subparagraph (G) of section 904(d)(3) is amended by 
    striking ``section 951(a)(1)(B)'' and inserting ``subparagraph (B) 
    or (C) of section 951(a)(1)''.
        (2) Paragraph (1) of section 956A(b) is amended to read as 
    follows:
        ``(1) the amount (not including a deficit) referred to in 
    section 316(a)(1) to the extent such amount was accumulated in 
    prior taxable years beginning after September 30, 1993, and''.
        (3) Subsection (f) of section 956A is amended by inserting 
    before the period at the end thereof: ``and regulations 
    coordinating the provisions of subsections (c)(3)(A) and (d)''.
        (4) Subsection (b) of section 958 is amended by striking 
    ``956(b)(2)'' each place it appears and inserting ``956(c)(2)''.
        (5)(A) Subparagraph (A) of section 1297(d)(2) is amended by 
    striking ``The adjusted basis of any asset'' and inserting ``The 
    amount taken into account under section 1296(a)(2) with respect to 
    any asset''.
        (B) The paragraph heading of paragraph (2) of section 1297(d) 
    is amended to read as follows:
        ``(2) Amount taken into account.--''.
        (6) Subsection (e) of section 1297 is amended by inserting 
    ``For purposes of this part--'' after the subsection heading.
    (j) Amendment Related to Section 13241.--Subparagraph (B) of 
section 40(e)(1) is amended to read as follows:
            ``(B) for any period before January 1, 2001, during which 
        the rates of tax under section 4081(a)(2)(A) are 4.3 cents per 
        gallon.''.
    (k) Amendment Related to Section 13242.--Paragraph (4) of section 
6427(f) is amended by striking ``1995'' and inserting ``1999''.
    (l) Amendment Related to Section 13261.--Clause (iii) of section 
13261(g)(2)(A) of the Revenue Reconciliation Act of 1993 is amended by 
striking ``by the taxpayer'' and inserting ``by the taxpayer or a 
related person''.
    (m) Amendment Related to Section 13301.--Subparagraph (B) of 
section 1397B(d)(5) is amended by striking ``preceding''.
    (n) Clerical Amendments.--
        (1) Subsection (d) of section 39 is amended--
            (A) by striking ``45'' in the heading of paragraph (5) and 
        inserting ``45A'', and
            (B) by striking ``45'' in the heading of paragraph (6) and 
        inserting ``45B''.
        (2) Subparagraph (A) of section 108(d)(9) is amended by 
    striking ``paragraph (3)(B)'' and inserting ``paragraph (3)(C)''.
        (3) Subparagraph (C) of section 143(d)(2) is amended by 
    striking the period at the end thereof and inserting a comma.
        (4) Clause (ii) of section 163(j)(6)(E) is amended by striking 
    ``which is a'' and inserting ``which is''.
        (5) Subparagraph (A) of section 1017(b)(4) is amended by 
    striking ``subsection (b)(2)(D)'' and inserting ``subsection 
    (b)(2)(E)''.
        (6) So much of section 1245(a)(3) as precedes subparagraph (A) 
    thereof is amended to read as follows:
        ``(3) Section 1245 property.--For purposes of this section, the 
    term `section 1245 property' means any property which is or has 
    been property of a character subject to the allowance for 
    depreciation provided in section 167 and is either--''.
        (7) Paragraph (2) of section 1394(e) is amended--
            (A) by striking ``(i)'' and inserting ``(A)'', and
            (B) by striking ``(ii)'' and inserting ``(B)''.
        (8) Subsection (m) of section 6501 (as redesignated by section 
    1602) is amended by striking ``or 51(j)'' and inserting ``45B, or 
    51(j)''.
        (9)(A) The section 6714 added by section 13242(b)(1) of the 
    Revenue Reconciliation Act of 1993 is hereby redesignated as 
    section 6715.
        (B) The table of sections for part I of subchapter B of chapter 
    68 is amended by striking ``6714'' in the item added by such 
    section 13242(b)(2) of such Act and inserting ``6715''.
        (10) Paragraph (2) of section 9502(b) is amended by inserting 
    ``and before'' after ``1982,''.
        (11) Subsection (a)(3) of section 13206 of the Revenue 
    Reconciliation Act of 1993 is amended by striking ``this section'' 
    and inserting ``this subsection''.
        (12) Paragraph (1) of section 13215(c) of the Revenue 
    Reconciliation Act of 1993 is amended by striking ``Public Law 92-
    21'' and inserting ``Public Law 98-21''.
        (13) Paragraph (2) of section 13311(e) of the Revenue 
    Reconciliation Act of 1993 is amended by striking ``section 
    1393(a)(3)'' and inserting ``section 1393(a)(2)''.
        (14) Subparagraph (B) of section 117(d)(2) is amended by 
    striking ``section 132(f)'' and inserting ``section 132(h)''.
    (o) Effective Date.--Any amendment made by this section shall take 
effect as if included in the provision of the Revenue Reconciliation 
Act of 1993 to which such amendment relates.

SEC. 1704. MISCELLANEOUS PROVISIONS.

    (a) Application of Amendments Made by Title XII of Omnibus Budget 
Reconciliation Act of 1990.--Except as otherwise expressly provided, 
whenever in title XII of the Omnibus Budget Reconciliation Act of 1990 
an amendment or repeal is expressed in terms of an amendment to, or 
repeal of, a section or other provision, the reference shall be 
considered to be made to a section or other provision of the Internal 
Revenue Code of 1986.
    (b) Treatment of Certain Amounts Under Hedge Bond Rules.--
        (1) In general.--Clause (iii) of section 149(g)(3)(B) is 
    amended to read as follows:
                ``(iii) Amounts held pending reinvestment or 
            redemption.--Amounts held for not more than 30 days pending 
            reinvestment or bond redemption shall be treated as 
            invested in bonds described in clause (i).''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect as if included in the amendments made by section 7651 
    of the Omnibus Budget Reconciliation Act of 1989.
    (c) Treatment of Certain Distributions Under Section 1445.--
        (1) In general.--Paragraph (3) of section 1445(e) is amended by 
    adding at the end thereof the following new sentence: ``Rules 
    similar to the rules of the preceding provisions of this paragraph 
    shall apply in the case of any distribution to which section 301 
    applies and which is not made out of the earnings and profits of 
    such a domestic corporation.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to distributions after the date of the enactment of this Act.
    (d) Treatment of Certain Credits Under Section 469.--
        (1) In general.--Subparagraph (B) of section 469(c)(3) is 
    amended by adding at the end thereof the following new sentence: 
    ``If the preceding sentence applies to the net income from any 
    property for any taxable year, any credits allowable under subpart 
    B (other than section 27(a)) or D of part IV of subchapter A for 
    such taxable year which are attributable to such property shall be 
    treated as credits not from a passive activity to the extent the 
    amount of such credits does not exceed the regular tax liability of 
    the taxpayer for the taxable year which is allocable to such net 
    income.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to taxable years beginning after December 31, 1986.
    (e) Treatment of Dispositions Under Passive Loss Rules.--
        (1) In general.--Subparagraph (A) of section 469(g)(1) is 
    amended to read as follows:
            ``(A) In general.--If all gain or loss realized on such 
        disposition is recognized, the excess of--
                ``(i) any loss from such activity for such taxable year 
            (determined after the application of subsection (b)), over
                ``(ii) any net income or gain for such taxable year 
            from all other passive activities (determined after the 
            application of subsection (b)),
        shall be treated as a loss which is not from a passive 
        activity.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to taxable years beginning after December 31, 1986.
    (f) Miscellaneous Amendments to Foreign Provisions.--
        (1) Coordination of unified estate tax credit with treaties.--
    Subparagraph (A) of section 2102(c)(3) is amended by adding at the 
    end thereof the following new sentence: ``For purposes of the 
    preceding sentence, property shall not be treated as situated in 
    the United States if such property is exempt from the tax imposed 
    by this subchapter under any treaty obligation of the United 
    States.''.
        (2) Treatment of certain interest paid to related person.--
            (A) Subparagraph (B) of section 163(j)(1) is amended by 
        inserting before the period at the end thereof the following: 
        ``(and clause (ii) of paragraph (2)(A) shall not apply for 
        purposes of applying this subsection to the amount so 
        treated)''.
            (B) Subsection (j) of section 163 is amended by 
        redesignating paragraph (7) as paragraph (8) and by inserting 
        after paragraph (6) the following new paragraph:
        ``(7) Coordination with passive loss rules, etc.--This 
    subsection shall be applied before sections 465 and 469.''.
            (C) The amendments made by this paragraph shall apply as if 
        included in the amendments made by section 7210(a) of the 
        Revenue Reconciliation Act of 1989.
        (3) Treatment of interest allocable to effectively connected 
    income.--
            (A) In general.--
                (i) Subparagraph (B) of section 884(f)(1) is amended by 
            striking ``to the extent'' and all that follows down 
            through ``subparagraph (A)'' and inserting ``to the extent 
            that the allocable interest exceeds the interest described 
            in subparagraph (A)''.
                (ii) The second sentence of section 884(f)(1) is 
            amended by striking ``reasonably expected'' and all that 
            follows down through the period at the end thereof and 
            inserting ``reasonably expected to be allocable 
            interest.''.
                (iii) Paragraph (2) of section 884(f) is amended to 
            read as follows:
        ``(2) Allocable interest.--For purposes of this subsection, the 
    term `allocable interest' means any interest which is allocable to 
    income which is effectively connected (or treated as effectively 
    connected) with the conduct of a trade or business in the United 
    States.''.
            (B) Effective date.--The amendments made by subparagraph 
        (A) shall take effect as if included in the amendments made by 
        section 1241(a) of the Tax Reform Act of 1986.
        (4) Clarification of source rule.--
            (A) In general.--Paragraph (2) of section 865(b) is amended 
        by striking ``863(b)'' and inserting ``863''.
            (B) Effective date.--The amendment made by subparagraph (A) 
        shall take effect as if included in the amendments made by 
        section 1211 of the Tax Reform Act of 1986.
        (5) Repeal of obsolete provisions.--
            (A) Paragraph (1) of section 6038(a) is amended by striking 
        ``, and'' at the end of subparagraph (E) and inserting a 
        period, and by striking subparagraph (F).
            (B) Subsection (b) of section 6038A is amended by adding 
        ``and'' at the end of paragraph (2), by striking ``, and'' at 
        the end of paragraph (3) and inserting a period, and by 
        striking paragraph (4).
    (g) Clarification of Treatment of Medicare Entitlement Under COBRA 
Provisions.--
        (1) In general.--
            (A) Subclause (V) of section 4980B(f)(2)(B)(i) is amended 
        to read as follows:

                    ``(V) Medicare entitlement followed by qualifying 
                event.--In the case of a qualifying event described in 
                paragraph (3)(B) that occurs less than 18 months after 
                the date the covered employee became entitled to 
                benefits under title XVIII of the Social Security Act, 
                the period of coverage for qualified beneficiaries 
                other than the covered employee shall not terminate 
                under this clause before the close of the 36-month 
                period beginning on the date the covered employee 
                became so entitled.''.

            (B) Clause (v) of section 602(2)(A) of the Employee 
        Retirement Income Security Act of 1974 is amended to read as 
        follows:
                ``(v) Medicare entitlement followed by qualifying 
            event.--In the case of a qualifying event described in 
            section 603(2) that occurs less than 18 months after the 
            date the covered employee became entitled to benefits under 
            title XVIII of the Social Security Act, the period of 
            coverage for qualified beneficiaries other than the covered 
            employee shall not terminate under this subparagraph before 
            the close of the 36-month period beginning on the date the 
            covered employee became so entitled.''.
            (C) Clause (iv) of section 2202(2)(A) of the Public Health 
        Service Act is amended to read as follows:
                ``(iv) Medicare entitlement followed by qualifying 
            event.--In the case of a qualifying event described in 
            section 2203(2) that occurs less than 18 months after the 
            date the covered employee became entitled to benefits under 
            title XVIII of the Social Security Act, the period of 
            coverage for qualified beneficiaries other than the covered 
            employee shall not terminate under this subparagraph before 
            the close of the 36-month period beginning on the date the 
            covered employee became so entitled.''.
        (2) Effective date.--The amendments made by this subsection 
    shall apply to plan years beginning after December 31, 1989.
    (h) Treatment of Certain REMIC Inclusions.--
        (1) In general.--Subsection (a) of section 860E is amended by 
    adding at the end thereof the following new paragraph:
        ``(6) Coordination with minimum tax.--For purposes of part VI 
    of subchapter A of this chapter--
            ``(A) the reference in section 55(b)(2) to taxable income 
        shall be treated as a reference to taxable income determined 
        without regard to this subsection,
            ``(B) the alternative minimum taxable income of any holder 
        of a residual interest in a REMIC for any taxable year shall in 
        no event be less than the excess inclusion for such taxable 
        year, and
            ``(C) any excess inclusion shall be disregarded for 
        purposes of computing the alternative tax net operating loss 
        deduction.
    The preceding sentence shall not apply to any organization to which 
    section 593 applies, except to the extent provided in regulations 
    prescribed by the Secretary under paragraph (2).''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect as if included in the amendments made by section 671 of 
    the Tax Reform Act of 1986 unless the taxpayer elects to apply such 
    amendment only to taxable years beginning after the date of the 
    enactment of this Act.
    (i) Exemption From Harbor Maintenance Tax for Certain Passengers.--
        (1) In general.--Subparagraph (D) of section 4462(b)(1) 
    (relating to special rule for Alaska, Hawaii, and possessions) is 
    amended by inserting before the period the following: ``, or 
    passengers transported on United States flag vessels operating 
    solely within the State waters of Alaska or Hawaii and adjacent 
    international waters''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect as if included in the amendments made by section 
    1402(a) of the Harbor Maintenance Revenue Act of 1986.
    (j) Amendments Related to Revenue Provisions of Energy Policy Act 
of 1992.--
        (1) Effective with respect to taxable years beginning after 
    December 31, 1990, subclause (II) of section 53(d)(1)(B)(iv) is 
    amended to read as follows:

                    ``(II) the adjusted net minimum tax for any taxable 
                year is the amount of the net minimum tax for such year 
                increased in the manner provided in clause (iii).''.

        (2) Subsection (g) of section 179A is redesignated as 
    subsection (f).
        (3) Subparagraph (E) of section 6724(d)(3) is amended by 
    striking ``section 6109(f)'' and inserting ``section 6109(h)''.
        (4)(A) Subsection (d) of section 30 is amended--
            (i) by inserting ``(determined without regard to subsection 
        (b)(3))'' before the period at the end of paragraph (1) 
        thereof, and
            (ii) by adding at the end thereof the following new 
        paragraph:
        ``(4) Election to not take credit.--No credit shall be allowed 
    under subsection (a) for any vehicle if the taxpayer elects to not 
    have this section apply to such vehicle.''.
        (B) Subsection (m) of section 6501 (as redesignated by section 
    1602) is amended by striking ``section 40(f)'' and inserting 
    ``sections 30(d)(4), 40(f)''.
        (5) Subclause (III) of section 501(c)(21)(D)(ii) is amended by 
    striking ``section 101(6)'' and inserting ``section 101(7)'' and by 
    striking ``1752(6)'' and inserting ``1752(7)''.
        (6) Paragraph (1) of section 1917(b) of the Energy Policy Act 
    of 1992 shall be applied as if ``at a rate'' appeared instead of 
    ``at the rate'' in the material proposed to be stricken.
        (7) Paragraph (2) of section 1921(b) of the Energy Policy Act 
    of 1992 shall be applied as if a comma appeared after ``(2)'' in 
    the material proposed to be stricken.
        (8) Subsection (a) of section 1937 of the Energy Policy Act of 
    1992 shall be applied as if ``Subpart B'' appeared instead of 
    ``Subpart C''.
    (k) Treatment of Qualified Football Coaches Plan.--
        (1) In general.--For purposes of the Internal Revenue Code of 
    1986, a qualified football coaches plan--
            (A) shall be treated as a multiemployer collectively 
        bargained plan, and
            (B) notwithstanding section 401(k)(4)(B) of such Code, may 
        include a qualified cash and deferred arrangement under section 
        401(k) of such Code.
        (2) Qualified football coaches plan.--For purposes of this 
    subsection, the term ``qualified football coaches plan'' means any 
    defined contribution plan which is established and maintained by an 
    organization--
            (A) which is described in section 501(c) of such Code,
            (B) the membership of which consists entirely of 
        individuals who primarily coach football as full-time employees 
        of 4-year colleges or universities described in section 
        170(b)(1)(A)(ii) of such Code, and
            (C) which was in existence on September 18, 1986.
        (3) Effective date.--This subsection shall apply to years 
    beginning after December 22, 1987.
    (l) Determination of Unrecovered Investment in Annuity Contract.--
        (1) In general.--Subparagraph (A) of section 72(b)(4) is 
    amended by inserting ``(determined without regard to subsection 
    (c)(2))'' after ``contract''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect as if included in the amendments made by section 
    1122(c) of the Tax Reform Act of 1986.
    (m) Modifications to Election To Include Child's Income on Parent's 
Return.--
        (1) Eligibility for election.--Clause (ii) of section 
    1(g)(7)(A) (relating to election to include certain unearned income 
    of child on parent's return) is amended to read as follows:
                ``(ii) such gross income is more than the amount 
            described in paragraph (4)(A)(ii)(I) and less than 10 times 
            the amount so described,''.
        (2) Computation of tax.--Subparagraph (B) of section 1(g)(7) 
    (relating to income included on parent's return) is amended--
            (A) by striking ``$1,000'' in clause (i) and inserting 
        ``twice the amount described in paragraph (4)(A)(ii)(I)'', and
            (B) by amending subclause (II) of clause (ii) to read as 
        follows:

                    ``(II) for each such child, 15 percent of the 
                lesser of the amount described in paragraph 
                (4)(A)(ii)(I) or the excess of the gross income of such 
                child over the amount so described, and''.

        (3) Minimum tax.--Subparagraph (B) of section 59(j)(1) is 
    amended by striking ``$1,000'' and inserting ``twice the amount in 
    effect for the taxable year under section 63(c)(5)(A)''.
        (4) Effective date.--The amendments made by this subsection 
    shall apply to taxable years beginning after December 31, 1995.
    (n) Treatment of Certain Veterans' Reemployment Rights.--
        (1) In general.--Section 414 is amended by adding at the end 
    the following new subsection:
    ``(u) Special Rules Relating to Veterans' Reemployment Rights Under 
USERRA.--
        ``(1) Treatment of certain contributions made pursuant to 
    veterans' reemployment rights.--If any contribution is made by an 
    employer or an employee under an individual account plan with 
    respect to an employee, or by an employee to a defined benefit plan 
    that provides for employee contributions, and such contribution is 
    required by reason of such employee's rights under chapter 43 of 
    title 38, United States Code, resulting from qualified military 
    service, then--
            ``(A) such contribution shall not be subject to any 
        otherwise applicable limitation contained in section 402(g), 
        402(h), 403(b), 404(a), 404(h), 408, 415, or 457, and shall not 
        be taken into account in applying such limitations to other 
        contributions or benefits under such plan or any other plan, 
        with respect to the year in which the contribution is made,
            ``(B) such contribution shall be subject to the limitations 
        referred to in subparagraph (A) with respect to the year to 
        which the contribution relates (in accordance with rules 
        prescribed by the Secretary), and
            ``(C) such plan shall not be treated as failing to meet the 
        requirements of section 401(a)(4), 401(a)(26), 401(k)(3), 
        401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k)(3), 
        408(k)(6), 408(p), 410(b), or 416 by reason of the making of 
        (or the right to make) such contribution.
    For purposes of the preceding sentence, any elective deferral or 
    employee contribution made under paragraph (2) shall be treated as 
    required by reason of the employee's rights under such chapter 43.
        ``(2) Reemployment rights under userra with respect to elective 
    deferrals.--
            ``(A) In general.--For purposes of this subchapter and 
        section 457, if an employee is entitled to the benefits of 
        chapter 43 of title 38, United States Code, with respect to any 
        plan which provides for elective deferrals, the employer 
        sponsoring the plan shall be treated as meeting the 
        requirements of such chapter 43 with respect to such elective 
        deferrals only if such employer--
                ``(i) permits such employee to make additional elective 
            deferrals under such plan (in the amount determined under 
            subparagraph (B) or such lesser amount as is elected by the 
            employee) during the period which begins on the date of the 
            reemployment of such employee with such employer and has 
            the same length as the lesser of--

                    ``(I) the product of 3 and the period of qualified 
                military service which resulted in such rights, and
                    ``(II) 5 years, and

                ``(ii) makes a matching contribution with respect to 
            any additional elective deferral made pursuant to clause 
            (i) which would have been required had such deferral 
            actually been made during the period of such qualified 
            military service.
            ``(B) Amount of makeup required.--The amount determined 
        under this subparagraph with respect to any plan is the maximum 
        amount of the elective deferrals that the individual would have 
        been permitted to make under the plan in accordance with the 
        limitations referred to in paragraph (1)(A) during the period 
        of qualified military service if the individual had continued 
        to be employed by the employer during such period and received 
        compensation as determined under paragraph (7). Proper 
        adjustment shall be made to the amount determined under the 
        preceding sentence for any elective deferrals actually made 
        during the period of such qualified military service.
            ``(C) Elective deferral.--For purposes of this paragraph, 
        the term `elective deferral' has the meaning given such term by 
        section 402(g)(3); except that such term shall include any 
        deferral of compensation under an eligible deferred 
        compensation plan (as defined in section 457(b)).
            ``(D) After-tax employee contributions.--References in 
        subparagraphs (A) and (B) to elective deferrals shall be 
        treated as including references to employee contributions.
        ``(3) Certain retroactive adjustments not required.--For 
    purposes of this subchapter and subchapter E, no provision of 
    chapter 43 of title 38, United States Code, shall be construed as 
    requiring--
            ``(A) any crediting of earnings to an employee with respect 
        to any contribution before such contribution is actually made, 
        or
            ``(B) any allocation of any forfeiture with respect to the 
        period of qualified military service.
        ``(4) Loan repayment suspensions permitted.--If any plan 
    suspends the obligation to repay any loan made to an employee from 
    such plan for any part of any period during which such employee is 
    performing service in the uniformed services (as defined in chapter 
    43 of title 38, United States Code), whether or not qualified 
    military service, such suspension shall not be taken into account 
    for purposes of section 72(p), 401(a), or 4975(d)(1).
        ``(5) Qualified military service.--For purposes of this 
    subsection, the term `qualified military service' means any service 
    in the uniformed services (as defined in chapter 43 of title 38, 
    United States Code) by any individual if such individual is 
    entitled to reemployment rights under such chapter with respect to 
    such service.
        ``(6) Individual account plan.--For purposes of this 
    subsection, the term `individual account plan' means any defined 
    contribution plan (including any tax-sheltered annuity plan under 
    section 403(b), any simplified employee pension under section 
    408(k), any qualified salary reduction arrangement under section 
    408(p), and any eligible deferred compensation plan (as defined in 
    section 457(b)).
        ``(7) Compensation.--For purposes of sections 403(b)(3), 
    415(c)(3), and 457(e)(5), an employee who is in qualified military 
    service shall be treated as receiving compensation from the 
    employer during such period of qualified military service equal 
    to--
            ``(A) the compensation the employee would have received 
        during such period if the employee were not in qualified 
        military service, determined based on the rate of pay the 
        employee would have received from the employer but for absence 
        during the period of qualified military service, or
            ``(B) if the compensation the employee would have received 
        during such period was not reasonably certain, the employee's 
        average compensation from the employer during the 12-month 
        period immediately preceding the qualified military service 
        (or, if shorter, the period of employment immediately preceding 
        the qualified military service).
        ``(8) USERRA requirements for qualified retirement plans.--For 
    purposes of this subchapter and section 457, an employer sponsoring 
    a retirement plan shall be treated as meeting the requirements of 
    chapter 43 of title 38, United States Code, only if each of the 
    following requirements is met:
            ``(A) An individual reemployed under such chapter is 
        treated with respect to such plan as not having incurred a 
        break in service with the employer maintaining the plan by 
        reason of such individual's period of qualified military 
        service.
            ``(B) Each period of qualified military service served by 
        an individual is, upon reemployment under such chapter, deemed 
        with respect to such plan to constitute service with the 
        employer maintaining the plan for the purpose of determining 
        the nonforfeitability of the individual's accrued benefits 
        under such plan and for the purpose of determining the accrual 
        of benefits under such plan.
            ``(C) An individual reemployed under such chapter is 
        entitled to accrued benefits that are contingent on the making 
        of, or derived from, employee contributions or elective 
        deferrals only to the extent the individual makes payment to 
        the plan with respect to such contributions or deferrals. No 
        such payment may exceed the amount the individual would have 
        been permitted or required to contribute had the individual 
        remained continuously employed by the employer throughout the 
        period of qualified military service. Any payment to such plan 
        shall be made during the period beginning with the date of 
        reemployment and whose duration is 3 times the period of the 
        qualified military service (but not greater than 5 years).
        ``(9) Plans not subject to title 38.--This subsection shall not 
    apply to any retirement plan to which chapter 43 of title 38, 
    United States Code, does not apply.
        ``(10) References.--For purposes of this section, any reference 
    to chapter 43 of title 38, United States Code, shall be treated as 
    a reference to such chapter as in effect on December 12, 1994 
    (without regard to any subsequent amendment).''.
        (2) Amendment to erisa.--Section 408(b)(1) of the Employee 
    Retirement Income Security Act of 1974 (29 U.S.C. 1148(b)) is 
    amended by adding at the end the following new sentence: ``A loan 
    made by a plan shall not fail to meet the requirements of the 
    preceding sentence by reason of a loan repayment suspension 
    described under section 414(u)(4) of the Internal Revenue Code of 
    1986.''.
        (3) Effective date.--The amendments made by this subsection 
    shall be effective as of December 12, 1994.
    (o) Reporting of Real Estate Transactions.--
        (1) In general.--Paragraph (3) of section 6045(e) (relating to 
    prohibition of separate charge for filing return) is amended by 
    adding at the end the following new sentence: ``Nothing in this 
    paragraph shall be construed to prohibit the real estate reporting 
    person from taking into account its cost of complying with such 
    requirement in establishing its charge (other than a separate 
    charge for complying with such requirement) to any customer for 
    performing services in the case of a real estate transaction.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect as if included in section 1015(e)(2)(A) of the 
    Technical and Miscellaneous Revenue Act of 1988.
    (p) Clarification of Denial of Deduction for Stock Redemption 
Expenses.
        (1) In general.--Paragraph (1) of section 162(k) is amended by 
    striking ``the redemption of its stock'' and inserting ``the 
    reacquisition of its stock or of the stock of any related person 
    (as defined in section 465(b)(3)(C))''.
        (2) Certain deductions permitted.--Subparagraph (A) of section 
    162(k)(2) is amended by striking ``or'' at the end of clause (i), 
    by redesignating clause (ii) as clause (iii), and by inserting 
    after clause (i) the following new clause:
                ``(ii) deduction for amounts which are properly 
            allocable to indebtedness and amortized over the term of 
            such indebtedness, or''.
        (3) Clerical amendment.--The subsection heading for subsection 
    (k) of section 162 is amended by striking ``Redemption'' and 
    inserting ``Reacquisition''.
        (4) Effective date.--
            (A) In general.--Except as provided in subparagraph (B), 
        the amendments made by this subsection shall apply to amounts 
        paid or incurred after September 13, 1995, in taxable years 
        ending after such date.
            (B) Paragraph (2).--The amendment made by paragraph (2) 
        shall take effect as if included in the amendment made by 
        section 613 of the Tax Reform Act of 1986.
    (q) Clerical Amendment to Section 404.--
        (1) In general.--Paragraph (1) of section 404(j) is amended by 
    striking ``(10)'' and inserting ``(9)''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect as if included in the amendments made by section 
    713(d)(4)(A) of the Deficit Reduction Act of 1984.
    (r) Passive Income Not To Include FSC Income, Etc.--
        (1) In general.--Paragraph (2) of section 1296(b) is amended by 
    striking ``or'' at the end of subparagraph (B), by striking the 
    period at the end of subparagraph (C) and inserting ``, or'', and 
    by inserting after subparagraph (C) the following new subparagraph:
            ``(D) which is foreign trade income of an FSC or export 
        trade income of an export trade corporation (as defined in 
        section 971).''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    take effect as if included in the amendments made by section 1235 
    of the Tax Reform Act of 1986.
    (s) Technical Correction of Intermediate Sanctions Provisions.--
        (1) Subparagraph (C) of section 6652(c)(1) is amended by 
    striking ``$10'' and inserting ``$20'', and by striking ``$5,000'' 
    and inserting ``$10,000''.
        (2) Subparagraph (D) of section 6652(c)(1) is amended by 
    striking ``$10'' and inserting ``$20''.
    (t) Miscellaneous Clerical Amendments.--
        (1) Subclause (II) of section 56(g)(4)(C)(ii) is amended by 
    striking ``of the subclause'' and inserting ``of subclause''.
        (2) Paragraph (2) of section 72(m) is amended by inserting 
    ``and'' at the end of subparagraph (A), by striking subparagraph 
    (B), and by redesignating subparagraph (C) as subpara- graph (B).
        (3) Paragraph (2) of section 86(b) is amended by striking 
    ``adusted'' and inserting ``adjusted''.
        (4)(A) The heading for section 112 is amended by striking 
    ``combat pay'' and inserting ``combat zone compensation''.
        (B) The item relating to section 112 in the table of sections 
    for part III of subchapter B of chapter 1 is amended by striking 
    ``combat pay'' and inserting ``combat zone compensation''.
        (C) Paragraph (1) of section 3401(a) is amended by striking 
    ``combat pay'' and inserting ``combat zone compensation''.
        (5) Clause (i) of section 172(h)(3)(B) is amended by striking 
    the comma at the end thereof and inserting a period.
        (6) Clause (ii) of section 543(a)(2)(B) is amended by striking 
    ``section 563(c)'' and inserting ``section 563(d)''.
        (7) Paragraph (1) of section 958(a) is amended by striking 
    ``sections 955(b)(1) (A) and (B), 955(c)(2)(A)(ii), and 960(a)(1)'' 
    and inserting ``section 960(a)(1)''.
        (8) Subsection (g) of section 642 is amended by striking 
    ``under 2621(a)(2)'' and inserting ``under section 2621(a)(2)''.
        (9) Section 1463 is amended by striking ``this subsection'' and 
    inserting ``this section''.
        (10) Subsection (k) of section 3306 is amended by inserting a 
    period at the end thereof.
        (11) The item relating to section 4472 in the table of sections 
    for subchapter B of chapter 36 is amended by striking ``and special 
    rules''.
        (12) Paragraph (3) of section 5134(c) is amended by striking 
    ``section 6662(a)'' and inserting ``section 6665(a)''.
        (13) Paragraph (2) of section 5206(f) is amended by striking 
    ``section 5(e)'' and inserting ``section 105(e)''.
        (14) Paragraph (1) of section 6050B(c) is amended by striking 
    ``section 85(c)'' and inserting ``section 85(b)''.
        (15) Subsection (k) of section 6166 is amended by striking 
    paragraph (6).
        (16) Subsection (e) of section 6214 is amended to read as 
    follows:
    ``(e) Cross Reference.--
          ``For provision giving Tax Court jurisdiction to order a 
        refund of an overpayment and to award sanctions, see section 
        6512(b)(2).''.

        (17) The section heading for section 6043 is amended by 
    striking the semicolon and inserting a comma.
        (18) The item relating to section 6043 in the table of sections 
    for subpart B of part III of subchapter A of chapter 61 is amended 
    by striking the semicolon and inserting a comma.
        (19) The table of sections for part I of subchapter A of 
    chapter 68 is amended by striking the item relating to section 
    6662.
        (20)(A) Section 7232 is amended--
            (i) by striking ``lubricating oil,'' in the heading, and
            (ii) by striking ``lubricating oil,'' in the text.
        (B) The table of sections for part II of subchapter A of 
    chapter 75 is amended by striking ``lubricating oil,'' in the item 
    relating to section 7232.
        (21) Paragraph (1) of section 6701(a) of the Omnibus Budget 
    Reconciliation Act of 1989 is amended by striking ``subclause 
    (IV)'' and inserting ``subclause (V)''.
        (22) Clause (ii) of section 7304(a)(2)(D) of such Act is 
    amended by striking ``subsection (c)(2)'' and inserting 
    ``subsection (c)''.
        (23) Paragraph (1) of section 7646(b) of such Act is amended by 
    striking ``section 6050H(b)(1)'' and inserting ``section 
    6050H(b)(2)''.
        (24) Paragraph (10) of section 7721(c) of such Act is amended 
    by striking ``section 6662(b)(2)(C)(ii)'' and inserting ``section 
    6661(b)(2)(C)(ii)''.
        (25) Subparagraph (A) of section 7811(i)(3) of such Act is 
    amended by inserting ``the first place it appears'' before ``in 
    clause (i)''.
        (26) Paragraph (10) of section 7841(d) of such Act is amended 
    by striking ``section 381(a)'' and inserting ``section 381(c)''.
        (27) Paragraph (2) of section 7861(c) of such Act is amended by 
    inserting ``the second place it appears'' before ``and inserting''.
        (28) Paragraph (1) of section 460(b) is amended by striking 
    ``the look-back method of paragraph (3)'' and inserting ``the look-
    back method of paragraph (2)''.
        (29) Subparagraph (C) of section 50(a)(2) is amended by 
    striking ``subsection (c)(4)'' and inserting ``subsection (d)(5)''.
        (30) Subparagraph (B) of section 172(h)(4) is amended by 
    striking the material following the heading and preceding clause 
    (i) and inserting ``For purposes of subsection (b)(2)--''.
        (31) Subparagraph (A) of section 355(d)(7) is amended by 
    inserting ``section'' before ``267(b)''.
        (32) Subparagraph (C) of section 420(e)(1) is amended by 
    striking ``mean'' and inserting ``means''.
        (33) Paragraph (4) of section 537(b) is amended by striking 
    ``section 172(i)'' and inserting ``section 172(f)''.
        (34) Subparagraph (B) of section 613(e)(1) is amended by 
    striking the comma at the end thereof and inserting a period.
        (35) Paragraph (4) of section 856(a) is amended by striking 
    ``section 582(c)(5)'' and inserting ``section 582(c)(2)''.
        (36) Sections 904(f)(2)(B)(i) and 907(c)(4)(B)(iii) are each 
    amended by inserting ``(as in effect on the day before the date of 
    the enactment of the Revenue Reconciliation Act of 1990)'' after 
    ``section 172(h)''.
        (37) Subsection (b) of section 936 is amended by striking 
    ``subparagraphs (D)(ii)(I)'' and inserting ``subparagraphs 
    (D)(ii)''.
        (38) Subsection (c) of section 2104 is amended by striking 
    ``subparagraph (A), (C), or (D) of section 861(a)(1)'' and 
    inserting ``section 861(a)(1)(A)''.
        (39) Subparagraph (A) of section 280A(c)(1) is amended to read 
    as follows:
            ``(A) as the principal place of business for any trade or 
        business of the taxpayer,''.
        (40) Section 6038 is amended by redesignating the subsection 
    relating to cross references as subsection (f).
        (41) Clause (iv) of section 6103(e)(1)(A) is amended by 
    striking all that follows ``provisions of'' and inserting ``section 
    1(g) or 59(j);''.
        (42) The subsection (f) of section 6109 of the Internal Revenue 
    Code of 1986 which was added by section 2201(d) of Public Law 101-
    624 is redesignated as subsection (g).
        (43) Subsection (b) of section 7454 is amended by striking 
    ``section 4955(e)(2)'' and inserting ``section 4955(f)(2)''.
        (44) Subsection (d) of section 11231 of the Revenue 
    Reconciliation Act of 1990 shall be applied as if ``comma'' 
    appeared instead of ``period'' and as if the paragraph (9) proposed 
    to be added ended with a comma.
        (45) Paragraph (1) of section 11303(b) of the Revenue 
    Reconciliation Act of 1990 shall be applied as if ``paragraph'' 
    appeared instead of ``subparagraph'' in the material proposed to be 
    stricken.
        (46) Subsection (f) of section 11701 of the Revenue 
    Reconciliation Act of 1990 is amended by inserting ``(relating to 
    definitions)'' after ``section 6038(e)''.
        (47) Subsection (i) of section 11701 of the Revenue 
    Reconciliation Act of 1990 shall be applied as if ``subsection'' 
    appeared instead of ``section'' in the material proposed to be 
    stricken.
        (48) Subparagraph (B) of section 11801(c)(2) of the Revenue 
    Reconciliation Act of 1990 shall be applied as if ``section 56(g)'' 
    appeared instead of  ``section 59(g)''.
        (49) Subparagraph (C) of section 11801(c)(8) of the Revenue 
    Reconciliation Act of 1990 shall be applied as if 
    ``reorganizations'' appeared instead of ``reorganization'' in the 
    material proposed to be stricken.
        (50) Subparagraph (H) of section 11801(c)(9) of the Revenue 
    Reconciliation Act of 1990 shall be applied as if ``section 
    1042(c)(1)(B)'' appeared instead of ``section 1042(c)(2)(B)''.
        (51) Subparagraph (F) of section 11801(c)(12) of the Revenue 
    Reconciliation Act of 1990 shall be applied as if ``and (3)'' 
    appeared instead of  ``and (E)''.
        (52) Subparagraph (A) of section 11801(c)(22) of the Revenue 
    Reconciliation Act of 1990 shall be applied as if ``chapters 21'' 
    appeared instead of ``chapter 21'' in the material proposed to be 
    stricken.
        (53) Paragraph (3) of section 11812(b) of the Revenue 
    Reconciliation Act of 1990 shall be applied by not executing the 
    amendment therein to the heading of section 42(d)(5)(B).
        (54) Clause (i) of section 11813(b)(9)(A) of the Revenue 
    Reconciliation Act of 1990 shall be applied as if a comma appeared 
    after ``(3)(A)(ix)'' in the material proposed to be stricken.
        (55) Subparagraph (F) of section 11813(b)(13) of the Revenue 
    Reconciliation Act of 1990 shall be applied as if ``tax'' appeared 
    after ``investment'' in the material proposed to be stricken.
        (56) Paragraph (19) of section 11813(b) of the Revenue 
    Reconciliation Act of 1990 shall be applied as if ``Paragraph (20) 
    of section 1016(a), as redesignated by section 11801,'' appeared 
    instead of  ``Paragraph (21) of section 1016(a)''.
        (57) Paragraph (5) section 8002(a) of the Surface 
    Transportation Revenue Act of 1991 shall be applied as if 
    ``4481(e)'' appeared instead of  ``4481(c)''.
        (58) Section 7872 is amended--
            (A) by striking ``foregone'' each place it appears in 
        subsections (a) and (e)(2) and inserting ``forgone'', and
            (B) by striking ``Foregone'' in the heading for subsection 
        (e) and the heading for paragraph (2) of subsection (e) and 
        inserting ``Forgone''.
        (59) Paragraph (7) of section 7611(h) is amended by striking 
    ``approporiate'' and inserting ``appropriate''.
        (60) The heading of paragraph (3) of section 419A(c) is amended 
    by striking ``severence'' and inserting ``severance''.
        (61) Clause (ii) of section 807(d)(3)(B) is amended by striking 
    ``Commissoners' '' and inserting ``Commissioners' ''.
        (62) Subparagraph (B) of section 1274A(c)(1) is amended by 
    striking ``instument'' and inserting ``instrument''.
        (63) Subparagraph (B) of section 724(d)(3) by striking 
    ``Subparagaph'' and inserting ``Subparagraph''.
        (64) The last sentence of paragraph (2) of section 42(c) is 
    amended by striking ``of 1988''.
        (65) Paragraph (1) of section 9707(d) is amended by striking 
    ``diligence,'' and inserting ``diligence''.
        (66) Subsection (c) of section 4977 is amended by striking 
    ``section 132(i)(2)'' and inserting ``section 132(h)''.
        (67) The last sentence of section 401(a)(20) is amended by 
    striking ``section 211'' and inserting ``section 521''.
        (68) Subparagraph (A) of section 402(g)(3) is amended by 
    striking ``subsection (a)(8)'' and inserting ``subsection (e)(3)''.
        (69) The last sentence of section 403(b)(10) is amended by 
    striking ``an direct'' and inserting ``a direct''.
        (70) Subparagraph (A) of section 4973(b)(1) is amended by 
    striking ``sections 402(c)'' and inserting ``section 402(c)''.
        (71) Paragraph (12) of section 3405(e) is amended by striking 
    ``(b)(3)'' and inserting ``(b)(2)''.
        (72) Paragraph (41) of section 521(b) of the Unemployment 
    Compensation Amendments of 1992 shall be applied as if ``section'' 
    appeared instead of ``sections'' in the material proposed to be 
    stricken.
        (73) Paragraph (27) of section 521(b) of the Unemployment 
    Compensation Amendments of 1992 shall be applied as if ``Section 
    691(c)(5)'' appeared instead of ``Section 691(c)''.
        (74) Paragraph (5) of section 860F(a) is amended by striking 
    ``paragraph (1)'' and inserting ``paragraph (2)''.
        (75) Paragraph (1) of section 415(k) is amended by adding 
    ``or'' at the end of subparagraph (C), by striking subparagraphs 
    (D) and (E), and by redesignating subparagraph (F) as subparagraph 
    (D).
        (76) Paragraph (2) of section 404(a) is amended by striking 
    ``(18),''.
        (77) Clause (ii) of section 72(p)(4)(A) is amended to read as 
    follows:
                ``(ii) Special rule.--The term `qualified employer 
            plan' shall include any plan which was (or was determined 
            to be) a qualified employer plan or a government plan.''.
        (78) Sections 461(i)(3)(C) and 1274(b)(3)(B)(i) are each 
    amended by striking ``section 6662(d)(2)(C)(ii)'' and inserting 
    ``section 6662(d)(2)(C)(iii)''.
        (79) Subsection (a) of section 164 is amended by striking the 
    paragraphs relating to the generation-skipping tax and the 
    environmental tax imposed by section 59A and by inserting after 
    paragraph (3) the following new paragraphs:
        ``(4) The GST tax imposed on income distributions.
        ``(5) The environmental tax imposed by section 59A.''.
        (80) Subclause (I) of section 936(a)(4)(A)(ii) is amended by 
    striking ``deprecation'' and inserting ``depreciation''.

                      Subtitle H--Other Provisions

SEC. 1801. EXEMPTION FROM DIESEL FUEL DYEING REQUIREMENTS WITH RESPECT 
TO CERTAIN STATES.
    (a) In General.--Section 4082 (relating to exemptions for diesel 
fuel) is amended by redesignating subsections (c) and (d) as 
subsections (d) and (e), respectively, and by inserting after 
subsection (b) the following new subsection:
    ``(c) Exception to Dyeing Requirements.--Paragraph (2) of 
subsection (a) shall not apply with respect to any diesel fuel--
        ``(1) removed, entered, or sold in a State for ultimate sale or 
    use in an area of such State during the period such area is 
    exempted from the fuel dyeing requirements under subsection (i) of 
    section 211 of the Clean Air Act (as in effect on the date of the 
    enactment of this subsection) by the Administrator of the 
    Environmental Protection Agency under paragraph (4) of such 
    subsection (i) (as so in effect), and
        ``(2) the use of which is certified pursuant to regulations 
    issued by the Secretary.''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to fuel removed, entered, or sold on or after the 
first day of the first calendar quarter beginning after the date of the 
enactment of this Act.

SEC. 1802. TREATMENT OF CERTAIN UNIVERSITY ACCOUNTS.

    (a) In General.--For purposes of subsection (s) of section 3121 of 
the Internal Revenue Code of 1986 (relating to concurrent employment by 
2 or more employers)--
        (1) the following entities shall be deemed to be related 
    corporations that concurrently employ the same individual:
            (A) a State university which employs health professionals 
        as faculty members at a medical school, and
            (B) an agency account of a State university which is 
        described in subparagraph (A) and from which there is 
        distributed to such faculty members payments forming a part of 
        the compensation that the State, or such State university, as 
        the case may be, agrees to pay to such faculty members, but 
        only if--
                (i) such agency account is authorized by State law and 
            receives the funds for such payments from a faculty 
            practice plan described in section 501(c)(3) of such Code 
            and exempt from tax under section 501(a) of such Code,
                (ii) such payments are distributed by such agency 
            account to such faculty members who render patient care at 
            such medical school, and
                (iii) such faculty members comprise at least 30 percent 
            of the membership of such faculty practice plan, and
        (2) remuneration which is disbursed by such agency account to 
    any such faculty member of the medical school described in 
    paragraph (1)(A) shall be deemed to have been actually disbursed by 
    the State, or such State university, as the case may be, as a 
    common paymaster and not to have been actually disbursed by such 
    agency account.
    (b) Effective Date.--The provisions of subsection (a) shall apply 
to remuneration paid after December 31, 1996.
SEC. 1803. MODIFICATIONS TO EXCISE TAX ON OZONE-DEPLETING CHEMICALS.
    (a) Recycled Halon.--
        (1) In general.--Section 4682(d)(1) (relating to recycling) is 
    amended by inserting ``, or on any recycled halon imported from any 
    country which is a signatory to the Montreal Protocol on Substances 
    that Deplete the Ozone Layer'' before the period at the end.
        (2) Certification system.--The Secretary of the Treasury, after 
    consultation with the Administrator of the Environmental Protection 
    Agency, shall develop a certification system to ensure compliance 
    with the recycling requirement for imported halon under section 
    4682(d)(1) of the Internal Revenue Code of 1986, as amended by 
    paragraph (1).
    (b) Chemicals Used as Propellants in Metered-Dose Inhalers Tax-
Exempt.--Paragraph (4) of section 4682(g) (relating to phase-in of tax 
on certain substances) is amended to read as follows:
        ``(4) Chemicals used as propellants in metered-dose inhalers.--
            ``(A) Tax-exempt.--
                ``(i) In general.--No tax shall be imposed by section 
            4681 on--

                    ``(I) any use of any substance as a propellant in 
                metered-dose inhalers, or
                    ``(II) any qualified sale by the manufacturer, 
                producer, or importer of any substance.

                ``(ii) Qualified sale.--For purposes of clause (i), the 
            term `qualified sale' means any sale by the manufacturer, 
            producer, or importer of any substance--

                    ``(I) for use by the purchaser as a propellant in 
                metered-dose inhalers, or
                    ``(II) for resale by the purchaser to a 2d 
                purchaser for such use by the 2d purchaser.

            The preceding sentence shall apply only if the 
            manufacturer, producer, and importer, and the 1st and 2d 
            purchasers (if any) meet such registration requirements as 
            may be prescribed by the Secretary.
            ``(B) Overpayments.--If any substance on which tax was paid 
        under this subchapter is used by any person as a propellant in 
        metered-dose inhalers, credit or refund without interest shall 
        be allowed to such person in an amount equal to the tax so 
        paid. Amounts payable under the preceding sentence with respect 
        to uses during the taxable year shall be treated as described 
        in section 34(a) for such year unless claim thereof has been 
        timely filed under this subparagraph.''.
    (c) Effective Dates.--
        (1) Recycled halon.--
            (A) In general.--Except as provided in subparagraph (B), 
        the amendment made by subsection (a)(1) shall take effect on 
        January 1, 1997.
            (B) Halon-1211.--In the case of Halon-1211, the amendment 
        made by subsection (a)(1) shall take effect on January 1, 1998.
        (2) Metered-dose inhalers.--The amendment made by subsection 
    (b) shall take effect on the 7th day after the date of the 
    enactment of this Act.
SEC. 1804. TAX-EXEMPT BONDS FOR SALE OF ALASKA POWER ADMINISTRATION 
FACILITY.
    Sections 142(f)(3) (as added by section 1608) and 147(d) of the 
Internal Revenue Code of 1986 shall not apply in determining whether 
any private activity bond issued after the date of the enactment of 
this Act and used to finance the acquisition of the Snettisham 
hydroelectric project from the Alaska Power Administration is a 
qualified bond for purposes of such Code.
SEC. 1805. NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS BY COMMON 
TRUST FUNDS TO REGULATED INVESTMENT COMPANIES.
    (a) General Rule.--Section 584 (relating to common trust funds) is 
amended by redesignating subsection (h) as subsection (i) and by 
inserting after subsection (g) the following new subsection:
    ``(h) Nonrecognition Treatment for Certain Transfers to Regulated 
Investment Companies.--
        ``(1) In general.--If--
            ``(A) a common trust fund transfers substantially all of 
        its assets to one or more regulated investment companies in 
        exchange solely for stock in the company or companies to which 
        such assets are so transferred, and
            ``(B) such stock is distributed by such common trust fund 
        to participants in such common trust fund in exchange solely 
        for their interests in such common trust fund,
    no gain or loss shall be recognized by such common trust fund by 
    reason of such transfer or distribution, and no gain or loss shall 
    be recognized by any participant in such common trust fund by 
    reason of such exchange.
        ``(2) Basis rules.--
            ``(A) Regulated investment company.--The basis of any asset 
        received by a regulated investment company in a transfer 
        referred to in paragraph (1)(A) shall be the same as it would 
        be in the hands of the common trust fund.
            ``(B) Participants.--The basis of the stock which is 
        received in an exchange referred to in paragraph (1)(B) shall 
        be the same as that of the property exchanged. If stock in more 
        than one regulated investment company is received in such 
        exchange, the basis determined under the preceding sentence 
        shall be allocated among the stock in each such company on the 
        basis of respective fair market values.
        ``(3) Treatment of assumptions of liability.--
            ``(A) In general.--In determining whether the transfer 
        referred to in paragraph (1)(A) is in exchange solely for stock 
        in one or more regulated investment companies, the assumption 
        by any such company of a liability of the common trust fund, 
        and the fact that any property transferred by the common trust 
        fund is subject to a liability, shall be disregarded.
            ``(B) Special rule where assumed liabilities exceed 
        basis.--
                ``(i) In general.--If, in any transfer referred to in 
            paragraph (1)(A), the assumed liabilities exceed the 
            aggregate adjusted bases (in the hands of the common trust 
            fund) of the assets transferred to the regulated investment 
            company or companies--

                    ``(I) notwithstanding paragraph (1), gain shall be 
                recognized to the common trust fund on such transfer in 
                an amount equal to such excess,
                    ``(II) the basis of the assets received by the 
                regulated investment company or companies in such 
                transfer shall be increased by the amount so 
                recognized, and
                    ``(III) any adjustment to the basis of a 
                participant's interest in the common trust fund as a 
                result of the gain so recognized shall be treated as 
                occurring immediately before the exchange referred to 
                in paragraph (1)(B).

            If the transfer referred to in paragraph (1)(A) is to two 
            or more regulated investment companies, the basis increase 
            under subclause (II) shall be allocated among such 
            companies on the basis of the respective fair market values 
            of the assets received by each of such companies.
                ``(ii) Assumed liabilities.--For purposes of clause 
            (i), the term `assumed liabilities' means the aggre- gate 
            of--

                    ``(I) any liability of the common trust fund 
                assumed by any regulated investment company in 
                connection with the transfer referred to in paragraph 
                (1)(A), and
                    ``(II) any liability to which property so 
                transferred is subject.

        ``(4) Common trust fund must meet diversification rules.--This 
    subsection shall not apply to any common trust fund which would not 
    meet the requirements of section 368(a)(2)(F)(ii) if it were a 
    corporation. For purposes of the preceding sentence, Government 
    securities shall not be treated as securities of an issuer in 
    applying the 25-percent and 50-percent test and such securities 
    shall not be excluded for purposes of determining total assets 
    under clause (iv) of section 368(a)(2)(F).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to transfers after December 31, 1995.

SEC. 1806. QUALIFIED STATE TUITION PROGRAMS.

    (a) In General.--Subchapter F of chapter 1 (relating to exempt 
organizations) is amended by adding at the end the following new part:

             ``PART VIII--QUALIFIED STATE TUITION PROGRAMS

``Sec. 529. Qualified State tuition programs.

``SEC. 529. QUALIFIED STATE TUITION PROGRAMS.

    ``(a) General Rule.--A qualified State tuition program shall be 
exempt from taxation under this subtitle. Notwithstanding the preceding 
sentence, such program shall be subject to the taxes imposed by section 
511 (relating to imposition of tax on unrelated business income of 
charitable organizations).
    ``(b) Qualified State Tuition Program.--For purposes of this 
section--
        ``(1) In general.--The term `qualified State tuition program' 
    means a program established and maintained by a State or agency or 
    instrumentality thereof--
            ``(A) under which a person--
                ``(i) may purchase tuition credits or certificates on 
            behalf of a designated beneficiary which entitle the 
            beneficiary to the waiver or payment of qualified higher 
            education expenses of the beneficiary, or
                ``(ii) may make contributions to an account which is 
            established for the purpose of meeting the qualified higher 
            education expenses of the designated beneficiary of the 
            account, and
            ``(B) which meets the other requirements of this 
        subsection.
        ``(2) Cash contributions.--A program shall not be treated as a 
    qualified State tuition program unless it provides that purchases 
    or contributions may only be made in cash.
        ``(3) Refunds.--A program shall not be treated as a qualified 
    State tuition program unless it imposes a more than de minimis 
    penalty on any refund of earnings from the account which are not--
            ``(A) used for qualified higher education expenses of the 
        designated beneficiary,
            ``(B) made on account of the death or disability of the 
        designated beneficiary, or
            ``(C) made on account of a scholarship (or allowance or 
        payment described in section 135(d)(1) (B) or (C)) received by 
        the designated beneficiary to the extent the amount of the 
        refund does not exceed the amount of the scholarship, 
        allowance, or payment.
        ``(4) Separate accounting.--A program shall not be treated as a 
    qualified State tuition program unless it provides separate 
    accounting for each designated beneficiary.
        ``(5) No investment direction.--A program shall not be treated 
    as a qualified State tuition program unless it provides that any 
    contributor to, or designated beneficiary under, such program may 
    not direct the investment of any contributions to the program (or 
    any earnings thereon).
        ``(6) No pledging of interest as security.--A program shall not 
    be treated as a qualified State tuition program if it allows any 
    interest in the program or any portion thereof to be used as 
    security for a loan.
        ``(7) Prohibition on excess contributions.--A program shall not 
    be treated as a qualified State tuition program unless it provides 
    adequate safeguards to prevent contributions on behalf of a 
    designated beneficiary in excess of those necessary to provide for 
    the qualified higher education expenses of the beneficiary.
    ``(c) Tax Treatment of Designated Beneficiaries and Contributors.--
        ``(1) In general.--Except as otherwise provided in this 
    subsection, no amount shall be includible in gross income of--
            ``(A) a designated beneficiary under a qualified State 
        tuition program, or
            ``(B) a contributor to such program on behalf of a 
        designated beneficiary,
    with respect to any distribution or earnings under such program.
        ``(2) Contributions.--In no event shall a contribution to a 
    qualified State tuition program on behalf of a designated 
    beneficiary be treated as a taxable gift for purposes of chapter 
    12.
        ``(3) Distributions.--
            ``(A) In general.--Any distribution under a qualified State 
        tuition program shall be includible in the gross income of the 
        distributee in the manner as provided under section 72 to the 
        extent not excluded from gross income under any other provision 
        of this chapter.
            ``(B) In-kind distributions.--Any benefit furnished to a 
        designated beneficiary under a qualified State tuition program 
        shall be treated as a distribution to the beneficiary.
            ``(C) Change in beneficiaries.--
                ``(i) Rollovers.--Subparagraph (A) shall not apply to 
            that portion of any distribution which, within 60 days of 
            such distribution, is transferred to the credit of another 
            designated beneficiary under a qualified State tuition 
            program who is a member of the family of the designated 
            beneficiary with respect to which the distribution was 
            made.
                ``(ii) Change in designated beneficiaries.--Any change 
            in the designated beneficiary of an interest in a qualified 
            State tuition program shall not be treated as a 
            distribution for purposes of subparagraph (A) if the new 
            beneficiary is a member of the family of the old 
            beneficiary.
            ``(D) Operating rules.--For purposes of applying section 
        72--
                ``(i) to the extent provided by the Secretary, all 
            qualified State tuition programs of which an individual is 
            a designated beneficiary shall be treated as one program,
                ``(ii) all distributions during a taxable year shall be 
            treated as one distribution, and
                ``(iii) the value of the contract, income on the 
            contract, and investment in the contract shall be computed 
            as of the close of the calendar year in which the taxable 
            year begins.
        ``(4) Estate tax inclusion.--The value of any interest in any 
    qualified State tuition program which is attributable to 
    contributions made by an individual to such program on behalf of 
    any designated beneficiary shall be includible in the gross estate 
    of the contributor for purposes of chapter 11.
        ``(5) Special rule for applying section 2503(e).--For purposes 
    of section 2503(e), the waiver (or payment to an educational 
    institution) of qualified higher education expenses of a designated 
    beneficiary under a qualified State tuition program shall be 
    treated as a qualified transfer.
    ``(d) Reporting Requirements.--
        ``(1) In general.--If there is a distribution to any indi- 
    vidual with respect to an interest in a qualified State tuition 
    program during any calendar year, each officer or employee having 
    control of the qualified State tuition program or their designee 
    shall make such reports as the Secretary may require regarding such 
    distribution to the Secretary and to the designated beneficiary or 
    the individual to whom the distribution was made. Any such report 
    shall include such information as the Secretary may prescribe.
        ``(2) Timing of reports.--Any report required by this 
    subsection--
            ``(A) shall be filed at such time and in such matter as the 
        Secretary prescribes, and
            ``(B) shall be furnished to individuals not later than 
        January 31 of the calendar year following the calendar year to 
        which such report relates.
    ``(e) Other Definitions and Special Rules.--For purposes of this 
section--
        ``(1) Designated beneficiary.--The term `designated 
    beneficiary' means--
            ``(A) the individual designated at the commencement of 
        participation in the qualified State tuition program as the 
        beneficiary of amounts paid (or to be paid) to the program,
            ``(B) in the case of a change in beneficiaries described in 
        subsection (c)(2)(C), the individual who is the new 
        beneficiary, and
            ``(C) in the case of an interest in a qualified State 
        tuition program purchased by a State or local government or an 
        organization described in section 501(c)(3) and exempt from 
        taxation under section 501(a) as part of a scholarship program 
        operated by such government or organization, the individual 
        receiving such interest as a scholarship.
        ``(2) Member of family.--The term `member of the family' has 
    the same meaning given such term as section 2032A(e)(2).
        ``(3) Qualified higher education expenses.--The term `qualified 
    higher education expenses' means tuition, fees, books, supplies, 
    and equipment required for the enrollment or attendance of a 
    designated beneficiary at an eligible educational institution (as 
    defined in section 135(c)(3)).
        ``(4) Application of section 514.--An interest in a qualified 
    State tuition program shall not be treated as debt for purposes of 
    section 514.''.
    (b) Conforming Amendments.--
        (1) Section 135(d)(1) is amended by striking ``or'' at the end 
    of subparagraph (B), by striking the period at the end of 
    subparagraph (C) and inserting ``, or'', and by adding at the end 
    the following new subparagraph:
            ``(D) a payment, waiver, or reimbursement of qualified 
        higher education expenses under a qualified State tuition 
        program (within the meaning of section 529(b)).''.
        (2) The table of parts for subchapter F of chapter 1 is amended 
    by adding at the end the following new item:
        ``Part VIII. Qualified State tuition programs.''.

    (c) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to taxable years ending after the date of the enactment of 
    this Act.
        (2) Transition rule.--If--
            (A) a State or agency or instrumentality thereof maintains, 
        on the date of the enactment of this Act, a program under which 
        persons may purchase tuition credits or certificates on behalf 
        of, or make contributions for education expenses of, a 
        designated beneficiary, and
            (B) such program meets the requirements of a qualified 
        State tuition program before the later of--
                (i) the date which is 1 year after such date of 
            enactment, or
                (ii) the first day of the first calendar quarter after 
            the close of the first regular session of the State 
            legislature that begins after such date of enactment,
        the amendments made by this section shall apply to 
        contributions (and earnings allocable thereto) made before the 
        date such program meets the requirements of such amendments 
        without regard to whether any requirements of such amendments 
        are met with respect to such contributions and earnings.
    For purposes of subparagraph (B)(ii), if a State has a 2-year 
    legislative session, each year of such session shall be deemed to 
    be a separate regular session of the State legislature.

SEC. 1807. ADOPTION ASSISTANCE.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits) is amended by inserting 
after section 22 the following new section:

``SEC. 23. ADOPTION EXPENSES.

    ``(a) Allowance of Credit.--
        ``(1) In general.--In the case of an individual, there shall be 
    allowed as a credit against the tax imposed by this chapter the 
    amount of the qualified adoption expenses paid or incurred by the 
    taxpayer.
        ``(2) Year credit allowed.--The credit under paragraph (1) with 
    respect to any expense shall be allowed--
            ``(A) for the taxable year following the taxable year 
        during which such expense is paid or incurred, or
            ``(B) in the case of an expense which is paid or incurred 
        during the taxable year in which the adoption becomes final, 
        for such taxable year.
    ``(b) Limitations.--
        ``(1) Dollar limitation.--The aggregate amount of qualified 
    adoption expenses which may be taken into account under subsection 
    (a) for all taxable years with respect to the adoption of a child 
    by the taxpayer shall not exceed $5,000 ($6,000, in the case of a 
    child with special needs).
        ``(2) Income limitation.--
            ``(A) In general.--The amount allowable as a credit under 
        subsection (a) for any taxable year shall be reduced (but not 
        below zero) by an amount which bears the same ratio to the 
        amount so allowable (determined without regard to this 
        paragraph but with regard to para- graph (1)) as--
                ``(i) the amount (if any) by which the taxpayer's 
            adjusted gross income exceeds $75,000, bears to
                ``(ii) $40,000.
            ``(B) Determination of adjusted gross income.--For purposes 
        of subparagraph (A), adjusted gross income shall be 
        determined--
                ``(i) without regard to sections 911, 931, and 933, and
                ``(ii) after the application of sections 86, 135, 137, 
            219, and 469.
        ``(3) Denial of double benefit.--
            ``(A) In general.--No credit shall be allowed under 
        subsection (a) for any expense for which a deduction or credit 
        is allowed under any other provision of this chapter.
            ``(B) Grants.--No credit shall be allowed under subsection 
        (a) for any expense to the extent that funds for such expense 
        are received under any Federal, State, or local program.
    ``(c) Carryforwards of Unused Credit.--If the credit allowable 
under subsection (a) for any taxable year exceeds the limitation 
imposed by section 26(a) for such taxable year reduced by the sum of 
the credits allowable under this subpart (other than this section), 
such excess shall be carried to the succeeding taxable year and added 
to the credit allowable under subsection (a) for such taxable year. No 
credit may be carried forward under this subsection to any taxable year 
following the fifth taxable year after the taxable year in which the 
credit arose. For purposes of the preceding sentence, credits shall be 
treated as used on a first-in first-out basis.
    ``(d) Definitions.--For purposes of this section--
        ``(1) Qualified adoption expenses.--The term `qualified 
    adoption expenses' means reasonable and necessary adoption fees, 
    court costs, attorney fees, and other expenses--
            ``(A) which are directly related to, and the principal 
        purpose of which is for, the legal adoption of an eligible 
        child by the taxpayer,
            ``(B) which are not incurred in violation of State or 
        Federal law or in carrying out any surrogate parenting 
        arrangement,
            ``(C) which are not expenses in connection with the 
        adoption by an individual of a child who is the child of such 
        individual's spouse, and
            ``(D) which are not reimbursed under an employer program or 
        otherwise.
        ``(2) Eligible child.--The term `eligible child' means any 
    individual--
            ``(A) who--
                ``(i) has not attained age 18, or
                ``(ii) is physically or mentally incapable of caring 
            for himself, and
            ``(B) in the case of qualified adoption expenses paid or 
        incurred after December 31, 2001, who is a child with special 
        needs.
        ``(3) Child with special needs.--The term `child with special 
    needs' means any child if--
            ``(A) a State has determined that the child cannot or 
        should not be returned to the home of his parents,
            ``(B) such State has determined that there exists with 
        respect to the child a specific factor or condition (such as 
        his ethnic background, age, or membership in a minority or 
        sibling group, or the presence of factors such as medical 
        conditions or physical, mental, or emotional handicaps) because 
        of which it is reasonable to conclude that such child cannot be 
        placed with adoptive parents without providing adoption 
        assistance, and
            ``(C) such child is a citizen or resident of the United 
        States (as defined in section 217(h)(3)).
    ``(e) Special Rules for Foreign Adoptions.--In the case of an 
adoption of a child who is not a citizen or resident of the United 
States (as defined in section 217(h)(3))--
        ``(1) subsection (a) shall not apply to any qualified adoption 
    expense with respect to such adoption unless such adoption becomes 
    final, and
        ``(2) any such expense which is paid or incurred before the 
    taxable year in which such adoption becomes final shall be taken 
    into account under this section as if such expense were paid or 
    incurred during such year.
    ``(f) Filing Requirements.--
        ``(1) Married couples must file joint returns.--Rules similar 
    to the rules of paragraphs (2), (3), and (4) of section 21(e) shall 
    apply for purposes of this section.
        ``(2) Taxpayer must include tin.--
            ``(A) In general.--No credit shall be allowed under this 
        section with respect to any eligible child unless the taxpayer 
        includes (if known) the name, age, and TIN of such child on the 
        return of tax for the taxable year.
            ``(B) Other methods.--The Secretary may, in lieu of the 
        information referred to in subparagraph (A), require other 
        information meeting the purposes of subparagraph (A), including 
        identification of an agent assisting with the adoption.
    ``(g) Basis Adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with respect 
to any property, the increase in the basis of such property which would 
(but for this subsection) result from such expenditure shall be reduced 
by the amount of the credit so allowed.
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out this section and section 137, 
including regulations which treat unmarried individuals who pay or 
incur qualified adoption expenses with respect to the same child as 1 
taxpayer forpurposes of applying the dollar limitation in subsection 
(b)(1) of this section and in section 137(b)(1).''.
    (b) Exclusion of Amounts Received Under Employer's Adoption 
Assistance Programs.--Part III of subchapter B of chapter 1 (relating 
to items specifically excluded from gross income) is amended by 
redesignating section 137 as section 138 and by inserting after section 
136 the following new section:

``SEC. 137. ADOPTION ASSISTANCE PROGRAMS.

    ``(a) In General.--Gross income of an employee does not include 
amounts paid or expenses incurred by the employer for qualified 
adoption expenses in connection with the adoption of a child by an 
employee if such amounts are furnished pursuant to an adoption 
assistance program.
    ``(b) Limitations.--
        ``(1) Dollar limitation.--The aggregate amount excludable from 
    gross income under subsection (a) for all taxable years with 
    respect to the adoption of a child by the taxpayer shall not exceed 
    $5,000 ($6,000, in the case of a child with special needs).
        ``(2) Income limitation.--The amount excludable from gross 
    income under subsection (a) for any taxable year shall be reduced 
    (but not below zero) by an amount which bears the same ratio to the 
    amount so excludable (determined without regard to this paragraph 
    but with regard to paragraph (1)) as--
            ``(A) the amount (if any) by which the taxpayer's adjusted 
        gross income exceeds $75,000, bears to
            ``(B) $40,000.
        ``(3) Determination of adjusted gross income.--For purposes of 
    paragraph (2), adjusted gross income shall be determined--
            ``(A) without regard to this section and sections 911, 931, 
        and 933, and
            ``(B) after the application of sections 86, 135, 219, and 
        469.
    ``(c) Adoption Assistance Program.--For purposes of this section, 
an adoption assistance program is a separate written plan of an 
employer for the exclusive benefit of such employer's employees--
        ``(1) under which the employer provides such employees with 
    adoption assistance, and
        ``(2) which meets requirements similar to the requirements of 
    paragraphs (2), (3), (5), and (6) of section 127(b).
An adoption reimbursement program operated under section 1052 of title 
10, United States Code (relating to armed forces) or section 514 of 
title 14, United States Code (relating to members of the Coast Guard) 
shall be treated as an adoption assistance program for purposes of this 
section.
    ``(d) Qualified Adoption Expenses.--For purposes of this section, 
the term `qualified adoption expenses' has the meaning given such term 
by section 23(d) (determined without regard to reimbursements under 
this section).
    ``(e) Certain Rules To Apply.--Rules similar to the rules of 
subsections (e), (f), and (g) of section 23 shall apply for purposes of 
this section.
    ``(f) Termination.--This section shall not apply to amounts paid or 
expenses incurred after December 31, 2001.''.
    (c) Conforming Amendments.--
        (1) Subparagraph (C) of section 25(e)(1) is amended by 
    inserting ``and section 23'' after ``this section''.
        (2) Sections 86(b)(2)(A) and 135(c)(4)(A) are each amended by 
    inserting ``137,'' before ``911''.
        (3) Clause (i) of section 219(g)(3)(A) is amended by inserting 
    ``, 137,'' before ``and 911''.
        (4) Clause (ii) of section 469(i)(3)(E) is amended to read as 
    follows:
                ``(ii) the amounts excludable from gross income under 
            sections 135 and 137,''.
        (5) Subsection (a) of section 1016 is amended by striking 
    ``and'' at the end of paragraph (24), by striking the period at the 
    end of paragraph (25) and inserting ``, and'', and by adding at the 
    end the following new paragraph:
        ``(26) to the extent provided in sections 23(g) and 137(e).''.
        (6) The table of sections for subpart A of part IV of 
    subchapter A of chapter 1 is amended by inserting after the item 
    relating to section 22 the following new item:
``Sec. 23. Adoption expenses.''.

        (7) The table of sections for part III of subchapter B of 
    chapter 1 is amended by striking the item relating to section 137 
    and inserting the following:
``Sec. 137. Adoption assistance programs.
``Sec. 138. Cross reference to other Acts.''.

    (d) Study and Report.--The Secretary of the Treasury shall study 
the effect on adoptions of the tax credit and gross income exclusion 
established by the amendments made by this section and shall submit a 
report regarding the study to the Committee on Finance of the Senate 
and the Committee on Ways and Means of the House of Representatives not 
later than January 1, 2000.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 1808. REMOVAL OF BARRIERS TO INTERETHNIC ADOPTION.

    (a) State Plan Requirements.--Section 471(a) of the Social Security 
Act (42 U.S.C 671(a)) is amended--
        (1) by striking ``and'' at the end of paragraph (16);
        (2) by striking the period at the end of paragraph (17) and 
    inserting ``; and''; and
        (3) by adding at the end the following:
        ``(18) not later than January 1, 1997, provides that neither 
    the State nor any other entity in the State that receives funds 
    from the Federal Government and is involved in adoption or foster 
    care placements may--
            ``(A) deny to any person the opportunity to become an 
        adoptive or a foster parent, on the basis of the race, color, 
        or national origin of the person, or of the child, involved; or
            ``(B) delay or deny the placement of a child for adoption 
        or into foster care, on the basis of the race, color, or 
        national origin of the adoptive or foster parent, or the child, 
        involved.''.
    (b) Enforcement.--Section 474 of such Act (42 U.S.C. 674) is 
amended by adding at the end the following:
    ``(d)(1) If, during any quarter of a fiscal year, a State's program 
operated under this part is found, as a result of a review conducted 
under section 1123A, or otherwise, to have violated section 471(a)(18) 
with respect to a person or to have failed to implement a corrective 
action plan within a period of time not to exceed 6 months with respect 
to such violation, then, notwithstanding subsection (a) of this section 
and any regulations promulgated under section 1123A(b)(3), the 
Secretary shall reduce the amount otherwise payable to the State under 
this part, for that fiscal year quarter and for any subsequent quarter 
of such fiscal year, until the State program is found, as a result of a 
subsequent review under section 1123A, to have implemented a corrective 
action plan with respect to such violation, by--
        ``(A) 2 percent of such otherwise payable amount, in the case 
    of the 1st such finding for the fiscal year with respect to the 
    State;
        ``(B) 3 percent of such otherwise payable amount, in the case 
    of the 2nd such finding for the fiscal year with respect to the 
    State; or
        ``(C) 5 percent of such otherwise payable amount, in the case 
    of the 3rd or subsequent such finding for the fiscal year with 
    respect to the State.
In imposing the penalties described in this paragraph, the Secretary 
shall not reduce any fiscal year payment to a State by more than 5 
percent.
    ``(2) Any other entity which is in a State that receives funds 
under this part and which violates section 471(a)(18) during a fiscal 
year quarter with respect to any person shall remit to the Secretary 
all funds that were paid by the State to the entity during the quarter 
from such funds.
    ``(3)(A) Any individual who is aggrieved by a violation of section 
471(a)(18) by a State or other entity may bring an action seeking 
relief from the State or other entity in any United States district 
court.
    ``(B) An action under this paragraph may not be brought more than 2 
years after the date the alleged violation occurred.
    ``(4) This subsection shall not be construed to affect the 
application of the Indian Child Welfare Act of 1978.''.
    (c) Civil Rights.--
        (1) Prohibited conduct.--A person or government that is 
    involved in adoption or foster care placements may not--
            (A) deny to any individual the opportunity to become an 
        adoptive or a foster parent, on the basis of the race, color, 
        or national origin of the individual, or of the child, 
        involved; or
            (B) delay or deny the placement of a child for adoption or 
        into foster care, on the basis of the race, color, or national 
        origin of the adoptive or foster parent, or the child, 
        involved.
        (2) Enforcement.--Noncompliance with paragraph (1) is deemed a 
    violation of title VI of the Civil Rights Act of 1964.
        (3) No effect on the indian child welfare act of 1978.--This 
    subsection shall not be construed to affect the application of the 
    Indian Child Welfare Act of 1978.
    (d) Conforming Amendment.--Section 553 of the Howard M. Metzenbaum 
Multiethnic Placement Act of 1994 (42 U.S.C. 5115a) is repealed.
SEC. 1809. 6-MONTH DELAY OF ELECTRONIC FUND TRANSFER REQUIREMENT.
    Notwithstanding any other provision of law, the increase in the 
applicable required percentages for fiscal year 1997 in clauses (i)(IV) 
and (ii)(IV) of section 6302(h)(2)(C) of the Internal Revenue Code of 
1986 shall not take effect before July 1, 1997.

                Subtitle I--Foreign Trust Tax Compliance

SEC. 1901. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS.
    (a) In General.--Section 6048 (relating to returns as to certain 
foreign trusts) is amended to read as follows:
``SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN TRUSTS.
    ``(a) Notice of Certain Events.--
        ``(1) General rule.--On or before the 90th day (or such later 
    day as the Secretary may prescribe) after any reportable event, the 
    responsible party shall provide written notice of such event to the 
    Secretary in accordance with paragraph (2).
        ``(2) Contents of notice.--The notice required by paragraph (1) 
    shall contain such information as the Secretary may prescribe, 
    including--
            ``(A) the amount of money or other property (if any) 
        transferred to the trust in connection with the reportable 
        event, and
            ``(B) the identity of the trust and of each trustee and 
        beneficiary (or class of beneficiaries) of the trust.
        ``(3) Reportable event.--For purposes of this subsection--
            ``(A) In general.--The term `reportable event' means--
                ``(i) the creation of any foreign trust by a United 
            States person,
                ``(ii) the transfer of any money or property (directly 
            or indirectly) to a foreign trust by a United States 
            person, including a transfer by reason of death, and
                ``(iii) the death of a citizen or resident of the 
            United States if--

                    ``(I) the decedent was treated as the owner of any 
                portion of a foreign trust under the rules of subpart E 
                of part I of subchapter J of chapter 1, or
                    ``(II) any portion of a foreign trust was included 
                in the gross estate of the decedent.

            ``(B) Exceptions.--
                ``(i) Fair market value sales.--Subparagraph (A)(ii) 
            shall not apply to any transfer of property to a trust in 
            exchange for consideration of at least the fair market 
            value of the transferred property. For purposes of the 
            preceding sentence, consideration other than cash shall be 
            taken into account at its fair market value and the rules 
            of section 679(a)(3) shall apply.
                ``(ii) Deferred compensation and charitable trusts.--
            Subparagraph (A) shall not apply with respect to a trust 
            which is--

                    ``(I) described in section 402(b), 404(a)(4), or 
                404A, or
                    ``(II) determined by the Secretary to be described 
                in section 501(c)(3).

        ``(4) Responsible party.--For purposes of this subsection, the 
    term `responsible party' means--
            ``(A) the grantor in the case of the creation of an inter 
        vivos trust,
            ``(B) the transferor in the case of a reportable event 
        described in paragraph (3)(A)(ii) other than a transfer by 
        reason of death, and
            ``(C) the executor of the decedent's estate in any other 
        case.
    ``(b) United States Grantor of Foreign Trust.--
        ``(1) In general.--If, at any time during any taxable year of a 
    United States person, such person is treated as the owner of any 
    portion of a foreign trust under the rules of subpart E of part I 
    of subchapter J of chapter 1, such person shall be responsible to 
    ensure that--
            ``(A) such trust makes a return for such year which sets 
        forth a full and complete accounting of all trust activities 
        and operations for the year, the name of the United States 
        agent for such trust, and such other information as the 
        Secretary may prescribe, and
            ``(B) such trust furnishes such information as the 
        Secretary may prescribe to each United States person (i) who is 
        treated as the owner of any portion of such trust or (ii) who 
        receives (directly or indirectly) any distribution from the 
        trust.
        ``(2) Trusts not having united states agent.--
            ``(A) In general.--If the rules of this paragraph apply to 
        any foreign trust, the determination of amounts required to be 
        taken into account with respect to such trust by a United 
        States person under the rules of subpart E of part I of 
        subchapter J of chapter 1 shall be determined by the Secretary.
            ``(B) United states agent required.--The rules of this 
        paragraph shall apply to any foreign trust to which paragraph 
        (1) applies unless such trust agrees (in such manner, subject 
        to such conditions, and at such time as the Secretary shall 
        prescribe) to authorize a United States person to act as such 
        trust's limited agent solely for purposes of applying sections 
        7602, 7603, and 7604 with respect to--
                ``(i) any request by the Secretary to examine records 
            or produce testimony related to the proper treatment of 
            amounts required to be taken into account under the rules 
            referred to in subparagraph (A), or
                ``(ii) any summons by the Secretary for such records or 
            testimony.
        The appearance of persons or production of records by reason of 
        a United States person being such an agent shall not subject 
        such persons or records to legal process for any purpose other 
        than determining the correct treatment under this title of the 
        amounts required to be taken into account under the rules 
        referred to in subparagraph (A). A foreign trust which appoints 
        an agent described in this subparagraph shall not be considered 
        to have an office or a permanent establishment in the United 
        States, or to be engaged in a trade or business in the United 
        States, solely because of the activities of such agent pursuant 
        to this subsection.
            ``(C) Other rules to apply.--Rules similar to the rules of 
        paragraphs (2) and (4) of section 6038A(e) shall apply for 
        purposes of this paragraph.
    ``(c) Reporting by United States Beneficiaries of Foreign Trusts.--
        ``(1) In general.--If any United States person receives 
    (directly or indirectly) during any taxable year of such person any 
    distribution from a foreigntrust, such person shall make a return 
with respect to such trust for such year which includes--
            ``(A) the name of such trust,
            ``(B) the aggregate amount of the distributions so received 
        from such trust during such taxable year, and
            ``(C) such other information as the Secretary may 
        prescribe.
        ``(2) Inclusion in income if records not provided.--
            ``(A) In general.--If adequate records are not provided to 
        the Secretary to determine the proper treatment of any 
        distribution from a foreign trust, such distribution shall be 
        treated as an accumulation distribution includible in the gross 
        income of the distributee under chapter 1. To the extent 
        provided in regulations, the preceding sentence shall not apply 
        if the foreign trust elects to be subject to rules similar to 
        the rules of subsection (b)(2)(B).
            ``(B) Application of accumulation distribution rules.--For 
        purposes of applying section 668 in a case to which 
        subparagraph (A) applies, the applicable number of years for 
        purposes of section 668(a) shall be \1/2\ of the number of 
        years the trust has been in existence.
    ``(d) Special Rules.--
        ``(1) Determination of whether united states person makes 
    transfer or receives distribution.--For purposes of this section, 
    in determining whether a United States person makes a transfer to, 
    or receives a distribution from, a foreign trust, the fact that a 
    portion of such trust is treated as owned by another person under 
    the rules of subpart E of part I of subchapter J of chapter 1 shall 
    be disregarded.
        ``(2) Domestic trusts with foreign activities.--To the extent 
    provided in regulations, a trust which is a United States person 
    shall be treated as a foreign trust for purposes of this section 
    and section 6677 if such trust has substantial activities, or holds 
    substantial property, outside the United States.
        ``(3) Time and manner of filing information.--Any notice or 
    return required under this section shall be made at such time and 
    in such manner as the Secretary shall prescribe.
        ``(4) Modification of return requirements.--The Secretary is 
    authorized to suspend or modify any requirement of this section if 
    the Secretary determines that the United States has no significant 
    tax interest in obtaining the required information.''.
    (b) Increased Penalties.--Section 6677 (relating to failure to file 
information returns with respect to certain foreign trusts) is amended 
to read as follows:
``SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN 
FOREIGN TRUSTS.
    ``(a) Civil Penalty.--In addition to any criminal penalty provided 
by law, if any notice or return required to be filed by section 6048--
        ``(1) is not filed on or before the time provided in such 
    section, or
        ``(2) does not include all the information required pursuant to 
    such section or includes incorrect information,
the person required to file such notice or return shall pay a penalty 
equal to 35 percent of the gross reportable amount. If any failure 
described in the preceding sentence continues for more than 90 days 
after the day on which the Secretary mails notice of such failure to 
the person required to pay such penalty, such person shall pay a 
penalty (in addition to the amount determined under the preceding 
sentence) of $10,000 for each 30-day period (or fraction thereof) 
during which such failure continues after the expiration of such 90-day 
period. In no event shall the penalty under this subsection with 
respect to any failure exceed the gross reportable amount.
    ``(b) Special Rules for Returns Under Section 6048(b).--In the case 
of a return required under section 6048(b)--
        ``(1) the United States person referred to in such section 
    shall be liable for the penalty imposed by subsection (a), and
        ``(2) subsection (a) shall be applied by substituting `5 
    percent' for `35 percent'.
    ``(c) Gross Reportable Amount.--For purposes of subsection (a), the 
term `gross reportable amount' means--
        ``(1) the gross value of the property involved in the event 
    (determined as of the date of the event) in the case of a failure 
    relating to section 6048(a),
        ``(2) the gross value of the portion of the trust's assets at 
    the close of the year treated as owned by the United States person 
    in the case of a failure relating to section 6048(b)(1), and
        ``(3) the gross amount of the distributions in the case of a 
    failure relating to section 6048(c).
    ``(d) Reasonable Cause Exception.--No penalty shall be imposed by 
this section on any failure which is shown to be due to reasonable 
cause and not due to willfulneglect. The fact that a foreign 
jurisdiction would impose a civil or criminal penalty on the taxpayer 
(or any other person) for disclosing the required information is not 
reasonable cause.
    ``(e) Deficiency Procedures Not To Apply.--Subchapter B of chapter 
63 (relating to deficiency procedures for income, estate, gift, and 
certain excise taxes) shall not apply in respect of the assessment or 
collection of any penalty imposed by subsection (a).''.
    (c) Conforming Amendments.--
        (1) Paragraph (2) of section 6724(d) is amended by striking 
    ``or'' at the end of subparagraph (S), by striking the period at 
    the end of subparagraph (T) and inserting ``, or'', and by 
    inserting after subparagraph (T) the following new subparagraph:
            ``(U) section 6048(b)(1)(B) (relating to foreign trust 
        reporting requirements).''.
        (2) The table of sections for subpart B of part III of 
    subchapter A of chapter 61 is amended by striking the item relating 
    to section 6048 and inserting the following new item:
``Sec. 6048. Information with respect to certain foreign trusts.''.

        (3) The table of sections for part I of subchapter B of chapter 
    68 is amended by striking the item relating to section 6677 and 
    inserting the following new item:
``Sec. 6677. Failure to file information with respect to certain foreign 
          trusts.''.

    (d) Effective Dates.--
        (1) Reportable events.--To the extent related to subsection (a) 
    of section 6048 of the Internal Revenue Code of 1986, as amended by 
    this section, the amendments made by this section shall apply to 
    reportable events (as defined in such section 6048) occurring after 
    the date of the enactment of this Act.
        (2) Grantor trust reporting.--To the extent related to 
    subsection (b) of such section 6048, the amendments made by this 
    section shall apply to taxable years of United States persons 
    beginning after December 31, 1995.
        (3) Reporting by united states beneficiaries.--To the extent 
    related to subsection (c) of such section 6048, the amendments made 
    by this section shall apply to distributions received after the 
    date of the enactment of this Act.
SEC. 1902. COMPARABLE PENALTIES FOR FAILURE TO FILE RETURN RELATING TO 
TRANSFERS TO FOREIGN ENTITIES.
    (a) In General.--Section 1494 is amended by adding at the end the 
following new subsection:
    ``(c) Penalty.--In the case of any failure to file a return 
required by the Secretary with respect to any transfer described in 
section 1491, the person required to file such return shall be liable 
for the penalties provided in section 6677 in the same manner as if 
such failure were a failure to file a notice under section 6048(a).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to transfers after the date of the enactment of this Act.
SEC. 1903. MODIFICATIONS OF RULES RELATING TO FOREIGN TRUSTS HAVING ONE 
OR MORE UNITED STATES BENEFICIARIES.
    (a) Treatment of Trust Obligations, Etc.--
        (1) Paragraph (2) of section 679(a) is amended by striking 
    subparagraph (B) and inserting the following:
            ``(B) Transfers at fair market value.--To any transfer of 
        property to a trust in exchange for consideration of at least 
        the fair market value of the transferred property. For purposes 
        of the preceding sentence, consideration other than cash shall 
        be taken into account at its fair market value.''.
        (2) Subsection (a) of section 679 (relating to foreign trusts 
    having one or more United States beneficiaries) is amended by 
    adding at the end the following new paragraph:
        ``(3) Certain obligations not taken into account under fair 
    market value exception.--
            ``(A) In general.--In determining whether paragraph (2)(B) 
        applies to any transfer by a person described in clause (ii) or 
        (iii) of subparagraph (C), there shall not be taken into 
        account--
                ``(i) except as provided in regulations, any obligation 
            of a person described in subparagraph (C), and
                ``(ii) to the extent provided in regulations, any 
            obligation which is guaranteed by a person described in 
            subparagraph (C).
            ``(B) Treatment of principal payments on obligation.--
        Principal payments by the trust on any obligation referred to 
        in subparagraph (A) shall be taken into account on and after 
        the date of the payment in determining the portion of the trust 
        attributable to the property transferred.
            ``(C) Persons described.--The persons described in this 
        subparagraph are--
                ``(i) the trust,
                ``(ii) any grantor or beneficiary of the trust, and
                ``(iii) any person who is related (within the meaning 
            of section 643(i)(2)(B)) to any grantor or beneficiary of 
            the trust.''.
    (b) Exemption of Transfers to Charitable Trusts.--Subsection (a) of 
section 679 is amended by striking ``section 404(a)(4) or 404A'' and 
inserting ``section 6048(a)(3)(B)(ii)''.
    (c) Other Modifications.--Subsection (a) of section 679 is amended 
by adding at the end the following new paragraphs:
        ``(4) Special rules applicable to foreign grantor who later 
    becomes a united states person.--
            ``(A) In general.--If a nonresident alien individual has a 
        residency starting date within 5 years after directly or 
        indirectly transferring property to a foreign trust, this 
        section and section 6048 shall be applied as if such individual 
        transferred to such trust on the residency starting date an 
        amount equal to the portion of such trust attributable to the 
        property transferred by such individual to such trust in such 
        transfer.
            ``(B) Treatment of undistributed income.--For purposes of 
        this section, undistributed net income for periods before such 
        individual's residency starting date shall be taken into 
        account in determining the portion of the trust which is 
        attributable to property transferred by such individual to such 
        trust but shall not otherwise be taken into account.
            ``(C) Residency starting date.--For purposes of this 
        paragraph, an individual's residency starting date is the 
        residency starting date determined under section 7701(b)(2)(A).
        ``(5) Outbound trust migrations.--If--
            ``(A) an individual who is a citizen or resident of the 
        United States transferred property to a trust which was not a 
        foreign trust, and
            ``(B) such trust becomes a foreign trust while such 
        individual is alive,
    then this section and section 6048 shall be applied as if such 
    individual transferred to such trust on the date such trust becomes 
    a foreign trust an amount equal to the portion of such trust 
    attributable to the property previously transferred by such 
    individual to such trust. A rule similar to the rule of paragraph 
    (4)(B) shall apply for purposes of this paragraph.''.
    (d) Modifications Relating to Whether Trust Has United States 
Beneficiaries.--Subsection (c) of section 679 is amended by adding at 
the end the following new paragraph:
        ``(3) Certain united states beneficiaries disregarded.--A 
    beneficiary shall not be treated as a United States person in 
    applying this section with respect to any transfer of property to 
    foreign trust if such beneficiary first became a United States 
    person more than 5 years after the date of such transfer.''.
    (e) Technical Amendment.--Subparagraph (A) of section 679(c)(2) is 
amended to read as follows:
            ``(A) in the case of a foreign corporation, such 
        corporation is a controlled foreign corporation (as defined in 
        section 957(a)),''.
    (f) Regulations.--Section 679 is amended by adding at the end the 
following new subsection:
    ``(d) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to transfers of property after February 6, 1995.
SEC. 1904. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS UNDER GRANTOR 
TRUST RULES.
    (a) General Rule.--
        (1) Subsection (f) of section 672 (relating to special rule 
    where grantor is foreign person) is amended to read as follows:
    ``(f) Subpart Not To Result in Foreign Ownership.--
        ``(1) In general.--Notwithstanding any other provision of this 
    subpart, this subpart shall apply only to the extent such 
    application results in an amount (if any) being currently taken 
    into account (directly or through 1 or more entities) under this 
    chapter in computing the income of a citizen or resident of the 
    United States or a domestic corporation.
        ``(2) Exceptions.--
            ``(A) Certain revocable and irrevocable trusts.--Paragraph 
        (1) shall not apply to any portion of a trust if--
                ``(i) the power to revest absolutely in the grantor 
            title to the trust property to which such portion is 
            attributable is exercisable solely by the grantor without 
            the approval or consent of any other person or with the 
            consent of a related or subordinate party who is 
            subservient to the grantor, or
                ``(ii) the only amounts distributable from such portion 
            (whether income or corpus) during the lifetime of the 
            grantor are amounts distributable to the grantor or the 
            spouse of the grantor.
            ``(B) Compensatory trusts.--Except as provided in 
        regulations, paragraph (1) shall not apply to any portion of a 
        trust distributions from which are taxable as compensation for 
        services rendered.
        ``(3) Special rules.--Except as otherwise provided in 
    regulations prescribed by the Secretary--
            ``(A) a controlled foreign corporation (as defined in 
        section 957) shall be treated as a domestic corporation for 
        purposes of paragraph (1), and
            ``(B) paragraph (1) shall not apply for purposes of 
        applying section 1296.
        ``(4) Recharacterization of purported gifts.--In the case of 
    any transfer directly or indirectly from a partnership or foreign 
    corporation which the transferee treats as a gift or bequest, the 
    Secretary may recharacterize such transfer in such circumstances as 
    the Secretary determines to be appropriate to prevent the avoidance 
    of the purposes of this subsection.
        ``(5) Special rule where grantor is foreign person.--If--
            ``(A) but for this subsection, a foreign person would be 
        treated as the owner of any portion of a trust, and
            ``(B) such trust has a beneficiary who is a United States 
        person,
    such beneficiary shall be treated as the grantor of such portion to 
    the extent such beneficiary has made (directly or indirectly) 
    transfers of property (other than in a sale for full and adequate 
    consideration) to such foreign person. For purposes of the 
    preceding sentence, any gift shall not be taken into account to the 
    extent such gift would be excluded from taxable gifts under section 
    2503(b).
        ``(6) Regulations.--The Secretary shall prescribe such 
    regulations as may be necessary or appropriate to carry out the 
    purposes of this subsection, including regulations providing that 
    paragraph (1) shall not apply in appropriate cases.''.
        (2) The last sentence of subsection (c) of section 672 is 
    amended by inserting ``subsection (f) and'' before ``sections 
    674''.
    (b) Credit for Certain Taxes.--
        (1) Paragraph (2) of section 665(d) is amended by adding at the 
    end the following new sentence: ``Under rules or regulations 
    prescribed by the Secretary, in the case of any foreign trust of 
    which the settlor or another person would be treated as owner of 
    any portion of the trust under subpart E but for section 672(f), 
    the term `taxes imposed on the trust' includes the allocable amount 
    of any income, war profits, and excess profits taxes imposed by any 
    foreign country or possession of the United States on the settlor 
    or such other person in respect of trust income.''.
        (2) Paragraph (5) of section 901(b) is amended by adding at the 
    end the following new sentence: ``Under rules or regulations 
    prescribed by the Secretary, in the case of any foreign trust of 
    which the settlor or another person would be treated as owner of 
    any portion of the trust under subpart E but for section 672(f), 
    the allocable amount of any income, war profits, and excess profits 
    taxes imposed by any foreign country or possession of the United 
    States on the settlor or such other person in respect of trust 
    income.''.
    (c) Distributions by Certain Foreign Trusts Through Nominees.--
        (1) Section 643 is amended by adding at the end the following 
    new subsection:
    ``(h) Distributions by Certain Foreign Trusts Through Nominees.--
For purposes of this part, any amount paid to a United States person 
which is derived directly or indirectly from a foreign trust of which 
the payor is not the grantor shall be deemed in the year of payment to 
have been directly paid by the foreign trust to such United States 
person.''.
        (2) Section 665 is amended by striking subsection (c).
    (d) Effective Date.--
        (1) In general.--Except as provided by paragraph (2), the 
    amendments made by this section shall take effect on the date of 
    the enactment of this Act.
        (2) Exception for certain trusts.--The amendments made by this 
    section shall not apply to any trust--
            (A) which is treated as owned by the grantor under section 
        676 or 677 (other than subsection (a)(3) thereof) of the 
        Internal Revenue Code of 1986, and
            (B) which is in existence on September 19, 1995.
    The preceding sentence shall not apply to the portion of any such 
    trust attributable to any transfer to such trust after September 
    19, 1995.
    (e) Transitional Rule.--If--
        (1) by reason of the amendments made by this section, any 
    person other than a United States person ceases to be treated as 
    the owner of a portion of a domestic trust, and
        (2) before January 1, 1997, such trust becomes a foreign trust, 
    or the assets of such trust are transferred to a foreign trust,
no tax shall be imposed by section 1491 of the Internal Revenue Code of 
1986 by reason of such trust becoming a foreign trust or the assets of 
such trust being transferred to a foreign trust.

SEC. 1905. INFORMATION REPORTING REGARDING FOREIGN GIFTS.

    (a) In General.--Subpart A of part III of subchapter A of chapter 
61 is amended by inserting after section 6039E the following new 
section:
``SEC. 6039F. NOTICE OF LARGE GIFTS RECEIVED FROM FOREIGN PERSONS.
    ``(a) In General.--If the value of the aggregate foreign gifts 
received by a United States person (other than an organization 
described in section 501(c) and exempt from tax under section 501(a)) 
during any taxable year exceeds $10,000, such United States person 
shall furnish (at such time and in such manner as the Secretary shall 
prescribe) such information as the Secretary may prescribe regarding 
each foreign gift received during such year.
    ``(b) Foreign Gift.--For purposes of this section, the term 
`foreign gift' means any amount received from a person other than a 
United States person which the recipient treats as a gift or bequest. 
Such term shall not include any qualified transfer (within the meaning 
of section 2503(e)(2)) or any distribution properly disclosed in a 
return under section 6048(c).
    ``(c) Penalty for Failure To File Information.--
        ``(1) In general.--If a United States person fails to furnish 
    the information required by subsection (a) with respect to any 
    foreign gift within the time prescribed therefor (including 
    extensions)--
            ``(A) the tax consequences of the receipt of such gift 
        shall be determined by the Secretary, and
            ``(B) such United States person shall pay (upon notice and 
        demand by the Secretary and in the same manner as tax) an 
        amount equal to 5 percent of the amount of such foreign gift 
        for each month for which the failure continues (not to exceed 
        25 percent of such amount in the aggregate).
        ``(2) Reasonable cause exception.--Paragraph (1) shall not 
    apply to any failure to report a foreign gift if the United States 
    person shows that the failure is due to reasonable cause and not 
    due to willful neglect.
    ``(d) Cost-of-Living Adjustment.--In the case of any taxable year 
beginning after December 31, 1996, the $10,000 amount under subsection 
(a) shall be increased by an amount equal to the product of such amount 
and the cost-of-living adjustment for such taxable year under section 
1(f)(3), except that subparagraph (B) thereof shall be applied by 
substituting `1995' for `1992'.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Clerical Amendment.--The table of sections for such subpart is 
amended by inserting after the item relating to section 6039E the 
following new item:
``Sec. 6039F. Notice of large gifts received from foreign persons.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to amounts received after the date of the enactment of this Act 
in taxable years ending after such date.
SEC. 1906. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS WHICH ARE 
NOT GRANTOR TRUSTS.
    (a) Modification of Interest Charge on Accumulation 
Distributions.--Subsection (a) of section 668 (relating to interest 
charge on accumulation distributions from foreign trusts) is amended to 
read as follows:
    ``(a) General Rule.--For purposes of the tax determined under 
section 667(a)--
        ``(1) Interest determined using underpayment rates.--The 
    interest charge determined under this section with respect to any 
    distribution is the amount of interest which would be determined on 
    the partial tax computed under section 667(b) for the period 
    described in paragraph (2) using the rates and the method under 
    section 6621 applicable to underpayments of tax.
        ``(2) Period.--For purposes of paragraph (1), the period 
    described in this paragraph is the period which begins on the date 
    which is the applicable number of years before the date of the 
    distribution and which ends on the date of the distribution.
        ``(3) Applicable number of years.--For purposes of paragraph 
    (2)--
            ``(A) In general.--The applicable number of years with 
        respect to a distribution is the number determined by 
        dividing--
                ``(i) the sum of the products described in subparagraph 
            (B) with respect to each undistributed income year, by
                ``(ii) the aggregate undistributed net income.
        The quotient determined under the preceding sentence shall be 
        rounded under procedures prescribed by the Secretary.
            ``(B) Product described.--For purposes of sub- paragraph 
        (A), the product described in this subparagraph with respect to 
        any undistributed income year is the product of--
                ``(i) the undistributed net income for such year, and
                ``(ii) the sum of the number of taxable years between 
            such year and the taxable year of the distribution 
            (counting in each case the undistributed income year but 
            not counting the taxable year of the distribution).
        ``(4) Undistributed income year.--For purposes of this 
    subsection, the term `undistributed income year' means any prior 
    taxable year of the trust for which there is undistributed net 
    income, other than a taxable year during all of which the 
    beneficiary receiving the distribution was not a citizen or 
    resident of the United States.
        ``(5) Determination of undistributed net income.--
    Notwithstanding section 666, for purposes of this subsection, an 
    accumulation distribution from the trust shall be treated as 
    reducing proportionately the undistributed net income for 
    undistributed income years.
        ``(6) Periods before 1996.--Interest for the portion of the 
    period described in paragraph (2) which occurs before January 1, 
    1996, shall be determined--
            ``(A) by using an interest rate of 6 percent, and
            ``(B) without compounding until January 1, 1996.''.
    (b) Abusive Transactions.--Section 643(a) is amended by inserting 
after paragraph (6) the following new paragraph:
        ``(7) Abusive transactions.--The Secretary shall prescribe such 
    regulations as may be necessary or appropriate to carry out the 
    purposes of this part, including regulations to prevent avoidance 
    of such purposes.''.
    (c) Treatment of Loans From Trusts.--
        (1) In general.--Section 643 (relating to definitions 
    applicable to subparts A, B, C, and D) is amended by adding at the 
    end the following new subsection:
    ``(i) Loans From Foreign Trusts.--For purposes of subparts B, C, 
and D--
        ``(1) General rule.--Except as provided in regulations, if a 
    foreign trust makes a loan of cash or marketable securities 
    directly or indirectly to--
            ``(A) any grantor or beneficiary of such trust who is a 
        United States person, or
            ``(B) any United States person not described in 
        subparagraph (A) who is related to such grantor or beneficiary,
    the amount of such loan shall be treated as a distribution by such 
    trust to such grantor or beneficiary (as the case may be).
        ``(2) Definitions and special rules.--For purposes of this 
    subsection--
            ``(A) Cash.--The term `cash' includes foreign currencies 
        and cash equivalents.
            ``(B) Related person.--
                ``(i) In general.--A person is related to another 
            person if the relationship between such persons would 
            result in a disallowance of losses under section 267 or 
            707(b). In applying section 267 for purposes of the 
            preceding sentence, section 267(c)(4) shall be applied as 
            if the family of an individual includes the spouses of the 
            members of the family.
                ``(ii) Allocation.--If any person described in 
            paragraph (1)(B) is related to more than one person, the 
            grantor or beneficiary to whom the treatment under this 
            subsection applies shall be determined under regulations 
            prescribed by the Secretary.
            ``(C) Exclusion of tax-exempts.--The term `United States 
        person' does not include any entity exempt from tax under this 
        chapter.
            ``(D) Trust not treated as simple trust.--Any trust which 
        is treated under this subsection as making a distribution shall 
        be treated as not described in section 651.
        ``(3) Subsequent transactions regarding loan principal.--If any 
    loan is taken into account under paragraph (1), any subsequent 
    transaction between the trust and the original borrower regarding 
    the principal of the loan (by way of complete or partial repayment, 
    satisfaction, cancellation, discharge, or otherwise) shall be 
    disregarded for purposes of this title.''.
        (2) Technical amendment.--Paragraph (8) of section 7872(f) is 
    amended by inserting ``, 643(i),'' before ``or 1274'' each place it 
    appears.
    (d) Effective Dates.--
        (1) Interest charge.--The amendment made by subsection (a) 
    shall apply to distributions after the date of the enactment of 
    this Act.
        (2) Abusive transactions.--The amendment made by subsection (b) 
    shall take effect on the date of the enactment of this Act.
        (3) Loans from trusts.--The amendment made by subsection (c) 
    shall apply to loans of cash or marketable securities made after 
    September 19, 1995.

SEC. 1907. RESIDENCE OF TRUSTS, ETC.

    (a) Treatment as United States Person.--
        (1) In general.--Paragraph (30) of section 7701(a) is amended 
    by striking ``and'' at the end of subparagraph (C) and by striking 
    subparagraph (D) and by inserting the following new subparagraphs:
            ``(D) any estate (other than a foreign estate, within the 
        meaning of paragraph (31)), and
            ``(E) any trust if--
                ``(i) a court within the United States is able to 
            exercise primary supervision over the administration of the 
            trust, and
                ``(ii) one or more United States fiduciaries have the 
            authority to control all substantial decisions of the 
            trust.''.
        (2) Conforming amendment.--Paragraph (31) of section 7701(a) is 
    amended to read as follows:
        ``(31) Foreign estate or trust.--
            ``(A) Foreign estate.--The term `foreign estate' means an 
        estate the income of which, from sources without the United 
        States which is not effectively connected with the conduct of a 
        trade or business within the United States, is not includible 
        in gross income under subtitle A.
            ``(B) Foreign trust.--The term `foreign trust' means any 
        trust other than a trust described in subparagraph (E) of 
        paragraph (30).''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply--
            (A) to taxable years beginning after December 31, 1996, or
            (B) at the election of the trustee of a trust, to taxable 
        years ending after the date of the enactment of this Act.
    Such an election, once made, shall be irrevocable.
    (b) Domestic Trusts Which Become Foreign Trusts.--
        (1) In general.--Section 1491 (relating to imposition of tax on 
    transfers to avoid income tax) is amended by adding at the end the 
    following new flush sentence:
``If a trust which is not a foreign trust becomes a foreign trust, such 
trust shall be treated for purposes of this section as having 
transferred, immediately before becoming a foreign trust, all of its 
assets to a foreign trust.''.
        (2) Effective date.--The amendment made by this subsection 
    shall take effect on the date of the enactment of this Act.

             Subtitle J--Generalized System of Preferences

SEC. 1951. SHORT TITLE.

    This subtitle may be cited as the ``GSP Renewal Act of 1996''.

SEC. 1952. GENERALIZED SYSTEM OF PREFERENCES.

    (a) In General.--Title V of the Trade Act of 1974 is amended to 
read as follows:

              ``TITLE V--GENERALIZED SYSTEM OF PREFERENCES

``SEC. 501. AUTHORITY TO EXTEND PREFERENCES.

    ``The President may provide duty-free treatment for any eligible 
article from any beneficiary developing country in accordance with the 
provisions of this title. In taking any such action, the President 
shall have due regard for--
        ``(1) the effect such action will have on furthering the 
    economic development of developing countries through the expansion 
    of their exports;
        ``(2) the extent to which other major developed countries are 
    undertaking a comparable effort to assist developing countries by 
    granting generalized preferences with respect to imports of 
    products of such countries;
        ``(3) the anticipated impact of such action on United States 
    producers of like or directly competitive products; and
        ``(4) the extent of the beneficiary developing country's 
    competitiveness with respect to eligible articles.

``SEC. 502. DESIGNATION OF BENEFICIARY DEVELOPING COUNTRIES.

    ``(a) Authority To Designate Countries.--
        ``(1) Beneficiary developing countries.--The President is 
    authorized to designate countries as beneficiary developing 
    countries for purposes of this title.
        ``(2) Least-developed beneficiary developing countries.--The 
    President is authorized to designate any beneficiary developing 
    country as a least-developed beneficiary developing country for 
    purposes of this title, based on the considerations in section 501 
    and subsection (c) of this section.
    ``(b) Countries Ineligible for Designation.--
        ``(1) Specific countries.--The following countries may not be 
    designated as beneficiary developing countries for purposes of this 
    title:
            ``(A) Australia.
            ``(B) Canada.
            ``(C) European Union member states.
            ``(D) Iceland.
            ``(E) Japan.
            ``(F) Monaco.
            ``(G) New Zealand.
            ``(H) Norway.
            ``(I) Switzerland.
        ``(2) Other bases for ineligibility.--The President shall not 
    designate any country a beneficiary developing country under this 
    title if any of the following applies:
            ``(A) Such country is a Communist country, unless--
                ``(i) the products of such country receive 
            nondiscriminatory treatment,
                ``(ii) such country is a WTO Member (as such term is 
            defined in section 2(10) of the Uruguay Round Agreements 
            Act) (19 U.S.C. 3501(10)) and a member of the International 
            Monetary Fund, and
                ``(iii) such country is not dominated or controlled by 
            international communism.
            ``(B) Such country is a party to an arrangement of 
        countries and participates in any action pursuant to such 
        arrangement, the effect of which is--
                ``(i) to withhold supplies of vital commodity resources 
            from international trade or to raise the price of such 
            commodities to an unreasonable level, and
                ``(ii) to cause serious disruption of the world 
            economy.
            ``(C) Such country affords preferential treatment to the 
        products of a developed country, other than the United States, 
        which has, or is likely to have, a significant adverse effect 
        on United States commerce.
            ``(D)(i) Such country--
                ``(I) has nationalized, expropriated, or otherwise 
            seized ownership or control of property, including patents, 
            trademarks, or copyrights, owned by a United States citizen 
            or by a corporation, partnership, or association which is 
            50 percent or more beneficially owned by United States 
            citizens,
                ``(II) has taken steps to repudiate or nullify an 
            existing contract or agreement with a United States citizen 
            or a corporation, partnership, or association which is50 
percent or more beneficially owned by United States citizens, the 
effect of which is to nationalize, expropriate, or otherwise seize 
ownership or control of property, including patents, trademarks, or 
copyrights, so owned, or
                ``(III) has imposed or enforced taxes or other 
            exactions, restrictive maintenance or operational 
            conditions, or other measures with respect to property, 
            including patents, trademarks, or copyrights, so owned, the 
            effect of which is to nationalize, expropriate, or 
            otherwise seize ownership or control of such property,
        unless clause (ii) applies.
            ``(ii) This clause applies if the President determines 
        that--
                ``(I) prompt, adequate, and effective compensation has 
            been or is being made to the citizen, corporation, 
            partnership, or association referred to in clause (i),
                ``(II) good faith negotiations to provide prompt, 
            adequate, and effective compensation under the applicable 
            provisions of international law are in progress, or the 
            country described in clause (i) is otherwise taking steps 
            to discharge its obligations under international law with 
            respect to such citizen, corporation, partnership, or 
            association, or
                ``(III) a dispute involving such citizen, corporation, 
            partnership, or association over compensation for such a 
            seizure has been submitted to arbitration under the 
            provisions of the Convention for the Settlement of 
            Investment Disputes, or in another mutually agreed upon 
            forum,
        and the President promptly furnishes a copy of such 
        determination to the Senate and House of Representatives.
            ``(E) Such country fails to act in good faith in 
        recognizing as binding or in enforcing arbitral awards in favor 
        of United States citizens or a corporation, partnership, or 
        association which is 50 percent or more beneficially owned by 
        United States citizens, which have been made by arbitrators 
        appointed for each case or by permanent arbitral bodies to 
        which the parties involved have submitted their dispute.
            ``(F) Such country aids or abets, by granting sanctuary 
        from prosecution to, any individual or group which has 
        committed an act of international terrorism.
            ``(G) Such country has not taken or is not taking steps to 
        afford internationally recognized worker rights to workers in 
        the country (including any designated zone in that country).
    Subparagraphs (D), (E), (F), and (G) shall not prevent the 
    designation of any country as a beneficiary developing country 
    under this title if the President determines that such designation 
    will be in the national economic interest of the United States and 
    reports such determination to the Congress with the reasons 
    therefor.
    ``(c) Factors Affecting Country Designation.--In determining 
whether to designate any country as a beneficiary developing country 
under this title, the President shall take into account--
        ``(1) an expression by such country of its desire to be so 
    designated;
        ``(2) the level of economic development of such country, 
    including its per capita gross national product, the living 
    standards of its inhabitants, and any other economic factors which 
    the President deems appropriate;
        ``(3) whether or not other major developed countries are 
    extending generalized preferential tariff treatment to such 
    country;
        ``(4) the extent to which such country has assured the United 
    States that it will provide equitable and reasonable access to the 
    markets and basic commodity resources of such country and the 
    extent to which such country has assured the United States that it 
    will refrain from engaging in unreasonable export practices;
        ``(5) the extent to which such country is providing adequate 
    and effective protection of intellectual property rights;
        ``(6) the extent to which such country has taken action to--
            ``(A) reduce trade distorting investment practices and 
        policies (including export performance requirements); and
            ``(B) reduce or eliminate barriers to trade in services; 
        and
        ``(7) whether or not such country has taken or is taking steps 
    to afford to workers in that country (including any designated zone 
    in that country) internationally recognized worker rights.
    ``(d) Withdrawal, Suspension, or Limitation of Country 
Designation.--
        ``(1) In general.--The President may withdraw, suspend, or 
    limit the application of the duty-free treatment accorded under 
    this title with respect to any country. In taking any action under 
    this subsection, the President shall consider the factors set forth 
    in section 501 and subsection (c) of this section.
        ``(2) Changed circumstances.--The President shall, after 
    complying with the requirements of subsection (f)(2), withdraw or 
    suspend the designation of any country as a beneficiary developing 
    country if, after such designation, the President determines that 
    as the result of changed circumstances such country would be barred 
    from designation as a beneficiary developing country under 
    subsection (b)(2). Such country shall cease to be a beneficiary 
    developing country on the day on which the President issues an 
    Executive order or Presidential proclamation revoking the 
    designation of such country under this title.
        ``(3) Advice to congress.--The President shall, as necessary, 
    advise the Congress on the application of section 501 and 
    subsection (c) of this section, and the actions the President has 
    taken to withdraw, to suspend, or to limit the application of duty-
    free treatment with respect to any country which has failed to 
    adequately take the actions described in subsection (c).
    ``(e) Mandatory Graduation of Beneficiary Developing Countries.--If 
the President determines that a beneficiary developing country has 
become a `high income' country, as defined by the official statistics 
of the International Bank for Reconstruction and Development, then the 
President shall terminate the designation of such country as a 
beneficiary developing country for purposes of this title, effective on 
January 1 of the second year following the year in which such 
determination is made.
    ``(f) Congressional Notification.--
        ``(1) Notification of designation.--
            ``(A) In general.--Before the President designates any 
        country as a beneficiary developing country under this title, 
        the President shall notify the Congress of the President's 
        intention to make such designation, together with the 
        considerations entering into such decision.
            ``(B) Designation as least-developed beneficiary developing 
        country.--At least 60 days before the President designates any 
        country as a least-developed beneficiary developing country, 
        the President shall notify the Congress of the President's 
        intention to make such designation.
        ``(2) Notification of termination.--If the President has 
    designated any country as a beneficiary developing country under 
    this title, the President shall not terminate such designation 
    unless, at least 60 days before such termination, the President has 
    notified the Congress and has notified such country of the 
    President's intention to terminate such designation, together with 
    the considerations entering into such decision.

``SEC. 503. DESIGNATION OF ELIGIBLE ARTICLES.

    ``(a) Eligible Articles.--
        ``(1) Designation.--
            ``(A) In general.--Except as provided in subsection (b), 
        the President is authorized to designate articles as eligible 
        articles from all beneficiary developing countries for purposes 
        of this title by Executive order or Presidential proclamation 
        after receiving the advice of the International Trade 
        Commission in accordance with subsection (e).
            ``(B) Least-developed beneficiary developing countries.--
        Except for articles described in subparagraphs (A), (B), and 
        (E) of subsection (b)(1) and articles described in paragraphs 
        (2) and (3) of subsection (b), the President may, in carrying 
        out section 502(d)(1) and subsection (c)(1) of this section, 
        designate articles as eligible articles only for countries 
        designated as least-developed beneficiary developing countries 
        under section 502(a)(2) if, after receiving the advice of the 
        International Trade Commission in accordance with subsection 
        (e) of this section, the President determines that such 
        articles are not import-sensitive in the context of imports 
        from least-developed beneficiary developing countries.
            ``(C) Three-year rule.--If, after receiving the advice of 
        the International Trade Commission under subsection (e), an 
        article has been formally considered for designation as an 
        eligible article under this title and denied such designation, 
        such article may not be reconsidered for such designation for a 
        period of 3 years after such denial.
        ``(2) Rule of origin.--
            ``(A) General rule.--The duty-free treatment provided under 
        this title shall apply to any eligible article which is the 
        growth, product, or manufacture of a beneficiary developing 
        country if--
                ``(i) that article is imported directly from a 
            beneficiary developing country into the customs territory 
            of the United States; and
                ``(ii) the sum of--

                    ``(I) the cost or value of the materials produced 
                in the beneficiary developing country or any two or 
                more such countries that are members of the same 
                association of countries and are treated as one country 
                under section 507(2), plus
                    ``(II) the direct costs of processing operations 
                performed in such beneficiary developing country or 
                such member countries,is not less than 35 percent of 
the appraised value of such article at the time it is entered.
            ``(B) Exclusions.--An article shall not be treated as the 
        growth, product, or manufacture of a beneficiary developing 
        country by virtue of having merely undergone--
                ``(i) simple combining or packaging operations, or
                ``(ii) mere dilution with water or mere dilution with 
            another substance that does not materially alter the 
            characteristics of the article.
        ``(3) Regulations.--The Secretary of the Treasury, after 
    consulting with the United States Trade Representative, shall 
    prescribe such regulations as may be necessary to carry out 
    paragraph (2), including, but not limited to, regulations providing 
    that, in order to be eligible for duty-free treatment under this 
    title, an article--
            ``(A) must be wholly the growth, product, or manufacture of 
        a beneficiary developing country, or
            ``(B) must be a new or different article of commerce which 
        has been grown, produced, or manufactured in the beneficiary 
        developing country.
    ``(b) Articles That May Not Be Designated As Eligible Articles.--
        ``(1) Import sensitive articles.--The President may not 
    designate any article as an eligible article under subsection (a) 
    if such article is within one of the following categories of 
    import-sensitive articles:
            ``(A) Textile and apparel articles which were not eligible 
        articles for purposes of this title on January 1, 1994, as this 
        title was in effect on such date.
            ``(B) Watches, except those watches entered after June 30, 
        1989, that the President specifically determines, after public 
        notice and comment, will not cause material injury to watch or 
        watch band, strap, or bracelet manufacturing and assembly 
        operations in the United States or the United States insular 
        possessions.
            ``(C) Import-sensitive electronic articles.
            ``(D) Import-sensitive steel articles.
            ``(E) Footwear, handbags, luggage, flat goods, work gloves, 
        and leather wearing apparel which were not eligible articles 
        for purposes of this title on January 1, 1995, as this title 
        was in effect on such date.
            ``(F) Import-sensitive semimanufactured and manufactured 
        glass products.
            ``(G) Any other articles which the President determines to 
        be import-sensitive in the context of the Generalized System of 
        Preferences.
        ``(2) Articles against which other actions taken.--An article 
    shall not be an eligible article for purposes of this title for any 
    period during which such article is the subject of any action 
    proclaimed pursuant to section 203 of this Act (19 U.S.C. 2253) or 
    section 232 or 351 of the Trade Expansion Act of 1962 (19 U.S.C. 
    1862, 1981).
        ``(3) Agricultural products.--No quantity of an agricultural 
    product subject to a tariff-rate quota that exceeds the in-quota 
    quantity shall be eligible for duty-free treatment under this 
    title.
    ``(c) Withdrawal, Suspension, or Limitation of Duty-Free Treatment; 
Competitive Need Limitation.--
        ``(1) In general.--The President may withdraw, suspend, or 
    limit the application of the duty-free treatment accorded under 
    this title with respect to any article, except that no rate of duty 
    may be established with respect to any article pursuant to this 
    subsection other than the rate which would apply but for this 
    title. In taking any action under this subsection, the President 
    shall consider the factors set forth in sections 501 and 502(c).
        ``(2) Competitive need limitation.--
            ``(A) Basis for withdrawal of duty-free treatment.--
                ``(i) In general.--Except as provided in clause (ii) 
            and subject to subsection (d), whenever the President 
            determines that a beneficiary developing country has 
            exported (directly or indirectly) to the United States 
            during any calendar year beginning after December 31, 
            1995--

                    ``(I) a quantity of an eligible article having an 
                appraised value in excess of the applicable amount for 
                the calendar year, or
                    ``(II) a quantity of an eligible article equal to 
                or exceeding 50 percent of the appraised value of the 
                total imports of that article into the United States 
                during any calendar year,

            the President shall, not later than July 1 of the next 
            calendar year, terminate the duty-free treatment for that 
            article from that beneficiary developing country.
                ``(ii) Annual adjustment of applicable amount.--For 
            purposes of applying clause (i), the applicable amount is--

                    ``(I) for 1996, $75,000,000, and
                    ``(II) for each calendar year thereafter, an amount 
                equal to the applicable amount in effect for the 
                preceding calendar year plus $5,000,000.

            ``(B) Country defined.--For purposes of this paragraph, the 
        term `country' does not include an association of countries 
        which is treated as one country under section 507(2), but does 
        include a country which is a member of any such association.
            ``(C) Redesignations.--A country which is no longer treated 
        as a beneficiary developing country with respect to an eligible 
        article by reason of subparagraph (A) may, subject to the 
        considerations set forth in sections 501 and502, be 
redesignated a beneficiary developing country with respect to such 
article if imports of such article from such country did not exceed the 
limitations in subparagraph (A) during the preceding calendar year.
            ``(D) Least-developed beneficiary developing countries.--
        Subparagraph (A) shall not apply to any least-developed 
        beneficiary developing country.
            ``(E) Articles not produced in the united states 
        excluded.--Subparagraph (A)(i)(II) shall not apply with respect 
        to any eligible article if a like or directly competitive 
        article was not produced in the United States on January 1, 
        1995.
            ``(F) De minimis waivers.--
                ``(i) In general.--The President may disregard 
            subparagraph (A)(i)(II) with respect to any eligible 
            article from any beneficiary developing country if the 
            aggregate appraised value of the imports of such article 
            into the United States during the preceding calendar year 
            does not exceed the applicable amount for such preceding 
            calendar year.
                ``(ii) Applicable amount.--For purposes of applying 
            clause (i), the applicable amount is--

                    ``(I) for calendar year 1996, $13,000,000, and
                    ``(II) for each calendar year thereafter, an amount 
                equal to the applicable amount in effect for the 
                preceding calendar year plus $500,000.

    ``(d) Waiver of Competitive Need Limitation.--
        ``(1) In general.--The President may waive the application of 
    subsection (c)(2) with respect to any eligible article of any 
    beneficiary developing country if, before July 1 of the calendar 
    year beginning after the calendar year for which a determination 
    described in subsection (c)(2)(A) was made with respect to such 
    eligible article, the President--
            ``(A) receives the advice of the International Trade 
        Commission under section 332 of the Tariff Act of 1930 on 
        whether any industry in the United States is likely to be 
        adversely affected by such waiver,
            ``(B) determines, based on the considerations described in 
        sections 501 and 502(c) and the advice described in 
        subparagraph (A), that such waiver is in the national economic 
        interest of the United States, and
            ``(C) publishes the determination described in subparagraph 
        (B) in the Federal Register.
        ``(2) Considerations by the president.--In making any 
    determination under paragraph (1), the President shall give great 
    weight to--
            ``(A) the extent to which the beneficiary developing 
        country has assured the United States that such country will 
        provide equitable and reasonable access to the markets and 
        basic commodity resources of such country, and
            ``(B) the extent to which such country provides adequate 
        and effective protection of intellectual property rights.
        ``(3) Other bases for waiver.--The President may waive the 
    application of subsection (c)(2) if, before July 1 of the calendar 
    year beginning after the calendar year for which a determination 
    described in subsection (c)(2) was made with respect to a 
    beneficiary developing country, the President determines that--
            ``(A) there has been a historical preferential trade 
        relationship between the United States and such country,
            ``(B) there is a treaty or trade agreement in force 
        covering economic relations between such country and the United 
        States, and
            ``(C) such country does not discriminate against, or impose 
        unjustifiable or unreasonable barriers to, United States 
        commerce,
    and the President publishes that determination in the Federal 
    Register.
        ``(4) Limitations on waivers.--
            ``(A) In general.--The President may not exercise the 
        waiver authority under this subsection with respect to a 
        quantity of an eligible article entered during any calendar 
        year beginning after 1995, the aggregate appraised value of 
        which equals or exceeds 30 percent of the aggregate appraised 
        value of all articles that entered duty-free under this title 
        during the preceding calendar year.
            ``(B) Other waiver limits.--The President may not exercise 
        the waiver authority provided under this subsection with 
        respect to a quantity of an eligible article entered during any 
        calendar year beginning after 1995, the aggregate appraised 
        value of which exceeds 15 percent of the aggregate appraised 
        value of all articles that have entered duty-free under this 
        title during the preceding calendar year from those beneficiary 
        developing countries which for the preceding calendar year--
                ``(i) had a per capita gross national product 
            (calculated on the basis of the best available information, 
            including that of the International Bank for Reconstruction 
            and Development) of $5,000 or more; or
                ``(ii) had exported (either directly or indirectly) to 
            the United States a quantity of articles that was duty-free 
            under this title that had an aggregate appraised value of 
            more than 10 percent of the aggregate appraised value of 
            all articles that entered duty-free under this title during 
            that year.
            ``(C) Calculation of limitations.--There shall be counted 
        against the limitations imposed under subparagraphs (A) and (B) 
        for any calendar year only that value of any eligible article 
        of any country that--
                ``(i) entered duty-free under this title during such 
            calendar year; and
                ``(ii) is in excess of the value of that article that 
            would have been so entered during such calendar year if the 
            limitations under subsection (c)(2)(A) applied.
        ``(5) Effective period of waiver.--Any waiver granted under 
    this subsection shall remain in effect until the President 
    determines that such waiver is no longer warranted due to changed 
    circumstances.
    ``(e) International Trade Commission Advice.--Before designating 
articles as eligible articles under subsection (a)(1), the President 
shall publish and furnish the International Trade Commission with lists 
of articles which may be considered for designation as eligible 
articles for purposes of this title. The provisions of sections 131, 
132, 133, and 134 shall be complied with as though action under section 
501 and this section were action under section 123 to carry out a trade 
agreement entered into under section 123.
    ``(f) Special Rule Concerning Puerto Rico.--No action under this 
title may affect any tariff duty imposed by the Legislature of Puerto 
Rico pursuant to section 319 of the Tariff Act of 1930 on coffee 
imported into Puerto Rico.
``SEC. 504. REVIEW AND REPORT TO CONGRESS.
    ``The President shall submit an annual report to the Congress on 
the status of internationally recognized worker rights within each 
beneficiary developing country.

``SEC. 505. DATE OF TERMINATION.

    ``No duty-free treatment provided under this title shall remain in 
effect after May 31, 1997.

``SEC. 506. AGRICULTURAL EXPORTS OF BENEFICIARY DEVELOPING COUNTRIES.

    ``The appropriate agencies of the United States shall assist 
beneficiary developing countries to develop and implement measures 
designed to assure that the agricultural sectors of their economies are 
not directed to export markets to the detriment of the production of 
foodstuffs for their citizenry.

``SEC. 507. DEFINITIONS.

    ``For purposes of this title:
        ``(1) Beneficiary developing country.--The term `beneficiary 
    developing country' means any country with respect to which there 
    is in effect an Executive order or Presidential proclamation by the 
    President designating such country as a beneficiary developing 
    country for purposes of this title.
        ``(2) Country.--The term `country' means any foreign country or 
    territory, including any overseas dependent territory or possession 
    of a foreign country, or the Trust Territory of the Pacific 
    Islands. In the case of an association of countries which is a free 
    trade area or customs union, or which is contributing to 
    comprehensive regional economic integration among its members 
    through appropriate means, including, but not limited to, the 
    reduction of duties, the President may by Executive order or 
    Presidential proclamation provide that all members of such 
    association other than members which are barred from designation 
    under section 502(b) shall be treated as one country for purposes 
    of this title.
        ``(3) Entered.--The term `entered' means entered, or withdrawn 
    from warehouse for consumption, in the customs territory of the 
    United States.
        ``(4) Internationally recognized worker rights.--The term 
    `internationally recognized worker rights' includes--
            ``(A) the right of association;
            ``(B) the right to organize and bargain collectively;
            ``(C) a prohibition on the use of any form of forced or 
        compulsory labor;
            ``(D) a minimum age for the employment of child- ren; and
            ``(E) acceptable conditions of work with respect to minimum 
        wages, hours of work, and occupational safety and health.
        ``(5) Least-developed beneficiary developing country.--The term 
    `least-developed beneficiary developing country' means a 
    beneficiary developing country that is designated as a least-
    developed beneficiary developing country under section 
    502(a)(2).''.
    (b) Table of Contents.--The items relating to title V in the table 
of contents of the Trade Act of 1974 are amended to read as follows:

              ``TITLE V--GENERALIZED SYSTEM OF PREFERENCES

``Sec. 501. Authority to extend preferences.
``Sec. 502. Designation of beneficiary developing countries.
``Sec. 503. Designation of eligible articles.
``Sec. 504. Review and reports to Congress.
``Sec. 505. Date of termination.
``Sec. 506. Agricultural exports of beneficiary developing countries.
``Sec. 507. Definitions.''.

SEC. 1953. EFFECTIVE DATE.

    (a) In General.--The amendments made by this subtitle apply to 
articles entered on or after October 1, 1996.
    (b) Retroactive Application.--
        (1) General rule.--Notwithstanding section 514 of the Tariff 
    Act of 1930 or any other provision of law and subject to subsection 
    (c)--
            (A) any article that was entered--
                (i) after July 31, 1995, and
                (ii) before January 1, 1996, and
        to which duty-free treatment under title V of the Trade Act of 
        1974 would have applied if the entry had been made on July 31, 
        1995, shall be liquidated or reliquidated as free of duty, and 
        the Secretary of the Treasury shall refund any duty paid with 
        respect to such entry, and
            (B) any article that was entered--
                (i) after December 31, 1995, and
                (ii) before October 1, 1996, and
        to which duty-free treatment under title V of the Trade Act of 
        1974 (as amended by this subtitle) would have applied if the 
        entry had been made on or after October 1, 1996, shall be 
        liquidated or reliquidated as free of duty, and the Secretary 
        of the Treasury shall refund any duty paid with respect to such 
        entry.
        (2) Limitation on refunds.--No refund shall be made pursuant to 
    this subsection before October 1, 1996.
        (3) Entry.--As used in this subsection, the term ``entry'' 
    includes a withdrawal from warehouse for consumption.
    (c) Requests.--Liquidation or reliquidation may be made under 
subsection (b) with respect to an entry only if a request therefor is 
filed with the Customs Service, within 180 days after the date of the 
enactment of this Act, that contains sufficient information to enable 
the Customs Service--
        (1) to locate the entry; or
        (2) to reconstruct the entry if it cannot be located.

SEC. 1954. CONFORMING AMENDMENTS.

    (a) Trade Laws.--
        (1) Section 1211(b) of the Omnibus Trade and Competitiveness 
    Act of 1988 (19 U.S.C. 3011(b)) is amended--
            (A) in paragraph (1), by striking ``(19 U.S.C. 2463(a), 
        2464(c)(3))'' and inserting ``(as in effect on July 31, 
        1995)''; and
            (B) in paragraph (2), by striking ``(19 U.S.C. 
        2464(c)(1))'' and inserting the following: ``(as in effect on 
        July 31, 1995)''.
        (2) Section 203(c)(7) of the Andean Trade Preference Act (19 
    U.S.C. 3202(c)(7)) is amended by striking ``502(a)(4)'' and 
    inserting ``507(4)''.
        (3) Section 212(b)(7) of the Caribbean Basin Economic Recovery 
    Act (19 U.S.C. 2702(b)(7)) is amended by striking ``502(a)(4)'' and 
    inserting ``507(4)''.
        (4) General note 3(a)(iv)(C) of the Harmonized Tariff Schedule 
    of the United States is amended by striking ``sections 503(b) and 
    504(c)'' and inserting ``subsections (a), (c), and (d) of section 
    503''.
        (5) Section 201(a)(2) of the North American Free Trade 
    Agreement Implementation Act (19 U.S.C. 3331(a)(2)) is amended by 
    striking ``502(a)(2) of the Trade Act of 1974 (19 U.S.C. 
    2462(a)(2))'' and inserting ``502(f)(2) of the Trade Act of 1974''.
        (6) Section 131 of the Uruguay Round Agreements Act (19 U.S.C. 
    3551) is amended in subsections (a) and (b)(1) by striking 
    ``502(a)(4)'' and inserting ``507(4)''.
    (b) Other Laws.--
        (1) Section 871(f)(2)(B) of the Internal Revenue Code of 1986 
    is amended by striking ``within the meaning of section 502'' and 
    inserting ``under title V''.
        (2) Section 2202(8) of the Export Enhancement Act of 1988 (15 
    U.S.C. 4711(8)) is amended by striking ``502(a)(4)'' and inserting 
    ``507(4)''.
        (3) Section 231A(a) of the Foreign Assistance Act of 1961 (22 
    U.S.C. 2191a(a)) is amended--
            (A) in paragraph (1) by striking ``502(a)(4) of the Trade 
        Act of 1974 (19 U.S.C. 2462(a)(4))'' and inserting ``507(4) of 
        the Trade Act of 1974'';
            (B) in paragraph (2) by striking ``505(c) of the Trade Act 
        of 1974 (19 U.S.C. 2465(c))'' and inserting ``504 of the Trade 
        Act of 1974''; and
            (C) in paragraph (4) by striking ``502(a)(4)'' and 
        inserting ``507(4)''.
        (4) Section 1621(a)(1) of the International Financial 
    Institutions Act (22 U.S.C. 262p-4p(a)(1)) is amended by striking 
    ``502(a)(4)'' and inserting ``507(4)''.
        (5) Section 103B of the Agricultural Act of 1949 (7 U.S.C. 
    1444-2) is amended in subsections (a)(5)(F)(v) and (n)(1)(C) by 
    striking ``503(d) of the Trade Act of 1974 (19 U.S.C. 2463(d))'' 
    and inserting ``503(b)(3) of the Trade Act of 1974''.

SEC. 2101. SHORT TITLE.

    This section and sections 2102 and 2103 may be cited as the 
``Employee Commuting Flexibility Act of 1996''.
SEC. 2102. PROPER COMPENSATION FOR USE OF EMPLOYER VEHICLES.
    Section 4(a) of the Portal-to-Portal Act of 1947 (29 U.S.C. 254(a)) 
is amended by adding at the end the following: ``For purposes of this 
subsection, the use of an employer's vehicle for travel by an employee 
and activities performed by an employee which are incidental to the use 
of such vehicle for commuting shall not be considered part of the 
employee's principal activities if the use of such vehicle for travel 
is within the normal commuting area for the employer's business or 
establishment and the use of the employer's vehicle is subject to an 
agreement on the part of the employer and the employee or 
representative of such employee.''.

SEC. 2103. EFFECTIVE DATE.

    The amendment made by section 2101 shall take effect on the date of 
the enactment of this Act and shall apply in determining the 
application of section 4 of the Portal-to-Portal Act of 1947 to an 
employee in any civil action brought before such date of enactment but 
pending on such date.

SEC. 2104. MINIMUM WAGE INCREASE.

    (a) Short Title.--This section may be cited as the ``Minimum Wage 
Increase Act of 1996''.
    (b) Amendment.--Paragraph (1) of section 6(a) of the Fair Labor 
Standards Act of 1938 (29 U.S.C. 206(a)) is amended to read as follows:
        ``(1) except as otherwise provided in this section, not less 
    than $4.25 an hour during the period ending on September 30, 1996, 
    not less than $4.75 an hour during the year beginning on October 1, 
    1996, and not less than $5.15 an hour beginning September 1, 
    1997;''.
    (c) Conforming Amendment.--Section 6 of such Act (29 U.S.C. 206) is 
amended by striking subsection (c).

SEC. 2105. FAIR LABOR STANDARDS ACT AMENDMENTS.

    (a) Computer Professionals.--Section 13(a) of the Fair Labor 
Standards Act of 1938 (29 U.S.C. 213(a)) is amended by striking the 
period at the end of paragraph (16) and inserting ``; or'' and by 
adding after that paragraph the following:
        ``(17) any employee who is a computer systems analyst, computer 
    programmer, software engineer, or other similarly skilled worker, 
    whose primary duty is--
            ``(A) the application of systems analysis techniques and 
        procedures, including consulting with users, to determine 
        hardware, software, or system functional specifications;
            ``(B) the design, development, documentation, analysis, 
        creation, testing, or modification of computer systems or 
        programs, including prototypes, based on and related to user or 
        system design specifications;
            ``(C) the design, documentation, testing, creation, or 
        modification of computer programs related to machine operating 
        systems; or
            ``(D) a combination of duties described in subparagraphs 
        (A), (B), and (C) the performance of which requires the same 
        level of skills, and
    who, in the case of an employee who is compensated on an hourly 
    basis, is compensated at a rate of not less than $27.63 an hour.''.
    (b) Tip Credit.--The last sentence of section 3(m) of the Fair 
Labor Standards Act of 1938 (29 U.S.C. 203(m)) is amended by striking 
``previous sentence'' and inserting ``preceding 2 sentences'' and by 
striking ``(1)'' and ``(2)'' and such section is amended by striking 
the next to last sentence and inserting the following: ``In determining 
the wage an employer is required to pay a tipped employee, the amount 
paid such employee by the employee's employer shall be an amount equal 
to--
        ``(1) the cash wage paid such employee which for purposes of 
    such determination shall be not less than the cash wage required to 
    be paid such an employee on the date of the enactment of this 
    paragraph; and
        ``(2) an additional amount on account of the tips received by 
    such employee which amount is equal to the difference between the 
    wage specified in paragraph (1) and the wage in effect under 
    section 6(a)(1).
The additional amount on account of tips may not exceed the value of 
the tips actually received by an employee.''.
    (c) Opportunity Wage.--Section 6 of the Fair Labor Standards Act of 
1938 (29 U.S.C. 206) is amended by adding at the end the following:
    ``(g)(1) In lieu of the rate prescribed by subsection (a)(1), any 
employer may pay any employee of such employer, during the first 90 
consecutive calendar days after such employee is initially employed by 
such employer, a wage which is not less than $4.25 an hour.
    ``(2) No employer may take any action to displace employees 
(including partial displacements such as reduction in hours, wages, or 
employment benefits) for purposes of hiring individuals at the wage 
authorized in paragraph (1).
    ``(3) Any employer who violates this subsection shall be considered 
to have violated section 15(a)(3).
    ``(4) This subsection shall only apply to an employee who has not 
attained the age of 20 years.''.

                               Speaker of the House of Representatives.

       Vice President of the United States and President of the Senate.