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106th Congress                                                  Report
                        HOUSE OF REPRESENTATIVES   
 2d Session                                                     106-1004
_______________________________________________________________________

                                     



 
  ENACTMENT OF CERTAIN SMALL BUSINESS, HEALTH, TAX, AND MINIMUM WAGE 
                              PROVISIONS

                               __________

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2614

               


 October 26 (legislative day, October 25), 2000.--Ordered to be printed




106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                    106-1004

======================================================================




  ENACTMENT OF CERTAIN SMALL BUSINESS, HEALTH, TAX, AND MINIMUM WAGE 
                               PROVISIONS

                                _______
                                

 October 26 (legislative day, October 25), 2000.--Ordered to be printed

                                _______
                                

  Mr. Armey, from the committee of conference, submitted the following

                           CONFERENCE REPORT

                        [To accompany H.R. 2614]

      The committee of conference on the disagreeing votes of 
the two Houses on the amendment of the Senate to the bill (H.R. 
2614) to amend the Small Business Investment Act to make 
improvements to the certified development company program, and 
for other purposes, having met, after full and free conference, 
have agreed to recommend and do recommend to their respective 
Houses as follows:
      That the House recede from its disagreement to the 
amendment of the Senate and agree to the same with an amendment 
as follows:
      In lieu of the matter proposed to be inserted by the 
Senate amendment, insert the following:

SECTION 1. ENACTMENT OF OTHER PROVISIONS OF LAW.

    The provisions of the following bills of the 106th Congress 
are hereby enacted into law:
            (1) H.R. 5538, as introduced on October 25, 2000 
        (the Minimum Wage Act of 2000).
            (2) H.R. 5542, as introduced on October 25, 2000 
        (the Taxpayer Relief Act of 2000).
            (3) H.R. 5543, as introduced on October 25, 2000 
        (the Medicare, Medicaid, and SCHIP Benefits Improvement 
        and Protection Act of 2000).
            (4) H.R. 5544, as introduced on October 25, 2000 
        (the Pain Relief Promotion Act of 2000).
            (5) H.R. 5545, as introduced on October 25, 2000 
        (the Small Business Reauthorization Act of 2000).

SEC. 2. PUBLICATION OF ACT.

    In publishing this Act in slip form and in the United 
States Statutes at Large pursuant to section 112 of title 1, 
United States Code, the Archivist of the United States shall 
include after the date of approval appendixes setting forth the 
texts of the bills referred to in section 1.
      And the Senate agree to the same.
                                   Jim Talent,
                                   Dick Armey,
                                 Managers on the Part of the House.

                                   Christopher Bond,
                                   Conrad Burns,
                                Managers on the Part of the Senate.
       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

    The managers on the part of the House and the Senate at the 
conference on the disagreeing votes of the two Houses on the 
amendment of the Senate to the bill (H.R. 2614) to amend the 
Small Business Investment Act to make improvements to the 
certified development company program, and for other purposes, 
submit the following joint statement to the House and the 
Senate in explanation of the effect of the action agreed upon 
by the managers and recommended in the accompanying conference 
report:
    The Senate amendment struck all of the House bill after the 
enacting clause and inserted a substitute text.
    The House recedes from its disagreement to the amendment of 
the Senate with an amendment that is a substitute for the House 
bill and the Senate amendment.
    The conference agreement would enact by reference the 
provisions of five bills introduced on October 25, 2000. Those 
bills are the following:
            (1) H.R. 5538, the Minimum Wage Act of 2000.
            (2) H.R. 5542, the Taxpayer Relief Act of 2000.
            (3) H.R. 5543, the Medicare, Medicaid, and SCHIP 
        Benefits Improvement and Protection Act of 2000.
            (4) H.R. 5544, the Pain Relief Promotion Act of 
        2000.
            (5) H.R. 5545, the Small Business Reauthorization 
        Act of 2000.
    This joint statement sets out for convenience the text of 
each bill that would be enacted in the conference report by 
reference.

                        minimum wage act of 2000

      The conference agreement would enact the provisions of 
H.R. 5538, as introduced on October 25, 2000. The text of that 
bill follows:

SECTION 1. SHORT TITLE.

      This Act may be cited as the ``Minimum Wage Act of 
2000''.

SEC. 2. MINIMUM WAGE INCREASE.

      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 $5.15 an hour during the period ending 
        June 30, 2000, not less than $5.65 an hour during the 
        year beginning January 1, 2001, and not less than $6.15 
        an hour beginning January 1, 2002;''.

                      taxpayer relief act of 2000

      The conference agreement would enact the provisions of 
H.R. 5542, as introduced on October 25, 2000. The text of that 
bill follows:

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

      (a) Short Title.--This Act may be cited as the ``Taxpayer 
Relief Act of 2000''.
      (b) Amendment of 1986 Code.--Except as otherwise 
expressly provided, whenever in this Act an amendment or repeal 
is expressed in terms of an amendment to, or repeal of, a 
section or other provision, the reference shall be considered 
to be made to a section or other provision of the Internal 
Revenue Code of 1986.
      (c) Table of Contents.--

Sec. 1. Short title; amendment of 1986 Code.

        TITLE I--FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION

Sec. 101. Repeal of foreign sales corporation rules.
Sec. 102. Treatment of extraterritorial income.
Sec. 103. Technical and conforming amendments.
Sec. 104. Effective date.

                   TITLE II--SMALL BUSINESS TAX RELIEF

Sec. 201. Extension of work opportunity tax credit.
Sec. 202. Increase in amortizable reforestation expenditures, etc.
Sec. 203. Increase in expense treatment for small businesses.
Sec. 204. Increased deduction for meal expenses.
Sec. 205. Increased deductibility of business meal expenses for 
          individuals subject to Federal limitations on hours of 
          service.
Sec. 206. Repeal of modification of installment method.
Sec. 207. Income averaging not to increase alternative minimum tax 
          liability; income averaging for fishermen.
Sec. 208. Repeal of occupational taxes relating to distilled spirits, 
          wine, and beer.
Sec. 209. Exclusion from gross income for certain forgiven mortgage 
          obligations.
Sec. 210. Clarification of cash accounting rules for small business.
Sec. 211. Amendments relating to demand deposit accounts at depository 
          institutions.

   TITLE III--HEALTH INSURANCE AND LONG-TERM CARE INSURANCE PROVISIONS

Sec. 301. Deduction for 100 percent of health insurance costs of self-
          employed individuals.
Sec. 302. Deduction for health and long-term care insurance costs of 
          individuals not participating in employer-subsidized health 
          plans.
Sec. 303. 2-year extension of availability of medical savings accounts.
Sec. 304. Additional consumer protections for long-term care insurance.
Sec. 305. Deduction for providing long-term care in the home to 
          household members.

   TITLE IV--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS

Sec. 400. Short title.

               Subtitle A--Individual Retirement Accounts

Sec. 401. Modification of IRA contribution limits.
Sec. 402. Deemed IRAs under employer plans.
Sec. 403. Tax-free distributions from individual retirement accounts for 
          charitable purposes.
Sec. 404. Modification of AGI limits for Roth IRAs.

                     Subtitle B--Expanding Coverage

Sec. 411. Increase in benefit and contribution limits.
Sec. 412. Plan loans for subchapter S owners, partners, and sole 
          proprietors.
Sec. 413. Modification of top-heavy rules.
Sec. 414. Elective deferrals not taken into account for purposes of 
          deduction limits.
Sec. 415. Repeal of coordination requirements for deferred compensation 
          plans of State and local governments and tax-exempt 
          organizations.
Sec. 416. Elimination of user fee for requests to IRS regarding pension 
          plans.
Sec. 417. Deduction limits.
Sec. 418. Option to treat elective deferrals as after-tax Roth 
          contributions.

                Subtitle C--Enhancing Fairness for Women

Sec. 421. Catch-up contributions for individuals age 50 or over.
Sec. 422. Equitable treatment for contributions of employees to defined 
          contribution plans.
Sec. 423. Faster vesting of certain employer matching contributions.
Sec. 424. Simplify and update the minimum distribution rules.
Sec. 425. Clarification of tax treatment of division of section 457 plan 
          benefits upon divorce.
Sec. 426. Provisions relating to hardship distributions.
Sec. 427. Waiver of tax on nondeductible contributions for domestic or 
          similar workers.

           Subtitle D--Increasing Portability for Participants

Sec. 431. Rollovers allowed among various types of plans.
Sec. 432. Rollovers of IRAs into workplace retirement plans.
Sec. 433. Rollovers of after-tax contributions.
Sec. 434. Hardship exception to 60-day rule.
Sec. 435. Treatment of forms of distribution.
Sec. 436. Rationalization of restrictions on distributions.
Sec. 437. Purchase of service credit in governmental defined benefit 
          plans.
Sec. 438. Employers may disregard rollovers for purposes of cash-out 
          amounts.
Sec. 439. Minimum distribution and inclusion requirements for section 
          457 plans.

       Subtitle E--Strengthening Pension Security and Enforcement

Sec. 441. Repeal of 155 percent of current liability funding limit.
Sec. 442. Maximum contribution deduction rules modified and applied to 
          all defined benefit plans.
Sec. 443. Excise tax relief for sound pension funding.
Sec. 444. Excise tax on failure to provide notice by defined benefit 
          plans significantly reducing future benefit accruals.
Sec. 445. Treatment of multiemployer plans under section 415.
Sec. 446. Protection of investment of employee contributions to 401(k) 
          plans.
Sec. 447. Periodic pension benefits statements.
Sec. 448. Prohibited allocations of stock in S corporation ESOP.

                 Subtitle F--Reducing Regulatory Burdens

Sec. 451. Modification of timing of plan valuations.
Sec. 452. ESOP dividends may be reinvested without loss of dividend 
          deduction.
Sec. 453. Repeal of transition rule relating to certain highly 
          compensated employees.
Sec. 454. Employees of tax-exempt entities.
Sec. 455. Clarification of treatment of employer-provided retirement 
          advice.
Sec. 456. Reporting simplification.
Sec. 457. Improvement of employee plans compliance resolution system.
Sec. 458. Repeal of the multiple use test.
Sec. 459. Flexibility in nondiscrimination, coverage, and line of 
          business rules.
Sec. 460. Extension to all governmental plans of moratorium on 
          application of certain nondiscrimination rules applicable to 
          State and local plans.
Sec. 461. Notice and consent period regarding distributions.
Sec. 462. Annual report dissemination.
Sec. 463. Technical corrections to SAVER Act.
Sec. 464. Study of pension coverage.

                   Subtitle G--Other ERISA Provisions

Sec. 471. Missing participants.
Sec. 472. Reduced PBGC premium for new plans of small employers.
Sec. 473. Reduction of additional PBGC premium for new and small plans.
Sec. 474. Authorization for PBGC to pay interest on premium overpayment 
          refunds.
Sec. 475. Substantial owner benefits in terminated plans.
Sec. 476. Multiemployer plan benefits guarantee.
Sec. 477. Civil penalties for breach of fiduciary responsibility.
Sec. 478. Benefit suspension notice.

                       Subtitle H--Plan Amendments

Sec. 481. Provisions relating to plan amendments.

                 TITLE V--SCHOOL CONSTRUCTION PROVISIONS

Sec. 501. Additional increase in arbitrage rebate exception for 
          governmental bonds used to finance educational facilities.
Sec. 502. Modification of arbitrage rebate rules applicable to public 
          school construction bonds.
Sec. 503. Modification of special arbitrage rule for certain funds.
Sec. 504. Treatment of qualified public educational facility bonds as 
          exempt facility bonds.
Sec. 505. Expansion of qualified zone academy bond program.

                   TITLE VI--COMMUNITY REVITALIZATION

           Subtitle A--Tax Incentives for Renewal Communities

Sec. 601. Designation of and tax incentives for renewal communities.
Sec. 602. Work opportunity credit for hiring youth residing in renewal 
          communities.

   Subtitle B--Extension and Expansion of Empowerment Zone Incentives

Sec. 611. Authority to designate 9 additional empowerment zones.
Sec. 612. Extension of empowerment zone treatment through 2009.
Sec. 613. 20 percent employment credit for all empowerment zones.
Sec. 614. Increased expensing under section 179.
Sec. 615. Higher limits on tax-exempt empowerment zone facility bonds.
Sec. 616. Nonrecognition of gain on rollover of empowerment zone 
          investments.
Sec. 617. Increased exclusion of gain on sale of empowerment zone stock.

                   Subtitle C--New Markets Tax Credit

Sec. 621. New markets tax credit.

          Subtitle D--Improvements in Low-Income Housing Credit

Sec. 631. Modification of State ceiling on low-income housing credit.
Sec. 632. Modification of criteria for allocating housing credits among 
          projects.
Sec. 633. Additional responsibilities of housing credit agencies.
Sec. 634. Modifications to rules relating to basis of building which is 
          eligible for credit.
Sec. 635. Other modifications.
Sec. 636. Carryforward rules.
Sec. 637. Effective date.

     Subtitle E--Other Community Renewal and New Markets Assistance

Sec. 641. Transfer of unoccupied and substandard HUD-held housing to 
          local governments and community development corporations.
Sec. 642. Transfer of HUD assets in revitalization areas.
Sec. 643. Risk-sharing demonstration.
Sec. 644. Prevention and treatment of substance abuse; services provided 
          through religious organizations.

                      Subtitle F--Other Provisions

Sec. 651. Acceleration of phase-in of increase in volume cap on private 
          activity bonds.
Sec. 652. Modifications to expensing of environmental remediation costs.
Sec. 653. Extension of DC homebuyer tax credit.

   TITLE VII--ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL PROVISIONS

                  Subtitle A--Administrative Provisions

Sec. 701. Exemption of certain reporting requirements.
Sec. 702. Extension of deadlines for IRS compliance with certain notice 
          requirements.
Sec. 703. Extension of authority for undercover operations.
Sec. 704. Confidentiality of certain documents relating to closing and 
          similar agreements and to agreements with foreign governments.
Sec. 705. Increase in threshold for Joint Committee reports on refunds 
          and credits.
Sec. 706. Treatment of missing children with respect to certain tax 
          benefits.
Sec. 707. Amendments to statutes referencing yield on 52-week Treasury 
          bills.
Sec. 708. Adjustments for Consumer Price Index error.
Sec. 709. Prevention of duplication of loss through assumption of 
          liabilities giving rise to a deduction.

                  Subtitle B--Miscellaneous Provisions

Sec. 710. Repeal of 4.3-cent motor fuel excise taxes on railroads and 
          inland waterway transportation which remain in general fund.
Sec. 711. Repeal of reduction of deductions for mutual life insurance 
          companies.
Sec. 712. Repeal of policyholders surplus account provisions.
Sec. 713. Credit to holders of qualified Amtrak bonds.
Sec. 714. Farm, fishing, and ranch risk management accounts.
Sec. 715. Extension of enhanced deduction for corporate donations of 
          computer technology.
Sec. 716. Relief from Federal tax liability arising with respect to 
          certain claims against the Department of Agriculture for 
          discrimination in farm credit and benefit programs.
Sec. 717. Expansion of credit for adoption expenses.
Sec. 718. Study concerning United States insurance companies with 
          certain offshore reinsurance affiliates.
Sec. 719. Treatment of Indian tribal governments under Federal 
          Unemployment Tax Act.

                    Subtitle C--Technical Corrections

Sec. 721. Amendments related to Ticket to Work and Work Incentives 
          Improvement Act of 1999.
Sec. 722. Amendments related to Tax and Trade Relief Extension Act of 
          1998.
Sec. 723. Amendments related to Internal Revenue Service Restructuring 
          and Reform Act of 1998.
Sec. 724. Amendments related to Taxpayer Relief Act of 1997.
Sec. 725. Amendments related to Balanced Budget Act of 1997.
Sec. 726. Amendments related to Small Business Job Protection Act of 
          1996.
Sec. 727. Amendment related to Revenue Reconciliation Act of 1990.
Sec. 728. Other technical corrections.
Sec. 729. Clerical changes.

                     Subtitle D--Pay-Go Adjustments

Sec. 731. Avoidance of a Pay-Go sequestration for fiscal year 2001.

       TITLE I--FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION

SEC. 101. REPEAL OF FOREIGN SALES CORPORATION RULES.

    Subpart C of part III of subchapter N of chapter 1 
(relating to taxation of foreign sales corporations) is hereby 
repealed.

SEC. 102. TREATMENT OF EXTRATERRITORIAL INCOME.

    (a) In General.--Part III of subchapter B of chapter 1 
(relating to items specifically excluded from gross income) is 
amended by inserting before section 115 the following new 
section:

``SEC. 114. EXTRATERRITORIAL INCOME.

    ``(a) Exclusion.--Gross income does not include 
extraterritorial income.
    ``(b) Exception.--Subsection (a) shall not apply to 
extraterritorial income which is not qualifying foreign trade 
income as determined under subpart E of part III of subchapter 
N.
    ``(c) Disallowance of Deductions.--
            ``(1) In general.--Any deduction of a taxpayer 
        allocated under paragraph (2) to extraterritorial 
        income of the taxpayer excluded from gross income under 
        subsection (a) shall not be allowed.
            ``(2) Allocation.--Any deduction of the taxpayer 
        properly apportioned and allocated to the 
        extraterritorial income derived by the taxpayer from 
        any transaction shall be allocated on a proportionate 
        basis between--
                    ``(A) the extraterritorial income derived 
                from such transaction which is excluded from 
                gross income under subsection (a), and
                    ``(B) the extraterritorial income derived 
                from such transaction which is not so excluded.
    ``(d) Denial of Credits for Certain Foreign Taxes.--
Notwithstanding any other provision of this chapter, no credit 
shall be allowed under this chapter for any income, war 
profits, and excess profits taxes paid or accrued to any 
foreign country or possession of the United States with respect 
to extraterritorial income which is excluded from gross income 
under subsection (a).
    ``(e) Extraterritorial Income.--For purposes of this 
section, the term `extraterritorial income' means the gross 
income of the taxpayer attributable to foreign trading gross 
receipts (as defined in section 942) of the taxpayer.''.
    (b) Qualifying Foreign Trade Income.--Part III of 
subchapter N of chapter 1 is amended by inserting after subpart 
D the following new subpart:

              ``Subpart E--Qualifying Foreign Trade Income

        ``Sec. 941. Qualifying foreign trade income.
        ``Sec. 942. Foreign trading gross receipts.
        ``Sec. 943. Other definitions and special rules.

``SEC. 941. QUALIFYING FOREIGN TRADE INCOME.

    ``(a) Qualifying Foreign Trade Income.--For purposes of 
this subpart and section 114--
            ``(1) In general.--The term `qualifying foreign 
        trade income' means, with respect to any transaction, 
        the amount of gross income which, if excluded, will 
        result in a reduction of the taxable income of the 
        taxpayer from such transaction equal to the greatest 
        of--
                    ``(A) 30 percent of the foreign sale and 
                leasing income derived by the taxpayer from 
                such transaction,
                    ``(B) 1.2 percent of the foreign trading 
                gross receipts derived by the taxpayer from the 
                transaction, or
                    ``(C) 15 percent of the foreign trade 
                income derived by the taxpayer from the 
                transaction.
        In no event shall the amount determined under 
        subparagraph (B) exceed 200 percent of the amount 
        determined under subparagraph (C).
            ``(2) Alternative computation.--A taxpayer may 
        compute its qualifying foreign trade income under a 
        subparagraph of paragraph (1) other than the 
        subparagraph which results in the greatest amount of 
        such income.
            ``(3) Limitation on use of foreign trading gross 
        receipts method.--If any person computes its qualifying 
        foreign trade income from any transaction with respect 
        to any property under paragraph (1)(B), the qualifying 
        foreign trade income of such person (or any related 
        person) with respect to any other transaction involving 
        such property shall be zero.
            ``(4) Rules for marginal costing.--The Secretary 
        shall prescribe regulations setting forth rules for the 
        allocation of expenditures in computing foreign trade 
        income under paragraph (1)(C) in those cases where a 
        taxpayer is seeking to establish or maintain a market 
        for qualifying foreign trade property.
            ``(5) Participation in international boycotts, 
        etc.--Under regulations prescribed by the Secretary, 
        the qualifying foreign trade income of a taxpayer for 
        any taxable year shall be reduced (but not below zero) 
        by the sum of--
                    ``(A) an amount equal to such income 
                multiplied by the international boycott factor 
                determined under section 999, and
                    ``(B) any illegal bribe, kickback, or other 
                payment (within the meaning of section 162(c)) 
                paid by or on behalf of the taxpayer directly 
                or indirectly to an official, employee, or 
                agent in fact of a government.
    ``(b) Foreign Trade Income.--For purposes of this subpart--
            ``(1) In general.--The term `foreign trade income' 
        means the taxable income of the taxpayer attributable 
        to foreign trading gross receipts of the taxpayer.
            ``(2) Special rule for cooperatives.--In any case 
        in which an organization to which part I of subchapter 
        T applies which is engaged in the marketing of 
        agricultural or horticultural products sells qualifying 
        foreign trade property, in computing the taxable income 
        of such cooperative, there shall not be taken into 
        account any deduction allowable under subsection (b) or 
        (c) of section 1382 (relating to patronage dividends, 
        per-unit retain allocations, and nonpatronage 
        distributions).
    ``(c) Foreign Sale and Leasing Income.--For purposes of 
this section--
            ``(1) In general.--The term `foreign sale and 
        leasing income' means, with respect to any 
        transaction--
                    ``(A) foreign trade income properly 
                allocable to activities which--
                            ``(i) are described in paragraph 
                        (2)(A)(i) or (3) of section 942(b), and
                            ``(ii) are performed by the 
                        taxpayer (or any person acting under a 
                        contract with such taxpayer) outside 
                        the United States, or
                    ``(B) foreign trade income derived by the 
                taxpayer in connection with the lease or rental 
                of qualifying foreign trade property for use by 
                the lessee outside the United States.
            ``(2) Special rules for leased property.--
                    ``(A) Sales income.--The term `foreign sale 
                and leasing income' includes any foreign trade 
                income derived by the taxpayer from the sale of 
                property described in paragraph (1)(B).
                    ``(B) Limitation in certain cases.--Except 
                as provided in regulations, in the case of 
                property which--
                            ``(i) was manufactured, produced, 
                        grown, or extracted by the taxpayer, or
                            ``(ii) was acquired by the taxpayer 
                        from a related person for a price which 
                        was not determined in accordance with 
                        the rules of section 482,
                the amount of foreign trade income which may be 
                treated as foreign sale and leasing income 
                under paragraph (1)(B) or subparagraph (A) of 
                this paragraph with respect to any transaction 
                involving such property shall not exceed the 
                amount which would have been determined if the 
                taxpayer had acquired such property for the 
                price determined in accordance with the rules 
                of section 482.
            ``(3) Special rules.--
                    ``(A) Excluded property.--Foreign sale and 
                leasing income shall not include any income 
                properly allocable to excluded property 
                described in subparagraph (B) of section 
                943(a)(3) (relating to intangibles).
                    ``(B) Only direct expenses taken into 
                account.--For purposes of this subsection, any 
                expense other than a directly allocable expense 
                shall not be taken into account in computing 
                foreign trade income.

``SEC. 942. FOREIGN TRADING GROSS RECEIPTS.

    ``(a) Foreign Trading Gross Receipts.--
            ``(1) In general.--Except as otherwise provided in 
        this section, for purposes of this subpart, the term 
        `foreign trading gross receipts' means the gross 
        receipts of the taxpayer which are--
                    ``(A) from the sale, exchange, or other 
                disposition of qualifying foreign trade 
                property,
                    ``(B) from the lease or rental of 
                qualifying foreign trade property for use by 
                the lessee outside the United States,
                    ``(C) for services which are related and 
                subsidiary to--
                            ``(i) any sale, exchange, or other 
                        disposition of qualifying foreign trade 
                        property by such taxpayer, or
                            ``(ii) any lease or rental of 
                        qualifying foreign trade property 
                        described in subparagraph (B) by such 
                        taxpayer,
                    ``(D) for engineering or architectural 
                services for construction projects located (or 
                proposed for location) outside the United 
                States, or
                    ``(E) for the performance of managerial 
                services for a person other than a related 
                person in furtherance of the production of 
                foreign trading gross receipts described in 
                subparagraph (A), (B), or (C).
        Subparagraph (E) shall not apply to a taxpayer for any 
        taxable year unless at least 50 percent of its foreign 
        trading gross receipts (determined without regard to 
        this sentence) for such taxable year is derived from 
        activities described in subparagraph (A), (B), or (C).
            ``(2) Certain receipts excluded on basis of use; 
        subsidized receipts excluded.--The term `foreign 
        trading gross receipts' shall not include receipts of a 
        taxpayer from a transaction if--
                    ``(A) the qualifying foreign trade property 
                or services--
                            ``(i) are for ultimate use in the 
                        United States, or
                            ``(ii) are for use by the United 
                        States or any instrumentality thereof 
                        and such use of qualifying foreign 
                        trade property or services is required 
                        by law or regulation, or
                    ``(B) such transaction is accomplished by a 
                subsidy granted by the government (or any 
                instrumentality thereof) of the country or 
                possession in which the property is 
                manufactured, produced, grown, or extracted.
            ``(3) Election to exclude certain receipts.--The 
        term `foreign trading gross receipts' shall not include 
        gross receipts of a taxpayer from a transaction if the 
        taxpayer elects not to have such receipts taken into 
        account for purposes of this subpart.
    ``(b) Foreign Economic Process Requirements.--
            ``(1) In general.--Except as provided in subsection 
        (c), a taxpayer shall be treated as having foreign 
        trading gross receipts from any transaction only if 
        economic processes with respect to such transaction 
        take place outside the United States as required by 
        paragraph (2).
            ``(2) Requirement.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to the gross 
                receipts of a taxpayer derived from any 
                transaction if--
                            ``(i) such taxpayer (or any person 
                        acting under a contract with such 
                        taxpayer) has participated outside the 
                        United States in the solicitation 
                        (other than advertising), the 
                        negotiation, or the making of the 
                        contract relating to such transaction, 
                        and
                            ``(ii) the foreign direct costs 
                        incurred by the taxpayer attributable 
                        to the transaction equal or exceed 50 
                        percent of the total direct costs 
                        attributable to the transaction.
                    ``(B) Alternative 85-percent test.--A 
                taxpayer shall be treated as satisfying the 
                requirements of subparagraph (A)(ii) with 
                respect to any transaction if, with respect to 
                each of at least 2 subparagraphs of paragraph 
                (3), the foreign direct costs incurred by such 
                taxpayer attributable to activities described 
                in such subparagraph equal or exceed 85 percent 
                of the total direct costs attributable to 
                activities described in such subparagraph.
                    ``(C) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Total direct costs.--The term 
                        `total direct costs' means, with 
                        respect to any transaction, the total 
                        direct costs incurred by the taxpayer 
                        attributable to activities described in 
                        paragraph (3) performed at any location 
                        by the taxpayer or any person acting 
                        under a contract with such taxpayer.
                            ``(ii) Foreign direct costs.--The 
                        term `foreign direct costs' means, with 
                        respect to any transaction, the portion 
                        of the total direct costs which are 
                        attributable to activities performed 
                        outside the United States.
            ``(3) Activities relating to qualifying foreign 
        trade property.--The activities described in this 
        paragraph are any of the following with respect to 
        qualifying foreign trade property--
                    ``(A) advertising and sales promotion,
                    ``(B) the processing of customer orders and 
                the arranging for delivery,
                    ``(C) transportation outside the United 
                States in connection with delivery to the 
                customer,
                    ``(D) the determination and transmittal of 
                a final invoice or statement of account or the 
                receipt of payment, and
                    ``(E) the assumption of credit risk.
            ``(4) Economic processes performed by related 
        persons.--A taxpayer shall be treated as meeting the 
        requirements of this subsection with respect to any 
        sales transaction involving any property if any related 
        person has met such requirements in such transaction or 
        any other sales transaction involving such property.
    ``(c) Exception From Foreign Economic Process 
Requirement.--
            ``(1) In general.--The requirements of subsection 
        (b) shall be treated as met for any taxable year if the 
        foreign trading gross receipts of the taxpayer for such 
        year do not exceed $5,000,000.
            ``(2) Receipts of related persons aggregated.--All 
        related persons shall be treated as one person for 
        purposes of paragraph (1), and the limitation under 
        paragraph (1) shall be allocated among such persons in 
        a manner provided in regulations prescribed by the 
        Secretary.
            ``(3) Special rule for pass-thru entities.--In the 
        case of a partnership, S corporation, or other pass-
        thru entity, the limitation under paragraph (1) shall 
        apply with respect to the partnership, S corporation, 
        or entity and with respect to each partner, 
        shareholder, or other owner.

``SEC. 943. OTHER DEFINITIONS AND SPECIAL RULES.

    ``(a) Qualifying Foreign Trade Property.--For purposes of 
this subpart--
            ``(1) In general.--The term `qualifying foreign 
        trade property' means property--
                    ``(A) manufactured, produced, grown, or 
                extracted within or outside the United States,
                    ``(B) held primarily for sale, lease, or 
                rental, in the ordinary course of trade or 
                business for direct use, consumption, or 
                disposition outside the United States, and
                    ``(C) not more than 50 percent of the fair 
                market value of which is attributable to--
                            ``(i) articles manufactured, 
                        produced, grown, or extracted outside 
                        the United States, and
                            ``(ii) direct costs for labor 
                        (determined under the principles of 
                        section 263A) performed outside the 
                        United States.
        For purposes of subparagraph (C), the fair market value 
        of any article imported into the United States shall be 
        its appraised value, as determined by the Secretary 
        under section 402 of the Tariff Act of 1930 (19 U.S.C. 
        1401a) in connection with its importation, and the 
        direct costs for labor under clause (ii) do not include 
        costs that would be treated under the principles of 
        section 263A as direct labor costs attributable to 
        articles described in clause (i).
            ``(2) U.S. taxation to ensure consistent 
        treatment.--Property which (without regard to this 
        paragraph) is qualifying foreign trade property and 
        which is manufactured, produced, grown, or extracted 
        outside the United States shall be treated as 
        qualifying foreign trade property only if it is 
        manufactured, produced, grown, or extracted by--
                    ``(A) a domestic corporation,
                    ``(B) an individual who is a citizen or 
                resident of the United States,
                    ``(C) a foreign corporation with respect to 
                which an election under subsection (e) 
                (relating to foreign corporations electing to 
                be subject to United States taxation) is in 
                effect, or
                    ``(D) a partnership or other pass-thru 
                entity all of the partners or owners of which 
                are described in subparagraph (A), (B), or (C).
        Except as otherwise provided by the Secretary, tiered 
        partnerships or pass-thru entities shall be treated as 
        described in subparagraph (D) if each of the 
        partnerships or entities is directly or indirectly 
        wholly owned by persons described in subparagraph (A), 
        (B), or (C).
            ``(3) Excluded property.--The term `qualifying 
        foreign trade property' shall not include--
                    ``(A) property leased or rented by the 
                taxpayer for use by any related person,
                    ``(B) patents, inventions, models, designs, 
                formulas, or processes whether or not patented, 
                copyrights (other than films, tapes, records, 
                or similar reproductions, and other than 
                computer software (whether or not patented), 
                for commercial or home use), goodwill, 
                trademarks, trade brands, franchises, or other 
                like property,
                    ``(C) oil or gas (or any primary product 
                thereof),
                    ``(D) products the transfer of which is 
                prohibited or curtailed to effectuate the 
                policy set forth in paragraph (2)(C) of section 
                3 of Public Law 96-72, or
                    ``(E) any unprocessed timber which is a 
                softwood.
        For purposes of subparagraph (E), the term `unprocessed 
        timber' means any log, cant, or similar form of timber.
            ``(4) Property in short supply.--If the President 
        determines that the supply of any property described in 
        paragraph (1) is insufficient to meet the requirements 
        of the domestic economy, the President may by Executive 
        order designate the property as in short supply. Any 
        property so designated shall not be treated as 
        qualifying foreign trade property during the period 
        beginning with the date specified in the Executive 
        order and ending with the date specified in an 
        Executive order setting forth the President's 
        determination that the property is no longer in short 
        supply.
    ``(b) Other Definitions and Rules.--For purposes of this 
subpart--
            ``(1) Transaction.--
                    ``(A) In general.--The term `transaction' 
                means--
                            ``(i) any sale, exchange, or other 
                        disposition,
                            ``(ii) any lease or rental, and
                            ``(iii) any furnishing of services.
                    ``(B) Grouping of transactions.--To the 
                extent provided in regulations, any provision 
                of this subpart which, but for this 
                subparagraph, would be applied on a 
                transaction-by-transaction basis may be applied 
                by the taxpayer on the basis of groups of 
                transactions based on product lines or 
                recognized industry or trade usage. Such 
                regulations may permit different groupings for 
                different purposes.
            ``(2) United states defined.--The term `United 
        States' includes the Commonwealth of Puerto Rico. The 
        preceding sentence shall not apply for purposes of 
        determining whether a corporation is a domestic 
        corporation.
            ``(3) Related person.--A person shall be related to 
        another person if such persons are treated as a single 
        employer under subsection (a) or (b) of section 52 or 
        subsection (m) or (o) of section 414, except that 
        determinations under subsections (a) and (b) of section 
        52 shall be made without regard to section 1563(b).
            ``(4) Gross and taxable income.--Section 114 shall 
        not be taken into account in determining the amount of 
        gross income or foreign trade income from any 
        transaction.
    ``(c) Source Rule.--Under regulations, in the case of 
qualifying foreign trade property manufactured, produced, 
grown, or extracted within the United States, the amount of 
income of a taxpayer from any sales transaction with respect to 
such property which is treated as from sources without the 
United States shall not exceed--
            ``(1) in the case of a taxpayer computing its 
        qualifying foreign trade income under section 
        941(a)(1)(B), the amount of the taxpayer's foreign 
        trade income which would (but for this subsection) be 
        treated as from sources without the United States if 
        the foreign trade income were reduced by an amount 
        equal to 4 percent of the foreign trading gross 
        receipts with respect to the transaction, and
            ``(2) in the case of a taxpayer computing its 
        qualifying foreign trade income under section 
        941(a)(1)(C), 50 percent of the amount of the 
        taxpayer's foreign trade income which would (but for 
        this subsection) be treated as from sources without the 
        United States.
    ``(d) Treatment of Withholding Taxes.--
            ``(1) In general.--For purposes of section 114(d), 
        any withholding tax shall not be treated as paid or 
        accrued with respect to extraterritorial income which 
        is excluded from gross income under section 114(a). For 
        purposes of this paragraph, the term `withholding tax' 
        means any tax which is imposed on a basis other than 
        residence and for which credit is allowable under 
        section 901 or 903.
            ``(2) Exception.--Paragraph (1) shall not apply to 
        any taxpayer with respect to extraterritorial income 
        from any transaction if the taxpayer computes its 
        qualifying foreign trade income with respect to the 
        transaction under section 941(a)(1)(A).
    ``(e) Election To Be Treated as Domestic Corporation.--
            ``(1) In general.--An applicable foreign 
        corporation may elect to be treated as a domestic 
        corporation for all purposes of this title if such 
        corporation waives all benefits to such corporation 
        granted by the United States under any treaty. No 
        election under section 1362(a) may be made with respect 
        to such corporation.
            ``(2) Applicable foreign corporation.--For purposes 
        of paragraph (1), the term `applicable foreign 
        corporation' means any foreign corporation if--
                    ``(A) such corporation manufactures, 
                produces, grows, or extracts property in the 
                ordinary course of such corporation's trade or 
                business, or
                    ``(B) substantially all of the gross 
                receipts of such corporation are foreign 
                trading gross receipts.
            ``(3) Period of election.--
                    ``(A) In general.--Except as otherwise 
                provided in this paragraph, an election under 
                paragraph (1) shall apply to the taxable year 
                for which made and all subsequent taxable years 
                unless revoked by the taxpayer. Any revocation 
                of such election shall apply to taxable years 
                beginning after such revocation.
                    ``(B) Termination.--If a corporation which 
                made an election under paragraph (1) for any 
                taxable year fails to meet the requirements of 
                subparagraph (A) or (B) of paragraph (2) for 
                any subsequent taxable year, such election 
                shall not apply to any taxable year beginning 
                after such subsequent taxable year.
                    ``(C) Effect of revocation or 
                termination.--If a corporation which made an 
                election under paragraph (1) revokes such 
                election or such election is terminated under 
                subparagraph (B), such corporation (and any 
                successor corporation) may not make such 
                election for any of the 5 taxable years 
                beginning with the first taxable year for which 
                such election is not in effect as a result of 
                such revocation or termination.
            ``(4) Special rules.--
                    ``(A) Requirements.--This subsection shall 
                not apply to an applicable foreign corporation 
                if such corporation fails to meet the 
                requirements (if any) which the Secretary may 
                prescribe to ensure that the taxes imposed by 
                this chapter on such corporation are paid.
                    ``(B) Effect of election, revocation, and 
                termination.--
                            ``(i) Election.--For purposes of 
                        section 367, a foreign corporation 
                        making an election under this 
                        subsection shall be treated as 
                        transferring (as of the first day of 
                        the first taxable year to which the 
                        election applies) all of its assets to 
                        a domestic corporation in connection 
                        with an exchange to which section 354 
                        applies.
                            ``(ii) Revocation and 
                        termination.--For purposes of section 
                        367, if--
                                    ``(I) an election is made 
                                by a corporation under 
                                paragraph (1) for any taxable 
                                year, and
                                    ``(II) such election ceases 
                                to apply for any subsequent 
                                taxable year,
                such corporation shall be treated as a domestic 
                corporation transferring (as of the 1st day of 
                the first such subsequent taxable year to which 
                such election ceases to apply) all of its 
                property to a foreign corporation in connection 
                with an exchange to which section 354 applies.
                    ``(C) Eligibility for election.--The 
                Secretary may by regulation designate one or 
                more classes of corporations which may not make 
                the election under this subsection.
    ``(f) Rules Relating to Allocations of Qualifying Foreign 
Trade Income From Shared Partnerships.--
            ``(1) In general.--If--
                    ``(A) a partnership maintains a separate 
                account for transactions (to which this subpart 
                applies) with each partner,
                    ``(B) distributions to each partner with 
                respect to such transactions are based on the 
                amounts in the separate account maintained with 
                respect to such partner, and
                    ``(C) such partnership meets such other 
                requirements as the Secretary may by 
                regulations prescribe,
        then such partnership shall allocate to each partner 
        items of income, gain, loss, and deduction (including 
        qualifying foreign trade income) from any transaction 
        to which this subpart applies on the basis of such 
        separate account.
            ``(2) Special rules.--For purposes of this subpart, 
        in the case of a partnership to which paragraph (1) 
        applies--
                    ``(A) any partner's interest in the 
                partnership shall not be taken into account in 
                determining whether such partner is a related 
                person with respect to any other partner, and
                    ``(B) the election under section 942(a)(3) 
                shall be made separately by each partner with 
                respect to any transaction for which the 
                partnership maintains separate accounts for 
                each partner.
    ``(g) Exclusion for Patrons of Agricultural and 
Horticultural Cooperatives.--Any amount described in paragraph 
(1) or (3) of section 1385(a)--
            ``(1) which is received by a person from an 
        organization to which part I of subchapter T applies 
        which is engaged in the marketing of agricultural or 
        horticultural products, and
            ``(2) which is allocable to qualifying foreign 
        trade income and designated as such by the organization 
        in a written notice mailed to its patrons during the 
        payment period described in section 1382(d),
shall be treated as qualifying foreign trade income of such 
person for purposes of section 114. The taxable income of the 
organization shall not be reduced under section 1382 by reason 
of any amount to which the preceding sentence applies.
    ``(h) Special Rule for DISCs.--Section 114 shall not apply 
to any taxpayer for any taxable year if, at any time during the 
taxable year, the taxpayer is a member of any controlled group 
of corporations (as defined in section 927(d)(4), as in effect 
before the date of the enactment of this subsection) of which a 
DISC is a member.''

SEC. 103. TECHNICAL AND CONFORMING AMENDMENTS.

            (1) The second sentence of section 56(g)(4)(B)(i) 
        is amended by inserting before the period ``or under 
        section 114''.
            (2) Section 275(a) is amended--
                    (A) by striking ``or'' at the end of 
                paragraph (4)(A), by striking the period at the 
                end of paragraph (4)(B) and inserting ``, or'', 
                and by adding at the end of paragraph (4) the 
                following new subparagraph:
                    ``(C) such taxes are paid or accrued with 
                respect to qualifying foreign trade income (as 
                defined in section 941).''; and
                    (B) by adding at the end the following the 
                following new sentence: ``A rule similar to the 
                rule of section 943(d) shall apply for purposes 
                of paragraph (4)(C).''.
            (3) Paragraph (3) of section 864(e) is amended--
                    (A) by striking ``For purposes of'' and 
                inserting:
                    ``(A) In general.--For purposes of''; and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(B) Assets producing exempt 
                extraterritorial income.--For purposes of 
                allocating and apportioning any interest 
                expense, there shall not be taken into account 
                any qualifying foreign trade property (as 
                defined in section 943(a)) which is held by the 
                taxpayer for lease or rental in the ordinary 
                course of trade or business for use by the 
                lessee outside the United States (as defined in 
                section 943(b)(2)).''.
            (4) Section 903 is amended by striking ``164(a)'' 
        and inserting ``114, 164(a),''.
            (5) Section 999(c)(1) is amended by inserting 
        ``941(a)(5),'' after ``908(a),''.
            (6) The table of sections for part III of 
        subchapter B of chapter 1 is amended by inserting 
        before the item relating to section 115 the following 
        new item:

        ``Sec. 114. Extraterritorial income.''.

            (7) The table of subparts for part III of 
        subchapter N of chapter 1 is amended by striking the 
        item relating to subpart E and inserting the following 
        new item:

        ``Subpart E. Qualifying foreign trade income.''.

            (8) The table of subparts for part III of 
        subchapter N of chapter 1 is amended by striking the 
        item relating to subpart C.

SEC. 104. EFFECTIVE DATE.

    (a) In General.--The amendments made by this title shall 
apply to transactions after September 30, 2000.
    (b) No New FSCs; Termination of Inactive FSCs.--
            (1) No new fscs.--No corporation may elect after 
        September 30, 2000, to be a FSC (as defined in section 
        922 of the Internal Revenue Code of 1986, as in effect 
        before the amendments made by this Act).
            (2) Termination of inactive fscs.--If a FSC has no 
        foreign trade income (as defined in section 923(b) of 
        such Code, as so in effect) for any period of 5 
        consecutive taxable years beginning after December 31, 
        2001, such FSC shall cease to be treated as a FSC for 
        purposes of such Code for any taxable year beginning 
        after such period.
    (c) Transition Period for Existing Foreign Sales 
Corporations.--
            (1) In general.--In the case of a FSC (as so 
        defined) in existence on September 30, 2000, and at all 
        times thereafter, the amendments made by this Act shall 
        not apply to any transaction in the ordinary course of 
        trade or business involving a FSC which occurs--
                    (A) before January 1, 2002; or
                    (B) after December 31, 2001, pursuant to a 
                binding contract--
                            (i) which is between the FSC (or 
                        any related person) and any person 
                        which is not a related person; and
                            (ii) which is in effect on 
                        September 30, 2000, and at all times 
                        thereafter.
        For purposes of this paragraph, a binding contract 
        shall include a purchase option, renewal option, or 
        replacement option which is included in such contract 
        and which is enforceable against the seller or lessor.
            (2) Election to have amendments apply earlier.--A 
        taxpayer may elect to have the amendments made by this 
        Act apply to any transaction by a FSC or any related 
        person to which such amendments would apply but for the 
        application of paragraph (1). Such election shall be 
        effective for the taxable year for which made and all 
        subsequent taxable years, and, once made, may be 
        revoked only with the consent of the Secretary of the 
        Treasury.
            (3) Exception for old earnings and profits of 
        certain corporations.--
                    (A) In general.--In the case of a foreign 
                corporation to which this paragraph applies--
                            (i) earnings and profits of such 
                        corporation accumulated in taxable 
                        years ending before October 1, 2000, 
                        shall not be included in the gross 
                        income of the persons holding stock in 
                        such corporation by reason of section 
                        943(e)(4)(B)(i), and
                            (ii) rules similar to the rules of 
                        clauses (ii), (iii), and (iv) of 
                        section 953(d)(4)(B) shall apply with 
                        respect to such earnings and profits.
                The preceding sentence shall not apply to 
                earnings and profits acquired in a transaction 
                after September 30, 2000, to which section 381 
                applies unless the distributor or transferor 
                corporation was immediately before the 
                transaction a foreign corporation to which this 
                paragraph applies.
                    (B) Existing fscs.--This paragraph shall 
                apply to any controlled foreign corporation (as 
                defined in section 957) if--
                            (i) such corporation is a FSC (as 
                        so defined) in existence on September 
                        30, 2000,
                            (ii) such corporation is eligible 
                        to make the election under section 
                        943(e) by reason of being described in 
                        paragraph (2)(B) of such section, and
                            (iii) such corporation makes such 
                        election not later than for its first 
                        taxable year beginning after December 
                        31, 2001.
                    (C) Other corporations.--This paragraph 
                shall apply to any controlled foreign 
                corporation (as defined in section 957), and 
                such corporation shall (notwithstanding any 
                provision of section 943(e)) be treated as an 
                applicable foreign corporation for purposes of 
                section 943(e), if--
                            (i) such corporation is in 
                        existence on September 30, 2000,
                            (ii) as of such date, such 
                        corporation is wholly owned (directly 
                        or indirectly) by a domestic 
                        corporation (determined without regard 
                        to any election under section 943(e)),
                            (iii) for each of the 3 taxable 
                        years preceding the first taxable year 
                        to which the election under section 
                        943(e) by such controlled foreign 
                        corporation applies--
                                    (I) all of the gross income 
                                of such corporation is subpart 
                                F income (as defined in section 
                                952), including by reason of 
                                section 954(b)(3)(B), and
                                    (II) in the ordinary course 
                                of such corporation's trade or 
                                business, such corporation 
                                regularly sold (or paid 
                                commissions) to a FSC which on 
                                September 30, 2000, was a 
                                related person to such 
                                corporation,
                            (iv) such corporation has never 
                        made an election under section 
                        922(a)(2) (as in effect before the date 
                        of the enactment of this paragraph) to 
                        be treated as a FSC, and
                            (v) such corporation makes the 
                        election under section 943(e) not later 
                        than for its first taxable year 
                        beginning after December 31, 2001.
                The preceding sentence shall cease to apply as 
                of the date that the domestic corporation 
                referred to in clause (ii) ceases to wholly own 
                (directly or indirectly) such controlled 
                foreign corporation.
            (4) Related person.--For purposes of this 
        subsection, the term ``related person'' has the meaning 
        given to such term by section 943(b)(3).
            (5) Section references.--Except as otherwise 
        expressly provided, any reference in this subsection to 
        a section or other provision shall be considered to be 
        a reference to a section or other provision of the 
        Internal Revenue Code of 1986, as amended by this 
        title.
    (d) Special Rules Relating to Leasing Transactions.--
            (1) Sales income.--If foreign trade income in 
        connection with the lease or rental of property 
        described in section 927(a)(1)(B) of such Code (as in 
        effect before the amendments made by this Act) is 
        treated as exempt foreign trade income for purposes of 
        section 921(a) of such Code (as so in effect), such 
        property shall be treated as property described in 
        section 941(c)(1)(B) of such Code (as added by this 
        Act) for purposes of applying section 941(c)(2) of such 
        Code (as so added) to any subsequent transaction 
        involving such property to which the amendments made by 
        this Act apply.
            (2) Limitation on use of gross receipts method.--If 
        any person computed its foreign trade income from any 
        transaction with respect to any property on the basis 
        of a transfer price determined under the method 
        described in section 925(a)(1) of such Code (as in 
        effect before the amendments made by this Act), then 
        the qualifying foreign trade income (as defined in 
        section 941(a) of such Code, as in effect after such 
        amendment) of such person (or any related person) with 
        respect to any other transaction involving such 
        property (and to which the amendments made by this Act 
        apply) shall be zero.

                  TITLE II--SMALL BUSINESS TAX RELIEF

SEC. 201. EXTENSION OF WORK OPPORTUNITY TAX CREDIT.

    (a) In General.--Section 51(c)(4)(B) is amended by striking 
``December 31, 2001'' and inserting ``June 30, 2004''.
    (b) Effective Date.--The amendment made by this section 
shall apply to individuals who begin work for the employer 
after December 31, 2001.

SEC. 202. INCREASE IN AMORTIZABLE REFORESTATION EXPENDITURES, ETC.

    (a) Increase in Dollar Limitation.--Paragraph (1) of 
section 194(b) (relating to amortization of reforestation 
expenditures) is amended by striking ``$10,000 ($5,000'' and 
inserting ``$25,000 ($12,500''.
    (b) Temporary Suspension of Increased Dollar Limitation.--
            (1) In general.--Subsection (b) of section 194 
        (relating to amortization of reforestation 
        expenditures) is amended by adding at the end the 
        following new paragraph:
            ``(5) Suspension of dollar limitation.--Paragraph 
        (1) shall not apply to taxable years beginning after 
        December 31, 2000, and before January 1, 2004.''.
            (2) Conforming amendment.--Paragraph (1) of section 
        48(b) is amended by striking ``section 194(b)(1)'' and 
        inserting ``section 194(b)(1) and without regard to 
        section 194(b)(5)''.
    (c) Capital Gain Treatment Under Section 631(b) To Apply to 
Outright Sales by Land Owner.--
            (1) In general.--The first sentence of section 
        631(b) (relating to disposal of timber with a retained 
        economic interest) is amended by striking ``retains an 
        economic interest in such timber'' and inserting 
        ``either retains an economic interest in such timber or 
        makes an outright sale of such timber''.
            (2) Conforming amendment.--The third sentence of 
        section 631(b) is amended by striking ``The date of 
        disposal'' and inserting ``In the case of disposal of 
        timber with a retained economic interest, the date of 
        disposal''.
    (d) Effective Dates.--
            (1) Subsections (a) and (b).--The amendments made 
        by subsections (a) and (b) shall apply to taxable years 
        beginning after December 31, 2000.
            (2) Subsection (c).--The amendment made by 
        subsection (c) shall apply to sales after the date of 
        the enactment of this Act.

SEC. 203. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.

    (a) In General.--Paragraph (1) of section 179(b) (relating 
to dollar limitation) is amended to read as follows:
            ``(1) Dollar limitation.--The aggregate cost which 
        may be taken into account under subsection (a) for any 
        taxable year shall not exceed $35,000.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 204. INCREASED DEDUCTION FOR MEAL EXPENSES.

    (a) In General.--Paragraph (1) of section 274(n) (relating 
to only 50 percent of meal and entertainment expenses allowed 
as deduction) is amended by striking ``50 percent'' in the text 
and inserting ``the allowable percentage''.
    (b) Allowable Percentage.--Subsection (n) of section 274 is 
amended by redesignating paragraphs (2) and (3) as paragraphs 
(3) and (4), respectively, and by inserting after paragraph (1) 
the following new paragraph:
            ``(2) Allowable percentage.--For purposes of 
        paragraph (1), the allowable percentage is--
                    ``(A) in the case of amounts for items 
                described in paragraph (1)(B), 50 percent, and
                    ``(B) in the case of expenses for food or 
                beverages, 70 percent.''.
    (c) Conforming Amendment.--The heading for subsection (n) 
of section 274 is amended by striking ``50 Percent'' and 
inserting ``Limited Percentages''.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 205. INCREASED DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR 
                    INDIVIDUALS SUBJECT TO FEDERAL LIMITATIONS ON HOURS 
                    OF SERVICE.

    (a) In General.--Paragraph (4) of section 274(n) (relating 
to limited percentages of meal and entertainment expenses 
allowed as deduction), as redesignated by section 204, is 
amended to read as follows:
            ``(4) Special rule for individuals subject to 
        federal hours of service.--In the case of any expenses 
        for food or beverages consumed while away from home 
        (within the meaning of section 162(a)(2)) by an 
        individual during, or incident to, the period of duty 
        subject to the hours of service limitations of the 
        Department of Transportation, paragraph (2)(B) shall be 
        applied by substituting `80 percent' for `70 
        percent'.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 206. REPEAL OF MODIFICATION OF INSTALLMENT METHOD.

    (a) In General.--Subsection (a) of section 536 of the 
Ticket to Work and Work Incentives Improvement Act of 1999 
(relating to modification of installment method and repeal of 
installment method for accrual method taxpayers) is repealed 
effective with respect to sales and other dispositions 
occurring on or after the date of the enactment of such Act.
    (b) Applicability.--The Internal Revenue Code of 1986 shall 
be applied and administered as if that subsection (and the 
amendments made by that subsection) had not been enacted.

SEC. 207. INCOME AVERAGING NOT TO INCREASE ALTERNATIVE MINIMUM TAX 
                    LIABILITY; INCOME AVERAGING FOR FISHERMEN.

    (a) In General.--Section 55(c) (defining regular tax) is 
amended by redesignating paragraph (2) as paragraph (3) and by 
inserting after paragraph (1) the following:
            ``(2) Coordination with income averaging for 
        farmers and fishermen.--Solely for purposes of this 
        section, section 1301 (relating to averaging of farm 
        and fishing income) shall not apply in computing the 
        regular tax.''.
    (b) Allowing Income Averaging for Fishermen.--
            (1) In general.--Section 1301(a) is amended by 
        striking ``farming business'' and inserting ``farming 
        business or fishing business''.
            (2) Definition of elected farm income.--
                    (A) In general.--Clause (i) of section 
                1301(b)(1)(A) is amended by inserting ``or 
                fishing business'' before the semicolon.
                    (B) Conforming amendment.--Subparagraph (B) 
                of section 1301(b)(1) is amended by inserting 
                ``or fishing business'' after ``farming 
                business'' both places it occurs.
            (3) Definition of fishing business.--Section 
        1301(b) is amended by adding at the end the following 
        new paragraph:
            ``(4) Fishing business.--The term `fishing 
        business' means the conduct of commercial fishing as 
        defined in section 3 of the Magnuson-Stevens Fishery 
        Conservation and Management Act (16 U.S.C. 1802).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 208. REPEAL OF OCCUPATIONAL TAXES RELATING TO DISTILLED SPIRITS, 
                    WINE, AND BEER.

    (a) Repeal of Occupational Taxes.--
            (1) In general.--The following provisions of part 
        II of subchapter A of chapter 51 (relating to 
        occupational taxes) are hereby repealed:
                    (A) Subpart A (relating to proprietors of 
                distilled spirits plants, bonded wine cellars, 
                etc.).
                    (B) Subpart B (relating to brewer).
                    (C) Subpart D (relating to wholesale 
                dealers) (other than sections 5114 and 5116).
                    (D) Subpart E (relating to retail dealers) 
                (other than section 5124).
                    (E) Subpart G (relating to general 
                provisions) (other than sections 5142, 5143, 
                5145, and 5146).
            (2) Nonbeverage domestic drawback.--Section 5131 is 
        amended by striking ``, on payment of a special tax per 
        annum,''.
            (3) Industrial use of distilled spirits.--Section 
        5276 is hereby repealed.
    (b) Conforming Amendments.--
            (1)(A) The heading for part II of subchapter A of 
        chapter 51 and the table of subparts for such part are 
        amended to read as follows:

                  ``PART II--MISCELLANEOUS PROVISIONS

        ``Subpart A. Manufacturers of stills.
        ``Subpart B. Nonbeverage domestic drawback claimants.
        ``Subpart C. Recordkeeping by dealers.
        ``Subpart D. Other provisions.''.

            (B) The table of parts for such subchapter A is 
        amended by striking the item relating to part II and 
        inserting the following new item:

        ``Part II. Miscellaneous provisions.''.

            (2) Subpart C of part II of such subchapter 
        (relating to manufacturers of stills) is redesignated 
        as subpart A.
            (3)(A) Subpart F of such part II (relating to 
        nonbeverage domestic drawback claimants), as amended by 
        paragraph (5), is redesignated as subpart B and 
        sections 5131 through 5134 are redesignated as sections 
        5111 through 5114, respectively.
            (B) The table of sections for such subpart B, as so 
        redesignated, is amended--
                    (i) by redesignating the items relating to 
                sections 5131 through 5134 as relating to 
                sections 5111 through 5114, respectively, and
                    (ii) by striking ``and rate of tax'' in the 
                item relating to section 5111, as so 
                redesignated.
            (C) Section 5111, as redesignated by subparagraph 
        (A), is amended--
                    (i) by striking ``AND RATE OF TAX'' in the 
                section heading,
                    (ii) by striking ``(a) Eligibility for 
                Drawback.--'', and
                    (iii) by striking subsection (b).
            (4) Part II of subchapter A of chapter 51 is 
        amended by adding after subpart B, as redesignated by 
        paragraph (3), the following new subpart:

                 ``Subpart C--Recordkeeping by Dealers

        ``Sec. 5121. Recordkeeping by wholesale dealers.
        ``Sec. 5122. Recordkeeping by retail dealers.
        ``Sec. 5123. Preservation and inspection of records, and entry 
                  of premises for inspection.''.

            (5)(A) Section 5114 (relating to records) is moved 
        to subpart C of such part II and inserted after the 
        table of sections for such subpart.
            (B) Section 5114 is amended--
                    (i) by striking the section heading and 
                inserting the following new heading:

``SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.'',

                and
                    (ii) by redesignating subsection (c) as 
                subsection (d) and by inserting after 
                subsection (b) the following new subsection:
    ``(c) Wholesale Dealers.--For purposes of this part--
            ``(1) Wholesale dealer in liquors.--The term 
        `wholesale dealer in liquors' means any dealer (other 
        than a wholesale dealer in beer) who sells, or offers 
        for sale, distilled spirits, wines, or beer, to another 
        dealer.
            ``(2) Wholesale dealer in beer.--The term 
        `wholesale dealer in beer' means any dealer who sells, 
        or offers for sale, beer, but not distilled spirits or 
        wines, to another dealer.
            ``(3) Dealer.--The term `dealer' means any person 
        who sells, or offers for sale, any distilled spirits, 
        wines, or beer.
            ``(4) Presumption in case of sale of 20 wine 
        gallons or more.--The sale, or offer for sale, of 
        distilled spirits, wines, or beer, in quantities of 20 
        wine gallons or more to the same person at the same 
        time, shall be presumptive evidence that the person 
        making such sale, or offer for sale, is engaged in or 
        carrying on the business of a wholesale dealer in 
        liquors or a wholesale dealer in beer, as the case may 
        be. Such presumption may be overcome by evidence 
        satisfactorily showing that such sale, or offer for 
        sale, was made to a person other than a dealer.''.
            (C) Paragraph (3) of section 5121(d), as so 
        redesignated, is amended by striking ``section 5146'' 
        and inserting ``section 5123''.
            (6)(A) Section 5124 (relating to records) is moved 
        to subpart C of part II of subchapter A of chapter 51 
        and inserted after section 5121.
            (B) Section 5124 is amended--
                    (i) by striking the section heading and 
                inserting the following new heading:

``SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.'',

                    (ii) by striking ``section 5146'' in 
                subsection (c) and inserting ``section 5123'', 
                and
                    (iii) by redesignating subsection (c) as 
                subsection (d) and inserting after subsection 
                (b) the following new subsection:
    ``(c) Retail Dealers.--For purposes of this section--
            ``(1) Retail dealer in liquors.--The term `retail 
        dealer in liquors' means any dealer (other than a 
        retail dealer in beer) who sells, or offers for sale, 
        distilled spirits, wines, or beer, to any person other 
        than a dealer.
            ``(2) Retail dealer in beer.--The term `retail 
        dealer in beer' means any dealer who sells, or offers 
        for sale, beer, but not distilled spirits or wines, to 
        any person other than a dealer.
            ``(3) Dealer.--The term `dealer' has the meaning 
        given such term by section 5121(c)(3).''.
            (7) Section 5146 is moved to subpart C of part II 
        of subchapter A of chapter 51, inserted after section 
        5122, and redesignated as section 5123.
            (8) Part II of subchapter A of chapter 51 is 
        amended by inserting after subpart C the following new 
        subpart:

                     ``Subpart D--Other Provisions

        ``Sec. 5131. Packaging distilled spirits for industrial uses.
        ``Sec. 5132. Prohibited purchases by dealers.''.

            (9) Section 5116 is moved to subpart D of part II 
        of subchapter A of chapter 51, inserted after the table 
        of sections, redesignated as section 5131, and amended 
        by inserting ``(as defined in section 5121(c))'' after 
        ``dealer'' in subsection (a).
            (10) Subpart D of part II of subchapter A of 
        chapter 51 is amended by adding at the end the 
        following new section:

``SEC. 5132. PROHIBITED PURCHASES BY DEALERS.

    ``(a) In General.--Except as provided in regulations 
prescribed by the Secretary, it shall be unlawful for a dealer 
to purchase distilled spirits from any person other than a 
wholesale dealer in liquors who is required to keep the records 
prescribed by section 5121.
    ``(b) Penalty and Forfeiture.--

          ``For penalty and forfeiture provisions applicable to 
        violations of subsection (a), see sections 5687 and 7302.''.

            (11) Subsection (b) of section 5002 is amended--
                    (A) by striking ``section 5112(a)'' and 
                inserting ``section 5121(c)(3)'',
                    (B) by striking ``section 5112'' and 
                inserting ``section 5121(c)'', and
                    (C) by striking ``section 5122'' and 
                inserting ``section 5122(c)''.
            (12) Subparagraph (A) of section 5010(c)(2) is 
        amended by striking ``section 5134'' and inserting 
        ``section 5114''.
            (13) Subsection (d) of section 5052 is amended to 
        read as follows:
    ``(d) Brewer.--For purposes of this chapter, the term 
`brewer' means any person who brews beer or produces beer for 
sale. Such term shall not include any person who produces only 
beer exempt from tax under section 5053(e).''.
            (14) The text of section 5182 is amended to read as 
        follows:

          ``For provisions requiring recordkeeping by wholesale liquor 
        dealers, see section 5112, and by retail liquor dealers, see 
        section 5122.''.

            (15) Subsection (b) of section 5402 is amended by 
        striking ``section 5092'' and inserting ``section 
        5052(d)''.
            (16) Section 5671 is amended by striking ``or 
        5091''.
            (17)(A) Part V of subchapter J of chapter 51 is 
        hereby repealed.
            (B) The table of parts for such subchapter J is 
        amended by striking the item relating to part V.
            (18)(A) Sections 5142, 5143, and 5145 are moved to 
        subchapter D of chapter 52, inserted after section 
        5731, redesignated as sections 5732, 5733, and 5734, 
        respectively, and amended--
                    (i) by striking ``this part'' each place it 
                appears and inserting ``this subchapter'', and
                    (ii) by striking ``this subpart'' in 
                section 5732(c)(2) (as so redesignated) and 
                inserting ``this subchapter''.
            (B) Section 5732, as redesignated by subparagraph 
        (A), is amended by striking ``(except the tax imposed 
        by section 5131)'' each place it appears.
            (C) Subsection (c) of section 5733, as redesignated 
        by subparagraph (A), is amended by striking paragraph 
        (2) and by redesignating paragraph (3) as paragraph 
        (2).
            (D) The table of sections for subchapter D of 
        chapter 52 is amended by adding at the end thereof the 
        following:

        ``Sec. 5732. Payment of tax.
        ``Sec. 5733. Provisions relating to liability for occupational 
                  taxes.
        ``Sec. 5734. Application of State laws.''.

            (E) Section 5731 is amended by striking subsection 
        (c) and by redesignating subsection (d) as subsection 
        (c).
            (19) Subsection (c) of section 6071 is amended by 
        striking ``section 5142'' and inserting ``section 
        5732''.
            (20) Paragraph (1) of section 7652(g) is amended--
                    (A) by striking ``subpart F'' and inserting 
                ``subpart B'', and
                    (B) by striking ``section 5131(a)'' and 
                inserting ``section 5111(a)''.
            (21) The table of sections for subchapter D of 
        chapter 51 is amended by striking the item relating to 
        section 5276.
    (c) Effective Date.--The amendments made by this section 
shall take effect on July 1, 2001, but shall not apply to taxes 
imposed for periods before such date.

SEC. 209. EXCLUSION FROM GROSS INCOME FOR CERTAIN FORGIVEN MORTGAGE 
                    OBLIGATIONS.

    (a) In General.--Paragraph (1) of section 108(a) (relating 
to exclusion from gross income) is amended by striking ``or'' 
at the end of both subparagraphs (A) and (C), by striking the 
period at the end of subparagraph (D) and inserting ``, or'', 
and by inserting after subparagraph (D) the following new 
subparagraph:
                    ``(E) in the case of an individual, the 
                indebtedness discharged is qualified 
                residential indebtedness.''.
    (b) Qualified Residential Indebtedness.--Section 108 
(relating to discharge of indebtedness) is amended by adding at 
the end the following new subsection:
    ``(h) Qualified Residential Indebtedness.--
            ``(1) Limitations.--The amount excluded under 
        subparagraph (E) of subsection (a)(1) with respect to 
        any qualified residential indebtedness shall not exceed 
        the excess (if any) of--
                    ``(A) the outstanding principal amount of 
                such indebtedness (immediately before the 
                discharge), over
                    ``(B) the sum of--
                            ``(i) the amount realized from the 
                        sale of the real property securing such 
                        indebtedness reduced by the cost of 
                        such sale, and
                            ``(ii) the outstanding principal 
                        amount of any other indebtedness 
                        secured by such property.
            ``(2) Qualified residential indebtedness.--
                    ``(A) In general.--The term `qualified 
                residential indebtedness' means indebtedness 
                which--
                            ``(i) was incurred or assumed by 
                        the taxpayer in connection with real 
                        property used as the principal 
                        residence (within the meaning of 
                        section 121) of the taxpayer and is 
                        secured by such real property,
                            ``(ii) was incurred or assumed to 
                        acquire, construct, reconstruct, or 
                        substantially improve such real 
                        property, and
                            ``(iii) with respect to which such 
                        taxpayer makes an election to have this 
                        paragraph apply.
                    ``(B) Refinanced indebtedness.--Such term 
                shall include indebtedness resulting from the 
                refinancing of indebtedness under subparagraph 
                (A)(ii), but only to the extent the amount of 
                the indebtedness resulting from such 
                refinancing does not exceed the amount of the 
                refinanced indebtedness.
                    ``(C) Exceptions.--Such term shall not 
                include qualified farm indebtedness or 
                qualified real property business 
                indebtedness.''.
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 108(a) is amended--
                    (A) in subparagraph (A) by striking ``and 
                (D)'' and inserting ``(D), and (E)'', and
                    (B) by amending subparagraph (B) to read as 
                follows:
                    ``(B) Insolvency exclusion takes precedence 
                over qualified farm exclusion, qualified real 
                property business exclusion, and qualified 
                residential indebtedness exclusion.--
                Subparagraphs (C), (D), and (E) of paragraph 
                (1) shall not apply to a discharge to the 
                extent the taxpayer is insolvent.''.
            (2) Paragraph (1) of section 108(b) is amended by 
        striking ``or (C)'' and inserting ``(C), or (E)''.
            (3) Subsection (c) of section 121 is amended by 
        adding at the end the following new paragraph:
            ``(3) Special rule relating to discharge of 
        indebtedness.--The amount of gain which (but for this 
        paragraph) would be excluded from gross income under 
        subsection (a) with respect to a principal residence 
        shall be reduced by the amount excluded from gross 
        income under section 108(a)(1)(E) with respect to such 
        residence.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to discharges after December 31, 2000.

SEC. 210. CLARIFICATION OF CASH ACCOUNTING RULES FOR SMALL BUSINESS.

    (a) Cash Accounting Permitted.--Section 446 (relating to 
general rule for methods of accounting) is amended by adding at 
the end the following new subsection:
    ``(g) Small Business Taxpayers Permitted To Use Cash 
Accounting Method Without Limitation.--
            ``(1) In general.--Notwithstanding any other 
        provision of this title, an eligible taxpayer shall not 
        be required to use an accrual method of accounting for 
        any taxable year.
            ``(2) Eligible taxpayer.--For purposes of this 
        subsection--
                    ``(A) In general.--A taxpayer is an 
                eligible taxpayer with respect to any taxable 
                year if, for all prior taxable years beginning 
                after October 31, 1999, the taxpayer (or any 
                predecessor) met the gross receipts test of 
                subparagraph (B).
                    ``(B) Gross receipts test.--A taxpayer 
                meets the gross receipts test of this 
                subparagraph for any prior taxable year if the 
                average annual gross receipts of the taxpayer 
                (or any predecessor) for the 3-taxable-year 
                period ending with such prior taxable year does 
                not exceed $2,500,000. The rules of paragraphs 
                (2) and (3) of section 448(c) shall apply for 
                purposes of the preceding sentence.''
    (b) Clarification of Inventory Rules for Small Business.--
Section 471 (relating to general rule for inventories) is 
amended by redesignating subsection (c) as subsection (d) and 
by inserting after subsection (b) the following new subsection:
    ``(c) Small Business Taxpayers Not Required To Use 
Inventories.--
            ``(1) In general.--An eligible taxpayer shall not 
        be required to use inventories under this section for a 
        taxable year.
            ``(2) Treatment of taxpayers not using 
        inventories.--If an eligible taxpayer elects not to use 
        inventories with respect to any property for any 
        taxable year beginning after the date of the enactment 
        of this section, such property shall be treated as a 
        material or supply which is not incidental.
            ``(3) Eligible taxpayer.--For purposes of this 
        subsection, the term `eligible taxpayer' has the 
        meaning given such term by section 446(g)(2).''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        the date of the enactment of this Act.
            (2) Change in method of accounting.--In the case of 
        any taxpayer required by the amendments made by this 
        section to change its method of accounting for any 
        taxable year--
                    (A) such change shall be treated as 
                initiated by the taxpayer,
                    (B) such change shall be treated as made 
                with the consent of the Secretary of the 
                Treasury, and
                    (C) the net amount of the adjustments 
                required to be taken into account by the 
                taxpayer under section 481 of the Internal 
                Revenue Code of 1986 shall be taken into 
                account over a period (not greater than 4 
                taxable years) beginning with such taxable 
                year.

SEC. 211. AMENDMENTS RELATING TO DEMAND DEPOSIT ACCOUNTS AT DEPOSITORY 
                    INSTITUTIONS.

    (a) Interest-Bearing Transaction Accounts Authorized.--
            (1) Federal reserve act.--Section 19(i) of the 
        Federal Reserve Act (12 U.S.C. 371a) is amended by 
        inserting at the end the following: ``Notwithstanding 
        any other provision of this section, a member bank may 
        permit the owner of any deposit, any account which is a 
        deposit, or any account on which interest or dividends 
        are paid to make up to 24 transfers per month (or such 
        greater number as the Board may determine by rule or 
        order), for any purpose, to a demand deposit account of 
        the owner in the same institution. With respect to an 
        escrow account maintained in connection with a loan, a 
        lender or servicer shall pay interest on such account 
        only if such payments are required by contract between 
        the lender or servicer and the borrower, or a specific 
        statutory provision of the law of the State in which 
        the security property is located requires the lender or 
        servicer to make such payments. Nothing in this 
        subsection shall be construed to prevent an account 
        offered pursuant to this subsection from being 
        considered a transaction account for purposes of this 
        Act.''.
            (2) Home owners' loan act.--
                    (A) In general.--Section 5(b)(1) of the 
                Home Owners' Loan Act (12 U.S.C. 1464 (b)(1)) 
                is amended by adding at the end the following 
                new subparagraph:
                    ``(G) Transfers.--Notwithstanding any other 
                provision of this paragraph, a Federal savings 
                association may permit the owner of any deposit 
                or share, any account which is a deposit or 
                share, or any account on which interest or 
                dividends are paid to make up to 24 transfers 
                per month (or such greater number as the Board 
                of Governors of the Federal Reserve System may 
                determine by rule or order under section 19(i) 
                to be permissible for member banks), for any 
                purpose, to a demand deposit account of the 
                owner in the same institution. With respect to 
                an escrow account maintained in connection with 
                a loan, a lender or servicer shall pay interest 
                on such account only if such payments are 
                required by contract between the lender or 
                servicer and the borrower, or a specific 
                statutory provision of the law of the State in 
                which the security property is located requires 
                the lender or servicer to make such payments. 
                Nothing in this subsection shall be construed 
                to prevent an account offered pursuant to this 
                subsection from being considered a transaction 
                account (as defined in section 19(b) of the 
                Federal Reserve Act) for purposes of the 
                Federal Reserve Act.''.
                    (B) Repeal.--Effective on at the end of the 
                2-year period beginning on the date of 
                enactment of this Act, section 5(b)(1) of the 
                Home Owners' Loan Act (12 U.S.C. 1464 (b)(1)) 
                is amended by striking subparagraph (G).
            (3) Federal deposit insurance act.--Section 18(g) 
        of the Federal Deposit Insurance Act (12 U.S.C. 
        1828(g)) is amended by adding at the end the following 
        new paragraph:
            ``(3) Transfers.--Notwithstanding any other 
        provision of this subsection, an insured nonmember bank 
        or insured State savings association may permit the 
        owner of any deposit or share, any account which is a 
        deposit or share, or any account on which interest or 
        dividends are paid to make up to 24 transfers per month 
        (or such greater number as the Board of Governors of 
        the Federal Reserve System may determine by rule or 
        order under section 19(i) to be permissible for member 
        banks), for any purpose, to a demand deposit account of 
        the owner in the same institution. With respect to an 
        escrow account maintained in connection with a loan, a 
        lender or servicer shall pay interest on such account 
        only if such payments are required by contract between 
        the lender or servicer and the borrower, or a specific 
        statutory provision of the law of the State in which 
        the security property is located requires the lender or 
        servicer to make such payments. Nothing in this 
        subsection shall be construed to prevent an account 
        offered pursuant to this subsection from being 
        considered a transaction account (as defined in section 
        19(b) of the Federal Reserve Act) for purposes of the 
        Federal Reserve Act.''.
    (b) Repeal of Prohibition on Payment of Interest on Demand 
Deposits.--
            (1) Federal reserve act.--Section 19(i) of the 
        Federal Reserve Act (12 U.S.C. 371a) is amended to read 
        as follows:
    ``(i) [Repealed]''.
            (2) Home owners' loan act.--The 1st sentence of 
        section 5(b)(1)(B) of the Home Owners' Loan Act (12 
        U.S.C. 1464(b)(1)(B)) is amended by striking ``savings 
        association may not--'' and all that follows through 
        ``(ii) permit any'' and inserting ``savings association 
        may not permit any''.
            (3) Federal deposit insurance act.--Section 18(g) 
        of the Federal Deposit Insurance Act (12 U.S.C. 
        1828(g)) is amended to read as follows:
    ``(g) [Repealed]''.
    (c) Effective Date.--The amendments made by subsection (b) 
shall take effect at the end of the 2-year period beginning on 
the date of the enactment of this Act.

  TITLE III--HEALTH INSURANCE AND LONG-TERM CARE INSURANCE PROVISIONS

SEC. 301. DEDUCTION FOR 100 PERCENT OF HEALTH INSURANCE COSTS OF SELF-
                    EMPLOYED INDIVIDUALS.

    (a) In General.--Paragraph (1) of section 162(l) is amended 
to read as follows:
            ``(1) Allowance of deduction.--In the case of an 
        individual who is an employee within the meaning of 
        section 401(c)(1), there shall be allowed as a 
        deduction under this section an amount equal to 100 
        percent of the amount paid during the taxable year for 
        insurance which constitutes medical care for the 
        taxpayer and the taxpayer's spouse and dependents.''.
    (b) Clarification of Limitations on Other Coverage.--The 
first sentence of section 162(l)(2)(B) is amended to read as 
follows: ``Paragraph (1) shall not apply to any taxpayer for 
any calendar month for which the taxpayer participates in any 
subsidized health plan maintained by any employer (other than 
an employer described in section 401(c)(4)) of the taxpayer or 
the spouse of the taxpayer.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 302. DEDUCTION FOR HEALTH AND LONG-TERM CARE INSURANCE COSTS OF 
                    INDIVIDUALS NOT PARTICIPATING IN EMPLOYER-
                    SUBSIDIZED HEALTH PLANS.

    (a) In General.--Part VII of subchapter B of chapter 1 is 
amended by redesignating section 222 as section 223 and by 
inserting after section 221 the following new section:

``SEC. 222. HEALTH AND LONG-TERM CARE INSURANCE COSTS.

    ``(a) In General.--In the case of an individual, there 
shall be allowed as a deduction an amount equal to the 
applicable percentage of the amount paid during the taxable 
year for insurance which constitutes medical care for the 
taxpayer and the taxpayer's spouse and dependents.
    ``(b) Applicable Percentage.--For purposes of subsection 
(a), the applicable percentage shall be determined in 
accordance with the following table:

``For taxable years beginning                             The applicable
in calendar year--                                       percentage is--
    2001, 2002, and 2003......................................      25  
    2004......................................................      35  
    2005......................................................      65  
    2006 and thereafter.......................................    100.  

    ``(c) Limitation Based on Other Coverage.--
            ``(1) Coverage under certain subsidized employer 
        plans.--
                    ``(A) In general.--Subsection (a) shall not 
                apply to any taxpayer for any calendar month 
                for which the taxpayer participates in any 
                health plan maintained by any employer of the 
                taxpayer or of the spouse of the taxpayer if 
                for such month 50 percent or more of the cost 
                of coverage under such plan (determined under 
                section 4980B and without regard to payments 
                made with respect to any coverage described in 
                subsection (e)) is paid or incurred by the 
                employer.
                    ``(B) Employer contributions to cafeteria 
                plans, flexible spending arrangements, and 
                medical savings accounts.--Employer 
                contributions to a cafeteria plan, a flexible 
                spending or similar arrangement, or a medical 
                savings account which are excluded from gross 
                income under section 106 shall be treated for 
                purposes of subparagraph (A) as paid by the 
                employer.
                    ``(C) Aggregation of plans of employer.--A 
                health plan which is not otherwise described in 
                subparagraph (A) shall be treated as described 
                in such subparagraph if such plan would be so 
                described if all health plans of persons 
                treated as a single employer under subsection 
                (b), (c), (m), or (o) of section 414 were 
                treated as one health plan.
                    ``(D) Separate application to health 
                insurance and long-term care insurance.--
                Subparagraphs (A) and (C) shall be applied 
                separately with respect to--
                            ``(i) plans which include primarily 
                        coverage for qualified long-term care 
                        services or are qualified long-term 
                        care insurance contracts, and
                            ``(ii) plans which do not include 
                        such coverage and are not such 
                        contracts.
            ``(2) Coverage under certain federal programs.--
                    ``(A) In general.--Subsection (a) shall not 
                apply to any amount paid for any coverage for 
                an individual for any calendar month if, as of 
                the first day of such month, the individual is 
                covered under any medical care program 
                described in--
                            ``(i) title XVIII, XIX, or XXI of 
                        the Social Security Act,
                            ``(ii) chapter 55 of title 10, 
                        United States Code,
                            ``(iii) chapter 17 of title 38, 
                        United States Code,
                            ``(iv) chapter 89 of title 5, 
                        United States Code, or
                            ``(v) the Indian Health Care 
                        Improvement Act.
                    ``(B) Exceptions.--
                            ``(i) Qualified long-term care.--
                        Subparagraph (A) shall not apply to 
                        amounts paid for coverage under a 
                        qualified long-term care insurance 
                        contract.
                            ``(ii) Continuation coverage of 
                        fehbp.--Subparagraph (A)(iv) shall not 
                        apply to coverage which is comparable 
                        to continuation coverage under section 
                        4980B.
    ``(d) Long-Term Care Deduction Limited to Qualified Long-
Term Care Insurance Contracts.--In the case of a qualified 
long-term care insurance contract, only eligible long-term care 
premiums (as defined in section 213(d)(10)) may be taken into 
account under subsection (a).
    ``(e) Deduction Not Available for Payment of Ancillary 
Coverage Premiums.--Any amount paid as a premium for insurance 
which provides for--
            ``(1) coverage for accidents, disability, dental 
        care, vision care, or a specified illness, or
            ``(2) making payments of a fixed amount per day (or 
        other period) by reason of being hospitalized,
shall not be taken into account under subsection (a).
    ``(f ) Special Rules.--
            ``(1) Coordination with deduction for health 
        insurance costs of self-employed individuals.--The 
        amount taken into account by the taxpayer in computing 
        the deduction under section 162(l) shall not be taken 
        into account under this section.
            ``(2) Coordination with medical expense 
        deduction.--The amount taken into account by the 
        taxpayer in computing the deduction under this section 
        shall not be taken into account under section 213.
    ``(g) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out this section, 
including regulations requiring employers to report to their 
employees and the Secretary such information as the Secretary 
determines to be appropriate.''.
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
Other Deductions.--Subsection (a) of section 62 is amended by 
inserting after paragraph (17) the following new item:
            ``(18) Health and long-term care insurance costs.--
        The deduction allowed by section 222.''.
    (c) Clerical Amendment.--The table of sections for part VII 
of subchapter B of chapter 1 is amended by striking the last 
item and inserting the following new items:

        ``Sec. 222. Health and long-term care insurance costs.
        ``Sec. 223. Cross reference.''.

    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 303. 2-YEAR EXTENSION OF AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS.

    (a) In General.--Paragraphs (2) and (3)(B) of section 
220(i) (defining cut-off year) are each amended by striking 
``2000'' each place it appears and inserting ``2002''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 220(j) is amended--
                    (A) by striking ``1998 or 1999'' each place 
                it appears and inserting ``1998, 1999, 2000, or 
                2001'', and
                    (B) by striking ``600,000 (750,000 in the 
                case of 1999)'' and inserting ``750,000 
                (600,000 in the case of 1998)''.
            (2) Subparagraph (A) of section 220(j)(4) is 
        amended by striking ``, 1998, and 1999'' and inserting 
        ``and of each calendar year after 1997 and before 
        2002''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 304. ADDITIONAL CONSUMER PROTECTIONS FOR LONG-TERM CARE INSURANCE.

    (a) Additional Protections Applicable to Long-Term Care 
Insurance.--Subparagraph (A) of section 7702B(g)(2) (relating 
to requirements of model regulation and Act) is amended to read 
as follows:
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any contract 
                if such contract meets--
                            ``(i) Model regulation.--The 
                        following requirements of the model 
                        regulation:
                                    ``(I) Section 6A (relating 
                                to guaranteed renewal or 
                                noncancellability), and the 
                                requirements of section 6B of 
                                the model Act relating to such 
                                section 6A.
                                    ``(II) Section 6B (relating 
                                to prohibitions on limitations 
                                and exclusions).
                                    ``(III) Section 6C 
                                (relating to extension of 
                                benefits).
                                    ``(IV) Section 6D (relating 
                                to continuation or conversion 
                                of coverage).
                                    ``(V) Section 6E (relating 
                                to discontinuance and 
                                replacement of policies).
                                    ``(VI) Section 7 (relating 
                                to unintentional lapse).
                                    ``(VII) Section 8 (relating 
                                to disclosure), other than 
                                section 8F thereof.
                                    ``(VIII) Section 11 
                                (relating to prohibitions 
                                against post-claims 
                                underwriting).
                                    ``(IX) Section 12 (relating 
                                to minimum standards).
                                    ``(X) Section 13 (relating 
                                to requirement to offer 
                                inflation protection), except 
                                that any requirement for a 
                                signature on a rejection of 
                                inflation protection shall 
                                permit the signature to be on 
                                an application or on a separate 
                                form.
                                    ``(XI) Section 25 (relating 
                                to prohibition against 
                                preexisting conditions and 
                                probationary periods in 
                                replacement policies or 
                                certificates).
                                    ``(XII) The provisions of 
                                section 26 relating to 
                                contingent nonforfeiture 
                                benefits, if the policyholder 
                                declines the offer of a 
                                nonforfeiture provision 
                                described in paragraph (4).
                            ``(ii) Model act.--The following 
                        requirements of the model Act:
                                    ``(I) Section 6C (relating 
                                to preexisting conditions).
                                    ``(II) Section 6D (relating 
                                to prior hospitalization).
                                    ``(III) The provisions of 
                                section 8 relating to 
                                contingent nonforfeiture 
                                benefits, if the policyholder 
                                declines the offer of a 
                                nonforfeiture provision 
                                described in paragraph (4).
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Model provisions.--The terms 
                        `model regulation' and `model Act' mean 
                        the long-term care insurance model 
                        regulation, and the long-term care 
                        insurance model Act, respectively, 
                        promulgated by the National Association 
                        of Insurance Commissioners (as adopted 
                        as of September 2000).
                            ``(ii) Coordination.--Any provision 
                        of the model regulation or model Act 
                        listed under clause (i) or (ii) of 
                        subparagraph (A) shall be treated as 
                        including any other provision of such 
                        regulation or Act necessary to 
                        implement the provision.
                            ``(iii) Determination.--For 
                        purposes of this section and section 
                        4980C, the determination of whether any 
                        requirement of a model regulation or 
                        the model Act has been met shall be 
                        made by the Secretary.''
    (b) Excise Tax.--Paragraph (1) of section 4980C(c) 
(relating to requirements of model provisions) is amended to 
read as follows:
            ``(1) Requirements of model provisions.--
                    ``(A) Model regulation.--The following 
                requirements of the model regulation must be 
                met:
                            ``(i) Section 9 (relating to 
                        required disclosure of rating practices 
                        to consumer).''
                            ``(ii) Section 14 (relating to 
                        application forms and replacement 
                        coverage).
                            ``(iii) Section 15 (relating to 
                        reporting requirements), except that 
                        the issuer shall also report at least 
                        annually the number of claims denied 
                        during the reporting period for each 
                        class of business (expressed as a 
                        percentage of claims denied), other 
                        than claims denied for failure to meet 
                        the waiting period or because of any 
                        applicable preexisting condition.
                            ``(iv) Section 22 (relating to 
                        filing requirements for marketing).
                            ``(v) Section 23 (relating to 
                        standards for marketing), including 
                        inaccurate completion of medical 
                        histories, other than paragraphs (1), 
                        (6), and (9) of section 23C, except 
                        that--
                                    ``(I) in addition to such 
                                requirements, no person shall, 
                                in selling or offering to sell 
                                a qualified long-term care 
                                insurance contract, 
                                misrepresent a material fact; 
                                and
                                    ``(II) no such requirements 
                                shall include a requirement to 
                                inquire or identify whether a 
                                prospective applicant or 
                                enrollee for long-term care 
                                insurance has accident and 
                                sickness insurance.
                            ``(vi) Section 24 (relating to 
                        suitability).
                            ``(vii) Section 29 (relating to 
                        standard format outline of coverage).
                            ``(viii) Section 30 (relating to 
                        requirement to deliver shopper's 
                        guide).
                The requirements referred to in clause (vi) 
                shall not include those portions of the 
                personal worksheet described in Appendix B 
                relating to consumer protection requirements 
                not imposed by section 4980C or 7702B.
                    ``(B) Model act.--The following 
                requirements of the model Act must be met:
                            ``(i) Section 6F (relating to right 
                        to return), except that such section 
                        shall also apply to denials of 
                        applications and any refund shall be 
                        made within 30 days of the return or 
                        denial.
                            ``(ii) Section 6G (relating to 
                        outline of coverage).
                            ``(iii) Section 6H (relating to 
                        requirements for certificates under 
                        group plans).
                            ``(iv) Section 6I (relating to 
                        policy summary).
                            ``(v) Section 6J (relating to 
                        monthly reports on accelerated death 
                        benefits).
                            ``(vi) Section 7 (relating to 
                        incontestability period).
                    ``(C) Definitions.--For purposes of this 
                paragraph, the terms `model regulation' and 
                `model Act' have the meanings given such terms 
                by section 7702B(g)(2)(B).''
    (c) Effective Date.--The amendments made by this section 
shall apply to policies issued more than 1 year after the date 
of the enactment of this Act.

SEC. 305. DEDUCTION FOR PROVIDING LONG-TERM CARE IN THE HOME TO 
                    HOUSEHOLD MEMBERS.

    (a) In General.--Part VII of subchapter B of chapter 1 is 
amended by redesignating section 223 as section 224 and by 
inserting after section 222 the following new section:

``SEC. 223. PROVISION OF LONG-TERM CARE IN THE HOME TO HOUSEHOLD 
                    MEMBERS.

    ``(a) Deduction Allowed.--
            ``(1) In general.--There shall be allowed as a 
        deduction for the taxable year an amount equal to the 
        applicable amount multiplied by the number of qualified 
        family members of the taxpayer for the taxable year.
            ``(2) Applicable amount.--For purposes of paragraph 
        (1), the applicable amount for a taxable year shall be 
        the amount determined in accordance with the following 
        table:

        ``For taxable years                               The applicable
            beginning in:                                   amount is:  
            2001..............................................   $3,000 
            2002..............................................   $4,000 
            2003..............................................   $5,000 
            2004..............................................   $6,000 
            2005..............................................   $7,000 
            2006..............................................   $8,000 
            2007..............................................   $9,000 
            2008 and thereafter...............................  $10,000.

    ``(b) Limitations.--
            ``(1) Reduction for amounts received under long-
        term care insurance policy.--The amount of the 
        deduction allowable under subsection (a) with respect 
        to a qualified family member shall be reduced (but not 
        below zero) by the amount received for the taxable year 
        under a long-term care insurance policy (whether or not 
        such policy is a qualified long-term care insurance 
        contract under section 7702B) with respect to which the 
        insured is the qualified family member.
            ``(2) Phaseout.--The amount of the deduction 
        allowable under subsection (a) (after the application 
        of paragraph (1)) shall be reduced in the same manner 
        as the exemption amount is reduced under section 
        151(d)(3).
    ``(c) Qualified family member.--For purposes of this 
section--
            ``(1) In general.--The term `qualified family 
        member' means, with respect to any taxable year, any 
        individual--
                    ``(A) who is--
                            ``(i) the taxpayer's spouse, or
                            ``(ii) an individual who bears a 
                        relationship to the taxpayer described 
                        in any of paragraphs (1) through (8) of 
                        section 152(a),
                    ``(B) who is a member for the entire 
                taxable year of the household maintained by the 
                taxpayer,
                    ``(C) whose gross income for the calendar 
                year in which the taxable year of the taxpayer 
                begins is less than the sum of--
                            ``(i) the exemption amount (as 
                        defined in section 151(d)), and
                            ``(ii) the standard deduction, and
                    ``(D) who has been certified, before the 
                due date for filing the return of tax for the 
                taxable year (without extensions), by a 
                physician (as defined in section 1861(r)(1) of 
                the Social Security Act) as being an individual 
                described in paragraph (3) for a period--
                            ``(i) which is at least 180 
                        consecutive days, and
                            ``(ii) a portion of which occurs 
                        within the taxable year.
            ``(2) Special rules.--
                    ``(A) Frequency of certification.--The term 
                `qualified family member' shall not include any 
                individual otherwise meeting the requirements 
                of paragraph (1)(D) unless the certification is 
                made within the 39\1/2\ month period ending on 
                the due date (or such other period as the 
                Secretary prescribes).
                    ``(B) Gross income test not to apply to 
                certain individuals.--Paragraph (1)(C) shall 
                not apply to--
                            ``(i) the spouse of the taxpayer,
                            ``(ii) any child of the taxpayer 
                        described in section 151(c)(1)(B), and
                            ``(iii) any gross income which is 
                        not taken into account under paragraph 
                        (1)(B) of section 151(c) by reason of 
                        paragraph (5) thereof.
            ``(3) Individuals with long-term care needs.--An 
        individual is described in this paragraph if the 
        individual meets any of the following requirements:
                    ``(A) The individual is at least 6 years of 
                age and--
                            ``(i) is unable to perform (without 
                        substantial assistance from another 
                        individual) at least 3 activities of 
                        daily living (as defined in section 
                        7702B(c)(2)(B)) due to a loss of 
                        functional capacity, or
                            ``(ii) requires substantial 
                        supervision to protect such individual 
                        from threats to health and safety due 
                        to severe cognitive impairment, and
                                    ``(I) is unable to perform, 
                                without reminding or cuing 
                                assistance, at least 1 activity 
                                of daily living (as so 
                                defined), or
                                    ``(II) to the extent 
                                provided in regulations 
                                prescribed by the Secretary (in 
                                consultation with the Secretary 
                                of Health and Human Services), 
                                is unable to engage in age 
                                appropriate activities.
                    ``(B) The individual is at least 2 but not 
                6 years of age and is unable due to a loss of 
                functional capacity to perform (without 
                substantial assistance from another individual) 
                at least 2 of the following activities: eating, 
                transferring, or mobility.
                    ``(C) The individual is under 2 years of 
                age and requires specific durable medical 
                equipment by reason of a severe health 
                condition or requires a skilled practitioner 
                trained to address the individual's condition 
                to be available if the individual's parents or 
                guardians are absent.
    ``(d) Special Rules.--
            ``(1) Identification requirement.--No deduction 
        shall be allowed under this section to a taxpayer with 
        respect to any qualified family member unless the 
        taxpayer includes the name and taxpayer identification 
        number of such member, and the identification number of 
        the physician certifying such member, on the return of 
        tax for the taxable year.
            ``(2) Taxable year must be full taxable year.--No 
        deduction shall be allowable under this section in the 
        case of a taxable year covering a period of less than 
        12 months, except that in the case of a taxable year 
        closed by the death of a taxpayer a ratable portion of 
        the deduction shall be allowable.
            ``(3) Special rules.--Rules similar to the rules of 
        paragraphs (1), (2), (3), (4), and (5) of section 21(e) 
        shall apply for purposes of this subsection.''.
    (b) Deduction Allowable Whether or Not Taxpayer Itemizes 
Other Deductions.--
            (1) Subsection (b) of section 63 is amended by 
        striking ``and'' at the end of paragraph (1), by 
        striking the period at the end of paragraph (2) and 
        inserting ``, and'', and by adding at the end the 
        following new paragraph:
            ``(3) the deduction allowed by section 223.''
            (2) Subsection (d) of section 63 is amended by 
        striking ``and'' at the end of paragraph (1), by 
        striking the period at the end of paragraph (2) and 
        inserting ``, and'', and by adding at the end the 
        following new paragraph:
            ``(3) the deduction allowed by section 223.''
    (c) Conforming Amendments.--
            (1) Section 6213(g)(2) is amended by striking 
        ``and'' at the end of subparagraph (K), by striking the 
        period at the end of subparagraph (L) and inserting ``, 
        and'', and by inserting after subparagraph (L) the 
        following new subparagraph:
                    ``(M) an omission of a correct TIN or 
                physician identification number required under 
                section 223(d)(1) (relating to deduction for 
                provision of long-term care in the home to 
                household members) to be included on a 
                return.''
            (2) The table of sections for part VII of 
        subchapter B of chapter 1 is amended by striking the 
        last item and inserting the following new items:

        ``Sec. 223. Provision of long-term care in the home to household 
                  members.
        ``Sec. 224. Cross reference.''

    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

   TITLE IV--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS

SEC. 400. SHORT TITLE.

    This title may be cited as the ``Retirement Savings and 
Pension Coverage Act of 2000''.

               Subtitle A--Individual Retirement Accounts

SEC. 401. MODIFICATION OF IRA CONTRIBUTION LIMITS.

    (a) Increase in Contribution Limit.--
            (1) In general.--Paragraph (1)(A) of section 219(b) 
        (relating to maximum amount of deduction) is amended by 
        striking ``$2,000'' and inserting ``the deductible 
        amount''.
            (2) Deductible amount.--Section 219(b) is amended 
        by adding at the end the following new paragraph:
            ``(5) Deductible amount.--For purposes of paragraph 
        (1)(A)--
                    ``(A) In general.--The deductible amount 
                shall be determined in accordance with the 
                following table:

        ``For taxable years                               The deductible
            beginning in:                                   amount is:  
            2001..............................................   $3,000 
            2002..............................................   $4,000 
            2003 and thereafter...............................   $5,000.

                    ``(B) Catch-up contributions for 
                individuals 50 or older.--
                            ``(i) In general.--In the case of 
                        an individual who has attained the age 
                        of 50 before the close of the taxable 
                        year, the deductible amount for such 
                        taxable year (determined without regard 
                        to this subparagraph) shall be 
                        increased by the applicable catch-up 
                        amount.
                            ``(ii) Applicable catch-up 
                        amount.--For purposes of clause (i), 
                        the applicable catch-up amount shall be 
                        the amount determined in accordance 
                        with the following table:

        ``For taxable years                      The applicable catch-up
            beginning in:                                   amount is:  
            2001..............................................     $500 
            2002..............................................   $1,000 
            2003 and thereafter...............................   $1,500.

                    ``(C) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of 
                        any taxable year beginning in a 
                        calendar year after 2003, the $5,000 
                        amount under subparagraph (A) and the 
                        $1,500 amount under subparagraph (B) 
                        shall each be increased by an amount 
                        equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for the 
                                calendar year in which the 
                                taxable year begins, determined 
                                by substituting `calendar year 
                                2002' for `calendar year 1992' 
                                in subparagraph (B) thereof.
                            ``(ii) Rounding rules.--If any 
                        amount after adjustment under clause 
                        (i) is not a multiple of $500, such 
                        amount shall be rounded to the next 
                        lower multiple of $500.''.
    (b) Increase in AGI Limits for Active Participants.--
            (1) Joint returns.--The table in clause (i) of 
        section 219(g)(3)(B) (relating to applicable dollar 
        amount) is amended to read as follows:

        ``For taxable years                               The applicable
          beginning in                                    dollar amount:
          calendar year:
            2001..............................................  $56,000 
            2002..............................................  $60,000 
            2003..............................................  $64,000 
            2004..............................................  $68,000 
            2005..............................................  $72,000 
            2006..............................................  $76,000 
            2007 or thereafter...............................$80,000.''.

            (2) Other taxpayers.--Section 219(g)(3)(B) 
        (relating to applicable dollar amount) is amended by 
        striking clauses (ii) and (iii) and inserting the 
        following:
                            ``(ii) In the case of any other 
                        taxpayer:

        ``For taxable years                               The applicable
          beginning in                                    dollar amount:
          calendar year:
            2001..............................................  $36,000 
            2002..............................................  $40,000 
            2003..............................................  $44,000 
            2004..............................................  $48,000 
            2005 or thereafter...............................$50,000.''.

    (c) Conforming Amendments.--
            (1) Section 408(a)(1) is amended by striking ``in 
        excess of $2,000 on behalf of any individual'' and 
        inserting ``on behalf of any individual in excess of 
        the amount in effect for such taxable year under 
        section 219(b)(1)(A)''.
            (2) Section 408(b)(2)(B) is amended by striking 
        ``$2,000'' and inserting ``the dollar amount in effect 
        under section 219(b)(1)(A)''.
            (3) Section 408(b) is amended by striking 
        ``$2,000'' in the matter following paragraph (4) and 
        inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
            (4) Section 408(j) is amended by striking 
        ``$2,000''.
            (5) Section 408(p)(8) is amended by striking 
        ``$2,000'' and inserting ``the dollar amount in effect 
        under section 219(b)(1)(A)''.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 402. DEEMED IRAS UNDER EMPLOYER PLANS.

    (a) In General.--Section 408 (relating to individual 
retirement accounts) is amended by redesignating subsection (q) 
as subsection (r) and by inserting after subsection (p) the 
following new subsection:
    ``(q) Deemed IRAs Under Qualified Employer Plans.--
            ``(1) General rule.--If--
                    ``(A) a qualified employer plan elects to 
                allow employees to make voluntary employee 
                contributions to a separate account or annuity 
                established under the plan, and
                    ``(B) under the terms of the qualified 
                employer plan, such account or annuity meets 
                the applicable requirements of this section or 
                section 408A for an individual retirement 
                account or annuity,
        then such account or annuity shall be treated for 
        purposes of this title in the same manner as an 
        individual retirement plan and not as a qualified 
        employer plan (and contributions to such account or 
        annuity as contributions to an individual retirement 
        plan and not to the qualified employer plan). For 
        purposes of subparagraph (B), the requirements of 
        subsection (a)(5) shall not apply.
            ``(2) Special rules for qualified employer plans.--
        For purposes of this title, a qualified employer plan 
        shall not fail to meet any requirement of this title 
        solely by reason of establishing and maintaining a 
        program described in paragraph (1).
            ``(3) Definitions.--For purposes of this 
        subsection--
                    ``(A) Qualified employer plan.--The term 
                `qualified employer plan' has the meaning given 
                such term by section 72(p)(4); except such term 
                shall only include an eligible deferred 
                compensation plan (as defined in section 
                457(b)) which is maintained by an eligible 
                employer described in section 457(e)(1)(A).
                    ``(B) Voluntary employee contribution.--The 
                term `voluntary employee contribution' means 
                any contribution (other than a mandatory 
                contribution within the meaning of section 
                411(c)(2)(C))--
                            ``(i) which is made by an 
                        individual as an employee under a 
                        qualified employer plan which allows 
                        employees to elect to make 
                        contributions described in paragraph 
                        (1), and
                            ``(ii) with respect to which the 
                        individual has designated the 
                        contribution as a contribution to which 
                        this subsection applies.''.
    (b) Amendment of ERISA.--
            (1) In general.--Section 4 of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1003) 
        is amended by adding at the end the following new 
        subsection:
    ``(c) If a pension plan allows an employee to elect to make 
voluntary employee contributions to accounts and annuities as 
provided in section 408(q) of the Internal Revenue Code of 
1986, such accounts and annuities (and contributions thereto) 
shall not be treated as part of such plan (or as a separate 
pension plan) for purposes of any provision of this title other 
than section 403(c), 404, or 405 (relating to exclusive 
benefit, and fiduciary and co-fiduciary responsibilities).''.
            (2) Conforming amendment.--Section 4(a) of such Act 
        (29 U.S.C. 1003(a)) is amended by inserting ``or (c)'' 
        after ``subsection (b)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to plan years beginning after December 31, 2001.

SEC. 403. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS 
                    FOR CHARITABLE PURPOSES.

    (a) In General.--Subsection (d) of section 408 (relating to 
individual retirement accounts) is amended by adding at the end 
the following new paragraph:
            ``(8) Distributions for charitable purposes.--
                    ``(A) In general.--In the case of a 
                qualified charitable distribution, no amount 
                shall be includible in the gross income of the 
                account holder or beneficiary.
                    ``(B) Qualified charitable distribution.--
                For purposes of this paragraph, the term 
                `qualified charitable distribution' means any 
                distribution from an individual retirement 
                account--
                            ``(i) which is made on or after the 
                        date that the individual for whose 
                        benefit the account is maintained has 
                        attained age 70\1/2\, and
                            ``(ii) which is a charitable 
                        contribution (as defined in section 
                        170(c)) made directly from the account 
                        to an organization or entity described 
                        in section 170(c).
                    ``(C) Denial of deduction.--The amount 
                allowable as a deduction to the taxpayer for 
                the taxable year under section 170 (before the 
                application of section 170(b)) for qualified 
                charitable distributions shall be reduced (but 
                not below zero) by the sum of the amounts of 
                the qualified charitable distributions during 
                such year which (but for this paragraph) would 
                have been includible in the gross income of the 
                taxpayer for such year.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 2000.

SEC. 404. MODIFICATION OF AGI LIMITS FOR ROTH IRAS.

    (a) Increase in AGI Limit for Roth IRA Contributions.--
            (1) In general.--Section 408A(c)(3)(C)(ii) 
        (relating to limits based on modified adjusted gross 
        income) is amended to read as follows:
                            ``(ii) the applicable dollar amount 
                        is--
                                    ``(I) in the case of a 
                                taxpayer filing a joint return, 
                                $190,000, and
                                    ``(II) in the case of any 
                                other taxpayer, $95,000.''.
            (2) Phaseout amount.--Clause (ii) of section 
        408A(c)(3)(A) is amended to read as follows:
                            ``(ii) $15,000 ($30,000 in the case 
                        of a joint return).''.
    (b) Increase in AGI Limit for Roth IRA Conversions.--
Section 408A(c)(3)(B) (relating to rollover from IRA) is 
amended by striking ``relates'' and all that follows and 
inserting ``relates, the taxpayer's adjusted gross income 
exceeds $100,000 ($200,000 in the case of a joint return).''.
    (c) Conforming Amendment.--Section 408A(c)(3) is amended by 
striking subparagraph (D).
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

                     Subtitle B--Expanding Coverage

SEC. 411. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

    (a) Defined Benefit Plans.--
            (1) Dollar limit.--
                    (A) Subparagraph (A) of section 415(b)(1) 
                (relating to limitation for defined benefit 
                plans) is amended by striking ``$90,000'' and 
                inserting ``$160,000''.
                    (B) Subparagraphs (C) and (D) of section 
                415(b)(2) are each amended by striking 
                ``$90,000'' each place it appears in the 
                headings and the text and inserting 
                ``$160,000''.
                    (C) Paragraph (7) of section 415(b) 
                (relating to benefits under certain 
                collectively bargained plans) is amended by 
                striking ``the greater of $68,212 or one-half 
                the amount otherwise applicable for such year 
                under paragraph (1)(A) for `$90,000' '' and 
                inserting ``one-half the amount otherwise 
                applicable for such year under paragraph (1)(A) 
                for `$160,000' ''.
            (2) Limit reduced when benefit begins before age 
        62.--Subparagraph (C) of section 415(b)(2) is amended 
        by striking ``the social security retirement age'' each 
        place it appears in the heading and text and inserting 
        ``age 62'' and by striking the second sentence.
            (3) Limit increased when benefit begins after age 
        65.--Subparagraph (D) of section 415(b)(2) is amended 
        by striking ``the social security retirement age'' each 
        place it appears in the heading and text and inserting 
        ``age 65''.
            (4) Cost-of-living adjustments.--Subsection (d) of 
        section 415 (related to cost-of-living adjustments) is 
        amended--
                    (A) by striking ``$90,000'' in paragraph 
                (1)(A) and inserting ``$160,000''; and
                    (B) in paragraph (3)(A)--
                            (i) by striking ``$90,000'' in the 
                        heading and inserting ``$160,000''; and
                            (ii) by striking ``October 1, 
                        1986'' and inserting ``July 1, 2000''.
            (5) Conforming amendments.--
                    (A) Section 415(b)(2) is amended by 
                striking subparagraph (F).
                    (B) Section 415(b)(9) is amended to read as 
                follows:
                    ``(9) Special rule for commercial airline 
                pilots.--In the case of any participant who is 
                a commercial airline pilot, if, as of the time 
                of the participant's retirement, regulations 
                prescribed by the Federal Aviation 
                Administration require an individual to 
                separate from service as a commercial airline 
                pilot after attaining any age occurring on or 
                after age 60 and before age 62, paragraph 
                (2)(C) shall be applied by substituting such 
                age for age 62.''.
                    (C) Section 415(b)(10)(C)(i) is amended by 
                striking ``applied without regard to paragraph 
                (2)(F)''.
    (b) Defined Contribution Plans.--
            (1) Dollar limit.--Subparagraph (A) of section 
        415(c)(1) (relating to limitation for defined 
        contribution plans) is amended by striking ``$30,000'' 
        and inserting ``$40,000''.
            (2) Cost-of-living adjustments.--Subsection (d) of 
        section 415 (related to cost-of-living adjustments) is 
        amended--
                    (A) by striking ``$30,000'' in paragraph 
                (1)(C) and inserting ``$40,000''; and
                    (B) in paragraph (3)(D)--
                            (i) by striking ``$30,000'' in the 
                        heading and inserting ``$40,000''; and
                            (ii) by striking ``October 1, 
                        1993'' and inserting ``July 1, 2000''.
            (3) Conforming amendments.--
                    (A) In general.--Section 664(g)(3)(E) 
                (relating to plan requirements) is amended by 
                striking ``limitations under section 
                415(c)(1)'' and inserting ``applicable 
                limitation under paragraph (7)''.
                    (B) Applicable limitation.--Section 664(g) 
                (relating to qualified gratuitous transfer of 
                qualified employer securities) is amended by 
                adding at the end the following new paragraph:
            ``(7) Applicable limitation.--
                    ``(A) In general.--For purposes of 
                paragraph (3)(E), the applicable limitation 
                under this paragraph with respect to a 
                participant is an amount equal to the lesser 
                of--
                            ``(i) $30,000, or
                            ``(ii) 25 percent of the 
                        participant's compensation (as defined 
                        in section 415(c)(3)).
                    ``(B) Cost-of-living adjustment.--The 
                Secretary shall adjust annually the $30,000 
                amount under subparagraph (A)(i) at the same 
                time and in the same manner as under section 
                415(d), except that the base period shall be 
                the calendar quarter beginning October 1, 1993, 
                and any increase under this subparagraph which 
                is not a multiple of $5,000 shall be rounded to 
                the next lowest multiple of $5,000.''.
    (c) Qualified Trusts.--
            (1) Compensation limit.--Sections 401(a)(17), 
        404(l), 408(k), and 505(b)(7) are each amended by 
        striking ``$150,000'' each place it appears and 
        inserting ``$200,000''.
            (2) Base period and rounding of cost-of-living 
        adjustment.--Subparagraph (B) of section 401(a)(17) is 
        amended--
                    (A) by striking ``October 1, 1993'' and 
                inserting ``July 1, 2000''; and
                    (B) by striking ``$10,000'' both places it 
                appears and inserting ``$5,000''.
    (d) Elective Deferrals.--
            (1) In general.--Paragraph (1) of section 402(g) 
        (relating to limitation on exclusion for elective 
        deferrals) is amended to read as follows:
            ``(1) In general.--
                    ``(A) Limitation.--Notwithstanding 
                subsections (e)(3) and (h)(1)(B), the elective 
                deferrals of any individual for any taxable 
                year shall be included in such individual's 
                gross income to the extent the amount of such 
                deferrals for the taxable year exceeds the 
                applicable dollar amount.
                    ``(B) Applicable dollar amount.--For 
                purposes of subparagraph (A), the applicable 
                dollar amount shall be the amount determined in 
                accordance with the following table:

        ``For taxable years                               The applicable
          beginning in                                    dollar amount:
          calendar year:
            2001..............................................  $11,000 
            2002..............................................  $12,000 
            2003..............................................  $13,000 
            2004..............................................  $14,000 
            2005 or thereafter...............................$15,000.''.

            (2) Cost-of-living adjustment.--Paragraph (5) of 
        section 402(g) is amended to read as follows:
            ``(5) Cost-of-living adjustment.--In the case of 
        taxable years beginning after December 31, 2005, the 
        Secretary shall adjust the $15,000 amount under 
        paragraph (1)(B) at the same time and in the same 
        manner as under section 415(d), except that the base 
        period shall be the calendar quarter beginning July 1, 
        2004, and any increase under this paragraph which is 
        not a multiple of $500 shall be rounded to the next 
        lowest multiple of $500.''.
            (3) Conforming amendments.--
                    (A) Section 402(g) (relating to limitation 
                on exclusion for elective deferrals), as 
                amended by paragraphs (1) and (2), is further 
                amended by striking paragraph (4) and 
                redesignating paragraphs (5), (6), (7), (8), 
                and (9) as paragraphs (4), (5), (6), (7), and 
                (8), respectively.
                    (B) Paragraph (2) of section 457(c) is 
                amended by striking ``402(g)(8)(A)(iii)'' and 
                inserting ``402(g)(7)(A)(iii)''.
                    (C) Clause (iii) of section 501(c)(18)(D) 
                is amended by striking ``(other than paragraph 
                (4) thereof)''.
    (e) Deferred Compensation Plans of State and Local 
Governments and Tax-Exempt Organizations.--
            (1) In general.--Section 457 (relating to deferred 
        compensation plans of State and local governments and 
        tax-exempt organizations) is amended--
                    (A) in subsections (b)(2)(A) and (c)(1) by 
                striking ``$7,500'' each place it appears and 
                inserting ``the applicable dollar amount''; and
                    (B) in subsection (b)(3)(A) by striking 
                ``$15,000'' and inserting ``twice the dollar 
                amount in effect under subsection (b)(2)(A)''.
            (2) Applicable dollar amount; cost-of-living 
        adjustment.--Paragraph (15) of section 457(e) is 
        amended to read as follows:
            ``(15) Applicable dollar amount.--
                    ``(A) In general.--The applicable dollar 
                amount shall be the amount determined in 
                accordance with the following table:

        ``For taxable years                               The applicable
          beginning in                                    dollar amount:
          calendar year:
            2001..............................................  $11,000 
            2002..............................................  $12,000 
            2003..............................................  $13,000 
            2004..............................................  $14,000 
            2005 or thereafter................................  $15,000.

                    ``(B) Cost-of-living adjustments.--In the 
                case of taxable years beginning after December 
                31, 2005, the Secretary shall adjust the 
                $15,000 amount under subparagraph (A) at the 
                same time and in the same manner as under 
                section 415(d), except that the base period 
                shall be the calendar quarter beginning July 1, 
                2004, and any increase under this paragraph 
                which is not a multiple of $500 shall be 
                rounded to the next lowest multiple of $500.''.
    (f) Simple Retirement Accounts.--
            (1) Limitation.--Clause (ii) of section 
        408(p)(2)(A) (relating to general rule for qualified 
        salary reduction arrangement) is amended by striking 
        ``$6,000'' and inserting ``the applicable dollar 
        amount''.
            (2) Applicable dollar amount.--Subparagraph (E) of 
        408(p)(2) is amended to read as follows:
                    ``(E) Applicable dollar amount; cost-of-
                living adjustment.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(ii), the applicable 
                        dollar amount shall be the amount 
                        determined in accordance with the 
                        following table:

        ``For taxable years                               The applicable
          beginning in                                    dollar amount:
          calendar year:
              2001............................................   $7,000 
              2002............................................   $8,000 
              2003............................................   $9,000 
              2004 or thereafter..............................  $10,000.

                            ``(ii) Cost-of-living adjustment.--
                        In the case of a year beginning after 
                        December 31, 2004, the Secretary shall 
                        adjust the $10,000 amount under clause 
                        (i) at the same time and in the same 
                        manner as under section 415(d), except 
                        that the base period taken into account 
                        shall be the calendar quarter beginning 
                        July 1, 2003, and any increase under 
                        this subparagraph which is not a 
                        multiple of $500 shall be rounded to 
                        the next lower multiple of $500.''.
            (3) Conforming amendments.--
                    (A) Subclause (I) of section 
                401(k)(11)(B)(i) is amended by striking 
                ``$6,000'' and inserting ``the amount in effect 
                under section 408(p)(2)(A)(ii)''.
                    (B) Section 401(k)(11) is amended by 
                striking subparagraph (E).
    (g) Rounding Rule Relating to Defined Benefit Plans and 
Defined Contribution Plans.--Paragraph (4) of section 415(d) is 
amended to read as follows:
            ``(4) Rounding.--
                    ``(A) $160,000 amount.--Any increase under 
                subparagraph (A) of paragraph (1) which is not 
                a multiple of $5,000 shall be rounded to the 
                next lowest multiple of $5,000.
                    ``(B) $40,000 amount.--Any increase under 
                subparagraph (C) of paragraph (1) which is not 
                a multiple of $1,000 shall be rounded to the 
                next lowest multiple of $1,000.''.
    (h) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 412. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE 
                    PROPRIETORS.

    (a) In General.--Subparagraph (B) of section 4975(f)(6) 
(relating to exemptions not to apply to certain transactions) 
is amended by adding at the end the following new clause:
                            ``(iii) Loan exception.--For 
                        purposes of subparagraph (A)(i), the 
                        term `owner-employee' shall only 
                        include a person described in subclause 
                        (II) or (III) of clause (i).''.
    (b) Amendment of ERISA.--Section 408(d)(2) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2)) 
is amended by adding at the end the following new subparagraph:
    ``(C) For purposes of paragraph (1)(A), the term `owner-
employee' shall only include a person described in clause (ii) 
or (iii) of subparagraph (A).''.
    (c) Effective Date.--The amendment made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 413. MODIFICATION OF TOP-HEAVY RULES.

    (a) Simplification of Definition of Key Employee.--
            (1) In general.--Section 416(i)(1)(A) (defining key 
        employee) is amended--
                    (A) by striking ``or any of the 4 preceding 
                plan years'' in the matter preceding clause 
                (i);
                    (B) by striking clause (i) and inserting 
                the following:
                            ``(i) an officer of the employer 
                        having an annual compensation greater 
                        than $115,000,'';
                    (C) by striking clause (ii) and 
                redesignating clauses (iii) and (iv) as clauses 
                (ii) and (iii), respectively; and
                    (D) by striking the second sentence in the 
                matter following clause (iii), as redesignated 
                by subparagraph (C).
            (2) Cost-of-living adjustment.--Section 416(i)(1) 
        is amended by adding at the end the following new 
        subparagraph:
                    ``(E) Cost-of-living adjustment.--In the 
                case of a year beginning after December 31, 
                2001, the Secretary shall adjust the $115,000 
                amount under subparagraph (A)(i) at the same 
                time and in the same manner as under section 
                415(d), except that the base period taken into 
                account shall be the calendar quarter beginning 
                July 1, 2000, and any increase under this 
                subparagraph which is not a multiple of $5,000 
                shall be rounded to the next lower multiple of 
                $5,000.''.
            (3) Conforming amendment.--Section 
        416(i)(1)(B)(iii) is amended by striking ``and 
        subparagraph (A)(ii)''.
    (b) Matching Contributions Taken Into Account for Minimum 
Contribution Requirements.--Section 416(c)(2)(A) (relating to 
defined contribution plans) is amended by adding at the end the 
following: ``Employer matching contributions (as defined in 
section 401(m)(4)(A)) shall be taken into account for purposes 
of this subparagraph.''.
    (c) Distributions During Last Year Before Determination 
Date Taken Into Account.--
            (1) In general.--Paragraph (3) of section 416(g) is 
        amended to read as follows:
            ``(3) Distributions during last year before 
        determination date taken into account.--
                    ``(A) In general.--For purposes of 
                determining--
                            ``(i) the present value of the 
                        cumulative accrued benefit for any 
                        employee, or
                            ``(ii) the amount of the account of 
                        any employee,
                such present value or amount shall be increased 
                by the aggregate distributions made with 
                respect to such employee under the plan during 
                the 1-year period ending on the determination 
                date. The preceding sentence shall also apply 
                to distributions under a terminated plan which 
                if it had not been terminated would have been 
                required to be included in an aggregation 
                group.
                    ``(B) 5-year period in case of in-service 
                distribution.--In the case of any distribution 
                made for a reason other than separation from 
                service, death, or disability, subparagraph (A) 
                shall be applied by substituting `5-year 
                period' for `1-year period'.''.
            (2) Benefits not taken into account.--Subparagraph 
        (E) of section 416(g)(4) is amended--
                    (A) by striking ``last 5 years'' in the 
                heading and inserting ``last year before 
                determination date''; and
                    (B) by striking ``5-year period'' and 
                inserting ``1-year period''.
    (d) Definition of Top-Heavy Plans.--Paragraph (4) of 
section 416(g) (relating to other special rules for top-heavy 
plans) is amended by adding at the end the following new 
subparagraph:
                    ``(H) Cash or deferred arrangements using 
                alternative methods of meeting 
                nondiscrimination requirements.--The term `top-
                heavy plan' shall not include a plan which 
                consists solely of--
                            ``(i) a cash or deferred 
                        arrangement which meets the 
                        requirements of section 401(k)(12), and
                            ``(ii) matching contributions with 
                        respect to which the requirements of 
                        section 401(m)(11) are met.
                If, but for this subparagraph, a plan would be 
                treated as a top-heavy plan because it is a 
                member of an aggregation group which is a top-
                heavy group, contributions under the plan may 
                be taken into account in determining whether 
                any other plan in the group meets the 
                requirements of subsection (c)(2).''.
    (e) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined 
benefit plans) is amended--
                    (A) by striking ``clause (ii)'' in clause 
                (i) and inserting ``clause (ii) or (iii)''; and
                    (B) by adding at the end the following:
                            ``(iii) Exception for frozen 
                        plan.--For purposes of determining an 
                        employee's years of service with the 
                        employer, any service with the employer 
                        shall be disregarded to the extent that 
                        such service occurs during a plan year 
                        when the plan benefits (within the 
                        meaning of section 410(b)) no key 
                        employee or former key employee.''.
    (f) Elimination of Family Attribution.--Section 
416(i)(1)(B) (defining 5-percent owner) is amended by adding at 
the end the following new clause:
                            ``(iv) Family attribution 
                        disregarded.--Solely for purposes of 
                        applying this paragraph (and not for 
                        purposes of any provision of this title 
                        which incorporates by reference the 
                        definition of a key employee or 5-
                        percent owner under this paragraph), 
                        section 318 shall be applied without 
                        regard to subsection (a)(1) thereof in 
                        determining whether any person is a 5-
                        percent owner.''.
    (g) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 414. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF 
                    DEDUCTION LIMITS.

    (a) In General.--Section 404 (relating to deduction for 
contributions of an employer to an employees' trust or annuity 
plan and compensation under a deferred payment plan) is amended 
by adding at the end the following new subsection:
    ``(n) Elective Deferrals Not Taken Into Account for 
Purposes of Deduction Limits.--Elective deferrals (as defined 
in section 402(g)(3)) shall not be subject to any limitation 
contained in paragraph (3), (7), or (9) of subsection (a), and 
such elective deferrals shall not be taken into account in 
applying any such limitation to any other contributions.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 415. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION 
                    PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT 
                    ORGANIZATIONS.

    (a) In General.--Subsection (c) of section 457 (relating to 
deferred compensation plans of State and local governments and 
tax-exempt organizations), as amended by section 411, is 
amended to read as follows:
    ``(c) Limitation.--The maximum amount of the compensation 
of any one individual which may be deferred under subsection 
(a) during any taxable year shall not exceed the amount in 
effect under subsection (b)(2)(A) (as modified by any 
adjustment provided under subsection (b)(3)).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to years beginning after December 31, 2000.

SEC. 416. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING PENSION 
                    PLANS.

    (a) Elimination of Certain User Fees.--The Secretary of the 
Treasury or the Secretary's delegate shall not require payment 
of user fees under the program established under section 10511 
of the Revenue Act of 1987 for requests to the Internal Revenue 
Service for determination letters with respect to the qualified 
status of a pension benefit plan maintained solely by one or 
more eligible employers or any trust which is part of the plan. 
The preceding sentence shall not apply to any request--
            (1) made after the later of--
                    (A) the fifth plan year the pension benefit 
                plan is in existence; or
                    (B) the end of any remedial amendment 
                period with respect to the plan beginning 
                within the first 5 plan years; or
            (2) made by the sponsor of any prototype or similar 
        plan which the sponsor intends to market to 
        participating employers.
    (b) Pension Benefit Plan.--For purposes of this section, 
the term ``pension benefit plan'' means a pension, profit-
sharing, stock bonus, annuity, or employee stock ownership 
plan.
    (c) Eligible Employer.--For purposes of this section, the 
term ``eligible employer'' has the same meaning given such term 
in section 408(p)(2)(C)(i)(I) of the Internal Revenue Code of 
1986. The determination of whether an employer is an eligible 
employer under this section shall be made as of the date of the 
request described in subsection (a).
    (d) Determination of Average Fees Charged.--For purposes of 
any determination of average fees charged, any request to which 
subsection (a) applies shall not be taken into account.
    (e) Effective Date.--The provisions of this section shall 
apply with respect to requests made after December 31, 2000.

SEC. 417. DEDUCTION LIMITS.

    (a) Modification of Limits.--
            (1) Stock bonus and profit sharing trusts.--
                    (A) In general.--Subclause (I) of section 
                404(a)(3)(A)(i) (relating to stock bonus and 
                profit sharing trusts) is amended by striking 
                ``15 percent'' and inserting ``25 percent''.
                    (B) Conforming amendment.--Subparagraph (C) 
                of section 404(h)(1) is amended by striking 
                ``15 percent'' each place it appears and 
                inserting ``25 percent''.
            (2) Defined contribution plans.--
                    (A) In general.--Clause (v) of section 
                404(a)(3)(A) (relating to stock bonus and 
                profit sharing trusts) is amended to read as 
                follows:
                            ``(v) Defined contribution plans 
                        subject to the funding standards.--
                        Except as provided by the Secretary, a 
                        defined contribution plan which is 
                        subject to the funding standards of 
                        section 412 shall be treated in the 
                        same manner as a stock bonus or profit-
                        sharing plan for purposes of this 
                        subparagraph.''.
                    (B) Conforming amendments.--
                            (i) Section 404(a)(1)(A) is amended 
                        by inserting ``(other than a trust to 
                        which paragraph (3) applies)'' after 
                        ``pension trust''.
                            (ii) Section 404(h)(2) is amended 
                        by striking ``stock bonus or profit-
                        sharing trust'' and inserting ``trust 
                        subject to subsection (a)(3)(A)''.
                            (iii) The heading of section 
                        404(h)(2) is amended by striking 
                        ``stock bonus and profit-sharing 
                        trust'' and inserting ``certain 
                        trusts''.
    (b) Compensation.--
            (1) In general.--Section 404(a) (relating to 
        general rule) is amended by adding at the end the 
        following:
            ``(12) Definition of compensation.--For purposes of 
        paragraphs (3), (7), (8), and (9), the term 
        `compensation' shall include amounts treated as 
        participant's compensation under subparagraph (C) or 
        (D) of section 415(c)(3).''.
            (2) Conforming amendments.--
                    (A) Subparagraph (B) of section 404(a)(3) 
                is amended by striking the last sentence 
                thereof.
                    (B) Clause (i) of section 4972(c)(6)(B) is 
                amended by striking ``(within the meaning of 
                section 404(a))'' and inserting ``(within the 
                meaning of section 404(a) and as adjusted under 
                section 404(a)(12))''.
    (c) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 418. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX ROTH 
                    CONTRIBUTIONS.

    (a) In General.--Subpart A of part I of subchapter D of 
chapter 1 (relating to deferred compensation, etc.) is amended 
by inserting after section 402 the following new section:

``SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS ROTH 
                    CONTRIBUTIONS.

    ``(a) General Rule.--If an applicable retirement plan 
includes a qualified Roth contribution program--
            ``(1) any designated Roth contribution made by an 
        employee pursuant to the program shall be treated as an 
        elective deferral for purposes of this chapter, except 
        that such contribution shall not be excludable from 
        gross income, and
            ``(2) such plan (and any arrangement which is part 
        of such plan) shall not be treated as failing to meet 
        any requirement of this chapter solely by reason of 
        including such program.
    ``(b) Qualified Roth Contribution Program.--For purposes of 
this section--
            ``(1) In general.--The term `qualified Roth 
        contribution program' means a program under which an 
        employee may elect to make designated Roth 
        contributions in lieu of all or a portion of elective 
        deferrals the employee is otherwise eligible to make 
        under the applicable retirement plan.
            ``(2) Separate accounting required.--A program 
        shall not be treated as a qualified Roth contribution 
        program unless the applicable retirement plan--
                    ``(A) establishes separate accounts 
                (`designated Roth accounts') for the designated 
                Roth contributions of each employee and any 
                earnings properly allocable to the 
                contributions, and
                    ``(B) maintains separate recordkeeping with 
                respect to each account.
    ``(c) Definitions and Rules Relating to Designated Roth 
Contributions.--For purposes of this section--
            ``(1) Designated Roth contribution.--The term 
        `designated Roth contribution' means any elective 
        deferral which--
                    ``(A) is excludable from gross income of an 
                employee without regard to this section, and
                    ``(B) the employee designates (at such time 
                and in such manner as the Secretary may 
                prescribe) as not being so excludable.
            ``(2) Designation limits.--The amount of elective 
        deferrals which an employee may designate under 
        paragraph (1) shall not exceed the excess (if any) of--
                    ``(A) the maximum amount of elective 
                deferrals excludable from gross income of the 
                employee for the taxable year (without regard 
                to this section), over
                    ``(B) the aggregate amount of elective 
                deferrals of the employee for the taxable year 
                which the employee does not designate under 
                paragraph (1).
            ``(3) Rollover contributions.--
                    ``(A) In general.--A rollover contribution 
                of any payment or distribution from a 
                designated Roth account which is otherwise 
                allowable under this chapter may be made only 
                if the contribution is to--
                            ``(i) another designated Roth 
                        account of the individual from whose 
                        account the payment or distribution was 
                        made, or
                            ``(ii) a Roth IRA of such 
                        individual.
                    ``(B) Coordination with limit.--Any 
                rollover contribution to a designated Roth 
                account under subparagraph (A) shall not be 
                taken into account for purposes of paragraph 
                (1).
    ``(d) Distribution Rules.--For purposes of this title--
            ``(1) Exclusion.--Any qualified distribution from a 
        designated Roth account shall not be includible in 
        gross income.
            ``(2) Qualified distribution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified 
                distribution' has the meaning given such term 
                by section 408A(d)(2)(A) (without regard to 
                clause (iv) thereof).
                    ``(B) Distributions within nonexclusion 
                period.--A payment or distribution from a 
                designated Roth account shall not be treated as 
                a qualified distribution if such payment or 
                distribution is made within the 5-taxable-year 
                period beginning with the earlier of--
                            ``(i) the first taxable year for 
                        which the individual made a designated 
                        Roth contribution to any designated 
                        Roth account established for such 
                        individual under the same applicable 
                        retirement plan, or
                            ``(ii) if a rollover contribution 
                        was made to such designated Roth 
                        account from a designated Roth account 
                        previously established for such 
                        individual under another applicable 
                        retirement plan, the first taxable year 
                        for which the individual made a 
                        designated Roth contribution to such 
                        previously established account.
                    ``(C) Distributions of excess deferrals and 
                contributions and earnings thereon.--The term 
                `qualified distribution' shall not include any 
                distribution of any excess deferral under 
                section 402(g)(2) or any excess contribution 
                under section 401(k)(8), and any income on the 
                excess deferral or contribution.
            ``(3) Treatment of distributions of certain excess 
        deferrals.--Notwithstanding section 72, if any excess 
        deferral under section 402(g)(2) attributable to a 
        designated Roth contribution is not distributed on or 
        before the 1st April 15 following the close of the 
        taxable year in which such excess deferral is made, the 
        amount of such excess deferral shall--
                    ``(A) not be treated as investment in the 
                contract, and
                    ``(B) be included in gross income for the 
                taxable year in which such excess is 
                distributed.
            ``(4) Aggregation rules.--Section 72 shall be 
        applied separately with respect to distributions and 
        payments from a designated Roth account and other 
        distributions and payments from the plan.
    ``(e) Other Definitions.--For purposes of this section--
            ``(1) Applicable retirement plan.--The term 
        `applicable retirement plan' means--
                    ``(A) an employees' trust described in 
                section 401(a) which is exempt from tax under 
                section 501(a), and
                    ``(B) a plan under which amounts are 
                contributed by an individual's employer for an 
                annuity contract described in section 403(b).
            ``(2) Elective deferral.--The term `elective 
        deferral' means any elective deferral described in 
        subparagraph (A) or (C) of section 402(g)(3).''.
    (b) Excess Deferrals.--Section 402(g) (relating to 
limitation on exclusion for elective deferrals) is amended--
            (1) by adding at the end of paragraph (1)(A) (as 
        added by section 201(d)(1)) the following new sentence: 
        ``The preceding sentence shall not apply to the portion 
        of such excess as does not exceed the designated Roth 
        contributions of the individual for the taxable 
        year.''; and
            (2) by inserting ``(or would be included but for 
        the last sentence thereof)'' after ``paragraph (1)'' in 
        paragraph (2)(A).
    (c) Rollovers.--Subparagraph (B) of section 402(c)(8) is 
amended by adding at the end the following:
                ``If any portion of an eligible rollover 
                distribution is attributable to payments or 
                distributions from a designated Roth account 
                (as defined in section 402A), an eligible 
                retirement plan with respect to such portion 
                shall include only another designated Roth 
                account and a Roth IRA.''.
    (d) Reporting Requirements.--
            (1) W-2 information.--Section 6051(a)(8) is amended 
        by inserting ``, including the amount of designated 
        Roth contributions (as defined in section 402A)'' 
        before the comma at the end.
            (2) Information.--Section 6047 is amended by 
        redesignating subsection (f) as subsection (g) and by 
        inserting after subsection (e) the following new 
        subsection:
    ``(f) Designated Roth Contributions.--The Secretary shall 
require the plan administrator of each applicable retirement 
plan (as defined in section 402A) to make such returns and 
reports regarding designated Roth contributions (as defined in 
section 402A) to the Secretary, participants and beneficiaries 
of the plan, and such other persons as the Secretary may 
prescribe.''.
    (e) Conforming Amendments.--
            (1) Section 408A(e) is amended by adding after the 
        first sentence the following new sentence: ``Such term 
        includes a rollover contribution described in section 
        402A(c)(3)(A).''.
            (2) The table of sections for subpart A of part I 
        of subchapter D of chapter 1 is amended by inserting 
        after the item relating to section 402 the following 
        new item:

        ``Sec. 402A. Optional treatment of elective deferrals as Roth 
                  contributions.''.

    (f) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

                Subtitle C--Enhancing Fairness For Women

SEC. 421. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.

    (a) In General.--Section 414 (relating to definitions and 
special rules) is amended by adding at the end the following 
new subsection:
    ``(v) Catch-up Contributions for Individuals Age 50 or 
Over.--
            ``(1) In general.--An applicable employer plan 
        shall not be treated as failing to meet any requirement 
        of this title solely because the plan permits an 
        eligible participant to make additional elective 
        deferrals in any plan year.
            ``(2) Limitation on amount of additional 
        deferrals.--
                    ``(A) In general.--A plan shall not permit 
                additional elective deferrals under paragraph 
                (1) for any year in an amount greater than the 
                lesser of--
                            ``(i) the applicable deferral 
                        amount, or
                            ``(ii) the excess (if any) of--
                                    ``(I) the participant's 
                                compensation for the year, over
                                    ``(II) any other elective 
                                deferrals of the participant 
                                for such year which are made 
                                without regard to this 
                                subsection.
                    ``(B) Applicable deferral amount; cost-of-
                living adjustment.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(i), the applicable 
                        deferral amount shall be the amount 
                        determined in accordance with the 
                        following table:

        ``For taxable years                               The applicable
          beginning in                                  deferral amount:
          calendar year:
              2001............................................   $1,000 
              2002............................................   $2,000 
              2003............................................   $3,000 
              2004............................................   $4,000 
              2005 or thereafter..............................   $5,000.

                            ``(ii) Cost-of-living adjustment.--
                        In the case of a year beginning after 
                        December 31, 2005, the Secretary shall 
                        adjust the $5,000 amount under clause 
                        (i) at the same time and in the same 
                        manner as under section 415(d), except 
                        that the base period taken into account 
                        shall be the calendar quarter beginning 
                        July 1, 2004, and any increase under 
                        this subparagraph which is not a 
                        multiple of $500 shall be rounded to 
                        the next lower multiple of $500.
            ``(3) Treatment of contributions.--In the case of 
        any contribution to a plan under paragraph (1), such 
        contribution shall not, with respect to the year in 
        which the contribution is made--
                    ``(A) be subject to any otherwise 
                applicable limitation contained in section 
                402(g), 402(h)(2), 404(a), 404(h), 
                408(p)(2)(A)(ii), 415, or 457, or
                    ``(B) be taken into account in applying 
                such limitations to other contributions or 
                benefits under such plan or any other such 
                plan.
            ``(4) Application of nondiscrimination rules.--
                    ``(A) In general.--An applicable employer 
                plan shall not be treated as failing to meet 
                the nondiscrimination requirements under 
                section 401(a)(4) with respect to benefits, 
                rights, and features if the plan allows all 
                eligible participants to make the same election 
                with respect to the additional elective 
                deferrals under this subsection.
                    ``(B) Aggregation.--For purposes of 
                subparagraph (A), all plans maintained by 
                employers who are treated as a single employer 
                under subsection (b), (c), (m), or (o) of 
                section 414 shall be treated as 1 plan.
            ``(5) Eligible participant.--For purposes of this 
        subsection, the term `eligible participant' means, with 
        respect to any plan year, a participant in a plan--
                    ``(A) who has attained the age of 50 before 
                the close of the plan year, and
                    ``(B) with respect to whom no other 
                elective deferrals may (without regard to this 
                subsection) be made to the plan for the plan 
                year by reason of the application of any 
                limitation or other restriction described in 
                paragraph (3) or any comparable limitation 
                contained in the terms of the plan.
            ``(6) Other definitions and rules.--For purposes of 
        this subsection--
                    ``(A) Applicable employer plan.--The term 
                `applicable employer plan' means--
                            ``(i) an employees' trust described 
                        in section 401(a) which is exempt from 
                        tax under section 501(a),
                            ``(ii) a plan under which amounts 
                        are contributed by an individual's 
                        employer for an annuity contract 
                        described in section 403(b),
                            ``(iii) an eligible deferred 
                        compensation plan under section 457 of 
                        an eligible employer as defined in 
                        section 457(e)(1)(A), and
                            ``(iv) an arrangement meeting the 
                        requirements of section 408 (k) or (p).
                    ``(B) Elective deferral.--The term 
                `elective deferral' has the meaning given such 
                term by subsection (u)(2)(C).
                    ``(C) Exception for section 457 plans.--
                This subsection shall not apply to an 
                applicable employer plan described in 
                subparagraph (A)(iii) for any year to which 
                section 457(b)(3) applies.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to contributions in taxable years beginning after 
December 31, 2000.

SEC. 422. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED 
                    CONTRIBUTION PLANS.

    (a) Equitable Treatment.--
            (1) In general.--Subparagraph (B) of section 
        415(c)(1) (relating to limitation for defined 
        contribution plans) is amended by striking ``25 
        percent'' and inserting ``100 percent''.
            (2) Application to section 403(b).--Section 403(b) 
        is amended--
                    (A) by striking ``the exclusion allowance 
                for such taxable year'' in paragraph (1) and 
                inserting ``the applicable limit under section 
                415'';
                    (B) by striking paragraph (2); and
                    (C) by inserting ``or any amount received 
                by a former employee after the fifth taxable 
                year following the taxable year in which such 
                employee was terminated'' before the period at 
                the end of the second sentence of paragraph 
                (3).
            (3) Conforming amendments.--
                    (A) Subsection (f) of section 72 is amended 
                by striking ``section 403(b)(2)(D)(iii))'' and 
                inserting ``section 403(b)(2)(D)(iii), as in 
                effect before the enactment of the Retirement 
                Savings and Pension Coverage Act of 2000)''.
                    (B) Section 404(a)(10)(B) is amended by 
                striking ``, the exclusion allowance under 
                section 403(b)(2),''.
                    (C) Section 415(a)(2) is amended by 
                striking ``, and the amount of the contribution 
                for such portion shall reduce the exclusion 
                allowance as provided in section 403(b)(2)''.
                    (D) Section 415(c)(3) is amended by adding 
                at the end the following new subparagraph:
                    ``(E) Annuity contracts.--In the case of an 
                annuity contract described in section 403(b), 
                the term `participant's compensation' means the 
                participant's includible compensation 
                determined under section 403(b)(3).''.
                    (E) Section 415(c) is amended by striking 
                paragraph (4).
                    (F) Section 415(c)(7) is amended to read as 
                follows:
            ``(7) Certain contributions by church plans not 
        treated as exceeding limit.--
                    ``(A) In general.--Notwithstanding any 
                other provision of this subsection, at the 
                election of a participant who is an employee of 
                a church or a convention or association of 
                churches, including an organization described 
                in section 414(e)(3)(B)(ii), contributions and 
                other additions for an annuity contract or 
                retirement income account described in section 
                403(b) with respect to such participant, when 
                expressed as an annual addition to such 
                participant's account, shall be treated as not 
                exceeding the limitation of paragraph (1) if 
                such annual addition is not in excess of 
                $10,000.
                    ``(B) $40,000 aggregate limitation.--The 
                total amount of additions with respect to any 
                participant which may be taken into account for 
                purposes of this subparagraph for all years may 
                not exceed $40,000.
                    ``(C) Annual addition.--For purposes of 
                this paragraph, the term `annual addition' has 
                the meaning given such term by paragraph 
                (2).''.
                    (G) Subparagraph (B) of section 402(g)(7) 
                (as redesignated by section 201(d)(3)(A)) is 
                amended by inserting before the period at the 
                end the following: ``(as in effect before the 
                enactment of the Retirement Savings and Pension 
                Coverage Act of 2000)''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to years beginning after 
        December 31, 2000.
    (b) Special Rules for Sections 403(b) and 408.--
            (1) In general.--Subsection (k) of section 415 is 
        amended by adding at the end the following new 
        paragraph:
            ``(4) Special rules for sections 403(b) and 408.--
        For purposes of this section, any annuity contract 
        described in section 403(b) for the benefit of a 
        participant shall be treated as a defined contribution 
        plan maintained by each employer with respect to which 
        the participant has the control required under 
        subsection (b) or (c) of section 414 (as modified by 
        subsection (h)). For purposes of this section, any 
        contribution by an employer to a simplified employee 
        pension plan for an individual for a taxable year shall 
        be treated as an employer contribution to a defined 
        contribution plan for such individual for such year.''.
            (2) Effective date.--
                    (A) In general.--The amendment made by 
                paragraph (1) shall apply to limitation years 
                beginning after December 31, 1999.
                    (B) Exclusion allowance.--Effective for 
                limitation years beginning in 2000, in the case 
                of any annuity contract described in section 
                403(b) of the Internal Revenue Code of 1986, 
                the amount of the contribution disqualified by 
                reason of section 415(g) of such Code shall 
                reduce the exclusion allowance as provided in 
                section 403(b)(2) of such Code.
            (3) Modification of 403(b) exclusion allowance to 
        conform to 415 modification.--The Secretary of the 
        Treasury shall modify the regulations regarding the 
        exclusion allowance under section 403(b)(2) of the 
        Internal Revenue Code of 1986 to render void the 
        requirement that contributions to a defined benefit 
        pension plan be treated as previously excluded amounts 
        for purposes of the exclusion allowance. For taxable 
        years beginning after December 31, 1999, such 
        regulations shall be applied as if such requirement 
        were void.
    (c) Deferred Compensation Plans of State and Local 
Governments and Tax-Exempt Organizations.--
            (1) In general.--Subparagraph (B) of section 
        457(b)(2) (relating to salary limitation on eligible 
        deferred compensation plans) is amended by striking 
        ``33\1/3\ percent'' and inserting ``100 percent''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to years beginning after 
        December 31, 2000.

SEC. 423. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

    (a) In General.--Section 411(a) (relating to minimum 
vesting standards) is amended--
            (1) in paragraph (2), by striking ``A plan'' and 
        inserting ``Except as provided in paragraph (12), a 
        plan''; and
            (2) by adding at the end the following:
            ``(12) Faster vesting for matching contributions.--
        In the case of matching contributions (as defined in 
        section 401(m)(4)(A)), paragraph (2) shall be applied--
                    ``(A) by substituting `3 years' for `5 
                years' in subparagraph (A), and
                    ``(B) by substituting the following table 
                for the table contained in subparagraph (B):

                                                      The nonforfeitable
        ``Years of service:                             percentage is:  
            2.................................................      20  
            3.................................................      40  
            4.................................................      60  
            5.................................................      80  
            6.................................................   100.''.

    (b) Amendment of ERISA.--Section 203(a) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)) is 
amended--
            (1) in paragraph (2), by striking ``A plan'' and 
        inserting ``Except as provided in paragraph (4), a 
        plan'', and
            (2) by adding at the end the following:
            ``(4) In the case of matching contributions (as 
        defined in section 401(m)(4)(A) of the Internal Revenue 
        Code of 1986), paragraph (2) shall be applied--
                    ``(A) by substituting `3 years' for `5 
                years' in subparagraph (A), and
                    ``(B) by substituting the following table 
                for the table contained in subparagraph (B):

                                                      The nonforfeitable
        ``Years of service:                             percentage is:  
            2.................................................      20  
            3.................................................      40  
            4.................................................      60  
            5.................................................      80  
            6.................................................   100.''.

    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        contributions for plan years beginning after December 
        31, 2000.
            (2) Collective bargaining agreements.--In the case 
        of a plan maintained pursuant to one or more collective 
        bargaining agreements between employee representatives 
        and one or more employers ratified by the date of the 
        enactment of this Act, the amendments made by this 
        section shall not apply to contributions on behalf of 
        employees covered by any such agreement for plan years 
        beginning before the earlier of--
                    (A) the later of--
                            (i) the date on which the last of 
                        such collective bargaining agreements 
                        terminates (determined without regard 
                        to any extension thereof on or after 
                        such date of the enactment); or
                            (ii) January 1, 2001; or
                    (B) January 1, 2005.
            (3) Service required.--With respect to any plan, 
        the amendments made by this section shall not apply to 
        any employee before the date that such employee has 1 
        hour of service under such plan in any plan year to 
        which the amendments made by this section apply.

SEC. 424. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES.

    (a) Simplification and Finalization of Minimum Distribution 
Requirements.--
            (1) In general.--The Secretary of the Treasury 
        shall--
                    (A) simplify and finalize the regulations 
                relating to minimum distribution requirements 
                under sections 401(a)(9), 408(a)(6) and (b)(3), 
                403(b)(10), and 457(d)(2) of the Internal 
                Revenue Code of 1986; and
                    (B) modify such regulations to--
                            (i) reflect current life 
                        expectancy; and
                            (ii) revise the required 
                        distribution methods so that, under 
                        reasonable assumptions, the amount of 
                        the required minimum distribution does 
                        not decrease over a participant's life 
                        expectancy.
            (2) Fresh start.--Notwithstanding subparagraph (D) 
        of section 401(a)(9) of such Code, during the first 
        year that regulations are in effect under this 
        subsection, required distributions for future years may 
        be redetermined to reflect changes under such 
        regulations. Such redetermination shall include the 
        opportunity to choose a new designated beneficiary and 
        to elect a new method of calculating life expectancy.
            (3) Date for regulations.--Not later than December 
        31, 2001, the Secretary shall issue final regulations 
        described in paragraph (1) and such regulations shall 
        apply without regard to whether an individual had 
        previously begun receiving minimum distributions.
    (b) Repeal of Rule Where Distributions Had Begun Before 
Death Occurs.--
            (1) In general.--Subparagraph (B) of section 
        401(a)(9) is amended by striking clause (i) and 
        redesignating clauses (ii), (iii), and (iv) as clauses 
        (i), (ii), and (iii), respectively.
            (2) Conforming changes.--
                    (A) Clause (i) of section 401(a)(9)(B) (as 
                so redesignated) is amended--
                            (i) by striking ``for other cases'' 
                        in the heading; and
                            (ii) by striking ``the distribution 
                        of the employee's interest has begun in 
                        accordance with subparagraph (A)(ii)'' 
                        and inserting ``his entire interest has 
                        been distributed to him''.
                    (B) Clause (ii) of section 401(a)(9)(B) (as 
                so redesignated) is amended by striking 
                ``clause (ii)'' and inserting ``clause (i)''.
                    (C) Clause (iii) of section 401(a)(9)(B) 
                (as so redesignated) is amended--
                            (i) by striking ``clause (iii)(I)'' 
                        and inserting ``clause (ii)(I)'';
                            (ii) by striking ``clause 
                        (iii)(III)'' in subclause (I) and 
                        inserting ``clause (ii)(III)'';
                            (iii) by striking ``the date on 
                        which the employee would have attained 
                        age 70\1/2\,'' in subclause (I) and 
                        inserting ``April 1 of the calendar 
                        year following the calendar year in 
                        which the spouse attains 70\1/2\,''; 
                        and
                            (iv) by striking ``the 
                        distributions to such spouse begin,'' 
                        in subclause (II) and inserting ``his 
                        entire interest has been distributed to 
                        him,''.
            (3) Effective date.--
                    (A) In general.--Except as provided in 
                subparagraph (B), the amendments made by this 
                subsection shall apply to years beginning after 
                December 31, 2000.
                    (B) Distributions to surviving spouse.--
                            (i) In general.--In the case of an 
                        employee described in clause (ii), 
                        distributions to the surviving spouse 
                        of the employee shall not be required 
                        to commence prior to the date on which 
                        such distributions would have been 
                        required to begin under section 
                        401(a)(9)(B) of the Internal Revenue 
                        Code of 1986 (as in effect on the day 
                        before the date of the enactment of 
                        this Act).
                            (ii) Certain employees.--An 
                        employee is described in this clause if 
                        such employee dies before--
                                    (I) the date of the 
                                enactment of this Act, and
                                    (II) the required beginning 
                                date (within the meaning of 
                                section 401(a)(9)(C) of the 
                                Internal Revenue Code of 1986) 
                                of the employee.
    (c) Reduction in Excise Tax.--
            (1) In general.--Subsection (a) of section 4974 is 
        amended by striking ``50 percent'' and inserting ``10 
        percent''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to years beginning after 
        December 31, 2000.

SEC. 425. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 
                    PLAN BENEFITS UPON DIVORCE.

    (a) In General.--Section 414(p)(11) (relating to 
application of rules to governmental and church plans) is 
amended--
            (1) by inserting ``or an eligible deferred 
        compensation plan (within the meaning of section 
        457(b))'' after ``subsection (e))''; and
            (2) in the heading, by striking ``governmental and 
        church plans'' and inserting ``certain other plans''.
    (b) Waiver of Certain Distribution Requirements.--Paragraph 
(10) of section 414(p) is amended by striking ``and section 
409(d)'' and inserting ``section 409(d), and section 457(d)''.
    (c) Tax Treatment of Payments From a Section 457 Plan.--
Subsection (p) of section 414 is amended by redesignating 
paragraph (12) as paragraph (13) and inserting after paragraph 
(11) the following new paragraph:
            ``(12) Tax treatment of payments from a section 457 
        plan.--If a distribution or payment from an eligible 
        deferred compensation plan described in section 457(b) 
        is made pursuant to a qualified domestic relations 
        order, rules similar to the rules of section 
        402(e)(1)(A) shall apply to such distribution or 
        payment.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to transfers, distributions, and payments made 
after December 31, 2000.

SEC. 426. PROVISIONS RELATING TO HARDSHIP DISTRIBUTIONS.

    (a) Safe Harbor Relief.--
            (1) In general.--The Secretary of the Treasury 
        shall revise the regulations relating to hardship 
        distributions under section 401(k)(2)(B)(i)(IV) of the 
        Internal Revenue Code of 1986 to provide that the 
        period an employee is prohibited from making elective 
        and employee contributions in order for a distribution 
        to be deemed necessary to satisfy financial need shall 
        be equal to 6 months.
            (2) Effective date.--The revised regulations under 
        this subsection shall apply to years beginning after 
        December 31, 2000.
    (b) Hardship Distributions Not Treated as Eligible Rollover 
Distributions.--
            (1) Modification of definition of eligible 
        rollover.--Section 402(c)(4)(C) (relating to eligible 
        rollover distribution) is amended by striking 
        ``described in section 401(k)(2)(B)(i)(IV)'' and 
        inserting ``under the terms of the plan''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to distributions made after 
        December 31, 2001, unless a plan administrator elects 
        to apply such amendment to distributions made after 
        December 31, 2000.

SEC. 427. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBUTIONS FOR DOMESTIC OR 
                    SIMILAR WORKERS.

    (a) In General.--Section 4972(c)(6) (relating to exceptions 
to nondeductible contributions), as amended by section 442(b), 
is amended by striking ``or'' at the end of subparagraph (A), 
by striking the period and inserting ``, or'' at the end of 
subparagraph (B), and by inserting after subparagraph (B) the 
following new subparagraph:
                    ``(C) so much of the contributions to a 
                qualified employer plan which are not 
                deductible when contributed solely because such 
                contributions are not made in connection with a 
                trade or business of the employer.''.
    (b) Exclusion of Certain Contributions.--Section 
4972(c)(6), as amended by subsection (a), is amended by adding 
at the end the following new sentence: ``Subparagraph (C) shall 
not apply to contributions made on behalf of the employer or a 
member of the employer's family (as defined in section 
447(e)(1)).''.
    (c) No Inference.--Nothing in the amendments made by this 
section shall be construed to infer the proper treatment of 
nondeductible contributions under the laws in effect before 
such amendments.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

          Subtitle D--Increasing Portability For Participants

SEC. 431. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

    (a) Rollovers From and to Section 457 Plans.--
            (1) Rollovers from section 457 plans.--
                    (A) In general.--Section 457(e) (relating 
                to other definitions and special rules) is 
                amended by adding at the end the following:
            ``(16) Rollover amounts.--
                    ``(A) General rule.--In the case of an 
                eligible deferred compensation plan established 
                and maintained by an employer described in 
                subsection (e)(1)(A), if--
                            ``(i) any portion of the balance to 
                        the credit of an employee in such plan 
                        is paid to such employee in an eligible 
                        rollover distribution (within the 
                        meaning of section 402(c)(4) without 
                        regard to subparagraph (C) thereof),
                            ``(ii) the employee transfers any 
                        portion of the property such employee 
                        receives in such distribution to an 
                        eligible retirement plan described in 
                        section 402(c)(8)(B), and
                            ``(iii) in the case of a 
                        distribution of property other than 
                        money, the amount so transferred 
                        consists of the property distributed,
                then such distribution (to the extent so 
                transferred) shall not be includible in gross 
                income for the taxable year in which paid.
                    ``(B) Certain rules made applicable.--The 
                rules of paragraphs (2) through (7) and (9) of 
                section 402(c) and section 402(f) shall apply 
                for purposes of subparagraph (A).
                    ``(C) Reporting.--Rollovers under this 
                paragraph shall be reported to the Secretary in 
                the same manner as rollovers from qualified 
                retirement plans (as defined in section 
                4974(c)).''.
                    (B) Deferral limit determined without 
                regard to rollover amounts.--Section 457(b)(2) 
                (defining eligible deferred compensation plan) 
                is amended by inserting ``(other than rollover 
                amounts)'' after ``taxable year''.
                    (C) Direct rollover.--Paragraph (1) of 
                section 457(d) is amended by striking ``and'' 
                at the end of subparagraph (A), by striking the 
                period at the end of subparagraph (B) and 
                inserting ``, and'', and by inserting after 
                subparagraph (B) the following:
                    ``(C) in the case of a plan maintained by 
                an employer described in subsection (e)(1)(A), 
                the plan meets requirements similar to the 
                requirements of section 401(a)(31).
        Any amount transferred in a direct trustee-to-trustee 
        transfer in accordance with section 401(a)(31) shall 
        not be includible in gross income for the taxable year 
        of transfer.''.
                    (D) Withholding.--
                            (i) Paragraph (12) of section 
                        3401(a) is amended by adding at the end 
                        the following:
                    ``(E) under or to an eligible deferred 
                compensation plan which, at the time of such 
                payment, is a plan described in section 457(b) 
                maintained by an employer described in section 
                457(e)(1)(A), or''.
                            (ii) Paragraph (3) of section 
                        3405(c) is amended to read as follows:
            ``(3) Eligible rollover distribution.--For purposes 
        of this subsection, the term `eligible rollover 
        distribution' has the meaning given such term by 
        section 402(f)(2)(A).''.
                            (iii) Liability for withholding.--
                        Subparagraph (B) of section 3405(d)(2) 
                        is amended by striking ``or'' at the 
                        end of clause (ii), by striking the 
                        period at the end of clause (iii) and 
                        inserting ``, or'', and by adding at 
                        the end the following:
                            ``(iv) section 457(b) and which is 
                        maintained by an eligible employer 
                        described in section 457(e)(1)(A).''.
            (2) Rollovers to section 457 plans.--
                    (A) In general.--Section 402(c)(8)(B) 
                (defining eligible retirement plan) is amended 
                by striking ``and'' at the end of clause (iii), 
                by striking the period at the end of clause 
                (iv) and inserting ``, and'', and by inserting 
                after clause (iv) the following new clause:
                            ``(v) an eligible deferred 
                        compensation plan described in section 
                        457(b) which is maintained by an 
                        eligible employer described in section 
                        457(e)(1)(A).''.
                    (B) Separate accounting.--Section 402(c) is 
                amended by adding at the end the following new 
                paragraph:
            ``(11) Separate accounting.--Unless a plan 
        described in clause (v) of paragraph (8)(B) agrees to 
        separately account for amounts rolled into such plan 
        from eligible retirement plans not described in such 
        clause, the plan described in such clause may not 
        accept transfers or rollovers from such retirement 
        plans.''.
                    (C) 10 percent additional tax.--Subsection 
                (t) of section 72 (relating to 10-percent 
                additional tax on early distributions from 
                qualified retirement plans) is amended by 
                adding at the end the following new paragraph:
            ``(9) Special rule for rollovers to section 457 
        plans.--For purposes of this subsection, a distribution 
        from an eligible deferred compensation plan (as defined 
        in section 457(b)) of an eligible employer described in 
        section 457(e)(1)(A) shall be treated as a distribution 
        from a qualified retirement plan described in 
        4974(c)(1) to the extent that such distribution is 
        attributable to an amount transferred to an eligible 
        deferred compensation plan from a qualified retirement 
        plan (as defined in section 4974(c)).''.
    (b) Allowance of Rollovers From and to 403(b) Plans.--
            (1) Rollovers from section 403(b) plans.--Section 
        403(b)(8)(A)(ii) (relating to rollover amounts) is 
        amended by striking ``such distribution'' and all that 
        follows and inserting ``such distribution to an 
        eligible retirement plan described in section 
        402(c)(8)(B), and''.
            (2) Rollovers to section 403(b) plans.--Section 
        402(c)(8)(B) (defining eligible retirement plan), as 
        amended by subsection (a), is amended by striking 
        ``and'' at the end of clause (iv), by striking the 
        period at the end of clause (v) and inserting ``, 
        and'', and by inserting after clause (v) the following 
        new clause:
                            ``(vi) an annuity contract 
                        described in section 403(b).''.
    (c) Expanded Explanation to Recipients of Rollover 
Distributions.--Paragraph (1) of section 402(f) (relating to 
written explanation to recipients of distributions eligible for 
rollover treatment) is amended by striking ``and'' at the end 
of subparagraph (C), by striking the period at the end of 
subparagraph (D) and inserting ``, and'', and by adding at the 
end the following new subparagraph:
                    ``(E) of the provisions under which 
                distributions from the eligible retirement plan 
                receiving the distribution may be subject to 
                restrictions and tax consequences which are 
                different from those applicable to 
                distributions from the plan making such 
                distribution.''.
    (d) Spousal Rollovers.--Section 402(c)(9) (relating to 
rollover where spouse receives distribution after death of 
employee) is amended by striking ``; except that'' and all that 
follows up to the end period.
    (e) Conforming Amendments.--
            (1) Section 72(o)(4) is amended by striking ``and 
        408(d)(3)'' and inserting ``403(b)(8), 408(d)(3), and 
        457(e)(16)''.
            (2) Section 219(d)(2) is amended by striking ``or 
        408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
            (3) Section 401(a)(31)(B) is amended by striking 
        ``and 403(a)(4)'' and inserting ``, 403(a)(4), 
        403(b)(8), and 457(e)(16)''.
            (4) Subparagraph (A) of section 402(f)(2) is 
        amended by striking ``or paragraph (4) of section 
        403(a)'' and inserting ``, paragraph (4) of section 
        403(a), subparagraph (A) of section 403(b)(8), or 
        subparagraph (A) of section 457(e)(16)''.
            (5) Paragraph (1) of section 402(f) is amended by 
        striking ``from an eligible retirement plan''.
            (6) Subparagraphs (A) and (B) of section 402(f)(1) 
        are amended by striking ``another eligible retirement 
        plan'' and inserting ``an eligible retirement plan''.
            (7) Subparagraph (B) of section 403(b)(8) is 
        amended to read as follows:
                    ``(B) Certain rules made applicable.--The 
                rules of paragraphs (2) through (7) and (9) of 
                section 402(c) and section 402(f) shall apply 
                for purposes of subparagraph (A), except that 
                section 402(f) shall be applied to the payor in 
                lieu of the plan administrator.''.
            (8) Section 408(a)(1) is amended by striking ``or 
        403(b)(8),'' and inserting ``403(b)(8), or 
        457(e)(16)''.
            (9) Subparagraphs (A) and (B) of section 415(b)(2) 
        are each amended by striking ``and 408(d)(3)'' and 
        inserting ``403(b)(8), 408(d)(3), and 457(e)(16)''.
            (10) Section 415(c)(2) is amended by striking ``and 
        408(d)(3)'' and inserting ``408(d)(3), and 
        457(e)(16)''.
            (11) Section 4973(b)(1)(A) is amended by striking 
        ``or 408(d)(3)'' and inserting ``408(d)(3), or 
        457(e)(16)''.
    (f) Effective Date; Special Rules.--
            (1) Effective date.--Except as provided in 
        paragraph (2), the amendments made by this section 
        shall apply to distributions after December 31, 2000.
            (2) Reasonable notice.--No penalty shall be imposed 
        on a plan for the failure to provide the information 
        required by the amendment made by subsection (c) with 
        respect to any distribution made before January 1, 
        2002, if the administrator of such plan makes a 
        reasonable attempt to comply with such requirement.
            (3) Special rule.--Notwithstanding any other 
        provision of law, subsections (h)(3) and (h)(5) of 
        section 1122 of the Tax Reform Act of 1986 shall not 
        apply to any distribution from an eligible retirement 
        plan (as defined in clause (iii) or (iv) of section 
        402(c)(8)(B) of the Internal Revenue Code of 1986) on 
        behalf of an individual if there was a rollover to such 
        plan on behalf of such individual which is permitted 
        solely by reason of any amendment made by this section.

SEC. 432. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

    (a) In General.--Subparagraph (A) of section 408(d)(3) 
(relating to rollover amounts) is amended by adding ``or'' at 
the end of clause (i), by striking clauses (ii) and (iii), and 
by adding at the end the following:
                            ``(ii) the entire amount received 
                        (including money and any other 
                        property) is paid into an eligible 
                        retirement plan for the benefit of such 
                        individual not later than the 60th day 
                        after the date on which the payment or 
                        distribution is received, except that 
                        the maximum amount which may be paid 
                        into such plan may not exceed the 
                        portion of the amount received which is 
                        includible in gross income (determined 
                        without regard to this paragraph).
                For purposes of clause (ii), the term `eligible 
                retirement plan' means an eligible retirement 
                plan described in clause (iii), (iv), (v), or 
                (vi) of section 402(c)(8)(B).''.
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 403(b) is amended by 
        striking ``section 408(d)(3)(A)(iii)'' and inserting 
        ``section 408(d)(3)(A)(ii)''.
            (2) Clause (i) of section 408(d)(3)(D) is amended 
        by striking ``(i), (ii), or (iii)'' and inserting ``(i) 
        or (ii)''.
            (3) Subparagraph (G) of section 408(d)(3) is 
        amended to read as follows:
                    ``(G) Simple retirement accounts.--In the 
                case of any payment or distribution out of a 
                simple retirement account (as defined in 
                subsection (p)) to which section 72(t)(6) 
                applies, this paragraph shall not apply unless 
                such payment or distribution is paid into 
                another simple retirement account.''.
    (c) Effective Date; Special Rule.--
            (1) Effective date.--The amendments made by this 
        section shall apply to distributions after December 31, 
        2000.
            (2) Special rule.--Notwithstanding any other 
        provision of law, subsections (h)(3) and (h)(5) of 
        section 1122 of the Tax Reform Act of 1986 shall not 
        apply to any distribution from an eligible retirement 
        plan (as defined in clause (iii) or (iv) of section 
        402(c)(8)(B) of the Internal Revenue Code of 1986) on 
        behalf of an individual if there was a rollover to such 
        plan on behalf of such individual which is permitted 
        solely by reason of the amendments made by this 
        section.

SEC. 433. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

    (a) Rollovers From Exempt Trusts.--Paragraph (2) of section 
402(c) (relating to maximum amount which may be rolled over) is 
amended by adding at the end the following: ``The preceding 
sentence shall not apply to such distribution to the extent--
                    ``(A) such portion is transferred in a 
                direct trustee-to-trustee transfer to a 
                qualified trust which is part of a plan which 
                is a defined contribution plan and which agrees 
                to separately account for amounts so 
                transferred, including separately accounting 
                for the portion of such distribution which is 
                includible in gross income and the portion of 
                such distribution which is not so includible, 
                or
                    ``(B) such portion is transferred to an 
                eligible retirement plan described in clause 
                (i) or (ii) of paragraph (8)(B).''.
    (b) Optional Direct Transfer of Eligible Rollover 
Distributions.--Subparagraph (B) of section 401(a)(31) 
(relating to limitation) is amended by adding at the end the 
following: ``The preceding sentence shall not apply to such 
distribution if the plan to which such distribution is 
transferred--
                            ``(i) agrees to separately account 
                        for amounts so transferred, including 
                        separately accounting for the portion 
                        of such distribution which is 
                        includible in gross income and the 
                        portion of such distribution which is 
                        not so includible, or
                            ``(ii) is an eligible retirement 
                        plan described in clause (i) or (ii) of 
                        section 402(c)(8)(B).''.
    (c) Rules for Applying Section 72 to IRAs.--Paragraph (3) 
of section 408(d) (relating to special rules for applying 
section 72) is amended by inserting at the end the following:
                    ``(H) Application of section 72.--
                            ``(i) In general.--If--
                                    ``(I) a distribution is 
                                made from an individual 
                                retirement plan, and
                                    ``(II) a rollover 
                                contribution is made to an 
                                eligible retirement plan 
                                described in section 
                                402(c)(8)(B)(iii), (iv), (v), 
                                or (vi) with respect to all or 
                                part of such distribution,
                        then, notwithstanding paragraph (2), 
                        the rules of clause (ii) shall apply 
                        for purposes of applying section 72.
                            ``(ii) Applicable rules.--In the 
                        case of a distribution described in 
                        clause (i)--
                                    ``(I) section 72 shall be 
                                applied separately to such 
                                distribution,
                                    ``(II) notwithstanding the 
                                pro rata allocation of income 
                                on, and investment in, the 
                                contract to distributions under 
                                section 72, the portion of such 
                                distribution rolled over to an 
                                eligible retirement plan 
                                described in clause (i) shall 
                                be treated as from income on 
                                the contract (to the extent of 
                                the aggregate income on the 
                                contract from all individual 
                                retirement plans of the 
                                distributee), and
                                    ``(III) appropriate 
                                adjustments shall be made in 
                                applying section 72 to other 
                                distributions in such taxable 
                                year and subsequent taxable 
                                years.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to distributions made after December 31, 2001.

SEC. 434. HARDSHIP EXCEPTION TO 60-DAY RULE.

    (a) Exempt Trusts.--Paragraph (3) of section 402(c) 
(relating to transfer must be made within 60 days of receipt) 
is amended to read as follows:
            ``(3) Transfer must be made within 60 days of 
        receipt.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), paragraph (1) shall not apply 
                to any transfer of a distribution made after 
                the 60th day following the day on which the 
                distributee received the property distributed.
                    ``(B) Hardship exception.--The Secretary 
                may waive the 60-day requirement under 
                subparagraph (A) where the failure to waive 
                such requirement would be against equity or 
                good conscience, including casualty, disaster, 
                or other events beyond the reasonable control 
                of the individual subject to such 
                requirement.''.
    (b) IRAs.--Paragraph (3) of section 408(d) (relating to 
rollover contributions), as amended by section 433, is amended 
by adding after subparagraph (H) the following new 
subparagraph:
                    ``(I) Waiver of 60-day requirement.--The 
                Secretary may waive the 60-day requirement 
                under subparagraphs (A) and (D) where the 
                failure to waive such requirement would be 
                against equity or good conscience, including 
                casualty, disaster, or other events beyond the 
                reasonable control of the individual subject to 
                such requirement.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to distributions after December 31, 2000.

SEC. 435. TREATMENT OF FORMS OF DISTRIBUTION.

    (a) Plan Transfers.--
            (1) Amendment of internal revenue code.--Paragraph 
        (6) of section 411(d) (relating to accrued benefit not 
        to be decreased by amendment) is amended by adding at 
        the end the following:
                    ``(D) Plan transfers.--
                            ``(i) In general.--A defined 
                        contribution plan (in this subparagraph 
                        referred to as the `transferee plan') 
                        shall not be treated as failing to meet 
                        the requirements of this subsection 
                        merely because the transferee plan does 
                        not provide some or all of the forms of 
                        distribution previously available under 
                        another defined contribution plan (in 
                        this subparagraph referred to as the 
                        `transferor plan') to the extent that--
                                    ``(I) the forms of 
                                distribution previously 
                                available under the transferor 
                                plan applied to the account of 
                                a participant or beneficiary 
                                under the transferor plan that 
                                was transferred from the 
                                transferor plan to the 
                                transferee plan pursuant to a 
                                direct transfer rather than 
                                pursuant to a distribution from 
                                the transferor plan,
                                    ``(II) the terms of both 
                                the transferor plan and the 
                                transferee plan authorize the 
                                transfer described in subclause 
                                (I),
                                    ``(III) the transfer 
                                described in subclause (I) was 
                                made pursuant to a voluntary 
                                election by the participant or 
                                beneficiary whose account was 
                                transferred to the transferee 
                                plan,
                                    ``(IV) the election 
                                described in subclause (III) 
                                was made after the participant 
                                or beneficiary received a 
                                notice describing the 
                                consequences of making the 
                                election, and
                                    ``(V) the transferee plan 
                                allows the participant or 
                                beneficiary described in 
                                subclause (III) to receive any 
                                distribution to which the 
                                participant or beneficiary is 
                                entitled under the transferee 
                                plan in the form of a single 
                                sum distribution.
                            ``(ii) Special rule for mergers; 
                        etc.--Clause (i) shall apply to plan 
                        mergers and other transactions having 
                        the effect of a direct transfer, 
                        including consolidations of benefits 
                        attributable to different employers 
                        within a multiple employer plan.
                    ``(E) Elimination of form of 
                distribution.--Except to the extent provided in 
                regulations, a defined contribution plan shall 
                not be treated as failing to meet the 
                requirements of this section merely because of 
                the elimination of a form of distribution 
                previously available thereunder. This 
                subparagraph shall not apply to the elimination 
                of a form of distribution with respect to any 
                participant unless--
                            ``(i) a single sum payment is 
                        available to such participant at the 
                        same time or times as the form of 
                        distribution being eliminated, and
                            ``(ii) such single sum payment is 
                        based on the same or greater portion of 
                        the participant's account as the form 
                        of distribution being eliminated.''.
            (2) Amendment of erisa.--Section 204(g) of the 
        Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1054(g)) is amended by adding at the end the 
        following:
    ``(4)(A) A defined contribution plan (in this subparagraph 
referred to as the `transferee plan') shall not be treated as 
failing to meet the requirements of this subsection merely 
because the transferee plan does not provide some or all of the 
forms of distribution previously available under another 
defined contribution plan (in this subparagraph referred to as 
the `transferor plan') to the extent that--
            ``(i) the forms of distribution previously 
        available under the transferor plan applied to the 
        account of a participant or beneficiary under the 
        transferor plan that was transferred from the 
        transferor plan to the transferee plan pursuant to a 
        direct transfer rather than pursuant to a distribution 
        from the transferor plan;
            ``(ii) the terms of both the transferor plan and 
        the transferee plan authorize the transfer described in 
        clause (i);
            ``(iii) the transfer described in clause (i) was 
        made pursuant to a voluntary election by the 
        participant or beneficiary whose account was 
        transferred to the transferee plan;
            ``(iv) the election described in clause (iii) was 
        made after the participant or beneficiary received a 
        notice describing the consequences of making the 
        election; and
            ``(v) the transferee plan allows the participant or 
        beneficiary described in clause (iii) to receive any 
        distribution to which the participant or beneficiary is 
        entitled under the transferee plan in the form of a 
        single sum distribution.
    ``(B) Subparagraph (A) shall apply to plan mergers and 
other transactions having the effect of a direct transfer, 
including consolidations of benefits attributable to different 
employers within a multiple employer plan.
    ``(5) Except to the extent provided in regulations 
promulgated by the Secretary of the Treasury, a defined 
contribution plan shall not be treated as failing to meet the 
requirements of this subsection merely because of the 
elimination of a form of distribution previously available 
thereunder. This paragraph shall not apply to the elimination 
of a form of distribution with respect to any participant 
unless--
            ``(A) a single sum payment is available to such 
        participant at the same time or times as the form of 
        distribution being eliminated; and
            ``(B) such single sum payment is based on the same 
        or greater portion of the participant's account as the 
        form of distribution being eliminated.''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to years beginning after 
        December 31, 2000.
    (b) Regulations.--
            (1) Amendment of internal revenue code.--Paragraph 
        (6)(B) of section 411(d) (relating to accrued benefit 
        not to be decreased by amendment) is amended by 
        inserting after the second sentence the following new 
        sentence: ``The Secretary shall by regulations provide 
        that this subparagraph shall not apply to any plan 
        amendment which reduces or eliminates benefits or 
        subsidies which create significant burdens or 
        complexities for the plan and plan participants and 
        does not adversely affect the rights of any participant 
        in a more than de minimis manner.''.
            (2) Amendment of erisa.--Section 204(g)(2) of the 
        Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1054(g)(2)) is amended by inserting before the 
        last sentence the following new sentence: ``The 
        Secretary of the Treasury shall by regulations provide 
        that this paragraph shall not apply to any plan 
        amendment which reduces or eliminates benefits or 
        subsidies which create significant burdens or 
        complexities for the plan and plan participants and 
        does not adversely affect the rights of any participant 
        in a more than de minimis manner.''.
            (3) Secretary directed.--Not later than December 
        31, 2002, the Secretary of the Treasury is directed to 
        issue regulations under section 411(d)(6) of the 
        Internal Revenue Code of 1986 and section 204(g) of the 
        Employee Retirement Income Security Act of 1974, 
        including the regulations required by the amendment 
        made by this subsection. Such regulations shall apply 
        to plan years beginning after December 31, 2002, or 
        such earlier date as is specified by the Secretary of 
        the Treasury.

SEC. 436. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

    (a) Modification of Same Desk Exception.--
            (1) Section 401(k).--
                    (A) Section 401(k)(2)(B)(i)(I) (relating to 
                qualified cash or deferred arrangements) is 
                amended by striking ``separation from service'' 
                and inserting ``severance from employment''.
                    (B) Subparagraph (A) of section 401(k)(10) 
                (relating to distributions upon termination of 
                plan or disposition of assets or subsidiary) is 
                amended to read as follows:
                    ``(A) In general.--An event described in 
                this subparagraph is the termination of the 
                plan without establishment or maintenance of 
                another defined contribution plan (other than 
                an employee stock ownership plan as defined in 
                section 4975(e)(7)).''.
                    (C) Section 401(k)(10) is amended--
                            (i) in subparagraph (B)--
                                    (I) by striking ``An 
                                event'' in clause (i) and 
                                inserting ``A termination''; 
                                and
                                    (II) by striking ``the 
                                event'' in clause (i) and 
                                inserting ``the termination'';
                            (ii) by striking subparagraph (C); 
                        and
                            (iii) by striking ``or disposition 
                        of assets or subsidiary'' in the 
                        heading.
            (2) Section 403(b).--
                    (A) Paragraphs (7)(A)(ii) and (11)(A) of 
                section 403(b) are each amended by striking 
                ``separates from service'' and inserting ``has 
                a severance from employment''.
                    (B) The heading for paragraph (11) of 
                section 403(b) is amended by striking 
                ``separation from service'' and inserting 
                ``severance from employment''.
            (3) Section 457.--Clause (ii) of section 
        457(d)(1)(A) is amended by striking ``is separated from 
        service'' and inserting ``has a severance from 
        employment''.
    (b) Effective Date.--The amendments made by this section 
shall apply to distributions after December 31, 2000.

SEC. 437. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT 
                    PLANS.

    (a) 403(b) Plans.--Subsection (b) of section 403 is amended 
by adding at the end the following new paragraph:
            ``(13) Trustee-to-trustee transfers to purchase 
        permissive service credit.--No amount shall be 
        includible in gross income by reason of a direct 
        trustee-to-trustee transfer to a defined benefit 
        governmental plan (as defined in section 414(d)) if 
        such transfer is--
                    ``(A) for the purchase of permissive 
                service credit (as defined in section 
                415(n)(3)(A)) under such plan, or
                    ``(B) a repayment to which section 415 does 
                not apply by reason of subsection (k)(3) 
                thereof.''.
    (b) 457 Plans.--Subsection (e) of section 457 is amended by 
adding after paragraph (16) the following new paragraph:
            ``(17) Trustee-to-trustee transfers to purchase 
        permissive service credit.--No amount shall be 
        includible in gross income by reason of a direct 
        trustee-to-trustee transfer to a defined benefit 
        governmental plan (as defined in section 414(d)) if 
        such transfer is--
                    ``(A) for the purchase of permissive 
                service credit (as defined in section 
                415(n)(3)(A)) under such plan, or
                    ``(B) a repayment to which section 415 does 
                not apply by reason of subsection (k)(3) 
                thereof.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to trustee-to-trustee transfers after December 31, 
2000.

SEC. 438. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT 
                    AMOUNTS.

    (a) Qualified Plans.--
            (1) Amendment of internal revenue code.--Section 
        411(a)(11) (relating to restrictions on certain 
        mandatory distributions) is amended by adding at the 
        end the following:
                    ``(D) Special rule for rollover 
                contributions.--A plan shall not fail to meet 
                the requirements of this paragraph if, under 
                the terms of the plan, the present value of the 
                nonforfeitable accrued benefit is determined 
                without regard to that portion of such benefit 
                which is attributable to rollover contributions 
                (and earnings allocable thereto). For purposes 
                of this subparagraph, the term `rollover 
                contributions' means any rollover contribution 
                under sections 402(c), 403(a)(4), 403(b)(8), 
                408(d)(3)(A)(ii), and 457(e)(16).''.
            (2) Amendment of erisa.--Section 203(e) of the 
        Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1053(c)) is amended by adding at the end the 
        following:
    ``(4) A plan shall not fail to meet the requirements of 
this subsection if, under the terms of the plan, the present 
value of the nonforfeitable accrued benefit is determined 
without regard to that portion of such benefit which is 
attributable to rollover contributions (and earnings allocable 
thereto). For purposes of this subparagraph, the term `rollover 
contributions' means any rollover contribution under sections 
402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) 
of the Internal Revenue Code of 1986.''.
    (b) Eligible Deferred Compensation Plans.--Clause (i) of 
section 457(e)(9)(A) is amended by striking ``such amount'' and 
inserting ``the portion of such amount which is not 
attributable to rollover contributions (as defined in section 
411(a)(11)(D))''.
    (c) Effective Date.--The amendments made by this section 
shall apply to distributions after December 31, 2000.

SEC. 439. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 
                    457 PLANS.

    (a) Minimum Distribution Requirements.--Paragraph (2) of 
section 457(d) (relating to distribution requirements) is 
amended to read as follows:
            ``(2) Minimum distribution requirements.--A plan 
        meets the minimum distribution requirements of this 
        paragraph if such plan meets the requirements of 
        section 401(a)(9).''.
    (b) Inclusion in Gross Income.--
            (1) Year of inclusion.--Subsection (a) of section 
        457 (relating to year of inclusion in gross income) is 
        amended to read as follows:
    ``(a) Year of Inclusion in Gross Income.--
            ``(1) In general.--Any amount of compensation 
        deferred under an eligible deferred compensation plan, 
        and any income attributable to the amounts so deferred, 
        shall be includible in gross income only for the 
        taxable year in which such compensation or other 
        income--
                    ``(A) is paid to the participant or other 
                beneficiary, in the case of a plan of an 
                eligible employer described in subsection 
                (e)(1)(A), and
                    ``(B) is paid or otherwise made available 
                to the participant or other beneficiary, in the 
                case of a plan of an eligible employer 
                described in subsection (e)(1)(B).
            ``(2) Special rule for rollover amounts.--To the 
        extent provided in section 72(t)(9), section 72(t) 
        shall apply to any amount includible in gross income 
        under this subsection.''.
            (2) Conforming amendments.--
                    (A) So much of paragraph (9) of section 
                457(e) as precedes subparagraph (A) is amended 
                to read as follows:
            ``(9) Benefits of tax exempt organization plans not 
        treated as made available by reason of certain 
        elections, etc.--In the case of an eligible deferred 
        compensation plan of an employer described in 
        subsection (e)(1)(B)--''.
                    (B) Section 457(d) is amended by adding at 
                the end the following new paragraph:
            ``(3) Special rule for government plan.--An 
        eligible deferred compensation plan of an employer 
        described in subsection (e)(1)(A) shall not be treated 
        as failing to meet the requirements of this subsection 
        solely by reason of making a distribution described in 
        subsection (e)(9)(A).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to distributions after December 31, 2000.

       Subtitle E--Strengthening Pension Security and Enforcement

SEC. 441. REPEAL OF 155 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.

    (a) Amendments of Internal Revenue Code.--Section 412(c)(7) 
(relating to full-funding limitation) is amended--
            (1) by striking ``the applicable percentage'' in 
        subparagraph (A)(i)(I) and inserting ``in the case of 
        plan years beginning before January 1, 2004, the 
        applicable percentage''; and
            (2) by amending subparagraph (F) to read as 
        follows:
                    ``(F) Applicable percentage.--For purposes 
                of subparagraph (A)(i)(I), the applicable 
                percentage shall be determined in accordance 
                with the following table:

``In the case of any plan                                 The applicable
year beginning in--                                      percentage is--
            2001..............................................     160  
            2002..............................................     165  
            2003..............................................   170.''.

    (b) Amendment of ERISA.--Section 302(c)(7) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) 
is amended--
            (1) by striking ``the applicable percentage'' in 
        subparagraph (A)(i)(I) and inserting ``in the case of 
        plan years beginning before January 1, 2004, the 
        applicable percentage''; and
            (2) by amending subparagraph (F) to read as 
        follows:
                    ``(F) Applicable percentage.--For purposes 
                of subparagraph (A)(i)(I), the applicable 
                percentage shall be determined in accordance 
                with the following table:

``In the case of any plan                                 The applicable
year beginning in--                                      percentage is--
            2001..............................................     160  
            2002..............................................     165  
            2003..............................................   170.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to plan years beginning after December 31, 2000.

SEC. 442. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO 
                    ALL DEFINED BENEFIT PLANS.

    (a) In General.--Subparagraph (D) of section 404(a)(1) 
(relating to special rule in case of certain plans) is amended 
to read as follows:
                    ``(D) Special rule in case of certain 
                plans.--
                            ``(i) In general.--In the case of 
                        any defined benefit plan, except as 
                        provided in regulations, the maximum 
                        amount deductible under the limitations 
                        of this paragraph shall not be less 
                        than the unfunded termination liability 
                        (determined as if the proposed 
                        termination date referred to in section 
                        4041(b)(2)(A)(i)(II) of the Employee 
                        Retirement Income Security Act of 1974 
                        were the last day of the plan year).
                            ``(ii) Plans with less than 100 
                        participants.--For purposes of this 
                        subparagraph, in the case of a plan 
                        which has less than 100 participants 
                        for the plan year, termination 
                        liability shall not include the 
                        liability attributable to benefit 
                        increases for highly compensated 
                        employees (as defined in section 
                        414(q)) resulting from a plan amendment 
                        which is made or becomes effective, 
                        whichever is later, within the last 2 
                        years before the termination date.
                            ``(iii) Rule for determining number 
                        of participants.--For purposes of 
                        determining whether a plan has more 
                        than 100 participants, all defined 
                        benefit plans maintained by the same 
                        employer (or any member of such 
                        employer's controlled group (within the 
                        meaning of section 412(l)(8)(C))) shall 
                        be treated as one plan, but only 
                        employees of such member or employer 
                        shall be taken into account.
                            ``(iv) Plans maintained by 
                        professional service employers.--Clause 
                        (i) shall not apply to a plan described 
                        in section 4021(b)(13) of the Employee 
                        Retirement Income Security Act of 
                        1974.''.
    (b) Conforming Amendment.--Paragraph (6) of section 4972(c) 
is amended to read as follows:
            ``(6) Exceptions.--In determining the amount of 
        nondeductible contributions for any taxable year, there 
        shall not be taken into account so much of the 
        contributions to one or more defined contribution plans 
        which are not deductible when contributed solely 
        because of section 404(a)(7) as does not exceed the 
        greater of--
                    ``(A) the amount of contributions not in 
                excess of 6 percent of compensation (within the 
                meaning of section 404(a)) paid or accrued 
                (during the taxable year for which the 
                contributions were made) to beneficiaries under 
                the plans, or
                    ``(B) the sum of--
                            ``(i) the amount of contributions 
                        described in section 401(m)(4)(A), plus
                            ``(ii) the amount of contributions 
                        described in section 402(g)(3)(A).
        For purposes of this paragraph, the deductible limits 
        under section 404(a)(7) shall first be applied to 
        amounts contributed to a defined benefit plan and then 
        to amounts described in subparagraph (B).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to plan years beginning after December 31, 2000.

SEC. 443. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

    (a) In General.--Subsection (c) of section 4972 (relating 
to nondeductible contributions) is amended by adding at the end 
the following new paragraph:
            ``(7) Defined benefit plan exception.--In 
        determining the amount of nondeductible contributions 
        for any taxable year, an employer may elect for such 
        year not to take into account any contributions to a 
        defined benefit plan except to the extent that such 
        contributions exceed the full-funding limitation (as 
        defined in section 412(c)(7), determined without regard 
        to subparagraph (A)(i)(I) thereof). For purposes of 
        this paragraph, the deductible limits under section 
        404(a)(7) shall first be applied to amounts contributed 
        to defined contribution plans and then to amounts 
        described in this paragraph. If an employer makes an 
        election under this paragraph for a taxable year, 
        paragraph (6) shall not apply to such employer for such 
        taxable year.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 444. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT 
                    PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT 
                    ACCRUALS.

    (a) Amendment of Internal Revenue Code.--
            (1) In general.--Chapter 43 (relating to qualified 
        pension, etc., plans) is amended by adding at the end 
        the following new section:

``SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO 
                    SATISFY NOTICE REQUIREMENTS.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on 
the failure of any applicable pension plan to meet the 
requirements of subsection (e) with respect to any applicable 
individual.
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any 
        applicable individual shall be $100 for each day in the 
        noncompliance period with respect to such failure.
            ``(2) Noncompliance period.--For purposes of this 
        section, the term `noncompliance period' means, with 
        respect to any failure, the period beginning on the 
        date the failure first occurs and ending on the date 
        the notice to which the failure relates is provided or 
        the failure is otherwise corrected.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Tax not to apply where failure not discovered 
        and reasonable diligence exercised.--No tax shall be 
        imposed by subsection (a) on any failure during any 
        period for which it is established to the satisfaction 
        of the Secretary that any person subject to liability 
        for the tax under subsection (d) did not know that the 
        failure existed and exercised reasonable diligence to 
        meet the requirements of subsection (e).
            ``(2) Tax not to apply to failures corrected within 
        30 days.--No tax shall be imposed by subsection (a) on 
        any failure if--
                    ``(A) any person subject to liability for 
                the tax under subsection (d) exercised 
                reasonable diligence to meet the requirements 
                of subsection (e), and
                    ``(B) such person provides the notice 
                described in subsection (e) during the 30-day 
                period beginning on the first date such person 
                knew, or exercising reasonable diligence would 
                have known, that such failure existed.
            ``(3) Overall limitation for unintentional 
        failures.--
                    ``(A) In general.--If the person subject to 
                liability for tax under subsection (d) 
                exercised reasonable diligence to meet the 
                requirements of subsection (e), the tax imposed 
                by subsection (a) for failures during the 
                taxable year of the employer (or, in the case 
                of a multiemployer plan, the taxable year of 
                the trust forming part of the plan) shall not 
                exceed $500,000. For purposes of the preceding 
                sentence, all multiemployer plans of which the 
                same trust forms a part shall be treated as 1 
                plan.
                    ``(B) Taxable years in the case of certain 
                controlled groups.--For purposes of this 
                paragraph, if all persons who are treated as a 
                single employer for purposes of this section do 
                not have the same taxable year, the taxable 
                years taken into account shall be determined 
                under principles similar to the principles of 
                section 1561.
            ``(4) Waiver by secretary.--In the case of a 
        failure which is due to reasonable cause and not to 
        willful neglect, the Secretary may waive part or all of 
        the tax imposed by subsection (a) to the extent that 
        the payment of such tax would be excessive or otherwise 
        inequitable relative to the failure involved.
    ``(d) Liability for Tax.--The following shall be liable for 
the tax imposed by subsection (a):
            ``(1) In the case of a plan other than a 
        multiemployer plan, the employer.
            ``(2) In the case of a multiemployer plan, the 
        plan.
    ``(e) Notice Requirements for Plans Significantly Reducing 
Benefit Accruals.--
            ``(1) In general.--If an applicable pension plan is 
        amended to provide for a significant reduction in the 
        rate of future benefit accrual, the plan administrator 
        shall provide written notice to each applicable 
        individual (and to each employee organization 
        representing applicable individuals).
            ``(2) Notice.--The notice required by paragraph (1) 
        shall be written in a manner calculated to be 
        understood by the average plan participant and shall 
        provide sufficient information (as determined in 
        accordance with regulations prescribed by the 
        Secretary) to allow applicable individuals to 
        understand the effect of the plan amendment. The 
        Secretary may provide a simplified form of notice for, 
        or exempt from any notice requirement, a plan--
                    ``(A) which has fewer than 100 participants 
                who have accrued a benefit under the plan, or
                    ``(B) which offers participants the option 
                to choose between the new benefit formula and 
                the old benefit formula.
            ``(3) Timing of notice.--Except as provided in 
        regulations, the notice required by paragraph (1) shall 
        be provided within a reasonable time before the 
        effective date of the plan amendment.
            ``(4) Designees.--Any notice under paragraph (1) 
        may be provided to a person designated, in writing, by 
        the person to which it would otherwise be provided.
            ``(5) Notice before adoption of amendment.--A plan 
        shall not be treated as failing to meet the 
        requirements of paragraph (1) merely because notice is 
        provided before the adoption of the plan amendment if 
        no material modification of the amendment occurs before 
        the amendment is adopted.
    ``(f) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Applicable individual.--The term `applicable 
        individual' means, with respect to any plan amendment--
                    ``(A) each participant in the plan, and
                    ``(B) any beneficiary who is an alternate 
                payee (within the meaning of section 414(p)(8)) 
                under an applicable qualified domestic 
                relations order (within the meaning of section 
                414(p)(1)(A)),
                whose rate of future benefit accrual under the 
                plan may reasonably be expected to be 
                significantly reduced by such plan amendment.
            ``(2) Applicable pension plan.--The term 
        `applicable pension plan' means--
                    ``(A) any defined benefit plan, or
                    ``(B) an individual account plan which is 
                subject to the funding standards of section 
                412.
        Such term shall not include a governmental plan (within 
        the meaning of section 414(d)) or a church plan (within 
        the meaning of section 414(e)) with respect to which 
        the election provided by section 410(d) has not been 
        made.
            ``(3) Early retirement.--A plan amendment which 
        eliminates or significantly reduces any early 
        retirement benefit or retirement-type subsidy (within 
        the meaning of section 411(d)(6)(B)(i)) shall be 
        treated as having the effect of significantly reducing 
        the rate of future benefit accrual.
    ``(g) New Technologies.--The Secretary may by regulations 
allow any notice under paragraph (1) or (2) of subsection (e) 
to be provided by using new technologies.''
            (2) Clerical amendment.--The table of sections for 
        chapter 43 is amended by adding at the end the 
        following new item:

         ``Sec. 4980F. Failure of applicable plans reducing benefit 
                  accruals to satisfy notice requirements.''.

    (b) Amendment of ERISA.--Section 204(h) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1054(h)) is 
amended by adding at the end the following new paragraphs:
    ``(3)(A) An applicable pension plan to which paragraph (1) 
applies shall not be treated as meeting the requirements of 
such paragraph unless, in addition to any notice required to be 
provided to an individual or organization under such paragraph, 
the plan administrator provides the notice described in 
subparagraph (B) to each applicable individual (and to each 
employee organization representing applicable individuals).
    ``(B) The notice required by subparagraph (A) shall be 
written in a manner calculated to be understood by the average 
plan participant and shall provide sufficient information (as 
determined in accordance with regulations prescribed by the 
Secretary of the Treasury) to allow applicable individuals to 
understand the effect of the plan amendment. The Secretary of 
the Treasury may provide a simplified form of notice for, or 
exempt from any notice requirement, a plan--
            ``(i) which has fewer than 100 participants who 
        have accrued a benefit under the plan, or
            ``(ii) which offers participants the option to 
        choose between the new benefit formula and the old 
        benefit formula.
    ``(C) Except as provided in regulations prescribed by the 
Secretary of the Treasury, the notice required by subparagraph 
(A) shall be provided within a reasonable time before the 
effective date of the plan amendment.
    ``(D) Any notice under subparagraph (A) may be provided to 
a person designated, in writing, by the person to which it 
would otherwise be provided.
    ``(E) A plan shall not be treated as failing to meet the 
requirements of subparagraph (A) merely because notice is 
provided before the adoption of the plan amendment if no 
material modification of the amendment occurs before the 
amendment is adopted.
    ``(F) The Secretary of the Treasury may by regulations 
allow any notice under subparagraph (A) or (B) to be provided 
by using new technologies.
    ``(4) For purposes of paragraph (3)--
            ``(A) The term `applicable individual' means, with 
        respect to any plan amendment--
                    ``(i) each participant in the plan; and
                    ``(ii) any beneficiary who is an alternate 
                payee (within the meaning of section 
                206(d)(3)(K)) under an applicable qualified 
                domestic relations order (within the meaning of 
                section 206(d)(3)(B)(i)),
        whose rate of future benefit accrual under the plan may 
        reasonably be expected to be significantly reduced by 
        such plan amendment.
            ``(B) The term `applicable pension plan' means--
                    ``(i) any defined benefit plan; or
                    ``(ii) an individual account plan which is 
                subject to the funding standards of section 412 
                of the Internal Revenue Code of 1986.
            ``(C) A plan amendment which eliminates or 
        significantly reduces any early retirement benefit or 
        retirement-type subsidy (within the meaning of 
        subsection (g)(2)(A)) shall be treated as having the 
        effect of significantly reducing the rate of future 
        benefit accrual.''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to plan amendments taking effect on 
        or after the date of the enactment of this Act.
            (2) Transition.--Until such time as the Secretary 
        of the Treasury issues regulations under sections 
        4980F(e)(2) and (3) of the Internal Revenue Code of 
        1986 and section 204(h)(3) of the Employee Retirement 
        Income Security Act of 1974 (as added by the amendments 
        made by this section), a plan shall be treated as 
        meeting the requirements of such sections if it makes a 
        good faith effort to comply with such requirements.
            (3) Special notice rules.--
                    (A) In general.--The period for providing 
                any notice required by the amendments made by 
                this section shall not end before the date 
                which is 3 months after the date of the 
                enactment of this Act.
                    (B) Reasonable notice.--The amendments made 
                by this section shall not apply to any plan 
                amendment taking effect on or after the date of 
                the enactment of this Act if, before October 
                25, 2000, notice was provided to participants 
                and beneficiaries adversely affected by the 
                plan amendment (or their representatives) which 
                was reasonably expected to notify them of the 
                nature and effective date of the plan 
                amendment.
    (d) Study.--The Secretary of the Treasury shall prepare a 
report on the effects of conversions of traditional defined 
benefit plans to cash balance or hybrid formula plans. Such 
study shall examine the effect of such conversions on longer 
service participants, including the incidence and effects of 
``wear away'' provisions under which participants earn no 
additional benefits for a period of time after the conversion. 
As soon as practicable, but not later than 60 days after the 
date of the enactment of this Act, the Secretary shall submit 
such report, together with recommendations thereon, to the 
Committee on Ways and Means and the Committee on Education and 
the Workforce of the House of Representatives and the Committee 
on Finance and the Committee on Health, Education, Labor, and 
Pensions of the Senate.

SEC. 445. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

    (a) Compensation Limit.--
            (1) In general.--Paragraph (11) of section 415(b) 
        (relating to limitation for defined benefit plans) is 
        amended to read as follows:
            ``(11) Special limitation rule for governmental and 
        multiemployer plans.--In the case of a governmental 
        plan (as defined in section 414(d)) or a multiemployer 
        plan (as defined in section 414(f)), subparagraph (B) 
        of paragraph (1) shall not apply.''.
            (2) Conforming amendment.--Section 415(b)(7) 
        (relating to benefits under certain collectively 
        bargained plans) is amended by inserting ``(other than 
        a multiemployer plan)'' after ``defined benefit plan'' 
        in the matter preceding subparagraph (A).
    (b) Combining and Aggregation of Plans.--
            (1) Combining of plans.--Subsection (f) of section 
        415 (relating to combining of plans) is amended by 
        adding at the end the following:
            ``(3) Exception for multiemployer plans.--
        Notwithstanding paragraph (1) and subsection (g), a 
        multiemployer plan (as defined in section 414(f)) shall 
        not be combined or aggregated--
                    ``(A) with any other plan which is not a 
                multiemployer plan for purposes of applying 
                subsection (b)(1)(B) to such other plan, or
                    ``(B) with any other multiemployer plan for 
                purposes of applying the limitations 
                established in this section.''.
            (2) Conforming amendment for aggregation of 
        plans.--Subsection (g) of section 415 (relating to 
        aggregation of plans) is amended by striking ``The 
        Secretary'' and inserting ``Except as provided in 
        subsection (f)(3), the Secretary''.
    (c) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 446. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBUTIONS TO 401(K) 
                    PLANS.

    (a) In General.--Section 1524(b) of the Taxpayer Relief Act 
of 1997 is amended to read as follows:
    ``(b) Effective Date.--
            ``(1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        elective deferrals for plan years beginning after 
        December 31, 1998.
            ``(2) Nonapplication to previously acquired 
        property.--The amendments made by this section shall 
        not apply to any elective deferral which is invested in 
        assets consisting of qualifying employer securities, 
        qualifying employer real property, or both, if such 
        assets were acquired before January 1, 1999.''.
    (b) Effective Date.--The amendment made by this section 
shall apply as if included in the provision of the Taxpayer 
Relief Act of 1997 to which it relates.

SEC. 447. PERIODIC PENSION BENEFITS STATEMENTS.

    (a) In General.--Section 105(a) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1025 (a)) is amended to 
read as follows:
    ``(a)(1) Except as provided in paragraph (2)--
            ``(A) the administrator of an individual account 
        plan shall furnish a pension benefit statement--
                    ``(i) to a plan participant at least once 
                annually, and
                    ``(ii) to a plan beneficiary upon written 
                request, and
            ``(B) the administrator of a defined benefit plan 
        shall furnish a pension benefit statement--
                    ``(i) at least once every 3 years to each 
                participant with a nonforfeitable accrued 
                benefit who is employed by the employer 
                maintaining the plan at the time the statement 
                is furnished to participants, and
                    ``(ii) to a plan participant or plan 
                beneficiary of the plan upon written request.
    ``(2) Notwithstanding paragraph (1), the administrator of a 
plan to which more than 1 unaffiliated employer is required to 
contribute shall only be required to furnish a pension benefit 
statement under paragraph (1) upon the written request of a 
participant or beneficiary of the plan.
    ``(3) A pension benefit statement under paragraph (1)--
            ``(A) shall indicate, on the basis of the latest 
        available information--
                    ``(i) the total benefits accrued, and
                    ``(ii) the nonforfeitable pension benefits, 
                if any, which have accrued, or the earliest 
                date on which benefits will become 
                nonforfeitable,
            ``(B) shall be written in a manner calculated to be 
        understood by the average plan participant, and
            ``(C) may be provided in written, electronic, 
        telephonic, or other appropriate form.
    ``(4)(A) In the case of a defined benefit plan, the 
requirements of paragraph (1)(B)(i) shall be treated as met 
with respect to a participant if the administrator provides the 
participant at least once each year with notice of the 
availability of the pension benefit statement and the ways in 
which the participant may obtain such statement. Such notice 
shall be provided in written, electronic, telephonic, or other 
appropriate form, and may be included with other communications 
to the participant if done in a manner reasonably designed to 
attract the attention of the participant.
    ``(B) The Secretary may provide that years in which no 
employee or former employee benefits (within the meaning of 
section 410(b) of the Internal Revenue Code of 1986) under the 
plan need not be taken into account in determining the 3-year 
period under paragraph (1)(B)(i).''.
    (b) Conforming Amendments.--
            (1) Section 105 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1025) is amended by 
        striking subsection (d).
            (2) Section 105(b) of such Act (29 U.S.C. 1025(b)) 
        is amended to read as follows:
    ``(b) In no case shall a participant or beneficiary of a 
plan be entitled to more than one statement described in 
subsection (a)(1)(A) or (a)(1)(B)(ii), whichever is applicable, 
in any 12-month period.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to plan years beginning after December 31, 2001.

SEC. 448. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION ESOP.

    (a) In General.--Section 409 (relating to qualifications 
for tax credit employee stock ownership plans) is amended by 
redesignating subsection (p) as subsection (q) and by inserting 
after subsection (o) the following new subsection:
    ``(p) Prohibited Allocations of Securities in an S 
Corporation.--
            ``(1) In general.--An employee stock ownership plan 
        holding employer securities consisting of stock in an S 
        corporation shall provide that no portion of the assets 
        of the plan attributable to (or allocable in lieu of) 
        such employer securities may, during a nonallocation 
        year, accrue (or be allocated directly or indirectly 
        under any plan of the employer meeting the requirements 
        of section 401(a)) for the benefit of any disqualified 
        person.
            ``(2) Failure to meet requirements.--
                    ``(A) In general.--If a plan fails to meet 
                the requirements of paragraph (1), the plan 
                shall be treated as having distributed to any 
                disqualified person the amount allocated to the 
                account of such person in violation of 
                paragraph (1) at the time of such allocation.
                    ``(B) Cross reference.--

          ``For excise tax relating to violations of paragraph (1) and 
        ownership of synthetic equity, see section 4979A.

            ``(3) Nonallocation year.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `nonallocation 
                year' means any plan year of an employee stock 
                ownership plan if, at any time during such plan 
                year--
                            ``(i) such plan holds employer 
                        securities consisting of stock in an S 
                        corporation, and
                            ``(ii) disqualified persons own at 
                        least 50 percent of the number of 
                        shares of stock in the S corporation.
                    ``(B) Attribution rules.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The rules of 
                        section 318(a) shall apply for purposes 
                        of determining ownership, except that--
                                    ``(I) in applying paragraph 
                                (1) thereof, the members of an 
                                individual's family shall 
                                include members of the family 
                                described in paragraph (4)(D), 
                                and
                                    ``(II) paragraph (4) 
                                thereof shall not apply.
                            ``(ii) Deemed-owned shares.--
                        Notwithstanding the employee trust 
                        exception in section 318(a)(2)(B)(i), 
                        an individual shall be treated as 
                        owning deemed-owned shares of the 
                        individual.
                Solely for purposes of applying paragraph (5), 
                this subparagraph shall be applied after the 
                attribution rules of paragraph (5) have been 
                applied.
            ``(4) Disqualified person.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `disqualified 
                person' means any person if--
                            ``(i) the aggregate number of 
                        deemed-owned shares of such person and 
                        the members of such person's family is 
                        at least 20 percent of the number of 
                        deemed-owned shares of stock in the S 
                        corporation, or
                            ``(ii) in the case of a person not 
                        described in clause (i), the number of 
                        deemed-owned shares of such person is 
                        at least 10 percent of the number of 
                        deemed-owned shares of stock in such 
                        corporation.
                    ``(B) Treatment of family members.--In the 
                case of a disqualified person described in 
                subparagraph (A)(i), any member of such 
                person's family with deemed-owned shares shall 
                be treated as a disqualified person if not 
                otherwise treated as a disqualified person 
                under subparagraph (A).
                    ``(C) Deemed-owned shares.--
                            ``(i) In general.--The term 
                        `deemed-owned shares' means, with 
                        respect to any person--
                                    ``(I) the stock in the S 
                                corporation constituting 
                                employer securities of an 
                                employee stock ownership plan 
                                which is allocated to such 
                                person under the plan, and
                                    ``(II) such person's share 
                                of the stock in such 
                                corporation which is held by 
                                such plan but which is not 
                                allocated under the plan to 
                                participants.
                            ``(ii) Person's share of 
                        unallocated stock.--For purposes of 
                        clause (i)(II), a person's share of 
                        unallocated S corporation stock held by 
                        such plan is the amount of the 
                        unallocated stock which would be 
                        allocated to such person if the 
                        unallocated stock were allocated to all 
                        participants in the same proportions as 
                        the most recent stock allocation under 
                        the plan.
                    ``(D) Member of family.--For purposes of 
                this paragraph, the term `member of the family' 
                means, with respect to any individual--
                            ``(i) the spouse of the individual,
                            ``(ii) an ancestor or lineal 
                        descendant of the individual or the 
                        individual's spouse,
                            ``(iii) a brother or sister of the 
                        individual or the individual's spouse 
                        and any lineal descendant of the 
                        brother or sister, and
                            ``(iv) the spouse of any individual 
                        described in clause (ii) or (iii).
                A spouse of an individual who is legally 
                separated from such individual under a decree 
                of divorce or separate maintenance shall not be 
                treated as such individual's spouse for 
                purposes of this subparagraph.
            ``(5) Treatment of synthetic equity.--For purposes 
        of paragraphs (3) and (4), in the case of a person who 
        owns synthetic equity in the S corporation, except to 
        the extent provided in regulations, the shares of stock 
        in such corporation on which such synthetic equity is 
        based shall be treated as outstanding stock in such 
        corporation and deemed-owned shares of such person if 
        such treatment of synthetic equity of 1 or more such 
        persons results in--
                    ``(A) the treatment of any person as a 
                disqualified person, or
                    ``(B) the treatment of any year as a 
                nonallocation year.
        For purposes of this paragraph, synthetic equity shall 
        be treated as owned by a person in the same manner as 
        stock is treated as owned by a person under the rules 
        of paragraphs (2) and (3) of section 318(a). If, 
        without regard to this paragraph, a person is treated 
        as a disqualified person or a year is treated as a 
        nonallocation year, this paragraph shall not be 
        construed to result in the person or year not being so 
        treated.
            ``(6) Definitions.--For purposes of this 
        subsection--
                    ``(A) Employee stock ownership plan.--The 
                term `employee stock ownership plan' has the 
                meaning given such term by section 4975(e)(7).
                    ``(B) Employer securities.--The term 
                `employer security' has the meaning given such 
                term by section 409(l).
                    ``(C) Synthetic equity.--The term 
                `synthetic equity' means any stock option, 
                warrant, restricted stock, deferred issuance 
                stock right, or similar interest or right that 
                gives the holder the right to acquire or 
                receive stock of the S corporation in the 
                future. Except to the extent provided in 
                regulations, synthetic equity also includes a 
                stock appreciation right, phantom stock unit, 
                or similar right to a future cash payment based 
                on the value of such stock or appreciation in 
                such value.
            ``(7) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary to carry out the 
        purposes of this subsection.''.
    (b) Coordination With Section 4975(e)(7).--The last 
sentence of section 4975(e)(7) (defining employee stock 
ownership plan) is amended by inserting ``, section 409(p),'' 
after ``409(n)''.
    (c) Excise Tax.--
            (1) Application of tax.--Subsection (a) of section 
        4979A (relating to tax on certain prohibited 
        allocations of employer securities) is amended--
                    (A) by striking ``or'' at the end of 
                paragraph (1); and
                    (B) by striking all that follows paragraph 
                (2) and inserting the following:
            ``(3) there is any allocation of employer 
        securities which violates the provisions of section 
        409(p), or a nonallocation year described in subsection 
        (e)(2)(C) with respect to an employee stock ownership 
        plan, or
            ``(4) any synthetic equity is owned by a 
        disqualified person in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership 
equal to 50 percent of the amount involved.''.
            (2) Liability.--Section 4979A(c) (defining 
        liability for tax) is amended to read as follows:
    ``(c) Liability for Tax.--The tax imposed by this section 
shall be paid--
            ``(1) in the case of an allocation referred to in 
        paragraph (1) or (2) of subsection (a), by--
                    ``(A) the employer sponsoring such plan, or
                    ``(B) the eligible worker-owned 
                cooperative,
        which made the written statement described in section 
        664(g)(1)(E) or in section 1042(b)(3)(B) (as the case 
        may be), and
            ``(2) in the case of an allocation or ownership 
        referred to in paragraph (3) or (4) of subsection (a), 
        by the S corporation the stock in which was so 
        allocated or owned.''.
            (3) Definitions.--Section 4979A(e) (relating to 
        definitions) is amended to read as follows:
    ``(e) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Definitions.--Except as provided in paragraph 
        (2), terms used in this section have the same 
        respective meanings as when used in sections 409 and 
        4978.
            ``(2) Special rules relating to tax imposed by 
        reason of paragraph (3) or (4) of subsection (a).--
                    ``(A) Prohibited allocations.--The amount 
                involved with respect to any tax imposed by 
                reason of subsection (a)(3) is the amount 
                allocated to the account of any person in 
                violation of section 409(p)(1).
                    ``(B) Synthetic equity.--The amount 
                involved with respect to any tax imposed by 
                reason of subsection (a)(4) is the value of the 
                shares on which the synthetic equity is based.
                    ``(C) Special rule during first 
                nonallocation year.--For purposes of 
                subparagraph (A), the amount involved for the 
                first nonallocation year of any employee stock 
                ownership plan shall be determined by taking 
                into account the total value of all the deemed-
                owned shares of all disqualified persons with 
                respect to such plan.
                    ``(D) Statute of limitations.--The 
                statutory period for the assessment of any tax 
                imposed by this section by reason of paragraph 
                (3) or (4) of subsection (a) shall not expire 
                before the date which is 3 years from the later 
                of--
                            ``(i) the allocation or ownership 
                        referred to in such paragraph giving 
                        rise to such tax, or
                            ``(ii) the date on which the 
                        Secretary is notified of such 
                        allocation or ownership.''.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to plan years beginning after 
        December 31, 2001.
            (2) Exception for certain plans.--In the case of 
        any--
                    (A) employee stock ownership plan 
                established after July 11, 2000; or
                    (B) employee stock ownership plan 
                established on or before such date if employer 
                securities held by the plan consist of stock in 
                a corporation with respect to which an election 
                under section 1362(a) of the Internal Revenue 
                Code of 1986 is not in effect on such date,
        the amendments made by this section shall apply to plan 
        years ending after July 11, 2000.

                Subtitle F--Reducing Regulatory Burdens

SEC. 451. MODIFICATION OF TIMING OF PLAN VALUATIONS.

    (a) In General.--Paragraph (9) of section 412(c) (relating 
to annual valuation) is amended to read as follows:
            ``(9) Annual valuation.--
                    ``(A) In general.--For purposes of this 
                section, a determination of experience gains 
                and losses and a valuation of the plan's 
                liability shall be made not less frequently 
                than once every year, except that such 
                determination shall be made more frequently to 
                the extent required in particular cases under 
                regulations prescribed by the Secretary.
                    ``(B) Valuation date.--
                            ``(i) Current year.--Except as 
                        provided in clause (ii), the valuation 
                        referred to in subparagraph (A) shall 
                        be made as of a date within the plan 
                        year to which the valuation refers or 
                        within one month prior to the beginning 
                        of such year.
                            ``(ii) Election to use prior year 
                        valuation.--The valuation referred to 
                        in subparagraph (A) may be made as of a 
                        date within the plan year prior to the 
                        year to which the valuation refers if--
                                    ``(I) an election is in 
                                effect under this clause with 
                                respect to the plan, and
                                    ``(II) as of such date, the 
                                value of the assets of the plan 
                                are not less than 125 percent 
                                of the plan's current liability 
                                (as defined in paragraph 
                                (7)(B)).
                            ``(iii) Adjustments.--Information 
                        under clause (ii) shall, in accordance 
                        with regulations, be actuarially 
                        adjusted to reflect significant 
                        differences in participants.
                            ``(iv) Election.--An election under 
                        clause (ii), once made, shall be 
                        irrevocable without the consent of the 
                        Secretary.''.
    (b) Amendment of ERISA.--Paragraph (9) of section 302(c) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1053(c)) is amended--
            (1) by inserting ``(A)'' after ``(9)''; and
            (2) by adding at the end the following:
    ``(B)(i) Except as provided in clause (ii), the valuation 
referred to in subparagraph (A) shall be made as of a date 
within the plan year to which the valuation refers or within 
one month prior to the beginning of such year.
    ``(ii) The valuation referred to in subparagraph (A) may be 
made as of a date within the plan year prior to the year to 
which the valuation refers if--
            ``(I) an election is in effect under this clause 
        with respect to the plan; and
            ``(II) as of such date, the value of the assets of 
        the plan are not less than 125 percent of the plan's 
        current liability (as defined in paragraph (7)(B)).
    ``(iii) Information under clause (ii) shall, in accordance 
with regulations, be actuarially adjusted to reflect 
significant differences in participants.
    ``(iv) An election under clause (ii), once made, shall be 
irrevocable without the consent of the Secretary of the 
Treasury.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to plan years beginning after December 31, 2000.

SEC. 452. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND 
                    DEDUCTION.

    (a) In General.--Section 404(k)(2)(A) (defining applicable 
dividends) is amended by striking ``or'' at the end of clause 
(ii), by redesignating clause (iii) as clause (iv), and by 
inserting after clause (ii) the following new clause:
                            ``(iii) is, at the election of such 
                        participants or their beneficiaries--
                                    ``(I) payable as provided 
                                in clause (i) or (ii), or
                                    ``(II) paid to the plan and 
                                reinvested in qualifying 
                                employer securities, or''.
    (b) Standard for Disallowance.--Section 404(k)(5)(A) 
(relating to disallowance of deduction) is amended by inserting 
``avoidance or'' before ``evasion''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 453. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY 
                    COMPENSATED EMPLOYEES.

    (a) In General.--Paragraph (4) of section 1114(c) of the 
Tax Reform Act of 1986 is hereby repealed.
    (b) Effective Date.--The repeal made by subsection (a) 
shall apply to plan years beginning after December 31, 2000.

SEC. 454. EMPLOYEES OF TAX-EXEMPT ENTITIES.

    (a) In General.--The Secretary of the Treasury shall modify 
Treasury Regulations section 1.410(b)-6(g) to provide that 
employees of an organization described in section 
403(b)(1)(A)(i) of the Internal Revenue Code of 1986 who are 
eligible to make contributions under section 403(b) of such 
Code pursuant to a salary reduction agreement may be treated as 
excludable with respect to a plan under section 401(k) or (m) 
of such Code that is provided under the same general 
arrangement as a plan under such section 401(k), if--
            (1) no employee of an organization described in 
        section 403(b)(1)(A)(i) of such Code is eligible to 
        participate in such section 401(k) plan or section 
        401(m) plan; and
            (2) 95 percent of the employees who are not 
        employees of an organization described in section 
        403(b)(1)(A)(i) of such Code are eligible to 
        participate in such plan under such section 401(k) or 
        (m).
    (b) Effective Date.--The modification required by 
subsection (a) shall apply as of the same date set forth in 
section 1426(b) of the Small Business Job Protection Act of 
1996.

SEC. 455. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT 
                    ADVICE.

    (a) In General.--Subsection (a) of section 132 (relating to 
exclusion from gross income) is amended by striking ``or'' at 
the end of paragraph (5), by striking the period at the end of 
paragraph (6) and inserting ``, or'', and by adding at the end 
the following new paragraph:
            ``(7) qualified retirement planning services.''.
    (b) Qualified Retirement Planning Services Defined.--
Section 132 is amended by redesignating subsection (m) as 
subsection (n) and by inserting after subsection (l) the 
following:
    ``(m) Qualified Retirement Planning Services.--
            ``(1) In general.--For purposes of this section, 
        the term `qualified retirement planning services' means 
        any retirement planning advice or information provided 
        to an employee and his spouse by an employer 
        maintaining a qualified employer plan.
            ``(2) Nondiscrimination rule.--Subsection (a)(7) 
        shall apply in the case of highly compensated employees 
        only if such services are available on substantially 
        the same terms to each member of the group of employees 
        normally provided education and information regarding 
        the employer's qualified employer plan.
            ``(3) Qualified employer plan.--For purposes of 
        this subsection, the term `qualified employer plan' 
        means a plan, contract, pension, or account described 
        in section 219(g)(5).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 456. REPORTING SIMPLIFICATION.

    (a) Simplified Annual Filing Requirement for Owners and 
Their Spouses.--
            (1) In general.--The Secretary of the Treasury 
        shall modify the requirements for filing annual returns 
        with respect to one-participant retirement plans to 
        ensure that such plans with assets of $250,000 or less 
        as of the close of the plan year need not file a return 
        for that year.
            (2) One-participant retirement plan defined.--For 
        purposes of this subsection, the term ``one-participant 
        retirement plan'' means a retirement plan that--
                    (A) on the first day of the plan year--
                            (i) covered only the employer (and 
                        the employer's spouse) and the employer 
                        owned the entire business (whether or 
                        not incorporated); or
                            (ii) covered only one or more 
                        partners (and their spouses) in a 
                        business partnership (including 
                        partners in an S or C corporation);
                    (B) meets the minimum coverage requirements 
                of section 410(b) of the Internal Revenue Code 
                of 1986 without being combined with any other 
                plan of the business that covers the employees 
                of the business;
                    (C) does not provide benefits to anyone 
                except the employer (and the employer's spouse) 
                or the partners (and their spouses);
                    (D) does not cover a business that is a 
                member of an affiliated service group, a 
                controlled group of corporations, or a group of 
                businesses under common control; and
                    (E) does not cover a business that leases 
                employees.
            (3) Other definitions.--Terms used in paragraph (2) 
        which are also used in section 414 of the Internal 
        Revenue Code of 1986 shall have the respective meanings 
        given such terms by such section.
    (b) Simplified Annual Filing Requirement for Plans With 
Fewer Than 25 Employees.--In the case of plan years beginning 
after December 31, 2001, the Secretary of the Treasury shall 
provide for the filing of a simplified annual return for any 
retirement plan which covers less than 25 employees on the 
first day of a plan year and meets the requirements described 
in subparagraphs (B), (D), and (E) of subsection (a)(2).
    (c) Effective Date.--The provisions of this section shall 
take effect on January 1, 2001.

SEC. 457. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

    The Secretary of the Treasury shall continue to update and 
improve the Employee Plans Compliance Resolution System (or any 
successor program) giving special attention to--
            (1) increasing the awareness and knowledge of small 
        employers concerning the availability and use of the 
        program;
            (2) taking into account special concerns and 
        circumstances that small employers face with respect to 
        compliance and correction of compliance failures;
            (3) extending the duration of the self-correction 
        period under the Administrative Policy Regarding Self-
        Correction for significant compliance failures;
            (4) expanding the availability to correct 
        insignificant compliance failures under the 
        Administrative Policy Regarding Self-Correction during 
        audit; and
            (5) assuring that any tax, penalty, or sanction 
        that is imposed by reason of a compliance failure is 
        not excessive and bears a reasonable relationship to 
        the nature, extent, and severity of the failure.

SEC. 458. REPEAL OF THE MULTIPLE USE TEST.

    (a) In General.--Paragraph (9) of section 401(m) is amended 
to read as follows:
            ``(9) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary to carry out the 
        purposes of this subsection and subsection (k), 
        including regulations permitting appropriate 
        aggregation of plans and contributions.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 459. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF 
                    BUSINESS RULES.

    (a) Nondiscrimination.--
            (1) In general.--The Secretary of the Treasury 
        shall, by regulation, provide that a plan shall be 
        deemed to satisfy the requirements of section 401(a)(4) 
        of the Internal Revenue Code of 1986 if such plan 
        satisfies the facts and circumstances test under 
        section 401(a)(4) of such Code, as in effect before 
        January 1, 1994, but only if--
                    (A) the plan satisfies conditions 
                prescribed by the Secretary to appropriately 
                limit the availability of such test; and
                    (B) the plan is submitted to the Secretary 
                for a determination of whether it satisfies 
                such test.
        Subparagraph (B) shall only apply to the extent 
        provided by the Secretary.
            (2) Effective dates.--
                    (A) Regulations.--The regulation required 
                by paragraph (1) shall apply to years beginning 
                after December 31, 2002.
                    (B) Conditions of availability.--Any 
                condition of availability prescribed by the 
                Secretary under paragraph (1)(A) shall not 
                apply before the first year beginning not less 
                than 120 days after the date on which such 
                condition is prescribed.
    (b) Coverage Test.--
            (1) In general.--Section 410(b)(1) (relating to 
        minimum coverage requirements) is amended by adding at 
        the end the following:
                    ``(D) In the case that the plan fails to 
                meet the requirements of subparagraphs (A), (B) 
                and (C), the plan--
                            ``(i) satisfies subparagraph (B), 
                        as in effect immediately before the 
                        enactment of the Tax Reform Act of 
                        1986,
                            ``(ii) is submitted to the 
                        Secretary for a determination of 
                        whether it satisfies the requirement 
                        described in clause (i), and
                            ``(iii) satisfies conditions 
                        prescribed by the Secretary by 
                        regulation that appropriately limit the 
                        availability of this subparagraph.
                Clause (ii) shall apply only to the extent 
                provided by the Secretary.''.
            (2) Effective dates.--
                    (A) In general.--The amendment made by 
                paragraph (1) shall apply to years beginning 
                after December 31, 2002.
                    (B) Conditions of availability.--Any 
                condition of availability prescribed by the 
                Secretary under regulations prescribed by the 
                Secretary under section 410(b)(1)(D) of the 
                Internal Revenue Code of 1986 shall not apply 
                before the first year beginning not less than 
                120 days after the date on which such condition 
                is prescribed.
    (c) Line of Business Rules.--The Secretary of the Treasury 
shall, on or before December 31, 2002, modify the existing 
regulations issued under section 414(r) of the Internal Revenue 
Code of 1986 in order to expand (to the extent that the 
Secretary determines appropriate) the ability of a pension plan 
to demonstrate compliance with the line of business 
requirements based upon the facts and circumstances surrounding 
the design and operation of the plan, even though the plan is 
unable to satisfy the mechanical tests currently used to 
determine compliance.

SEC. 460. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON 
                    APPLICATION OF CERTAIN NONDISCRIMINATION RULES 
                    APPLICABLE TO STATE AND LOCAL PLANS.

    (a) In General.--
            (1) Subparagraph (G) of section 401(a)(5) and 
        subparagraph (H) of section 401(a)(26) are each amended 
        by striking ``section 414(d))'' and all that follows 
        and inserting ``section 414(d)).''.
            (2) Subparagraph (G) of section 401(k)(3) and 
        paragraph (2) of section 1505(d) of the Taxpayer Relief 
        Act of 1997 are each amended by striking ``maintained 
        by a State or local government or political subdivision 
        thereof (or agency or instrumentality thereof)''.
    (b) Conforming Amendments.--
            (1) The heading for subparagraph (G) of section 
        401(a)(5) is amended to read as follows: ``Governmental 
        plans''.
            (2) The heading for subparagraph (H) of section 
        401(a)(26) is amended to read as follows: ``Exception 
        for governmental plans''.
            (3) Subparagraph (G) of section 401(k)(3) is 
        amended by inserting ``Governmental plans.--'' after 
        ``(G)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 461. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

    (a) Expansion of Period.--
            (1) Amendment of internal revenue code.--
                    (A) In general.--Subparagraph (A) of 
                section 417(a)(6) is amended by striking ``90-
                day'' and inserting ``180-day''.
                    (B) Modification of regulations.--The 
                Secretary of the Treasury shall modify the 
                regulations under sections 402(f), 411(a)(11), 
                and 417 of the Internal Revenue Code of 1986 to 
                substitute ``180 days'' for ``90 days'' each 
                place it appears in Treasury Regulations 
                sections 1.402(f)-1, 1.411(a)-11(c), and 
                1.417(e)-1(b).
            (2) Amendment of erisa.--Section 205(c)(7)(A) of 
        the Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1055(c)(7)(A)) is amended by striking ``90-day'' 
        and inserting ``180-day''.
            (3) Effective date.--The amendments made by 
        paragraph (1)(A) and (2) and the modifications required 
        by paragraph (1)(B) shall apply to years beginning 
        after December 31, 2000.
    (b) Consent Regulation Inapplicable to Certain 
Distributions.--
            (1) In general.--The Secretary of the Treasury 
        shall modify the regulations under section 411(a)(11) 
        of the Internal Revenue Code of 1986 to provide that 
        the description of a participant's right, if any, to 
        defer receipt of a distribution shall also describe the 
        consequences of failing to defer such receipt.
            (2) Effective date.--The modifications required by 
        paragraph (1) shall apply to years beginning after 
        December 31, 2000.
    (c) Disclosure of Optional Forms of Benefits.--
            (1) Regulations.--
                    (A) In general.--The Secretary of the 
                Treasury shall, not later than December 31, 
                2001, issue final regulations under section 
                417(a)(3) of the Internal Revenue Code of 1986 
                which provide that if--
                            (i) a defined benefit plan offers 
                        both a qualified joint and survivor 
                        annuity and a single sum optional form 
                        of benefit, and
                            (ii) the distributable amount under 
                        such single sum option is less than the 
                        present value (determined in accordance 
                        with section 417(e) of such Code) of 
                        the qualified joint and survivor 
                        annuity commencing as of the same 
                        annuity starting date, the written 
                        explanation required by section 
                        417(a)(3)(A) of such Code shall include 
                        sufficient information to allow the 
                        participant to understand the 
                        difference between the amount of the 
                        single sum and such present value.
                    (B) Unmarried participants.--If the plan 
                offers an unmarried participant one or more 
                annuity options that are substantially more 
                valuable than the qualified joint and survivor 
                annuity offered by the plan, the comparison 
                required under subparagraph (A) shall be made 
                between the single sum option and the most 
                valuable of the other annuity options offered 
                by the plan.
                    (C) Form.--Any information required under 
                this paragraph shall be provided in a manner 
                calculated to be reasonably understood by the 
                average plan participant.
            (2) Effective date.--Regulations issued under 
        paragraph (1) shall only apply to distributions made 
        not earlier than 6 months after the date such 
        regulations are issued.

SEC. 462. ANNUAL REPORT DISSEMINATION.

    (a) Report Available Through Electronic Means.--Section 
104(b)(3) of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1024(b)(3)) is amended by adding at the end the 
following new sentence: ``The requirement to furnish 
information under the previous sentence shall be satisfied if 
the administrator makes such information reasonably available 
through electronic means or other new technology.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to reports for years beginning after December 31, 
1999.

SEC. 463. TECHNICAL CORRECTIONS TO SAVER ACT.

    Section 517 of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1147) is amended--
            (1) in subsection (a), by striking ``2001 and 2005 
        on or after September 1 of each year involved'' and 
        inserting ``2001, 2005, and 2009 in the month of 
        September of each year involved'';
            (2) in subsection (b), by adding at the end the 
        following new sentence: ``To effectuate the purposes of 
        this paragraph, the Secretary may enter into a 
        cooperative agreement, pursuant to the Federal Grant 
        and Cooperative Agreement Act of 1977 (31 U.S.C. 6301 
        et seq.), with the American Savings Education 
        Council.'';
            (3) in subsection (e)(2)--
                    (A) by striking ``Committee on Labor and 
                Human Resources'' in subparagraph (D) and 
                inserting ``Committee on Health, Education, 
                Labor, and Pensions'';
                    (B) by striking subparagraph (F) and 
                inserting the following:
                    ``(F) the Chairman and Ranking Member of 
                the Subcommittee on Labor, Health and Human 
                Services, and Education of the Committee on 
                Appropriations of the House of Representatives 
                and the Chairman and Ranking Member of the 
                Subcommittee on Labor, Health and Human 
                Services, and Education of the Committee on 
                Appropriations of the Senate;'';
                    (C) by redesignating subparagraph (G) as 
                subparagraph (J); and
                    (D) by inserting after subparagraph (F) the 
                following new subparagraphs:
                    ``(G) the Chairman and Ranking Member of 
                the Committee on Finance of the Senate;
                    ``(H) the Chairman and Ranking Member of 
                the Committee on Ways and Means of the House of 
                Representatives;
                    ``(I) the Chairman and Ranking Member of 
                the Subcommittee on Employer-Employee Relations 
                of the Committee on Education and the Workforce 
                of the House of Representatives; and'';
            (4) in subsection (e)(3)(A)--
                    (A) by striking ``There shall be no more 
                than 200 additional participants.'' and 
                inserting ``The participants in the National 
                Summit shall also include additional 
                participants appointed under this 
                subparagraph.'';
                    (B) by striking ``one-half shall be 
                appointed by the President,'' in clause (i) and 
                inserting ``not more than 100 participants 
                shall be appointed under this clause by the 
                President,'', and by striking ``and'' at the 
                end of clause (i);
                    (C) by striking ``one-half shall be 
                appointed by the elected leaders of Congress'' 
                in clause (ii) and inserting ``not more than 
                100 participants shall be appointed under this 
                clause by the elected leaders of Congress'', 
                and by striking the period at the end of clause 
                (ii) and inserting ``; and'';
                    (D) by adding at the end the following new 
                clause:
                            ``(iii) The President, in 
                        consultation with the elected leaders 
                        of Congress referred to in subsection 
                        (a), may appoint under this clause 
                        additional participants to the National 
                        Summit. The number of such additional 
                        participants appointed under this 
                        clause may not exceed the lesser of 3 
                        percent of the total number of all 
                        additional participants appointed under 
                        this paragraph, or 10. Such additional 
                        participants shall be appointed from 
                        persons nominated by the organization 
                        referred to in subsection (b)(2) which 
                        is made up of private sector businesses 
                        and associations partnered with 
                        Government entities to promote long 
                        term financial security in retirement 
                        through savings and with which the 
                        Secretary is required thereunder to 
                        consult and cooperate and shall not be 
                        Federal, State, or local government 
                        employees.'';
            (5) in subsection (e)(3)(B), by striking ``January 
        31, 1998'' in subparagraph (B) and inserting ``May 1, 
        2001, May 1, 2005, and May 1, 2009, for each of the 
        subsequent summits, respectively'';
            (6) in subsection (f)(1)(C), by inserting ``, no 
        later than 90 days prior to the date of the 
        commencement of the National Summit,'' after 
        ``comment'' in paragraph (1)(C);
            (7) in subsection (g), by inserting ``, in 
        consultation with the congressional leaders specified 
        in subsection (e)(2),'' after ``report'';
            (8) in subsection (i)--
                    (A) by striking ``beginning on or after 
                October 1, 1997'' in paragraph (1) and 
                inserting ``2001, 2005, and 2009''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(3) Reception and representation authority.--The 
        Secretary is hereby granted reception and 
        representation authority limited specifically to the 
        events at the National Summit. The Secretary shall use 
        any private contributions accepted in connection with 
        the National Summit prior to using funds appropriated 
        for purposes of the National Summit pursuant to this 
        paragraph.''; and
            (9) in subsection (k)--
                    (A) by striking ``shall enter into a 
                contract on a sole-source basis'' and inserting 
                ``may enter into a contract on a sole-source 
                basis''; and
                    (B) by striking ``fiscal year 1998'' and 
                inserting ``fiscal years 2001, 2005, and 
                2009''.

SEC. 464. STUDY OF PENSION COVERAGE.

    Not later than 5 years after the date of the enactment of 
this Act, the Secretary of the Treasury shall submit a report 
to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate a 
report on the effect of the provisions of the Retirement 
Savings and Pension Coverage Act of 2000 on pension coverage, 
including--
            (1) any expansion of coverage for low- and middle-
        income workers;
            (2) levels of pension benefits;
            (3) quality of pension coverage;
            (4) worker's access to and participation in plans; 
        and
            (5) retirement security.

                   Subtitle G--Other ERISA Provisions

SEC. 471. MISSING PARTICIPANTS.

    (a) In General.--Section 4050 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1350) is amended by 
redesignating subsection (c) as subsection (e) and by inserting 
after subsection (b) the following new subsection:
    ``(c) Multiemployer Plans.--The corporation shall prescribe 
rules similar to the rules in subsection (a) for multiemployer 
plans covered by this title that terminate under section 4041A.
    ``(d) Plans Not Otherwise Subject to Title.--
            ``(1) Transfer to corporation.--The plan 
        administrator of a plan described in paragraph (4) may 
        elect to transfer a missing participant's benefits to 
        the corporation upon termination of the plan.
            ``(2) Information to the corporation.--To the 
        extent provided in regulations, the plan administrator 
        of a plan described in paragraph (4) shall, upon 
        termination of the plan, provide the corporation 
        information with respect to benefits of a missing 
        participant if the plan transfers such benefits--
                    ``(A) to the corporation, or
                    ``(B) to an entity other than the 
                corporation or a plan described in paragraph 
                (4)(B)(ii).
            ``(3) Payment by the corporation.--If benefits of a 
        missing participant were transferred to the corporation 
        under paragraph (1), the corporation shall, upon 
        location of the participant or beneficiary, pay to the 
        participant or beneficiary the amount transferred (or 
        the appropriate survivor benefit) either--
                    ``(A) in a single sum (plus interest), or
                    ``(B) in such other form as is specified in 
                regulations of the corporation.
            ``(4) Plans described.--A plan is described in this 
        paragraph if--
                    ``(A) the plan is a pension plan (within 
                the meaning of section 3(2))--
                            ``(i) to which the provisions of 
                        this section do not apply (without 
                        regard to this subsection), and
                            ``(ii) which is not a plan 
                        described in paragraphs (2) through 
                        (11) of section 4021(b), and
                    ``(B) at the time the assets are to be 
                distributed upon termination, the plan--
                            ``(i) has missing participants, and
                            ``(ii) has not provided for the 
                        transfer of assets to pay the benefits 
                        of all missing participants to another 
                        pension plan (within the meaning of 
                        section 3(2)).
            ``(5) Certain provisions not to apply.--Subsections 
        (a)(1) and (a)(3) shall not apply to a plan described 
        in paragraph (4).''.
    (b) Effective Date.--The amendment made by this section 
shall apply to distributions made after final regulations 
implementing subsections (c) and (d) of section 4050 of the 
Employee Retirement Income Security Act of 1974 (as added by 
subsection (a)), respectively, are prescribed.

SEC. 472. REDUCED PBGC PREMIUM FOR NEW PLANS OF SMALL EMPLOYERS.

    (a) In General.--Subparagraph (A) of section 4006(a)(3) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(A)) is amended--
            (1) in clause (i), by inserting ``other than a new 
        single-employer plan (as defined in subparagraph (F)) 
        maintained by a small employer (as so defined),'' after 
        ``single-employer plan,'',
            (2) in clause (iii), by striking the period at the 
        end and inserting ``, and'', and
            (3) by adding at the end the following new clause:
            ``(iv) in the case of a new single-employer plan 
        (as defined in subparagraph (F)) maintained by a small 
        employer (as so defined) for the plan year, $5 for each 
        individual who is a participant in such plan during the 
        plan year.''.
    (b) Definition of New Single-Employer Plan.--Section 
4006(a)(3) of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1306(a)(3)) is amended by adding at the end the 
following new subparagraph:
    ``(F)(i) For purposes of this paragraph, a single-employer 
plan maintained by a contributing sponsor shall be treated as a 
new single-employer plan for each of its first 5 plan years if, 
during the 36-month period ending on the date of the adoption 
of such plan, the sponsor or any member of such sponsor's 
controlled group (or any predecessor of either) did not 
establish or maintain a plan to which this title applies with 
respect to which benefits were accrued for substantially the 
same employees as are in the new single-employer plan.
    ``(ii)(I) For purposes of this paragraph, the term `small 
employer' means an employer which on the first day of any plan 
year has, in aggregation with all members of the controlled 
group of such employer, 100 or fewer employees.
    ``(II) In the case of a plan maintained by two or more 
contributing sponsors that are not part of the same controlled 
group, the employees of all contributing sponsors and 
controlled groups of such sponsors shall be aggregated for 
purposes of determining whether any contributing sponsor is a 
small employer.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to plans established after December 31, 2000.

SEC. 473. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR NEW AND SMALL PLANS.

    (a) New Plans.--Subparagraph (E) of section 4006(a)(3) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(E)) is amended by adding at the end the following 
new clause:
    ``(v) In the case of a new defined benefit plan, the amount 
determined under clause (ii) for any plan year shall be an 
amount equal to the product of the amount determined under 
clause (ii) and the applicable percentage. For purposes of this 
clause, the term `applicable percentage' means--
            ``(I) 0 percent, for the first plan year.
            ``(II) 20 percent, for the second plan year.
            ``(III) 40 percent, for the third plan year.
            ``(IV) 60 percent, for the fourth plan year.
            ``(V) 80 percent, for the fifth plan year.
For purposes of this clause, a defined benefit plan (as defined 
in section 3(35)) maintained by a contributing sponsor shall be 
treated as a new defined benefit plan for each of its first 5 
plan years if, during the 36-month period ending on the date of 
the adoption of the plan, the sponsor and each member of any 
controlled group including the sponsor (or any predecessor of 
either) did not establish or maintain a plan to which this 
title applies with respect to which benefits were accrued for 
substantially the same employees as are in the new plan.''.
    (b) Small Plans.--Paragraph (3) of section 4006(a) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)), as amended by section 472(b), is amended--
            (1) by striking ``The'' in subparagraph (E)(i) and 
        inserting ``Except as provided in subparagraph (G), 
        the'', and
            (2) by inserting after subparagraph (F) the 
        following new subparagraph:
    ``(G)(i) In the case of an employer who has 25 or fewer 
employees on the first day of the plan year, the additional 
premium determined under subparagraph (E) for each participant 
shall not exceed $5 multiplied by the number of participants in 
the plan as of the close of the preceding plan year.
    ``(ii) For purposes of clause (i), whether an employer has 
25 or fewer employees on the first day of the plan year is 
determined taking into consideration all of the employees of 
all members of the contributing sponsor's controlled group. In 
the case of a plan maintained by two or more contributing 
sponsors, the employees of all contributing sponsors and their 
controlled groups shall be aggregated for purposes of 
determining whether the 25-or-fewer-employees limitation has 
been satisfied.''.
    (c) Effective Dates.--
            (1) Subsection (a).--The amendments made by 
        subsection (a) shall apply to plans established after 
        December 31, 2000.
            (2) Subsection (b).--The amendments made by 
        subsection (b) shall apply to plan years beginning 
        after December 31, 2000.

SEC. 474. AUTHORIZATION FOR PBGC TO PAY INTEREST ON PREMIUM OVERPAYMENT 
                    REFUNDS.

    (a) In General.--Section 4007(b) of the Employment 
Retirement Income Security Act of 1974 (29 U.S.C. 1307(b)) is 
amended--
            (1) by striking ``(b)'' and inserting ``(b)(1)'', 
        and
            (2) by inserting at the end the following new 
        paragraph:
    ``(2) The corporation is authorized to pay, subject to 
regulations prescribed by the corporation, interest on the 
amount of any overpayment of premium refunded to a designated 
payor. Interest under this paragraph shall be calculated at the 
same rate and in the same manner as interest is calculated for 
underpayments under paragraph (1).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to interest accruing for periods beginning not 
earlier than the date of the enactment of this Act.

SEC. 475. SUBSTANTIAL OWNER BENEFITS IN TERMINATED PLANS.

    (a) Modification of Phase-In of Guarantee.--Section 
4022(b)(5) of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1322(b)(5)) is amended to read as follows:
    ``(5)(A) For purposes of this paragraph, the term `majority 
owner' means an individual who, at any time during the 60-month 
period ending on the date the determination is being made--
            ``(i) owns the entire interest in an unincorporated 
        trade or business,
            ``(ii) in the case of a partnership, is a partner 
        who owns, directly or indirectly, 50 percent or more of 
        either the capital interest or the profits interest in 
        such partnership, or
            ``(iii) in the case of a corporation, owns, 
        directly or indirectly, 50 percent or more in value of 
        either the voting stock of that corporation or all the 
        stock of that corporation.
For purposes of clause (iii), the constructive ownership rules 
of section 1563(e) of the Internal Revenue Code of 1986 shall 
apply (determined without regard to section 1563(e)(3)(C)).
    ``(B) In the case of a participant who is a majority owner, 
the amount of benefits guaranteed under this section shall 
equal the product of--
            ``(i) a fraction (not to exceed 1) the numerator of 
        which is the number of years from the later of the 
        effective date or the adoption date of the plan to the 
        termination date, and the denominator of which is 10, 
        and
            ``(ii) the amount of benefits that would be 
        guaranteed under this section if the participant were 
        not a majority owner.''.
    (b) Modification of Allocation of Assets.--
            (1) Section 4044(a)(4)(B) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 
        1344(a)(4)(B)) is amended by striking ``section 
        4022(b)(5)'' and inserting ``section 4022(b)(5)(B)''.
            (2) Section 4044(b) of such Act (29 U.S.C. 1344(b)) 
        is amended--
                    (A) by striking ``(5)'' in paragraph (2) 
                and inserting ``(4), (5),'', and
                    (B) by redesignating paragraphs (3) through 
                (6) as paragraphs (4) through (7), 
                respectively, and by inserting after paragraph 
                (2) the following new paragraph:
            ``(3) If assets available for allocation under 
        paragraph (4) of subsection (a) are insufficient to 
        satisfy in full the benefits of all individuals who are 
        described in that paragraph, the assets shall be 
        allocated first to benefits described in subparagraph 
        (A) of that paragraph. Any remaining assets shall then 
        be allocated to benefits described in subparagraph (B) 
        of that paragraph. If assets allocated to such 
        subparagraph (B) are insufficient to satisfy in full 
        the benefits described in that subparagraph, the assets 
        shall be allocated pro rata among individuals on the 
        basis of the present value (as of the termination date) 
        of their respective benefits described in that 
        subparagraph.''.
    (c) Conforming Amendments.--
            (1) Section 4021 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1321) is amended--
                    (A) in subsection (b)(9), by striking ``as 
                defined in section 4022(b)(6)'', and
                    (B) by adding at the end the following new 
                subsection:
    ``(d) For purposes of subsection (b)(9), the term 
`substantial owner' means an individual who, at any time during 
the 60-month period ending on the date the determination is 
being made--
            ``(1) owns the entire interest in an unincorporated 
        trade or business,
            ``(2) in the case of a partnership, is a partner 
        who owns, directly or indirectly, more than 10 percent 
        of either the capital interest or the profits interest 
        in such partnership, or
            ``(3) in the case of a corporation, owns, directly 
        or indirectly, more than 10 percent in value of either 
        the voting stock of that corporation or all the stock 
        of that corporation.
For purposes of paragraph (3), the constructive ownership rules 
of section 1563(e) of the Internal Revenue Code of 1986 shall 
apply (determined without regard to section 1563(e)(3)(C)).''.
    (2) Section 4043(c)(7) of such Act (29 U.S.C. 1343(c)(7)) 
is amended by striking ``section 4022(b)(6)'' and inserting 
``section 4021(d)''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        plan terminations--
                    (A) under section 4041(c) of the Employee 
                Retirement Income Security Act of 1974 (29 
                U.S.C. 1341(c)) with respect to which notices 
                of intent to terminate are provided under 
                section 4041(a)(2) of such Act (29 U.S.C. 
                1341(a)(2)) after December 31, 2000, and
                    (B) under section 4042 of such Act (29 
                U.S.C. 1342) with respect to which proceedings 
                are instituted by the corporation after such 
                date.
            (2) Conforming amendments.--The amendments made by 
        subsection (c) shall take effect on January 1, 2001.

SEC. 476. MULTIEMPLOYER PLAN BENEFITS GUARANTEE.

    (a) In General.--Section 4022A(c) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1322A(c)) is 
amended--
            (1) by striking ``$5'' each place it appears in 
        paragraph (1) and inserting ``$11'',
            (2) by striking ``$15'' in paragraph (1) and 
        inserting ``$33'', and
            (3) by striking paragraphs (2), (5), and (6) and by 
        redesignating paragraphs (3) and (4) as paragraphs (2) 
        and (3), respectively.
    (b) Conforming Amendment.--Section 4244(e)(4) of such Act 
(29 U.S.C. 1424(e)(4)) is amended by striking ``and without 
regard to section 4022A(c)(2)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to benefits payable after the date of the enactment 
of this Act, except that such amendments shall not apply to any 
multiemployer plan that has received financial assistance 
(within the meaning of section 4261 of the Employee Retirement 
Income Security Act of 1974) within the 1-year period ending on 
the date of the enactment of this Act.

SEC. 477. CIVIL PENALTIES FOR BREACH OF FIDUCIARY RESPONSIBILITY.

    (a) Imposition and Amount of Penalty Made Discretionary.--
Section 502(l)(1) of the Employee Retirement Income Security 
Act of 1974 (29 U.S.C. 1132(l)(1)) is amended--
            (1) by striking ``shall'' and inserting ``may'', 
        and
            (2) by striking ``equal to'' and inserting ``not 
        greater than''.
    (b) Applicable Recovery Amount.--Section 502(l)(2) of such 
Act (29 U.S.C. 1132(l)(2)) is amended to read as follows:
    ``(2) For purposes of paragraph (1), the term `applicable 
recovery amount' means any amount which is recovered from any 
fiduciary or other person (or from any other person on behalf 
of any such fiduciary or other person) with respect to a breach 
or violation described in paragraph (1) on or after the 30th 
day following receipt by such fiduciary or other person of 
written notice from the Secretary of the violation, whether 
paid voluntarily or by order of a court in a judicial 
proceeding instituted by the Secretary under subsection (a)(2) 
or (a)(5). The Secretary may, in the Secretary's sole 
discretion, extend the 30-day period described in the preceding 
sentence.''.
    (c) Other Rules.--Section 502(l) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1132(l)) is amended by 
adding at the end the following new paragraph:
    ``(5) A person shall be jointly and severally liable for 
the penalty described in paragraph (1) to the same extent that 
such person is jointly and severally liable for the applicable 
recovery amount on which the penalty is based.
    ``(6) No penalty shall be assessed under this subsection 
unless the person against whom the penalty is assessed is given 
notice and opportunity for a hearing with respect to the 
violation and applicable recovery amount.''.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to any breach of fiduciary 
        responsibility or other violation of part 4 of subtitle 
        B of title I of the Employee Retirement Income Security 
        Act of 1974 occurring on or after the date of enactment 
        of this Act.
            (2) Transition rule.--In applying the amendment 
        made by subsection (b) (relating to applicable recovery 
        amount), a breach or other violation occurring before 
        the date of enactment of this Act which continues after 
        the 180th day after such date (and which may have been 
        discontinued at any time during its existence) shall be 
        treated as having occurred after such date of 
        enactment.

SEC. 478. BENEFIT SUSPENSION NOTICE.

    (a) Modification of Regulation.--The Secretary of Labor 
shall modify the regulation under section 203(a)(3)(B) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1053(a)(3)(B)) to provide that the notification required by 
such regulation--
            (1) in the case of an employee who returns to work 
        for a former employer after commencement of payment of 
        benefits under the plan shall--
                    (A) be made during the first calendar month 
                or payroll period in which the plan withholds 
                payments, and
                    (B) if a reduced rate of future benefit 
                accruals will apply to the returning employee 
                (as of the first date of participation in the 
                plan by the employee after returning to work), 
                include a statement that the rate of future 
                benefit accruals will be reduced, and
            (2) in the case of any employee who is not 
        described in paragraph (1)--
                    (A) may be included in the summary plan 
                description for the plan furnished in 
                accordance with section 104(b) of such Act (29 
                U.S.C. 1024(b)), rather than in a separate 
                notice, and
                    (B) need not include a copy of the relevant 
                plan provisions.
    (b) Effective Date.--The modification made under this 
section shall apply to plan years beginning after December 31, 
2000.

                      Subtitle H--Plan Amendments

SEC. 481. PROVISIONS RELATING TO PLAN AMENDMENTS.

    (a) In General.--If this section applies to any plan or 
contract amendment--
            (1) such plan or contract shall be treated as being 
        operated in accordance with the terms of the plan 
        during the period described in subsection (b)(2)(A); 
        and
            (2) except as provided by the Secretary of the 
        Treasury, such plan shall not fail to meet the 
        requirements of section 411(d)(6) of the Internal 
        Revenue Code of 1986 or section 204(g) of the Employee 
        Retirement Income Security Act of 1974 by reason of 
        such amendment.
    (b) Amendments to Which Section Applies.--
            (1) In general.--This section shall apply to any 
        amendment to any plan or annuity contract which is 
        made--
                    (A) pursuant to any amendment made by this 
                title, or pursuant to any regulation issued 
                under this title; and
                    (B) on or before the last day of the first 
                plan year beginning on or after January 1, 
                2003.
        In the case of a governmental plan (as defined in 
        section 414(d) of the Internal Revenue Code of 1986), 
        this paragraph shall be applied by substituting 
        ``2005'' for ``2003''.
            (2) Conditions.--This section shall not apply to 
        any amendment unless--
                    (A) during the period--
                            (i) beginning on the date the 
                        legislative or regulatory amendment 
                        described in paragraph (1)(A) takes 
                        effect (or in the case of a plan or 
                        contract amendment not required by such 
                        legislative or regulatory amendment, 
                        the effective date specified by the 
                        plan); and
                            (ii) ending on the date described 
                        in paragraph (1)(B) (or, if earlier, 
                        the date the plan or contract amendment 
                        is adopted),
                the plan or contract is operated as if such 
                plan or contract amendment were in effect; and
                    (B) such plan or contract amendment applies 
                retroactively for such period.

                TITLE V--SCHOOL CONSTRUCTION PROVISIONS

SEC. 501. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR 
                    GOVERNMENTAL BONDS USED TO FINANCE EDUCATIONAL 
                    FACILITIES.

    (a) In General.--Section 148(f )(4)(D)(vii) (relating to 
increase in exception for bonds financing public school capital 
expenditures) is amended by striking ``$5,000,000'' the second 
place it appears and inserting ``$10,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to obligations issued after December 31, 2000.

SEC. 502. MODIFICATION OF ARBITRAGE REBATE RULES APPLICABLE TO PUBLIC 
                    SCHOOL CONSTRUCTION BONDS.

    (a) In General.--Subparagraph (C) of section 148(f )(4) is 
amended by adding at the end the following new clause:
                            ``(xviii) 4-year spending 
                        requirement for public school 
                        construction issue.--
                                    ``(I) In general.--In the 
                                case of a public school 
                                construction issue, the 
                                spending requirements of clause 
                                (ii) shall be treated as met if 
                                at least 10 percent of the 
                                available construction proceeds 
                                of the construction issue are 
                                spent for the governmental 
                                purposes of the issue within 
                                the 1-year period beginning on 
                                the date the bonds are issued, 
                                30 percent of such proceeds are 
                                spent for such purposes within 
                                the 2-year period beginning on 
                                such date, 60 percent of such 
                                proceeds are spent for such 
                                purposes within the 3-year 
                                period beginning on such date, 
                                and 100 percent of such 
                                proceeds are spent for such 
                                purposes within the 4-year 
                                period beginning on such date.
                                    ``(II) Public school 
                                construction issue.--For 
                                purposes of this clause, the 
                                term `public school 
                                construction issue' means any 
                                construction issue if no bond 
                                which is part of such issue is 
                                a private activity bond and all 
                                of the available construction 
                                proceeds of such issue are to 
                                be used for the construction 
                                (as defined in clause (iv)) of 
                                public school facilities to 
                                provide education or training 
                                below the postsecondary level 
                                or for the acquisition of land 
                                that is functionally related 
                                and subordinate to such 
                                facilities.
                                    ``(III) Other rules to 
                                apply.--Rules similar to the 
                                rules of the preceding 
                                provisions of this subparagraph 
                                which apply to clause (ii) also 
                                apply to this clause.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to obligations issued after December 31, 2000.

SEC. 503. MODIFICATION OF SPECIAL ARBITRAGE RULE FOR CERTAIN FUNDS.

    (a) In General.--Paragraph (1) of section 648 of the Tax 
Reform Act of 1984 is amended to read as follows:
            ``(1) such securities or obligations are held in a 
        fund--
                    ``(A) which, except to the extent of the 
                investment earnings on such securities or 
                obligations, cannot be used, under State 
                constitutional or statutory restrictions 
                continuously in effect since October 9, 1969, 
                through the date of issue of the bond issue, to 
                pay debt service on the bond issue or to 
                finance the facilities that are to be financed 
                with the proceeds of the bonds, or
                    ``(B) the annual distributions from which 
                cannot exceed 7 percent of the average fair 
                market value of the assets held in such fund 
                except to the extent distributions are 
                necessary to pay debt service on the bond 
                issue,''.
    (b) Conforming Amendment.--Paragraph (3) of such section is 
amended by striking ``the investment earnings of'' and 
inserting ``distributions from''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 2001.

SEC. 504. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY BONDS AS 
                    EXEMPT FACILITY BONDS.

    (a) Treatment as Exempt Facility Bond.--Subsection (a) of 
section 142 (relating to exempt facility bond) is amended by 
striking ``or'' at the end of paragraph (11), by striking the 
period at the end of paragraph (12) and inserting ``, or'', and 
by adding at the end the following:
            ``(13) qualified public educational facilities.''
    (b) Qualified Public Educational Facilities.--Section 142 
(relating to exempt facility bond) is amended by adding at the 
end the following new subsection:
    ``(k) Qualified Public Educational Facilities.--
            ``(1) In general.--For purposes of subsection 
        (a)(13), the term `qualified public educational 
        facility' means any school facility which is--
                    ``(A) part of a public elementary school or 
                a public secondary school, and
                    ``(B) owned by a private, for-profit 
                corporation pursuant to a public-private 
                partnership agreement with a State or local 
                educational agency described in paragraph (2).
            ``(2) Public-private partnership agreement 
        described.--A public-private partnership agreement is 
        described in this paragraph if it is an agreement--
                    ``(A) under which the corporation agrees--
                            ``(i) to do 1 or more of the 
                        following: construct, rehabilitate, 
                        refurbish, or equip a school facility, 
                        and
                            ``(ii) at the end of the term of 
                        the agreement, to transfer the school 
                        facility to such agency for no 
                        additional consideration, and
                    ``(B) the term of which does not exceed the 
                term of the issue to be used to provide the 
                school facility.
            ``(3) School facility.--For purposes of this 
        subsection, the term `school facility' means--
                    ``(A) school buildings,
                    ``(B) functionally related and subordinate 
                facilities and land with respect to such 
                buildings, including any stadium or other 
                facility primarily used for school events, and
                    ``(C) any property, to which section 168 
                applies (or would apply but for section 179), 
                for use in the facility.
            ``(4) Public schools.--For purposes of this 
        subsection, the terms `elementary school' and 
        `secondary school' have the meanings given such terms 
        by section 14101 of the Elementary and Secondary 
        Education Act of 1965 (20 U.S.C. 8801), as in effect on 
        the date of the enactment of this subsection.
            ``(5) Annual aggregate face amount of tax-exempt 
        financing.--
                    ``(A) In general.--An issue shall not be 
                treated as an issue described in subsection 
                (a)(13) if the aggregate face amount of bonds 
                issued by the State pursuant thereto (when 
                added to the aggregate face amount of bonds 
                previously so issued during the calendar year) 
                exceeds an amount equal to the greater of--
                            ``(i) $10 multiplied by the State 
                        population, or
                            ``(ii) $5,000,000.
                    ``(B) Allocation rules.--
                            ``(i) In general.--Except as 
                        otherwise provided in this 
                        subparagraph, the State may allocate in 
                        a calendar year the amount described in 
                        subparagraph (A) for such year in such 
                        manner as the State determines 
                        appropriate.
                            ``(ii) Rules for carryforward of 
                        unused amount.--With respect to any 
                        calendar year, a State may make an 
                        election under rules similar to the 
                        rules of section 146(f), except that 
                        the sole carryforward purpose with 
                        respect to such election is the 
                        issuance of exempt facility bonds 
                        described in section 142(a)(13).''
    (c) Exemption From General State Volume Caps.--Paragraph 
(3) of section 146(g) (relating to exception for certain bonds) 
is amended--
            (1) by striking ``or (12)'' and inserting ``(12), 
        or (13)'', and
            (2) by striking ``and environmental enhancements of 
        hydroelectric generating facilities'' and inserting 
        ``environmental enhancements of hydroelectric 
        generating facilities, and qualified public educational 
        facilities''.
    (d) Exemption From Limitation on Use for Land 
Acquisition.--Section 147(h) (relating to certain rules not to 
apply to mortgage revenue bonds, qualified student loan bonds, 
and qualified 501(c)(3) bonds) is amended by adding at the end 
the following new paragraph:
            ``(3) Exempt facility bonds for qualified public-
        private schools.--Subsection (c) shall not apply to any 
        exempt facility bond issued as part of an issue 
        described in section 142(a)(13) (relating to qualified 
        public-private schools).''
    (e) Conforming Amendment.--The heading of section 147(h) is 
amended by striking ``Mortgage Revenue Bonds, Qualified Student 
Loan Bonds, and Qualified 501(c)(3) Bonds'' in the heading and 
inserting ``Certain Bonds''.
    (f) Effective Date.--The amendments made by this section 
shall apply to obligations issued after December 31, 2000.

SEC. 505. EXPANSION OF QUALIFIED ZONE ACADEMY BOND PROGRAM.

    (a) In General.--So much of part IV of subchapter U of 
chapter 1 (relating to incentives for education zones) as 
precedes subsection (d) of section 1397E is amended to read as 
follows:

                  ``PART IV--EDUCATION BOND PROVISIONS

        ``Sec. 1397E. Credit to holders of qualified zone academy bonds.
        ``Sec. 1397F. Qualified zone academy bond defined.
        ``Sec. 1397G. Authorization of additional qualified zone academy 
                  bonds without targeting and private partnership 
                  requirements.

``SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED ZONE ACADEMY BONDS.

    ``(a) Allowance of Credit.--In the case of an eligible 
taxpayer who holds a qualified zone academy bond on a credit 
allowance date of such bond which occurs during the taxable 
year, there shall be allowed as a credit against the tax 
imposed by this chapter for such taxable year an amount equal 
to the sum of the credits determined under subsection (b) with 
respect to credit allowance dates during such year on which the 
taxpayer holds such bond.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit 
        determined under this subsection with respect to any 
        credit allowance date for a qualified zone academy bond 
        is 25 percent of the annual credit determined with 
        respect to such bond.
            ``(2) Annual credit.--The annual credit determined 
        with respect to any qualified zone academy bond is the 
        product of--
                    ``(A) the applicable credit rate, 
                multiplied by
                    ``(B) the outstanding face amount of the 
                bond.
            ``(3) Applicable credit rate.--For purposes of 
        paragraph (1), the applicable credit rate with respect 
        to an issue is the rate equal to an average market 
        yield (as of the day before the day that the issue is 
        sold) on outstanding long-term corporate debt 
        obligations (determined under regulations prescribed by 
        the Secretary).
            ``(4) Special rule for issuance and redemption.--In 
        the case of a bond which is issued during the 3-month 
        period ending on a credit allowance date, the amount of 
        the credit determined under this subsection with 
        respect to such credit allowance date shall be a 
        ratable portion of the credit otherwise determined 
        based on the portion of the 3-month period during which 
        the bond is outstanding. A similar rule shall apply 
        when the bond is redeemed.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed under 
        subsection (a) for any taxable year shall not exceed 
        the excess of--
                    ``(A) the sum of the regular tax liability 
                (as defined in section 26(b)) plus the tax 
                imposed by section 55, over
                    ``(B) the sum of the credits allowable 
                under part IV of subchapter A (other than 
                subpart C thereof, relating to refundable 
                credits).
            ``(2) Carryover of unused credit.--If the credit 
        allowable under subsection (a) exceeds the limitation 
        imposed by paragraph (1) for such taxable year, such 
        excess shall be carried to the succeeding taxable year 
        and added to the credit allowable under subsection (a) 
        for such taxable year.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified zone academy bond.--The term 
        `qualified zone academy bond' has the meaning given to 
        such term by section 1397F; except that such term shall 
        also include any bond treated as a qualified zone 
        academy bond under section 1397G. Such term shall not 
        include any bond which is part of an issue unless such 
        issue meets the requirements of subsection (g).
            ``(2) Credit allowance date.--The term `credit 
        allowance date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
            ``(3) Eligible taxpayer.--The term `eligible 
        taxpayer' means--
                    ``(A) a bank (within the meaning of section 
                581),
                    ``(B) an insurance company to which 
                subchapter L applies,
                    ``(C) a corporation actively engaged in the 
                business of lending money, and
                    ``(D) any other C corporation.
    ``(e) Other Definitions.--For purposes of this subchapter--
            ``(1) Local educational agency.--The term `local 
        educational agency' has the meaning given to such term 
        by section 14101 of the Elementary and Secondary 
        Education Act of 1965. Such term includes the local 
        educational agency that serves the District of 
        Columbia, but does not include any other State agency.
            ``(2) Bond.--The term `bond' includes any 
        obligation.
            ``(3) State.--The term `State' includes the 
        District of Columbia and any possession of the United 
        States.
            ``(4) Public school facility.--The term `public 
        school facility' shall not include--
                    ``(A) any stadium or other facility 
                primarily used for athletic contests or 
                exhibitions or other events for which admission 
                is charged to the general public, or
                    ``(B) any facility which is not owned by a 
                State or local government or any agency or 
                instrumentality of a State or local government.
            ``(5) Permitted purpose.--The term `permitted 
        purpose' means--
                    ``(A) in the case of a bond which is a 
                qualified zone academy bond without regard to 
                section 1397G, any qualified purpose (as 
                defined in section 1397F(a)(4)), and
                    ``(B) in the case of a bond which is a 
                qualified zone academy bond solely by reason of 
                section 1397G, the purpose described in section 
                1397G(a)(2).
    ``(f) Special Rules.--
            ``(1) Only certain refinancings permitted.--A 
        refinancing of indebtedness (other than a qualified 
        zone academy bond) shall be treated as a qualified zone 
        academy bond only if such indebtedness was originally 
        incurred by the issuer--
                    ``(A) after the date of the enactment of 
                this section,
                    ``(B) for a term of not more than 1 year,
                    ``(C) to finance an expenditure which is a 
                permitted purpose to be financed by a qualified 
                zone academy bond, and
                    ``(D) in anticipation of being refinanced 
                with proceeds of a qualified zone academy bond.
            ``(2) Sinking funds.--Rules similar to the rules 
        under section 148 on replacement proceeds shall apply 
        for purposes of this section. Such replacement proceeds 
        shall be invested in noninterest-bearing State and 
        Local Government Series obligations issued by the 
        Secretary.
    ``(g) Special Rules Relating to Arbitrage.--
            ``(1) In general.--Except as otherwise provided in 
        this subsection, an issue shall be treated as meeting 
        the requirements of this subsection if the issue meets 
        the spending requirements of subclause (I) of section 
        148(f)(4)(C)(xviii).
            ``(2) Rules regarding compliance during 4-year 
        period.--If an issue fails to meet such spending 
        requirements during the 4-year period beginning on the 
        date of issuance, the issuer shall pay to the United 
        States amounts which would be required to be paid to 
        the United States under section 148(f)(2) were such 
        issue required to meet the requirements of such 
        section. Rules similar to the rules of clause (iii) of 
        section 148(f)(4)(C) shall apply for purposes of the 
        preceding sentence.
            ``(3) Rules regarding continuing compliance after 
        4-year determination.--If at least 95 percent of the 
        proceeds of the issue is not expended for 1 or more 
        permitted purposes within the 4-year period beginning 
        on the date of issuance, an issue shall be treated as 
        continuing to meet the requirements of this subsection 
        if the issuer uses all unspent proceeds of the issue to 
        redeem bonds of the issue within 90 days after the end 
        of such 4-year period.
            ``(4) Small issuer exception.--Paragraph (1) shall 
        not apply to an issue issued by a governmental unit 
        with general taxing powers if the requirements of 
        paragraphs (2) and (3) of section 148(f) would be 
        treated as met by reason of subparagraph (D) of section 
        148(f)(4) if such issue were treated as a tax-exempt 
        bond and taken into account under such subparagraph, 
        and such issue shall be so treated for purposes of 
        determining whether such requirements are met with 
        respect to tax-exempt bonds.
    ``(h) Recapture of Portion of Credit Where Cessation of 
Compliance.--
            ``(1) In general.--If any bond which when issued 
        purported to be a qualified zone academy bond ceases to 
        be a qualified zone academy bond, the issuer shall pay 
        to the United States (at the time required by the 
        Secretary) an amount equal to the sum of--
                    ``(A) the aggregate of the credits 
                allowable under this section with respect to 
                such bond (determined without regard to 
                subsection (c)) for taxable years ending during 
                the calendar year in which such cessation 
                occurs and the 2 preceding calendar years, and
                    ``(B) interest at the underpayment rate 
                under section 6621 on the amount determined 
                under subparagraph (A) for each calendar year 
                for the period beginning on the first day of 
                such calendar year.
            ``(2) Failure to pay.--If the issuer fails to 
        timely pay the amount required by paragraph (1) with 
        respect to such bond, the tax imposed by this chapter 
        on each holder of any such bond which is part of such 
        issue shall be increased (for the taxable year of the 
        holder in which such cessation occurs) by the aggregate 
        decrease in the credits allowed under this section to 
        such holder for taxable years beginning in such 3 
        calendar years which would have resulted solely from 
        denying any credit under this section with respect to 
        such issue for such taxable years.
            ``(3) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the 
                taxable year shall be increased under paragraph 
                (2) only with respect to credits allowed by 
                reason of this section which were used to 
                reduce tax liability. In the case of credits 
                not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 
                shall be appropriately adjusted.
                    ``(B) No credits against tax.--Any increase 
                in tax under paragraph (2) shall not be treated 
                as a tax imposed by this chapter for purposes 
                of determining--
                            ``(i) the amount of any credit 
                        allowable under this part, or
                            ``(ii) the amount of the tax 
                        imposed by section 55.
    ``(i) Credit Included in Gross Income.--Gross income 
includes the amount of the credit allowed to the taxpayer under 
this section (determined without regard to subsection (c)) and 
the amount so included shall be treated as interest income.
    ``(j) Treatment for Estimated Tax Purposes.--Solely for 
purposes of sections 6654 and 6655, the credit allowed by this 
section to a taxpayer by reason of holding a qualified zone 
academy bond on a credit allowance date shall be treated as if 
it were a payment of estimated tax made by the taxpayer on such 
date.
    ``(k) Reporting.--Issuers of qualified zone academy bonds 
shall submit reports similar to the reports required under 
section 149(e).
    ``(l) Termination.--This section shall not apply to any 
bond issued after December 31, 2005.

``SEC. 1397F. QUALIFIED ZONE ACADEMY BONDS.''

    (b) Extension of Qualified Zone Academy Bond Provisions.--
            (1) Subsections (d) and (e) of section 1397E (as in 
        effect on the day before the date of the enactment of 
        this Act) are hereby moved and inserted after the 
        section heading for section 1397F (as added by 
        subsection (a)) and redesignated as subsections (a) and 
        (b).
            (2) Subsection (b) of section 1397F (as so 
        redesignated) is amended to read as follows:
    ``(b) Limitations on Amount of Bonds Designated.--
            ``(1) In general.--There is a national zone academy 
        bond limitation for each calendar year. Such limitation 
        is--
                    ``(A) $400,000,000 for 1998,
                    ``(B) $400,000,000 for 1999,
                    ``(C) $400,000,000 for 2000,
                    ``(D) $400,000,000 for 2001,
                    ``(E) $400,000,000 for 2002,
                    ``(F) $400,000,000 for 2003, and
                    ``(G) except as provided in paragraph (3), 
                zero after 2003.
            ``(2) Allocation of limitation.--
                    ``(A) In general.--The national zone 
                academy bond limitation for a calendar year 
                shall be allocated by the Secretary among the 
                States on the basis of their respective 
                populations of individuals below the poverty 
                line (as defined by the Office of Management 
                and Budget). The limitation amount allocated to 
                a State under the preceding sentence shall be 
                allocated by the State to qualified zone 
                academies within such State.
                    ``(B) Designation subject to limitation 
                amount.--The maximum aggregate face amount of 
                bonds issued during any calendar year which may 
                be designated under subsection (a) with respect 
                to any qualified zone academy shall not exceed 
                the limitation amount allocated to such academy 
                under subparagraph (A) for such calendar year.
            ``(3) Carryover of unused limitation.--If for any 
        calendar year--
                    ``(A) the limitation amount under this 
                subsection for any State, exceeds
                    ``(B) the amount of bonds issued during 
                such year which are designated under subsection 
                (a) (or the corresponding provisions of prior 
                law) with respect to qualified zone academies 
                within such State,
        the limitation amount under this subsection for such 
        State for the following calendar year shall be 
        increased by the amount of such excess. Any 
        carryforward of a limitation amount may be carried only 
        to the first 2 years (3 years for carryforwards from 
        1998 or 1999) following the unused limitation year. For 
        purposes of the preceding sentence, a limitation amount 
        shall be treated as used on a first-in first-out 
        basis.''
            (3) Subsection (a) of section 1397F (as so 
        redesignated) is amended--
                    (A) by striking ``For purposes of this 
                section--'' in the material preceding paragraph 
                (1) and inserting ``For purposes of this part--
                '',
                    (B) by striking ``an eligible local'' in 
                paragraphs (1)(A) and (3)(A) (as redesignated 
                by this paragraph) and inserting ``a local'',
                    (C) by striking ``the maximum term 
                permitted under paragraph (3)'' in paragraph 
                (1)(D) and inserting ``15 years'', and
                    (D) by striking paragraphs (3) and (6) and 
                by redesignating paragraphs (4) and (5) as 
                paragraphs (3) and (4), respectively.
            (4) Paragraph (3) of section 1397F(a) (as so 
        redesignated) is amended--
                    (A) by striking ``(4)'' and all that 
                follows through ``The term'' and inserting the 
                following:
            ``(4) Qualified zone academy.--The term'',
                    (B) by striking subparagraph (B),
                    (C) by redesignating clauses (i) through 
                (iv) as subparagraphs (A) through (D), 
                respectively, and
                    (D) by redesignating subclauses (I) and 
                (II) of subparagraph (D) (as so redesignated) 
                as clauses (i) and (ii), respectively.
    (c) Authorization of Additional Qualified Zone Academy 
Bonds Without Targeting and Private Partnership Requirements.--
Part IV of subchapter U of chapter 1 is amended by adding at 
the end the following new section:

``SEC. 1397G. AUTHORIZATION OF ADDITIONAL QUALIFIED ZONE ACADEMY BONDS 
                    WITHOUT TARGETING AND PRIVATE PARTNERSHIP 
                    REQUIREMENTS.

    ``(a) In General.--For purposes of this part, the term 
`qualified zone academy bond' also includes any bond issued by 
a State or local government as part of an issue if--
            ``(1) the issuer designates such bond for purpose 
        of this section, and
            ``(2) the requirements of subparagraphs (A), (B), 
        and (D) of paragraph (1) of section 1397F(a) are met 
        with respect to such issue, determined--
                    ``(A) by treating any public school 
                facility as being a qualified zone academy, and
                    ``(B) by applying paragraph (4) thereof as 
                if the only qualified purpose were 
                constructing, rehabilitating, or repairing a 
                public school facility or acquiring the land 
                which is functionally related and subordinate 
                to the public school facility which is to be 
                constructed with part of the proceeds of such 
                issue.
    ``(b) Limitation on Amount of Bonds Designated.--The 
maximum aggregate face amount of bonds issued during any 
calendar year which may be designated under subsection (a) by 
any issuer shall not exceed the limitation amount allocated 
under subsection (d) for such calendar year to such issuer.
    ``(c) National Limitation on Amount of Bonds Designated.--
There is a national additional qualified zone academy bond 
limitation for each calendar year. Such limitation is--
            ``(1) $5,000,000,000 for 2001,
            ``(2) $5,000,000,000 for 2002, and
            ``(3) $5,000,000,000 for 2003,
            ``(4) except as provided in subsection (e), zero 
        after 2003.
    ``(d) Limitation Allocated Among States.--
            ``(1) In general.--
                    ``(A) Allocation on the basis of 
                population.--50 percent of the limitation 
                applicable under subsection (c) for any 
                calendar year shall be allocated before such 
                calendar year by the Secretary among the States 
                on the basis of their respective populations.
                    ``(B) Allocation on the basis of poverty.--
                50 percent of the limitation applicable under 
                subsection (c) for any calendar year shall be 
                allocated before such calendar year by the 
                Secretary among the States on the basis of 
                their respective populations of individuals 
                below the poverty line (as defined by the 
                Office of Management and Budget).
                    ``(C) Minimum allocations to small 
                states.--The Secretary shall adjust the 
                allocations under this subsection for any 
                calendar year for each State to the extent 
                necessary to ensure that the amount allocated 
                to such State under this subsection for such 
                year is not less than $25,000,000.
                    ``(D) Use of census data.--Determinations 
                under this subsection shall be made on the 
                basis of the most recently available census 
                data.
            ``(2) Allocation within the state.--
                    ``(A) In general.--Except as otherwise 
                provided in subparagraph (B), the limitation 
                allocated to any State may be allocated among 
                governmental units in such State having 
                authority to issue such bonds as provided by 
                State law (or, in absence of State law, by the 
                Governor of such State).
                    ``(B) Minimum allocations to large local 
                educational agencies.--In no event may the 
                limitation for any calendar year allocated to 
                any large local educational agency in a State 
                be less than the sum of--
                            ``(i) an amount which bears the 
                        same ratio to 50 percent of such 
                        limitation as the population within the 
                        area under the jurisdiction of such 
                        agency bears to the population of the 
                        entire State, and
                            ``(ii) an amount which bears the 
                        same ratio to 50 percent of such 
                        limitation as the population within the 
                        area under the jurisdiction of such 
                        agency below the poverty line (as 
                        defined by the Office of Management and 
                        Budget) bears to such population of the 
                        entire State.
            ``(3) Allocations for indian schools.--In addition 
        to the amounts otherwise allocated under this 
        subsection, $200,000,000 (in the aggregate for calendar 
        years 2001, 2002, and 2003) shall be allocated by the 
        Secretary (after consultation with the Secretary of the 
        Interior) for purposes of the construction, 
        rehabilitation, and repair of schools operated by or on 
        behalf of an Indian tribal government (within the 
        meaning of section 7871). In the case of amounts 
        allocated under the preceding sentence, Indian tribal 
        governments (as so defined) shall be treated as 
        qualified issuers for purposes of this part.
            ``(4) Required state allocation plans.--
                    ``(A) In general.--Notwithstanding any 
                other provision of this section, the limitation 
                for any State shall be zero unless the 
                limitation is allocated within such State 
                pursuant to a qualified allocation plan.
                    ``(B) Qualified allocation plan.--For 
                purposes of subparagraph (A), the term 
                `qualified allocation plan' means any plan 
                which--
                            ``(i) identifies the State's needs 
                        for public school facilities (including 
                        descriptions of the capacity of public 
                        schools in the State to house projected 
                        enrollments), particular financing 
                        difficulties being encountered by local 
                        school districts in the State, and 
                        health and safety problems at existing 
                        facilities, and
                            ``(ii) describes how the State will 
                        allocate to local educational agencies, 
                        or otherwise use, its allocation under 
                        this section to address the needs 
                        identified under clause (i), including 
                        a description of how it will--
                                    ``(I) ensure that the needs 
                                of rural, urban, and suburban 
                                areas will be recognized,
                                    ``(II) ensure that the 
                                needs of localities with the 
                                greatest needs, as demonstrated 
                                by inadequate school facilities 
                                coupled with low level of 
                                resources, will be met, and
                                    ``(III) give priority to 
                                the role of charter schools in 
                                achieving State educational 
                                objectives.
                    ``(C) Application of paragraph.--This 
                paragraph shall apply to allocations after more 
                than 6 months after the date of the enactment 
                of this paragraph.
            ``(5) Large local educational agency.--For purposes 
        of this section, the term `large local educational 
        agency' means, with respect to a calendar year, any 
        local educational agency with at least 40,000 children 
        who have attained age 5 but not age 18 for the most 
        recent fiscal year ending before such calendar year.
    ``(e) Carryover of Unused Limitation.--
            ``(1) In general.--If for any calendar year--
                    ``(A) the amount allocated under subsection 
                (d) to any State, exceeds
                    ``(B) the amount of bonds issued during 
                such year which are designated under subsection 
                (a) pursuant to such allocation,
        the limitation amount under such subsection for such 
        State for the following calendar year shall be 
        increased by the amount of such excess.
            ``(2) 2-year carryforward.--Any carryforward of a 
        limitation amount may be carried only to the first 2 
        years following the unused limitation year. For 
        purposes of the preceding sentence, a limitation amount 
        shall be treated as used on a first-in first-out basis.
            ``(3) Allocations for indian schools.--Rules 
        similar to paragraphs (1) and (2) shall apply to the 
        amounts allocated under subsection (d)(3); except that 
        2003 shall be treated as the unused limitation year.''
    (d) Reporting.--Subsection (d) of section 6049 (relating to 
returns regarding payments of interest) is amended by adding at 
the end the following new paragraph:
            ``(8) Reporting of credit on qualified zone academy 
        bonds.--
                    ``(A) In general.--For purposes of 
                subsection (a), the term `interest' includes 
                amounts includible in gross income under 
                section 1397E(i) and such amounts shall be 
                treated as paid on the credit allowance date 
                (as defined in section 1397E(d)(2)).
                    ``(B) Reporting to corporations, etc.--
                Except as otherwise provided in regulations, in 
                the case of any interest described in 
                subparagraph (A) of this paragraph, subsection 
                (b)(4) of this section shall be applied without 
                regard to subparagraphs (A), (H), (I), (J), 
                (K), and (L)(i).
                    ``(C) Regulatory authority.--The Secretary 
                may prescribe such regulations as are necessary 
                or appropriate to carry out the purposes of 
                this paragraph, including regulations which 
                require more frequent or more detailed 
                reporting.''
    (e) Conforming Amendments.--
            (1) Subsections (f), (g), and (h) of section 1397E 
        (as in effect on the day before the date of the 
        enactment of this Act) are hereby repealed.
            (2) Subchapter U of chapter 1 of such Code is 
        amended by redesignating section 1397F (as in effect on 
        the day before the date of the enactment of this Act) 
        as section 1397H.
            (3) The table of parts of subchapter U of chapter 1 
        of such Code is amended by striking the item relating 
        to part IV and inserting the following item:

        ``Part IV. Education bond provisions.''

    (f) Effective Dates.--
            (1) In general.--Except as otherwise provided in 
        this subsection, the amendments made by this section 
        shall apply to obligations issued after December 31, 
        2000.
            (2) Modification of restriction on zone academy 
        bond holders.--In the case of bonds to which section 
        1397E of the Internal Revenue Code of 1986 (as in 
        effect before the date of the enactment of this Act) 
        applies, the limitation of such section to corporations 
        actively engaged in the business of lending money shall 
        not apply after the date of the enactment of this Act.

                   TITLE VI--COMMUNITY REVITALIZATION

           Subtitle A--Tax Incentives for Renewal Communities

SEC. 601. DESIGNATION OF AND TAX INCENTIVES FOR RENEWAL COMMUNITIES.

    (a) In General.--Chapter 1 is amended by adding at the end 
the following new subchapter:

                  ``Subchapter X--Renewal Communities

        ``Part   I. Designation.
        ``Part  II. Renewal community capital gain; renewal community 
                  business.
        ``Part  III. Additional incentives.

                         ``PART I--DESIGNATION

        ``Sec. 1400E. Designation of renewal communities.

``SEC. 1400E. DESIGNATION OF RENEWAL COMMUNITIES.

    ``(a) Designation.--
            ``(1) Definitions.--For purposes of this title, the 
        term `renewal community' means any area--
                    ``(A) which is nominated by 1 or more local 
                governments and the State or States in which it 
                is located for designation as a renewal 
                community (hereafter in this section referred 
                to as a `nominated area'), and
                    ``(B) which the Secretary of Housing and 
                Urban Development designates as a renewal 
                community, after consultation with--
                            ``(i) the Secretaries of 
                        Agriculture, Commerce, Labor, and the 
                        Treasury; the Director of the Office of 
                        Management and Budget, and the 
                        Administrator of the Small Business 
                        Administration, and
                            ``(ii) in the case of an area on an 
                        Indian reservation, the Secretary of 
                        the Interior.
            ``(2) Number of designations.--
                    ``(A) In general.--Not more than 40 
                nominated areas may be designated as renewal 
                communities.
                    ``(B) Minimum designation in rural areas.--
                Of the areas designated under paragraph (1), at 
                least 12 must be areas--
                            ``(i) which are within a local 
                        government jurisdiction or 
                        jurisdictions with a population of less 
                        than 50,000,
                            ``(ii) which are outside of a 
                        metropolitan statistical area (within 
                        the meaning of section 143(k)(2)(B)), 
                        or
                            ``(iii) which are determined by the 
                        Secretary of Housing and Urban 
                        Development, after consultation with 
                        the Secretary of Commerce, to be rural 
                        areas.
                One of such 12 areas shall be an area within 
                Mississippi, to be designated by the State of 
                Mississippi, that includes at least 1 census 
                tract within Madison County, Mississippi.
            ``(3) Areas designated based on degree of poverty, 
        etc.--
                    ``(A) In general.--Except as otherwise 
                provided in this section, the nominated areas 
                designated as renewal communities under this 
                subsection shall be those nominated areas with 
                the highest average ranking with respect to the 
                criteria described in subparagraphs (B), (C), 
                and (D) of subsection (c)(3). For purposes of 
                the preceding sentence, an area shall be ranked 
                within each such criterion on the basis of the 
                amount by which the area exceeds such 
                criterion, with the area which exceeds such 
                criterion by the greatest amount given the 
                highest ranking.
                    ``(B) Exception where inadequate course of 
                action, etc.--An area shall not be designated 
                under subparagraph (A) if the Secretary of 
                Housing and Urban Development determines that 
                the course of action described in subsection 
                (d)(2) with respect to such area is inadequate.
                    ``(C) Preference for enterprise communities 
                and empowerment zones.--With respect to the 
                first 20 designations made under this section, 
                a preference shall be provided to those 
                nominated areas which are enterprise 
                communities or empowerment zones (and are 
                otherwise eligible for designation under this 
                section).
            ``(4) Limitation on designations.--
                    ``(A) Publication of regulations.--The 
                Secretary of Housing and Urban Development 
                shall prescribe by regulation no later than 4 
                months after the date of the enactment of this 
                section, after consultation with the officials 
                described in paragraph (1)(B)--
                            ``(i) the procedures for nominating 
                        an area under paragraph (1)(A),
                            ``(ii) the parameters relating to 
                        the size and population characteristics 
                        of a renewal community, and
                            ``(iii) the manner in which 
                        nominated areas will be evaluated based 
                        on the criteria specified in subsection 
                        (d).
                    ``(B) Time limitations.--The Secretary of 
                Housing and Urban Development may designate 
                nominated areas as renewal communities only 
                during the period beginning on the first day of 
                the first month following the month in which 
                the regulations described in subparagraph (A) 
                are prescribed and ending on December 31, 2001.
                    ``(C) Procedural rules.--The Secretary of 
                Housing and Urban Development shall not make 
                any designation of a nominated area as a 
                renewal community under paragraph (2) unless--
                            ``(i) the local governments and the 
                        States in which the nominated area is 
                        located have the authority--
                                    ``(I) to nominate such area 
                                for designation as a renewal 
                                community,
                                    ``(II) to make the State 
                                and local commitments described 
                                in subsection (d), and
                                    ``(III) to provide 
                                assurances satisfactory to the 
                                Secretary of Housing and Urban 
                                Development that such 
                                commitments will be fulfilled,
                            ``(ii) a nomination regarding such 
                        area is submitted in such a manner and 
                        in such form, and contains such 
                        information, as the Secretary of 
                        Housing and Urban Development shall by 
                        regulation prescribe, and
                            ``(iii) the Secretary of Housing 
                        and Urban Development determines that 
                        any information furnished is reasonably 
                        accurate.
            ``(5) Nomination process for indian reservations.--
        For purposes of this subchapter, in the case of a 
        nominated area on an Indian reservation, the 
        reservation governing body (as determined by the 
        Secretary of the Interior) shall be treated as being 
        both the State and local governments with respect to 
        such area.
    ``(b) Period for Which Designation Is in Effect.--
            ``(1) In general.--Any designation of an area as a 
        renewal community shall remain in effect during the 
        period beginning on January 1, 2002, and ending on the 
        earliest of--
                    ``(A) December 31, 2009,
                    ``(B) the termination date designated by 
                the State and local governments in their 
                nomination, or
                    ``(C) the date the Secretary of Housing and 
                Urban Development revokes such designation.
            ``(2) Revocation of designation.--The Secretary of 
        Housing and Urban Development may revoke the 
        designation under this section of an area if such 
        Secretary determines that the local government or the 
        State in which the area is located--
                    ``(A) has modified the boundaries of the 
                area, or
                    ``(B) is not complying substantially with, 
                or fails to make progress in achieving, the 
                State or local commitments, respectively, 
                described in subsection (d).
            ``(3) Earlier termination of certain benefits if 
        earlier termination of designation.--If the designation 
        of an area as a renewal community terminates before 
        December 31, 2009, the day after the date of such 
        termination shall be substituted for `January 1, 2010' 
        each place it appears in sections 1400F and 1400J with 
        respect to such area.
    ``(c) Area and Eligibility Requirements.--
            ``(1) In general.--The Secretary of Housing and 
        Urban Development may designate a nominated area as a 
        renewal community under subsection (a) only if the area 
        meets the requirements of paragraphs (2) and (3) of 
        this subsection.
            ``(2) Area requirements.--A nominated area meets 
        the requirements of this paragraph if--
                    ``(A) the area is within the jurisdiction 
                of one or more local governments,
                    ``(B) the boundary of the area is 
                continuous, and
                    ``(C) the area--
                            ``(i) has a population of not more 
                        than 200,000 and at least--
                                    ``(I) 4,000 if any portion 
                                of such area (other than a 
                                rural area described in 
                                subsection (a)(2)(B)(i)) is 
                                located within a metropolitan 
                                statistical area (within the 
                                meaning of section 
                                143(k)(2)(B)) which has a 
                                population of 50,000 or 
                                greater, or
                                    ``(II) 1,000 in any other 
                                case, or
                            ``(ii) is entirely within an Indian 
                        reservation (as determined by the 
                        Secretary of the Interior).
            ``(3) Eligibility requirements.--A nominated area 
        meets the requirements of this paragraph if the State 
        and the local governments in which it is located 
        certify in writing (and the Secretary of Housing and 
        Urban Development, after such review of supporting data 
        as he deems appropriate, accepts such certification) 
        that--
                    ``(A) the area is one of pervasive poverty, 
                unemployment, and general distress;
                    ``(B) the unemployment rate in the area, as 
                determined by the most recent available data, 
                was at least 1\1/2\ times the national 
                unemployment rate for the period to which such 
                data relate;
                    ``(C) the poverty rate for each population 
                census tract within the nominated area is at 
                least 20 percent; and
                    ``(D) in the case of an urban area, at 
                least 70 percent of the households living in 
                the area have incomes below 80 percent of the 
                median income of households within the 
                jurisdiction of the local government 
                (determined in the same manner as under section 
                119(b)(2) of the Housing and Community 
                Development Act of 1974).
            ``(4) Consideration of other factors.--The 
        Secretary of Housing and Urban Development, in 
        selecting any nominated area for designation as a 
        renewal community under this section--
                    ``(A) shall take into account--
                            ``(i) the extent to which such area 
                        has a high incidence of crime, or
                            ``(ii) if such area has census 
                        tracts identified in the May 12, 1998, 
                        report of the General Accounting Office 
                        regarding the identification of 
                        economically distressed areas, and
                    ``(B) with respect to 1 of the areas to be 
                designated under subsection (a)(2)(B), may, in 
                lieu of any criteria described in paragraph 
                (3), take into account the existence of 
                outmigration from the area.
    ``(d) Required State and Local Commitments.--
            ``(1) In general.--The Secretary of Housing and 
        Urban Development may designate any nominated area as a 
        renewal community under subsection (a) only if--
                    ``(A) the local government and the State in 
                which the area is located agree in writing 
                that, during any period during which the area 
                is a renewal community, such governments will 
                follow a specified course of action which meets 
                the requirements of paragraph (2) and is 
                designed to reduce the various burdens borne by 
                employers or employees in such area, and
                    ``(B) the economic growth promotion 
                requirements of paragraph (3) are met.
            ``(2) Course of action.--
                    ``(A) In general.--A course of action meets 
                the requirements of this paragraph if such 
                course of action is a written document, signed 
                by a State (or local government) and 
                neighborhood organizations, which evidences a 
                partnership between such State or government 
                and community-based organizations and which 
                commits each signatory to specific and 
                measurable goals, actions, and timetables. Such 
                course of action shall include at least 4 of 
                the following:
                            ``(i) A reduction of tax rates or 
                        fees applying within the renewal 
                        community.
                            ``(ii) An increase in the level of 
                        efficiency of local services within the 
                        renewal community.
                            ``(iii) Crime reduction strategies, 
                        such as crime prevention (including the 
                        provision of crime prevention services 
                        by nongovernmental entities).
                            ``(iv) Actions to reduce, remove, 
                        simplify, or streamline governmental 
                        requirements applying within the 
                        renewal community.
                            ``(v) Involvement in the program by 
                        private entities, organizations, 
                        neighborhood organizations, and 
                        community groups, particularly those in 
                        the renewal community, including a 
                        commitment from such private entities 
                        to provide jobs and job training for, 
                        and technical, financial, or other 
                        assistance to, employers, employees, 
                        and residents from the renewal 
                        community.
                            ``(vi) The gift (or sale at below 
                        fair market value) of surplus real 
                        property (such as land, homes, and 
                        commercial or industrial structures) in 
                        the renewal community to neighborhood 
                        organizations, community development 
                        corporations, or private companies.
                    ``(B) Recognition of past efforts.--For 
                purposes of this section, in evaluating the 
                course of action agreed to by any State or 
                local government, the Secretary of Housing and 
                Urban Development shall take into account the 
                past efforts of such State or local government 
                in reducing the various burdens borne by 
                employers and employees in the area involved.
            ``(3) Economic growth promotion requirements.--The 
        economic growth promotion requirements of this 
        paragraph are met with respect to a nominated area if 
        the local government and the State in which such area 
        is located certify in writing that such government and 
        State (respectively) have repealed or reduced, will not 
        enforce, or will reduce within the nominated area at 
        least 4 of the following:
                    ``(A) Licensing requirements for 
                occupations that do not ordinarily require a 
                professional degree.
                    ``(B) Zoning restrictions on home-based 
                businesses which do not create a public 
                nuisance.
                    ``(C) Permit requirements for street 
                vendors who do not create a public nuisance.
                    ``(D) Zoning or other restrictions that 
                impede the formation of schools or child care 
                centers.
                    ``(E) Franchises or other restrictions on 
                competition for businesses providing public 
                services, including taxicabs, jitneys, cable 
                television, or trash hauling.
        This paragraph shall not apply to the extent that such 
        regulation of businesses and occupations is necessary 
        for and well-tailored to the protection of health and 
        safety.
    ``(e) Coordination With Treatment of Empowerment Zones and 
Enterprise Communities.--For purposes of this title, the 
designation under section 1391 of any area as an empowerment 
zone or enterprise community shall cease to be in effect as of 
the date that the designation of any portion of such area as a 
renewal community takes effect.
    ``(f ) Definitions and Special Rules.--For purposes of this 
subchapter--
            ``(1) Governments.--If more than one government 
        seeks to nominate an area as a renewal community, any 
        reference to, or requirement of, this section shall 
        apply to all such governments.
            ``(2) Local government.--The term `local 
        government' means--
                    ``(A) any county, city, town, township, 
                parish, village, or other general purpose 
                political subdivision of a State, and
                    ``(B) any combination of political 
                subdivisions described in subparagraph (A) 
                recognized by the Secretary of Housing and 
                Urban Development.
            ``(3) Application of rules relating to census 
        tracts.--The rules of section 1392(b)(4) shall apply.
            ``(4) Census data.--Population and poverty rate 
        shall be determined by using 1990 census data.
    ``(g) Priority for District of Columbia Nominated Area.--
For purposes of this subchapter--
            ``(1) In general.--One nominated area within the 
        District of Columbia shall be treated for purposes of 
        subsection (a)(3) as having the highest average with 
        respect to the criteria described in subparagraphs (B), 
        (C), and (D) of subsection (c)(3).
            ``(2) Date of designation.--Notwithstanding 
        subsection (b)(1), the designation of a nominated area 
        within the District of Columbia as a renewal community 
        shall take effect on January 1, 2003.
            ``(3) Nomination.--The District of Columbia shall 
        be treated as being both a State and local government 
        with respect to such area.

 ``PART II--RENEWAL COMMUNITY CAPITAL GAIN; RENEWAL COMMUNITY BUSINESS

        ``Sec. 1400F. Renewal community capital gain.
        ``Sec. 1400G. Renewal community business defined.

``SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.

    ``(a) General Rule.--Gross income does not include any 
qualified capital gain from the sale or exchange of a qualified 
community asset held for more than 5 years.
    ``(b) Qualified Community Asset.--For purposes of this 
section--
            ``(1) In general.--The term `qualified community 
        asset' means--
                    ``(A) any qualified community stock,
                    ``(B) any qualified community partnership 
                interest, and
                    ``(C) any qualified community business 
                property.
            ``(2) Qualified community stock.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified community 
                stock' means any stock in a domestic 
                corporation if--
                            ``(i) such stock is acquired by the 
                        taxpayer after December 31, 2001, and 
                        before January 1, 2010, at its original 
                        issue (directly or through an 
                        underwriter) from the corporation 
                        solely in exchange for cash,
                            ``(ii) as of the time such stock 
                        was issued, such corporation was a 
                        renewal community business (or, in the 
                        case of a new corporation, such 
                        corporation was being organized for 
                        purposes of being a renewal community 
                        business), and
                            ``(iii) during substantially all of 
                        the taxpayer's holding period for such 
                        stock, such corporation qualified as a 
                        renewal community business.
                    ``(B) Redemptions.--A rule similar to the 
                rule of section 1202(c)(3) shall apply for 
                purposes of this paragraph.
            ``(3) Qualified community partnership interest.--
        The term `qualified community partnership interest' 
        means any capital or profits interest in a domestic 
        partnership if--
                    ``(A) such interest is acquired by the 
                taxpayer after December 31, 2001, and before 
                January 1, 2010, from the partnership solely in 
                exchange for cash,
                    ``(B) as of the time such interest was 
                acquired, such partnership was a renewal 
                community business (or, in the case of a new 
                partnership, such partnership was being 
                organized for purposes of being a renewal 
                community business), and
                    ``(C) during substantially all of the 
                taxpayer's holding period for such interest, 
                such partnership qualified as a renewal 
                community business.
        A rule similar to the rule of paragraph (2)(B) shall 
        apply for purposes of this paragraph.
            ``(4) Qualified community business property.--
                    ``(A) In general.--The term `qualified 
                community business property' means tangible 
                property if--
                            ``(i) such property was acquired by 
                        the taxpayer by purchase (as defined in 
                        section 179(d)(2)) after December 31, 
                        2001, and before January 1, 2010,
                            ``(ii) the original use of such 
                        property in the renewal community 
                        commences with the taxpayer, and
                            ``(iii) during substantially all of 
                        the taxpayer's holding period for such 
                        property, substantially all of the use 
                        of such property was in a renewal 
                        community business of the taxpayer.
                    ``(B) Special rule for substantial 
                improvements.--The requirements of clauses (i) 
                and (ii) of subparagraph (A) shall be treated 
                as satisfied with respect to--
                            ``(i) property which is 
                        substantially improved by the taxpayer 
                        before January 1, 2010, and
                            ``(ii) any land on which such 
                        property is located.
                The determination of whether a property is 
                substantially improved shall be made under 
                clause (ii) of section 1400B(b)(4)(B), except 
                that `December 31, 2001' shall be substituted 
                for `December 31, 1997' in such clause.
    ``(c) Qualified Capital Gain.--For purposes of this 
section--
            ``(1) In general.--Except as otherwise provided in 
        this subsection, the term `qualified capital gain` 
        means any gain recognized on the sale or exchange of--
                    ``(A) a capital asset, or
                    ``(B) property used in the trade or 
                business (as defined in section 1231(b)).
            ``(2) Gain before 2002 or after 2014 not 
        qualified.--The term `qualified capital gain' shall not 
        include any gain attributable to periods before January 
        1, 2002, or after December 31, 2014.
            ``(3) Certain rules to apply.--Rules similar to the 
        rules of paragraphs (3), (4), and (5) of section 
        1400B(e) shall apply for purposes of this subsection.
    ``(d) Certain Rules To Apply.--For purposes of this 
section, rules similar to the rules of paragraphs (5), (6), and 
(7) of subsection (b), and subsections (f ) and (g), of section 
1400B shall apply; except that for such purposes section 
1400B(g)(2) shall be applied by substituting `January 1, 2002' 
for `January 1, 1998' and `December 31, 2014' for `December 31, 
2007'.
    ``(e) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out the purposes of 
this section, including regulations to prevent the avoidance of 
the purposes of this section.

``SEC. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.

    ``For purposes of this subchapter, the term `renewal 
community business' means any entity or proprietorship which 
would be a qualified business entity or qualified 
proprietorship under section 1397C if references to renewal 
communities were substituted for references to empowerment 
zones in such section.

                   ``PART III--ADDITIONAL INCENTIVES

        ``Sec. 1400H. Renewal community employment credit.
        ``Sec. 1400I. Commercial revitalization deduction.
        ``Sec. 1400J. Increase in expensing under section 179.

``SEC. 1400H. RENEWAL COMMUNITY EMPLOYMENT CREDIT.

    ``(a) In General.--Subject to the modification in 
subsection (b), a renewal community shall be treated as an 
empowerment zone for purposes of section 1396 with respect to 
wages paid or incurred after December 31, 2001.
    ``(b) Modification.--In applying section 1396 with respect 
to renewal communities--
            ``(1) the applicable percentage shall be 15 
        percent, and
            ``(2) subsection (c) thereof shall be applied by 
        substituting `$10,000' for `$15,000' each place it 
        appears.

``SEC. 1400I. COMMERCIAL REVITALIZATION DEDUCTION.

    ``(a) General Rule.--At the election of the taxpayer, 
either--
            ``(1) one-half of any qualified revitalization 
        expenditures chargeable to capital account with respect 
        to any qualified revitalization building shall be 
        allowable as a deduction for the taxable year in which 
        the building is placed in service, or
            ``(2) a deduction for all such expenditures shall 
        be allowable ratably over the 120-month period 
        beginning with the month in which the building is 
        placed in service.
    ``(b) Qualified Revitalization Buildings and 
Expenditures.--For purposes of this section--
            ``(1) Qualified revitalization building.--The term 
        `qualified revitalization building' means any building 
        (and its structural components) if--
                    ``(A) the building is placed in service by 
                the taxpayer in a renewal community and the 
                original use of the building begins with the 
                taxpayer, or
                    ``(B) in the case of such building not 
                described in subparagraph (A), such building--
                            ``(i) is substantially 
                        rehabilitated (within the meaning of 
                        section 47(c)(1)(C)) by the taxpayer, 
                        and
                            ``(ii) is placed in service by the 
                        taxpayer after the rehabilitation in a 
                        renewal community.
            ``(2) Qualified revitalization expenditure.--
                    ``(A) In general.--The term `qualified 
                revitalization expenditure' means any amount 
                properly chargeable to capital account for 
                property for which depreciation is allowable 
                under section 168 (without regard to this 
                section) and which is--
                            ``(i) nonresidential real property 
                        (as defined in section 168(e)), or
                            ``(ii) section 1250 property (as 
                        defined in section 1250(c)) which is 
                        functionally related and subordinate to 
                        property described in clause (i).
                    ``(B) Certain expenditures not included.--
                            ``(i) Acquisition cost.--In the 
                        case of a building described in 
                        paragraph (1)(B), the cost of acquiring 
                        the building or interest therein shall 
                        be treated as a qualified 
                        revitalization expenditure only to the 
                        extent that such cost does not exceed 
                        30 percent of the aggregate qualified 
                        revitalization expenditures (determined 
                        without regard to such cost) with 
                        respect to such building.
                            ``(ii) Credits.--The term 
                        `qualified revitalization expenditure' 
                        does not include any expenditure which 
                        the taxpayer may take into account in 
                        computing any credit allowable under 
                        this title unless the taxpayer elects 
                        to take the expenditure into account 
                        only for purposes of this section.
    ``(c) Dollar limitation.--The aggregate amount which may be 
treated as qualified revitalization expenditures with respect 
to any qualified revitalization building shall not exceed the 
lesser of--
            ``(1) $10,000,000, or
            ``(2) the commercial revitalization expenditure 
        amount allocated to such building under this section by 
        the commercial revitalization agency for the State in 
        which the building is located.
    ``(d) Commercial Revitalization Expenditure Amount.--
            ``(1) In general.--The aggregate commercial 
        revitalization expenditure amount which a commercial 
        revitalization agency may allocate for any calendar 
        year is the amount of the State commercial 
        revitalization expenditure ceiling determined under 
        this paragraph for such calendar year for such agency.
            ``(2) State commercial revitalization expenditure 
        ceiling.--The State commercial revitalization 
        expenditure ceiling applicable to any State--
                    ``(A) for each calendar year after 2001 and 
                before 2010 is $12,000,000 for each renewal 
                community in the State, and
                    ``(B) for each calendar year thereafter is 
                zero.
            ``(3) Commercial revitalization agency.--For 
        purposes of this section, the term `commercial 
        revitalization agency' means any agency authorized by a 
        State to carry out this section.
            ``(4) Time and manner of allocations.--Allocations 
        under this section shall be made at the same time and 
        in the same manner as under paragraphs (1) and (7) of 
        section 42(h).
    ``(e) Responsibilities of Commercial Revitalization 
Agencies.--
            ``(1) Plans for allocation.--Notwithstanding any 
        other provision of this section, the commercial 
        revitalization expenditure amount with respect to any 
        building shall be zero unless--
                    ``(A) such amount was allocated pursuant to 
                a qualified allocation plan of the commercial 
                revitalization agency which is approved (in 
                accordance with rules similar to the rules of 
                section 147(f )(2) (other than subparagraph 
                (B)(ii) thereof)) by the governmental unit of 
                which such agency is a part; and
                    ``(B) such agency notifies the chief 
                executive officer (or its equivalent) of the 
                local jurisdiction within which the building is 
                located of such allocation and provides such 
                individual a reasonable opportunity to comment 
                on the allocation.
            ``(2) Qualified allocation plan.--For purposes of 
        this subsection, the term `qualified allocation plan' 
        means any plan--
                    ``(A) which sets forth selection criteria 
                to be used to determine priorities of the 
                commercial revitalization agency which are 
                appropriate to local conditions,
                    ``(B) which considers--
                            ``(i) the degree to which a project 
                        contributes to the implementation of a 
                        strategic plan that is devised for a 
                        renewal community through a citizen 
                        participation process,
                            ``(ii) the amount of any increase 
                        in permanent, full-time employment by 
                        reason of any project, and
                            ``(iii) the active involvement of 
                        residents and nonprofit groups within 
                        the renewal community, and
                    ``(C) which provides a procedure that the 
                agency (or its agent) will follow in monitoring 
                compliance with this section.
    ``(f) Special Rules.--
            ``(1) Deduction in lieu of depreciation.--The 
        deduction provided by this section for qualified 
        revitalization expenditures shall--
                    ``(A) with respect to the deduction 
                determined under subsection (a)(1), be in lieu 
                of any depreciation deduction otherwise 
                allowable on account of one-half of such 
                expenditures, and
                    ``(B) with respect to the deduction 
                determined under subsection (a)(2), be in lieu 
                of any depreciation deduction otherwise 
                allowable on account of all of such 
                expenditures.
            ``(2) Basis adjustment, etc.--For purposes of 
        sections 1016 and 1250, the deduction under this 
        section shall be treated in the same manner as a 
        depreciation deduction. For purposes of section 
        1250(b)(5), the straight line method of adjustment 
        shall be determined without regard to this section.
            ``(3) Substantial rehabilitations treated as 
        separate buildings.--A substantial rehabilitation 
        (within the meaning of section 47(c)(1)(C)) of a 
        building shall be treated as a separate building for 
        purposes of subsection (a).
            ``(4) Clarification of allowance of deduction under 
        minimum tax.--Notwithstanding section 56(a)(1), the 
        deduction under this section shall be allowed in 
        determining alternative minimum taxable income under 
        section 55.
    ``(g) Termination.--This section shall not apply to any 
building placed in service after December 31, 2009.

``SEC. 1400J. INCREASE IN EXPENSING UNDER SECTION 179.

    ``(a) In General.--For purposes of section 1397A--
            ``(1) a renewal community shall be treated as an 
        empowerment zone,
            ``(2) a renewal community business shall be treated 
        as an enterprise zone business, and
            ``(3) qualified renewal property shall be treated 
        as qualified zone property.
    ``(b) Qualified Renewal Property.--For purposes of this 
section--
            ``(1) In general.--The term `qualified renewal 
        property' means any property to which section 168 
        applies (or would apply but for section 179) if--
                    ``(A) such property was acquired by the 
                taxpayer by purchase (as defined in section 
                179(d)(2)) after December 31, 2001, and before 
                January 1, 2010, and
                    ``(B) such property would be qualified zone 
                property (as defined in section 1397D) if 
                references to renewal communities were 
                substituted for references to empowerment zones 
                in section 1397D.
            ``(2) Certain rules to apply.--The rules of 
        subsections (a)(2) and (b) of section 1397D shall apply 
        for purposes of this section.''.
    (b) Exception for Commercial Revitalization Deduction From 
Passive Loss Rules.--
            (1) Paragraph (3) of section 469(i) is amended by 
        redesignating subparagraphs (C), (D), and (E) as 
        subparagraphs (D), (E), and (F), respectively, and by 
        inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) Exception for commercial 
                revitalization deduction.--Subparagraph (A) 
                shall not apply to any portion of the passive 
                activity loss for any taxable year which is 
                attributable to the commercial revitalization 
                deduction under section 1400I.''.
            (2) Subparagraph (E) of section 469(i)(3), as 
        redesignated by subparagraph (A), is amended to read as 
        follows:
                    ``(E) Ordering rules to reflect exceptions 
                and separate phase-outs.--If subparagraph (B), 
                (C), or (D) applies for a taxable year, 
                paragraph (1) shall be applied--
                            ``(i) first to the portion of the 
                        passive activity loss to which 
                        subparagraph (C) does not apply,
                            ``(ii) second to the portion of the 
                        passive activity credit to which 
                        subparagraph (B) or (D) does not apply,
                            ``(iii) third to the portion of 
                        such credit to which subparagraph (B) 
                        applies,
                            ``(iv) fourth to the portion of 
                        such loss to which subparagraph (C) 
                        applies, and
                            ``(v) then to the portion of such 
                        credit to which subparagraph (D) 
                        applies.''.
            (3)(A) Subparagraph (B) of section 469(i)(6) is 
        amended by striking ``or'' at the end of clause (i), by 
        striking the period at the end of clause (ii) and 
        inserting ``, or'', and by adding at the end the 
        following new clause:
                            ``(iii) any deduction under section 
                        1400I (relating to commercial 
                        revitalization deduction).''.
            (B) The heading for such subparagraph (B) is 
        amended by striking ``or rehabilitation credit'' and 
        inserting ``, rehabilitation credit, or commercial 
        revitalization deduction''.
    (c) Audit and Report.--Not later than January 31 of 2004, 
2007, and 2010, the Comptroller General of the United States 
shall, pursuant to an audit of the renewal community program 
established under section 1400E of the Internal Revenue Code of 
1986 (as added by subsection (a)) and the empowerment zone and 
enterprise community program under subchapter U of chapter 1 of 
such Code, report to Congress on such program and its effect on 
poverty, unemployment, and economic growth within the 
designated renewal communities, empowerment zones, and 
enterprise communities.
    (d) Clerical Amendment.--The table of subchapters for 
chapter 1 is amended by adding at the end the following new 
item:

                 ``Subchapter X. Renewal Communities.''.

SEC. 602. WORK OPPORTUNITY CREDIT FOR HIRING YOUTH RESIDING IN RENEWAL 
                    COMMUNITIES.

    (a) High-Risk Youth.--Subparagraphs (A)(ii) and (B) of 
section 51(d)(5) are each amended by striking ``empowerment 
zone or enterprise community'' and inserting ``empowerment 
zone, enterprise community, or renewal community''.
    (b) Qualified Summer Youth Employee.--Clause (iv) of 
section 51(d)(7)(A) is amended by striking ``empowerment zone 
or enterprise community'' and inserting ``empowerment zone, 
enterprise community, or renewal community''.
    (c) Headings.--Paragraphs (5)(B) and (7)(C) of section 
51(d) are each amended by inserting ``or community'' in the 
heading after ``zone''.
    (d) Effective Date.--The amendments made by this section 
shall apply to individuals who begin work for the employer 
after December 31, 2001.

   Subtitle B--Extension and Expansion of Empowerment Zone Incentives

SEC. 611. AUTHORITY TO DESIGNATE 9 ADDITIONAL EMPOWERMENT ZONES.

    Section 1391 is amended by adding at the end the following 
new subsection:
    ``(h) Additional Designations Permitted.--
            ``(1) In general.--In addition to the areas 
        designated under subsections (a) and (g), the 
        appropriate Secretaries may designate in the aggregate 
        an additional 9 nominated areas as empowerment zones 
        under this section, subject to the availability of 
        eligible nominated areas. Of that number, not more than 
        seven may be designated in urban areas and not more 
        than 2 may be designated in rural areas.
            ``(2) Period designations may be made and take 
        effect.--A designation may be made under this 
        subsection after the date of the enactment of this 
        subsection and before January 1, 2002. Subject to 
        subparagraphs (B) and (C) of subsection (d)(1), such 
        designations shall remain in effect during the period 
        beginning on January 1, 2002, and ending on December 
        31, 2009.
            ``(3) Modifications to eligibility criteria, etc.--
        The rules of subsection (g)(3) shall apply to 
        designations under this subsection.''.

SEC. 612. EXTENSION OF EMPOWERMENT ZONE TREATMENT THROUGH 2009.

    Subparagraph (A) of section 1391(d)(1) (relating to period 
for which designation is in effect) is amended to read as 
follows:
                    ``(A)(i) in the case of an empowerment 
                zone, December 31, 2009, or
                    ``(ii) in the case of an enterprise 
                community, the close of the 10th calendar year 
                beginning on or after such date of 
                designation,''.

SEC. 613. 20 PERCENT EMPLOYMENT CREDIT FOR ALL EMPOWERMENT ZONES

    (a) 20 Percent Credit.--Subsection (b) of section 1396 
(relating to empowerment zone employment credit) is amended to 
read as follows:
    ``(b) Applicable Percentage.--For purposes of this section, 
the applicable percentage is 20 percent.''.
    (b) All Empowerment Zones Eligible for Credit.--Section 
1396 is amended by striking subsection (e).
    (c) Conforming Amendment.--Subsection (d) of section 1400 
is amended to read as follows:
    ``(d) Special Rule for Application of Employment Credit.--
With respect to the DC Zone, section 1396(d)(1)(B) (relating to 
empowerment zone employment credit) shall be applied by 
substituting `the District of Columbia' for `such empowerment 
zone'.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to wages paid or incurred after December 31, 2001.

SEC. 614. INCREASED EXPENSING UNDER SECTION 179.

    (a) In General.--Subparagraph (A) of section 1397A(a)(1) is 
amended by striking ``$20,000'' and inserting ``$35,000''.
    (b) Expensing for Property Used in Developable Sites.--
Section 1397A is amended by striking subsection (c).
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2001.

SEC. 615. HIGHER LIMITS ON TAX-EXEMPT EMPOWERMENT ZONE FACILITY BONDS.

    (a) In General.--Paragraph (3) of section 1394(f) (relating 
to bonds for empowerment zones designated under section 
1391(g)) is amended to read as follows:
            ``(3) Empowerment zone facility bond.--For purposes 
        of this subsection, the term `empowerment zone facility 
        bond' means any bond which would be described in 
        subsection (a) if--
                    ``(A) in the case of obligations issued 
                before January 1, 2002, only empowerment zones 
                designated under section 1391(g) were taken 
                into account under sections 1397C and 1397D, 
                and
                    ``(B) in the case of obligations issued 
                after December 31, 2001, all empowerment zones 
                (other than the District of Columbia) were 
                taken into account under sections 1397C and 
                1397D.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to obligations issued after December 31, 2001.

SEC. 616. NONRECOGNITION OF GAIN ON ROLLOVER OF EMPOWERMENT ZONE 
                    INVESTMENTS.

    (a) In General.--Part III of subchapter U of chapter 1 is 
amended--
            (1) by redesignating subpart C as subpart D;
            (2) by redesignating sections 1397B and 1397C as 
        sections 1397C and 1397D, respectively; and
            (3) by inserting after subpart B the following new 
        subpart:

  ``Subpart C--Nonrecognition of Gain on Rollover of Empowerment Zone 
                              Investments

        ``Sec. 1397B. Nonrecognition of Gain on Rollover of Empowerment 
                  Zone Investments.

``SEC. 1397B. NONRECOGNITION OF GAIN ON ROLLOVER OF EMPOWERMENT ZONE 
                    INVESTMENTS.

    ``(a) Nonrecognition of Gain.--In the case of any sale of a 
qualified empowerment zone asset held by the taxpayer for more 
than 1 year and with respect to which such taxpayer elects the 
application of this section, gain from such sale shall be 
recognized only to the extent that the amount realized on such 
sale exceeds--
            ``(1) the cost of any qualified empowerment zone 
        asset (with respect to the same zone as the asset sold) 
        purchased by the taxpayer during the 60-day period 
        beginning on the date of such sale, reduced by
            ``(2) any portion of such cost previously taken 
        into account under this section.
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified empowerment zone asset.--
                    ``(A) In general.--The term `qualified 
                empowerment zone asset' means any property 
                which would be a qualified community asset (as 
                defined in section 1400F) if in section 1400F--
                            ``(i) references to empowerment 
                        zones were substituted for references 
                        to renewal communities,
                            ``(ii) references to enterprise 
                        zone businesses (as defined in section 
                        1397C) were substituted for references 
                        to renewal community businesses, and
                            ``(iii) the date of the enactment 
                        of this paragraph were substituted for 
                        `December 31, 2001' each place it 
                        appears.
                    ``(B) Treatment of dc zone.--The District 
                of Columbia Enterprise Zone shall not be 
                treated as an empowerment zone for purposes of 
                this section.
            ``(2) Certain gain not eligible for rollover.--This 
        section shall not apply to--
                    ``(A) any gain which is treated as ordinary 
                income for purposes of this subtitle, and
                    ``(B) any gain which is attributable to 
                real property, or an intangible asset, which is 
                not an integral part of an enterprise zone 
                business.
            ``(3) Purchase.--A taxpayer shall be treated as 
        having purchased any property if, but for paragraph 
        (4), the unadjusted basis of such property in the hands 
        of the taxpayer would be its cost (within the meaning 
        of section 1012).
            ``(4) Basis adjustments.--If gain from any sale is 
        not recognized by reason of subsection (a), such gain 
        shall be applied to reduce (in the order acquired) the 
        basis for determining gain or loss of any qualified 
        empowerment zone asset which is purchased by the 
        taxpayer during the 60-day period described in 
        subsection (a). This paragraph shall not apply for 
        purposes of section 1202.
            ``(5) Holding period.--For purposes of determining 
        whether the nonrecognition of gain under subsection (a) 
        applies to any qualified empowerment zone asset which 
        is sold--
                    ``(A) the taxpayer's holding period for 
                such asset and the asset referred to in 
                subsection (a)(1) shall be determined without 
                regard to section 1223, and
                    ``(B) only the first year of the taxpayer's 
                holding period for the asset referred to in 
                subsection (a)(1) shall be taken into account 
                for purposes of paragraphs (2)(A)(iii), (3)(C), 
                and (4)(A)(iii) of section 1400F(b).''.
    (b) Conforming Amendments.--
            (1) Paragraph (23) of section 1016(a) is amended--
                    (A) by striking ``or 1045'' and inserting 
                ``1045, or 1397B'', and
                    (B) by striking ``or 1045(b)(4)'' and 
                inserting ``1045(b)(4), or 1397B(b)(4)''.
            (2) Paragraph (15) of section 1223 is amended to 
        read as follows:
            ``(15) Except for purposes of sections 1202(a)(2), 
        1202(c)(2)(A), 1400B(b), and 1400F(b), in determining 
        the period for which the taxpayer has held property the 
        acquisition of which resulted under section 1045 or 
        1397B in the nonrecognition of any part of the gain 
        realized on the sale of other property, there shall be 
        included the period for which such other property has 
        been held as of the date of such sale.''.
            (3) Paragraph (2) of section 1394(b) is amended--
                    (A) by striking ``section 1397C'' and 
                inserting ``section 1397D'', and
                    (B) by striking ``section 1397C(a)(2)'' and 
                inserting ``section 1397D(a)(2)''.
            (4) Paragraph (3) of section 1394(b) is amended--
                    (A) by striking ``section 1397B'' each 
                place it appears and inserting ``section 
                1397C'', and
                    (B) by striking ``section 1397B(d)'' and 
                inserting ``section 1397C(d)''.
            (5) Sections 1400(e) and 1400B(c) are each amended 
        by striking ``section 1397B'' each place it appears and 
        inserting ``section 1397C''.
            (6) The table of subparts for part III of 
        subchapter U of chapter 1 is amended by striking the 
        last item and inserting the following new items:

        ``Subpart C. Nonrecognition of gain on rollover of empowerment 
                  zone investments.
        ``Subpart D. General provisions.''.

            (7) The table of sections for subpart D of such 
        part III is amended to read as follows:

        ``Sec. 1397C. Enterprise zone business defined.
        ``Sec. 1397D. Qualified zone property defined.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to qualified empowerment zone assets acquired after 
the date of the enactment of this Act.

SEC. 617. INCREASED EXCLUSION OF GAIN ON SALE OF EMPOWERMENT ZONE 
                    STOCK.

    (a) In General.--Subsection (a) of section 1202 is amended 
to read as follows:
    ``(a) Exclusion.--
            ``(1) In general.--In the case of a taxpayer other 
        than a corporation, gross income shall not include 50 
        percent of any gain from the sale or exchange of 
        qualified small business stock held for more than 5 
        years.
            ``(2) Empowerment zone businesses.--
                    ``(A) In general.--In the case of qualified 
                small business stock acquired after the date of 
                the enactment of this paragraph in a 
                corporation which is a qualified business 
                entity (as defined in section 1397C(b)) during 
                substantially all of the taxpayer's holding 
                period for such stock, paragraph (1) shall be 
                applied by substituting `60 percent' for `50 
                percent'.
                    ``(B) Certain rules to apply.--Rules 
                similar to the rules of paragraphs (5) and (7) 
                of section 1400B(b) shall apply for purposes of 
                this paragraph.
                    ``(C) Gain after 2014 not qualified.--
                Subparagraph (A) shall not apply to gain 
                attributable to periods after December 31, 
                2014.
                    ``(D) Treatment of dc zone.--The District 
                of Columbia Enterprise Zone shall not be 
                treated as an empowerment zone for purposes of 
                this paragraph.''.
    (b) Conforming Amendment.--Paragraph (8) of section 1(h) is 
amended by striking ``means'' and all that follows and 
inserting ``means the excess of--
                    ``(A) the gain which would be excluded from 
                gross income under section 1202 but for the 
                percentage limitation in section 1202(a), over
                    ``(B) the gain excluded from gross income 
                under section 1202.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to stock acquired after the date of the enactment 
of this Act.

                   Subtitle C--New Markets Tax Credit

SEC. 621. NEW MARKETS TAX CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of 
chapter 1 (relating to business-related credits) is amended by 
adding at the end the following new section:

``SEC. 45D. NEW MARKETS TAX CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--For purposes of section 38, in 
        the case of a taxpayer who holds a qualified equity 
        investment on a credit allowance date of such 
        investment which occurs during the taxable year, the 
        new markets tax credit determined under this section 
        for such taxable year is an amount equal to the 
        applicable percentage of the amount paid to the 
        qualified community development entity for such 
        investment at its original issue.
            ``(2) Applicable percentage.--For purposes of 
        paragraph (1), the applicable percentage is--
                    ``(A) 5 percent with respect to the first 3 
                credit allowance dates, and
                    ``(B) 6 percent with respect to the 
                remainder of the credit allowance dates.
            ``(3) Credit allowance date.--For purposes of 
        paragraph (1), the term `credit allowance date' means, 
        with respect to any qualified equity investment--
                    ``(A) the date on which such investment is 
                initially made, and
                    ``(B) each of the 6 anniversary dates of 
                such date thereafter.
    ``(b) Qualified Equity Investment.--For purposes of this 
section--
            ``(1) In general.--The term `qualified equity 
        investment' means any equity investment in a qualified 
        community development entity if--
                    ``(A) such investment is acquired by the 
                taxpayer at its original issue (directly or 
                through an underwriter) solely in exchange for 
                cash,
                    ``(B) substantially all of such cash is 
                used by the qualified community development 
                entity to make qualified low-income community 
                investments, and
                    ``(C) such investment is designated for 
                purposes of this section by the qualified 
                community development entity.
        Such term shall not include any equity investment 
        issued by a qualified community development entity more 
        than 5 years after the date that such entity receives 
        an allocation under subsection (f). Any allocation not 
        used within such 5-year period may be reallocated by 
        the Secretary under subsection (f).
            ``(2) Limitation.--The maximum amount of equity 
        investments issued by a qualified community development 
        entity which may be designated under paragraph (1)(C) 
        by such entity shall not exceed the portion of the 
        limitation amount allocated under subsection (f) to 
        such entity.
            ``(3) Safe harbor for determining use of cash.--The 
        requirement of paragraph (1)(B) shall be treated as met 
        if at least 85 percent of the aggregate gross assets of 
        the qualified community development entity are invested 
        in qualified low-income community investments.
            ``(4) Treatment of subsequent purchasers.--The term 
        `qualified equity investment' includes any equity 
        investment which would (but for paragraph (1)(A)) be a 
        qualified equity investment in the hands of the 
        taxpayer if such investment was a qualified equity 
        investment in the hands of a prior holder.
            ``(5) Redemptions.--A rule similar to the rule of 
        section 1202(c)(3) shall apply for purposes of this 
        subsection.
            ``(6) Equity investment.--The term `equity 
        investment' means--
                    ``(A) any stock (other than nonqualified 
                preferred stock as defined in section 
                351(g)(2)) in an entity which is a corporation, 
                and
                    ``(B) any capital interest in an entity 
                which is a partnership.
    ``(c) Qualified Community Development Entity.--For purposes 
of this section--
            ``(1) In general.--The term `qualified community 
        development entity' means any domestic corporation or 
        partnership if--
                    ``(A) the primary mission of the entity is 
                serving, or providing investment capital for, 
                low-income communities or low-income persons,
                    ``(B) the entity maintains accountability 
                to residents of low-income communities through 
                their representation on any governing board of 
                the entity or on any advisory board to the 
                entity, and
                    ``(C) the entity is certified by the 
                Secretary for purposes of this section as being 
                a qualified community development entity.
            ``(2) Special rules for certain organizations.--The 
        requirements of paragraph (1) shall be treated as met 
        by--
                    ``(A) any specialized small business 
                investment company (as defined in section 
                1044(c)(3)), and
                    ``(B) any community development financial 
                institution (as defined in section 103 of the 
                Community Development Banking and Financial 
                Institutions Act of 1994 (12 U.S.C. 4702)).
    ``(d) Qualified Low-Income Community Investments.--For 
purposes of this section--
            ``(1) In general.--The term `qualified low-income 
        community investment' means--
                    ``(A) any equity investment in, or loan to, 
                any qualified active low-income community 
                business,
                    ``(B) the purchase from another community 
                development entity of any loan made by such 
                entity which is a qualified low-income 
                community investment,
                    ``(C) financial counseling and other 
                services specified in regulations prescribed by 
                the Secretary to businesses located in, and 
                residents of, low-income communities, and
                    ``(D) any equity investment in, or loan to, 
                any qualified community development entity.
            ``(2) Qualified active low-income community 
        business.--
                    ``(A) In general.--For purposes of 
                paragraph (1), the term `qualified active low-
                income community business' means, with respect 
                to any taxable year, any corporation (including 
                a nonprofit corporation) or partnership if for 
                such year--
                            ``(i) at least 50 percent of the 
                        total gross income of such entity is 
                        derived from the active conduct of a 
                        qualified business within any low-
                        income community,
                            ``(ii) a substantial portion of the 
                        use of the tangible property of such 
                        entity (whether owned or leased) is 
                        within any low-income community,
                            ``(iii) a substantial portion of 
                        the services performed for such entity 
                        by its employees are performed in any 
                        low-income community,
                            ``(iv) less than 5 percent of the 
                        average of the aggregate unadjusted 
                        bases of the property of such entity is 
                        attributable to collectibles (as 
                        defined in section 408(m)(2)) other 
                        than collectibles that are held 
                        primarily for sale to customers in the 
                        ordinary course of such business, and
                            ``(v) less than 5 percent of the 
                        average of the aggregate unadjusted 
                        bases of the property of such entity is 
                        attributable to nonqualified financial 
                        property (as defined in section 
                        1397C(e)).
                    ``(B) Proprietorship.--Such term shall 
                include any business carried on by an 
                individual as a proprietor if such business 
                would meet the requirements of subparagraph (A) 
                were it incorporated.
                    ``(C) Portions of business may be qualified 
                active low-income community business.--The term 
                `qualified active low-income community 
                business' includes any trades or businesses 
                which would qualify as a qualified active low-
                income community business if such trades or 
                businesses were separately incorporated.
            ``(3) Qualified business.--For purposes of this 
        subsection, the term `qualified business' has the 
        meaning given to such term by section 1397C(d); except 
        that--
                    ``(A) in lieu of applying paragraph (2)(B) 
                thereof, the rental to others of real property 
                located in any low-income community shall be 
                treated as a qualified business if there are 
                substantial improvements located on such 
                property, and
                    ``(B) paragraph (3) thereof shall not 
                apply.
    ``(e) Low-Income Community.--For purposes of this section--
            ``(1) In general.--The term `low-income community' 
        means any population census tract if--
                    ``(A) the poverty rate for such tract is at 
                least 20 percent, or
                    ``(B)(i) in the case of a tract not located 
                within a metropolitan area, the median family 
                income for such tract does not exceed 80 
                percent of statewide median family income, or
                    ``(ii) in the case of a tract located 
                within a metropolitan area, the median family 
                income for such tract does not exceed 80 
                percent of the greater of statewide median 
                family income or the metropolitan area median 
                family income.
            ``(2) Targeted areas.--The Secretary may designate 
        any area within any census tract as a low-income 
        community if--
                    ``(A) the boundary of such area is 
                continuous,
                    ``(B) the area would satisfy the 
                requirements of paragraph (1) if it were a 
                census tract, and
                    ``(C) an inadequate access to investment 
                capital exists in such area.
            ``(3) Areas not within census tracts.--In the case 
        of an area which is not tracted for population census 
        tracts, the equivalent county divisions (as defined by 
        the Bureau of the Census for purposes of defining 
        poverty areas) shall be used for purposes of 
        determining poverty rates and median family income.
    ``(f) National Limitation on Amount of Investments 
Designated.--
            ``(1) In general.--There is a new markets tax 
        credit limitation for each calendar year. Such 
        limitation is--
                    ``(A) $1,000,000,000 for 2001,
                    ``(B) $1,500,000,000 for 2002 and 2003,
                    ``(C) $2,000,000,000 for 2004 and 2005, and
                    ``(D) $3,500,000,000 for 2006 and 2007.
            ``(2) Allocation of limitation.--The limitation 
        under paragraph (1) shall be allocated by the Secretary 
        among qualified community development entities selected 
        by the Secretary. In making allocations under the 
        preceding sentence, the Secretary shall give priority 
        to any entity--
                    ``(A) with a record of having successfully 
                provided capital or technical assistance to 
                disadvantaged businesses or communities, or
                    ``(B) which intends to satisfy the 
                requirement under subsection (b)(1)(B) by 
                making qualified low-income community 
                investments in 1 or more businesses in which 
                persons unrelated to such entity (within the 
                meaning of section 267(b) or 707(b)(1)) hold 
                the majority equity interest.
            ``(3) Carryover of unused limitation.--If the new 
        markets tax credit limitation for any calendar year 
        exceeds the aggregate amount allocated under paragraph 
        (2) for such year, such limitation for the succeeding 
        calendar year shall be increased by the amount of such 
        excess. No amount may be carried under the preceding 
        sentence to any calendar year after 2014.
    ``(g) Recapture of Credit In Certain Cases.--
            ``(1) In general.--If, at any time during the 7-
        year period beginning on the date of the original issue 
        of a qualified equity investment in a qualified 
        community development entity, there is a recapture 
        event with respect to such investment, then the tax 
        imposed by this chapter for the taxable year in which 
        such event occurs shall be increased by the credit 
        recapture amount.
            ``(2) Credit recapture amount.--For purposes of 
        paragraph (1), the credit recapture amount is an amount 
        equal to the sum of--
                    ``(A) the aggregate decrease in the credits 
                allowed to the taxpayer under section 38 for 
                all prior taxable years which would have 
                resulted if no credit had been determined under 
                this section with respect to such investment, 
                plus
                    ``(B) interest at the underpayment rate 
                established under section 6621 on the amount 
                determined under subparagraph (A) for each 
                prior taxable year for the period beginning on 
                the due date for filing the return for the 
                prior taxable year involved.
        No deduction shall be allowed under this chapter for 
        interest described in subparagraph (B).
            ``(3) Recapture event.--For purposes of paragraph 
        (1), there is a recapture event with respect to an 
        equity investment in a qualified community development 
        entity if--
                    ``(A) such entity ceases to be a qualified 
                community development entity,
                    ``(B) the proceeds of the investment cease 
                to be used as required of subsection (b)(1)(B), 
                or
                    ``(C) such investment is redeemed by such 
                entity.
            ``(4) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the 
                taxable year shall be increased under paragraph 
                (1) only with respect to credits allowed by 
                reason of this section which were used to 
                reduce tax liability. In the case of credits 
                not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 
                shall be appropriately adjusted.
                    ``(B) No credits against tax.--Any increase 
                in tax under this subsection shall not be 
                treated as a tax imposed by this chapter for 
                purposes of determining the amount of any 
                credit under this chapter or for purposes of 
                section 55.
    ``(h) Basis Reduction.--The basis of any qualified equity 
investment shall be reduced by the amount of any credit 
determined under this section with respect to such investment. 
This subsection shall not apply for purposes of sections 1202, 
1400B, and 1400F.
    ``(i) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out this section, 
including regulations--
            ``(1) which limit the credit for investments which 
        are directly or indirectly subsidized by other Federal 
        tax benefits (including the credit under section 42 and 
        the exclusion from gross income under section 103),
            ``(2) which prevent the abuse of the purposes of 
        this section,
            ``(3) which provide rules for determining whether 
        the requirement of subsection (b)(1)(B) is treated as 
        met,
            ``(4) which impose appropriate reporting 
        requirements, and
            ``(5) which apply the provisions of this section to 
        newly formed entities.''.
    (b) Credit Made Part of General Business Credit.--
            (1) In general.--Subsection (b) of section 38 is 
        amended by striking ``plus'' at the end of paragraph 
        (11), by striking the period at the end of paragraph 
        (12) and inserting ``, plus'', and by adding at the end 
        the following new paragraph:
            ``(13) the new markets tax credit determined under 
        section 45D(a).''.
            (2) Limitation on carryback.--Subsection (d) of 
        section 39 is amended by adding at the end the 
        following new paragraph:
            ``(9) No carryback of new markets tax credit before 
        january 1, 2001.--No portion of the unused business 
        credit for any taxable year which is attributable to 
        the credit under section 45D may be carried back to a 
        taxable year ending before January 1, 2001.''.
    (c) Deduction for Unused Credit.--Subsection (c) of section 
196 is amended by striking ``and'' at the end of paragraph (7), 
by striking the period at the end of paragraph (8) and 
inserting ``, and'', and by adding at the end the following new 
paragraph:
            ``(9) the new markets tax credit determined under 
        section 45D(a).''.
    (d) Clerical Amendment.--The table of sections for subpart 
D of part IV of subchapter A of chapter 1 is amended by adding 
at the end the following new item:

        ``Sec. 45D. New markets tax credit.''.

    (e) Effective Date.--The amendments made by this section 
shall apply to investments made after December 31, 2000.
    (f) Guidance on Allocation of National Limitation.--Not 
later than 120 days after the date of the enactment of this 
Act, the Secretary of the Treasury or the Secretary's delegate 
shall issue guidance which specifies--
            (1) how entities shall apply for an allocation 
        under section 45D(f)(2) of the Internal Revenue Code of 
        1986, as added by this section;
            (2) the competitive procedure through which such 
        allocations are made; and
            (3) the actions that such Secretary or delegate 
        shall take to ensure that such allocations are properly 
        made to appropriate entities.
    (g) Audit and Report.--Not later than January 31 of 2004, 
2007, and 2010, the Comptroller General of the United States 
shall, pursuant to an audit of the new markets tax credit 
program established under section 45D of the Internal Revenue 
Code of 1986 (as added by subsection (a)), report to Congress 
on such program, including all qualified community development 
entities that receive an allocation under the new markets 
credit under such section.

         Subtitle D--Improvements in Low-Income Housing Credit

SEC. 631. MODIFICATION OF STATE CEILING ON LOW-INCOME HOUSING CREDIT.

    (a) In General.--Clauses (i) and (ii) of section 
42(h)(3)(C) (relating to State housing credit ceiling) are 
amended to read as follows:
                            ``(i) the unused State housing 
                        credit ceiling (if any) of such State 
                        for the preceding calendar year,
                            ``(ii) the greater of--
                                    ``(I) $1.75 ($1.50 for 
                                2001) multiplied by the State 
                                population, or
                                    ``(II) $2,000,000,''.
    (b) Adjustment of State Ceiling for Increases in Cost-of-
Living.--Paragraph (3) of section 42(h) (relating to housing 
credit dollar amount for agencies) is amended by adding at the 
end the following new subparagraph:
                    ``(H) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of a 
                        calendar year after 2002, the 
                        $2,000,000 and $1.75 amounts in 
                        subparagraph (C) shall each be 
                        increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for such 
                                calendar year by substituting 
                                `calendar year 2001' for 
                                `calendar year 1992' in 
                                subparagraph (B) thereof.
                            ``(ii) Rounding.--
                                    ``(I) In the case of the 
                                $2,000,000 amount, any increase 
                                under clause (i) which is not a 
                                multiple of $5,000 shall be 
                                rounded to the next lowest 
                                multiple of $5,000.
                                    ``(II) In the case of the 
                                $1.75 amount, any increase 
                                under clause (i) which is not a 
                                multiple of 5 cents shall be 
                                rounded to the next lowest 
                                multiple of 5 cents.''.
    (c) Conforming Amendments.--
            (1) Section 42(h)(3)(C), as amended by subsection 
        (a), is amended--
                    (A) by striking ``clause (ii)'' in the 
                matter following clause (iv) and inserting 
                ``clause (i)''; and
                    (B) by striking ``clauses (i)'' in the 
                matter following clause (iv) and inserting 
                ``clauses (ii)''.
            (2) Section 42(h)(3)(D)(ii) is amended--
                    (A) by striking ``subparagraph (C)(ii)'' 
                and inserting ``subparagraph (C)(i)''; and
                    (B) by striking ``clauses (i)'' in 
                subclause (II) and inserting ``clauses (ii)''.
    (d) Effective Date.--The amendments made by this section 
shall apply to calendar years after 2000.

SEC. 632. MODIFICATION OF CRITERIA FOR ALLOCATING HOUSING CREDITS AMONG 
                    PROJECTS.

    (a) Selection Criteria.--Subparagraph (C) of section 
42(m)(1) (relating to certain selection criteria must be used) 
is amended--
            (1) by inserting ``, including whether the project 
        includes the use of existing housing as part of a 
        community revitalization plan'' before the comma at the 
        end of clause (iii); and
            (2) by striking clauses (v), (vi), and (vii) and 
        inserting the following new clauses:
                            ``(v) tenant populations with 
                        special housing needs,
                            ``(vi) public housing waiting 
                        lists,
                            ``(vii) tenant populations of 
                        individuals with children, and
                            ``(viii) projects intended for 
                        eventual tenant ownership.''.
    (b) Preference for Community Revitalization Projects 
Located in Qualified Census Tracts.--Clause (ii) of section 
42(m)(1)(B) is amended by striking ``and'' at the end of 
subclause (I), by adding ``and'' at the end of subclause (II), 
and by inserting after subclause (II) the following new 
subclause:
                                    ``(III) projects which are 
                                located in qualified census 
                                tracts (as defined in 
                                subsection (d)(5)(C)) and the 
                                development of which 
                                contributes to a concerted 
                                community revitalization 
                                plan,''.

SEC. 633. ADDITIONAL RESPONSIBILITIES OF HOUSING CREDIT AGENCIES.

    (a) Market Study; Public Disclosure of Rationale for Not 
Following Credit Allocation Priorities.--Subparagraph (A) of 
section 42(m)(1) (relating to responsibilities of housing 
credit agencies) is amended by striking ``and'' at the end of 
clause (i), by striking the period at the end of clause (ii) 
and inserting a comma, and by adding at the end the following 
new clauses:
                            ``(iii) a comprehensive market 
                        study of the housing needs of low-
                        income individuals in the area to be 
                        served by the project is conducted 
                        before the credit allocation is made 
                        and at the developer's expense by a 
                        disinterested party who is approved by 
                        such agency, and
                            ``(iv) a written explanation is 
                        available to the general public for any 
                        allocation of a housing credit dollar 
                        amount which is not made in accordance 
                        with established priorities and 
                        selection criteria of the housing 
                        credit agency.''.
    (b) Site Visits.--Clause (iii) of section 42(m)(1)(B) 
(relating to qualified allocation plan) is amended by inserting 
before the period ``and in monitoring for noncompliance with 
habitability standards through regular site visits''.

SEC. 634. MODIFICATIONS TO RULES RELATING TO BASIS OF BUILDING WHICH IS 
                    ELIGIBLE FOR CREDIT.

    (a) Adjusted Basis To Include Portion of Certain Buildings 
Used by Low-Income Individuals Who Are Not Tenants and by 
Project Employees.--Paragraph (4) of section 42(d) (relating to 
special rules relating to determination of adjusted basis) is 
amended--
            (1) by striking ``subparagraph (B)'' in 
        subparagraph (A) and inserting ``subparagraphs (B) and 
        (C)'';
            (2) by redesignating subparagraph (C) as 
        subparagraph (D); and
            (3) by inserting after subparagraph (B) the 
        following new subparagraph:
                    ``(C) Inclusion of basis of property used 
                to provide services for certain nontenants.--
                            ``(i) In general.--The adjusted 
                        basis of any building located in a 
                        qualified census tract (as defined in 
                        paragraph (5)(C)) shall be determined 
                        by taking into account the adjusted 
                        basis of property (of a character 
                        subject to the allowance for 
                        depreciation and not otherwise taken 
                        into account) used throughout the 
                        taxable year in providing any community 
                        service facility.
                            ``(ii) Limitation.--The increase in 
                        the adjusted basis of any building 
                        which is taken into account by reason 
                        of clause (i) shall not exceed 10 
                        percent of the eligible basis of the 
                        qualified low-income housing project of 
                        which it is a part. For purposes of the 
                        preceding sentence, all community 
                        service facilities which are part of 
                        the same qualified low-income housing 
                        project shall be treated as one 
                        facility.
                            ``(iii) Community service 
                        facility.--For purposes of this 
                        subparagraph, the term `community 
                        service facility' means any facility 
                        designed to serve primarily individuals 
                        whose income is 60 percent or less of 
                        area median income (within the meaning 
                        of subsection (g)(1)(B)).''.
    (b) Certain Native American Housing Assistance Disregarded 
in Determining Whether Building Is Federally Subsidized for 
Purposes of the Low-Income Housing Credit.--Subparagraph (E) of 
section 42(i)(2) (relating to determination of whether building 
is federally subsidized) is amended--
            (1) in clause (i), by inserting ``or the Native 
        American Housing Assistance and Self-Determination Act 
        of 1996 (25 U.S.C. 4101 et seq.) (as in effect on 
        October 1, 1997)'' after ``this subparagraph)''; and
            (2) in the subparagraph heading, by inserting ``or 
        native american housing assistance'' after ``home 
        assistance''.

SEC. 635. OTHER MODIFICATIONS.

    (a) Allocation of Credit Limit to Certain Buildings.--
            (1) The first sentence of section 42(h)(1)(E)(ii) 
        is amended by striking ``(as of'' the first place it 
        appears and inserting ``(as of the later of the date 
        which is 6 months after the date that the allocation 
        was made or''.
            (2) The last sentence of section 42(h)(3)(C) is 
        amended by striking ``project which'' and inserting 
        ``project which fails to meet the 10 percent test under 
        paragraph (1)(E)(ii) on a date after the close of the 
        calendar year in which the allocation was made or 
        which''.
    (b) Determination of Whether Buildings Are Located in High 
Cost Areas.--The first sentence of section 42(d)(5)(C)(ii)(I) 
is amended--
            (1) by inserting ``either'' before ``in which 50 
        percent''; and
            (2) by inserting before the period ``or which has a 
        poverty rate of at least 25 percent''.

SEC. 636. CARRYFORWARD RULES.

    (a) In General.--Clause (ii) of section 42(h)(3)(D) 
(relating to unused housing credit carryovers allocated among 
certain States) is amended by striking ``the excess'' and all 
that follows and inserting ``the excess (if any) of--
                                    ``(I) the unused State 
                                housing credit ceiling for the 
                                year preceding such year, over
                                    ``(II) the aggregate 
                                housing credit dollar amount 
                                allocated for such year.''.
    (b) Conforming Amendment.--The second sentence of section 
42(h)(3)(C) (relating to State housing credit ceiling) is 
amended by striking ``clauses (i) and (iii)'' and inserting 
``clauses (i) through (iv)''.

SEC. 637. EFFECTIVE DATE.

    Except as otherwise provided in this title, the amendments 
made by this title shall apply to--
            (1) housing credit dollar amounts allocated after 
        December 31, 2000; and
            (2) buildings placed in service after such date to 
        the extent paragraph (1) of section 42(h) of the 
        Internal Revenue Code of 1986 does not apply to any 
        building by reason of paragraph (4) thereof, but only 
        with respect to bonds issued after such date.

     Subtitle E--Other Community Renewal and New Markets Assistance

SEC. 641. TRANSFER OF UNOCCUPIED AND SUBSTANDARD HUD-HELD HOUSING TO 
                    LOCAL GOVERNMENTS AND COMMUNITY DEVELOPMENT 
                    CORPORATIONS.

    Section 204 of the Departments of Veterans Affairs and 
Housing and Urban Development, and Independent Agencies 
Appropriations Act, 1997 (12 U.S.C. 1715z-11a) is amended--
            (1) by striking ``Flexible Authority.--'' and 
        inserting ``Disposition of HUD-Owned Properties. (a) 
        Flexible Authority for Multifamily Projects.--''; and
            (2) by adding at the end the following new 
        subsection:
    ``(b) Transfer of Unoccupied and Substandard Housing to 
Local Governments and Community Development Corporations.--
            ``(1) Transfer authority.--Notwithstanding the 
        authority under subsection (a) and the last sentence of 
        section 204(g) of the National Housing Act (12 U.S.C. 
        1710(g)), the Secretary of Housing and Urban 
        Development shall transfer ownership of any qualified 
        HUD property, subject to the requirements of this 
        section, to a unit of general local government having 
        jurisdiction for the area in which the property is 
        located or to a community development corporation which 
        operates within such a unit of general local government 
        in accordance with this subsection, but only to the 
        extent that units of general local government and 
        community development corporations consent to transfer 
        and the Secretary determines that such transfer is 
        practicable.
            ``(2) Qualified hud properties.--For purposes of 
        this subsection, the term `qualified HUD property' 
        means any property for which, as of the date that 
        notification of the property is first made under 
        paragraph (3)(B), not less than 6 months have elapsed 
        since the later of the date that the property was 
        acquired by the Secretary or the date that the property 
        was determined to be unoccupied or substandard, that is 
        owned by the Secretary and is--
                    ``(A) an unoccupied multifamily housing 
                project;
                    ``(B) a substandard multifamily housing 
                project; or
                    ``(C) an unoccupied single family property 
                that--
                            ``(i) has been determined by the 
                        Secretary not to be an eligible asset 
                        under section 204(h) of the National 
                        Housing Act (12 U.S.C. 1710(h)); or
                            ``(ii) is an eligible asset under 
                        such section 204(h), but--
                                    ``(I) is not subject to a 
                                specific sale agreement under 
                                such section; and
                                    ``(II) has been determined 
                                by the Secretary to be 
                                inappropriate for continued 
                                inclusion in the program under 
                                such section 204(h) pursuant to 
                                paragraph (10) of such section.
            ``(3) Timing.--The Secretary shall establish 
        procedures that provide for--
                    ``(A) time deadlines for transfers under 
                this subsection;
                    ``(B) notification to units of general 
                local government and community development 
                corporations of qualified HUD properties in 
                their jurisdictions;
                    ``(C) such units and corporations to 
                express interest in the transfer under this 
                subsection of such properties;
                    ``(D) a right of first refusal for transfer 
                of qualified HUD properties to units of general 
                local government and community development 
                corporations, under which--
                            ``(i) the Secretary shall establish 
                        a period during which the Secretary may 
                        not transfer such properties except to 
                        such units and corporations;
                            ``(ii) the Secretary shall offer 
                        qualified HUD properties that are 
                        single family properties for purchase 
                        by units of general local government at 
                        a cost of $1 for each property, but 
                        only to the extent that the costs to 
                        the Federal Government of disposal at 
                        such price do not exceed the costs to 
                        the Federal Government of disposing of 
                        property subject to the procedures for 
                        single family property established by 
                        the Secretary pursuant to the authority 
                        under the last sentence of section 
                        204(g) of the National Housing Act (12 
                        U.S.C. 1710(g));
                            ``(iii) the Secretary may accept an 
                        offer to purchase a property made by a 
                        community development corporation only 
                        if the offer provides for purchase on a 
                        cost recovery basis; and
                            ``(iv) the Secretary shall accept 
                        an offer to purchase such a property 
                        that is made during such period by such 
                        a unit or corporation and that complies 
                        with the requirements of this 
                        paragraph;
                    ``(E) a written explanation, to any unit of 
                general local government or community 
                development corporation making an offer to 
                purchase a qualified HUD property under this 
                subsection that is not accepted, of the reason 
                that such offer was not acceptable.
            ``(4) Other disposition.--With respect to any 
        qualified HUD property, if the Secretary does not 
        receive an acceptable offer to purchase the property 
        pursuant to the procedure established under paragraph 
        (3), the Secretary shall dispose of the property to the 
        unit of general local government in which property is 
        located or to community development corporations 
        located in such unit of general local government on a 
        negotiated, competitive bid, or other basis, on such 
        terms as the Secretary deems appropriate.
            ``(5) Satisfaction of indebtedness.--Before 
        transferring ownership of any qualified HUD property 
        pursuant to this subsection, the Secretary shall 
        satisfy any indebtedness incurred in connection with 
        the property to be transferred, by canceling the 
        indebtedness.
            ``(6) Determination of status of properties.--To 
        ensure compliance with the requirements of this 
        subsection, the Secretary shall take the following 
        actions:
                    ``(A) Upon enactment.--Upon the enactment 
                of this subsection, the Secretary shall 
                promptly assess each residential property owned 
                by the Secretary to determine whether such 
                property is a qualified HUD property.
                    ``(B) Upon acquisition.--Upon acquiring any 
                residential property, the Secretary shall 
                promptly determine whether the property is a 
                qualified HUD property.
                    ``(C) Updates.--The Secretary shall 
                periodically reassess the residential 
                properties owned by the Secretary to determine 
                whether any such properties have become 
                qualified HUD properties.
            ``(7) Tenant leases.--This subsection shall not 
        affect the terms or the enforceability of any contract 
        or lease entered into with respect to any residential 
        property before the date that such property becomes a 
        qualified HUD property.
            ``(8) Use of property.--Property transferred under 
        this subsection shall be used only for appropriate 
        neighborhood revitalization efforts, including 
        homeownership, rental units, commercial space, and 
        parks, consistent with local zoning regulations, local 
        building codes, and subdivision regulations and 
        restrictions of record.
            ``(9) Inapplicability to properties made available 
        for homeless.--Notwithstanding any other provision of 
        this subsection, this subsection shall not apply to any 
        properties that the Secretary determines are to be made 
        available for use by the homeless pursuant to subpart E 
        of part 291 of title 24, Code of Federal Regulations, 
        during the period that the properties are so available.
            ``(10) Protection of existing contracts.--This 
        subsection may not be construed to alter, affect, or 
        annul any legally binding obligations entered into with 
        respect to a qualified HUD property before the property 
        becomes a qualified HUD property.
            ``(11) Definitions.--For purposes of this 
        subsection, the following definitions shall apply:
                    ``(A) Community development corporation.--
                The term `community development corporation' 
                means a nonprofit organization whose primary 
                purpose is to promote community development by 
                providing housing opportunities for low-income 
                families.
                    ``(B) Cost recovery basis.--The term `cost 
                recovery basis' means, with respect to any sale 
                of a residential property by the Secretary, 
                that the purchase price paid by the purchaser 
                is equal to or greater than the sum of: (i) the 
                appraised value of the property, as determined 
                in accordance with such requirements as the 
                Secretary shall establish; and (ii) the costs 
                incurred by the Secretary in connection with 
                such property during the period beginning on 
                the date on which the Secretary acquires title 
                to the property and ending on the date on which 
                the sale is consummated.
                    ``(C) Multifamily housing project.--The 
                term `multifamily housing project' has the 
                meaning given the term in section 203 of the 
                Housing and Community Development Amendments of 
                1978.
                    ``(D) Residential property.--The term 
                `residential property' means a property that is 
                a multifamily housing project or a single 
                family property.
                    ``(E) Secretary.--The term `Secretary' 
                means the Secretary of Housing and Urban 
                Development.
                    ``(F) Severe physical problems.--The term 
                `severe physical problems' means, with respect 
                to a dwelling unit, that the unit--
                            ``(i) lacks hot or cold piped 
                        water, a flush toilet, or both a 
                        bathtub and a shower in the unit, for 
                        the exclusive use of that unit;
                            ``(ii) on not less than three 
                        separate occasions during the preceding 
                        winter months, was uncomfortably cold 
                        for a period of more than 6 consecutive 
                        hours due to a malfunction of the 
                        heating system for the unit;
                            ``(iii) has no functioning 
                        electrical service, exposed wiring, any 
                        room in which there is not a 
                        functioning electrical outlet, or has 
                        experienced three or more blown fuses 
                        or tripped circuit breakers during the 
                        preceding 90-day period;
                            ``(iv) is accessible through a 
                        public hallway in which there are no 
                        working light fixtures, loose or 
                        missing steps or railings, and no 
                        elevator; or
                            ``(v) has severe maintenance 
                        problems, including water leaks 
                        involving the roof, windows, doors, 
                        basement, or pipes or plumbing 
                        fixtures, holes or open cracks in walls 
                        or ceilings, severe paint peeling or 
                        broken plaster, and signs of rodent 
                        infestation.
                    ``(G) Single family property.--The term 
                `single family property' means a 1- to 4-family 
                residence.
                    ``(H) Substandard.--The term `substandard' 
                means, with respect to a multifamily housing 
                project, that 25 percent or more of the 
                dwelling units in the project have severe 
                physical problems.
                    ``(I) Unit of general local government.--
                The term `unit of general local government' has 
                the meaning given such term in section 102(a) 
                of the Housing and Community Development Act of 
                1974.
                    ``(J) Unoccupied.--The term `unoccupied' 
                means, with respect to a residential property, 
                that the unit of general local government 
                having jurisdiction over the area in which the 
                project is located has certified in writing 
                that the property is not inhabited.
            ``(12) Regulations.--
                    ``(A) Interim.--Not later than 30 days 
                after the date of the enactment of this 
                subsection, the Secretary shall issue such 
                interim regulations as are necessary to carry 
                out this subsection.
                    ``(B) Final.--Not later than 60 days after 
                the date of the enactment of this subsection, 
                the Secretary shall issue such final 
                regulations as are necessary to carry out this 
                subsection.''.

SEC. 642. TRANSFER OF HUD ASSETS IN REVITALIZATION AREAS.

    In carrying out the program under section 204(h) of the 
National Housing Act (12 U.S.C. 1710(h)), upon the request of 
the chief executive officer of a county or the government of 
appropriate jurisdiction and not later than 60 days after such 
request is made, the Secretary of Housing and Urban Development 
shall designate as a revitalization area all portions of such 
county that meet the criteria for such designation under 
paragraph (3) of such section.

SEC. 643. RISK-SHARING DEMONSTRATION.

    Section 249 of the National Housing Act (12 U.S.C. 1715z-
14) is amended--
            (1) by striking the section heading and inserting 
        the following:


                    ``risk-sharing demonstration'';


            (2) by striking ``reinsurance'' each place such 
        term appears and insert ``risk-sharing'';
            (3) in subsection (a)--
                    (A) in the first sentence, by inserting 
                ``and with insured community development 
                financial institutions'' after ``private 
                mortgage insurers'';
                    (B) in the second sentence--
                            (i) by striking ``two'' and 
                        inserting ``four''; and
                            (ii) by striking ``March 15, 1988'' 
                        and inserting ``the expiration of the 
                        5-year period beginning on the date of 
                        the enactment of the Taxpayer Relief 
                        Act of 2000''; and
                    (C) in the third sentence--
                            (i) by striking ``insured'' and 
                        inserting ``for which risk of 
                        nonpayment is shared''; and
                            (ii) by striking ``10 percent'' and 
                        inserting ``20 percent'';
            (4) in subsection (b)--
                    (A) in the first sentence--
                            (i) by striking ``to provide'' and 
                        inserting ``, in providing'';
                            (ii) by striking ``through'' and 
                        inserting ``, to enter into''; and
                            (iii) by inserting ``and with 
                        insured community development financial 
                        institutions'' before the period at the 
                        end;
                    (B) in the second sentence, by inserting 
                ``and insured community development financial 
                institutions'' after ``private mortgage 
                insurance companies'';
                    (C) by striking paragraph (1) and inserting 
                the following new paragraph:
            ``(1) assume a secondary percentage of loss on any 
        mortgage insured pursuant to section 203(b), 234, or 
        245 covering a one- to four-family dwelling, which 
        percentage of loss shall be set forth in the risk-
        sharing contract, with the first percentage of loss to 
        be borne by the Secretary;''; and
                    (D) in paragraph (2)--
                            (i) by striking ``carry out (under 
                        appropriate delegation) such'' and 
                        inserting ``perform or delegate 
                        underwriting,'';
                            (ii) by striking ``function as the 
                        Secretary pursuant to regulations,'' 
                        and inserting ``functions as the 
                        Secretary''; and
                            (iii) by inserting before the 
                        period at the end the following: ``and 
                        shall set forth in the risk-sharing 
                        contract'';
            (5) in subsection (c)--
                    (A) in the first sentence--
                            (i) by striking ``of'' the first 
                        place it appears and inserting ``for'';
                            (ii) by inserting ``received by the 
                        Secretary with a private mortgage 
                        insurer or insured community 
                        development financial institution'' 
                        after ``sharing of premiums''
                            (iii) by striking ``insurance 
                        reserves'' and inserting ``loss 
                        reserves'';
                            (iv) by striking ``such insurance'' 
                        and inserting ``such risk-sharing 
                        contract''; and
                            (v) by striking ``right'' and 
                        inserting ``rights''; and
                    (B) in the second sentence--
                            (i) by inserting ``or insured 
                        community development financial 
                        institution'' after ``private mortgage 
                        insurance company''; and
                            (ii) by striking ``for insurance'' 
                        and inserting ``for risk-sharing'';
            (6) in subsection (d), by inserting ``or insured 
        community development financial institution'' after 
        ``private mortgage insurance company''; and
            (7) by adding at the end the following new 
        subsection:
    ``(e) Insured Community Development Financial 
Institution.--For purposes of this section, the term `insured 
community development financial institution' means a community 
development financial institution, as such term is defined in 
section 103 of Reigle Community Development and Regulatory 
Improvement Act of 1994 (12 U.S.C. 4702) that is an insured 
depository institution (as such term is defined in section 3 of 
the Federal Deposit Insurance Act (12 U.S.C. 1813)) or an 
insured credit union (as such term is defined in section 101 of 
the Federal Credit Union Act (12 U.S.C. 1752)).''.

SEC. 644. PREVENTION AND TREATMENT OF SUBSTANCE ABUSE; SERVICES 
                    PROVIDED THROUGH RELIGIOUS ORGANIZATIONS.

    Title V of the Public Health Service Act (42 U.S.C. 290aa 
et seq.) is amended by adding at the end the following part:

      ``Part G--Services Provided Through Religious Organizations

``SEC. 581. APPLICABILITY TO DESIGNATED PROGRAMS.

    ``(a) Designated Programs.--Subject to subsection (b), this 
part applies to discretionary and formula grant programs 
administered by the Substance Abuse and Mental Health Services 
Administration that make awards of financial assistance to 
public or private entities for the purpose of carrying out 
activities to prevent or treat substance abuse (in this part 
referred to as a `designated program'). Designated programs 
include the program under subpart II of part B of title XIX 
(relating to formula grants to the States).
    ``(b) Limitation.--This part does not apply to any award of 
financial assistance under a designated program for a purpose 
other than the purpose specified in subsection (a).
    ``(c) Definitions.--For purposes of this part (and subject 
to subsection (b)):
            ``(1) The term `designated program' has the meaning 
        given such term in subsection (a).
            ``(2) The term `financial assistance' means a 
        grant, cooperative agreement, or contract.
            ``(3) The term `program beneficiary' means an 
        individual who receives program services.
            ``(4) The term `program participant' means a public 
        or private entity that has received financial 
        assistance under a designated program.
            ``(5) The term `program services' means treatment 
        for substance abuse, or preventive services regarding 
        such abuse, provided pursuant to an award of financial 
        assistance under a designated program.
            ``(6) The term `religious organization' means a 
        nonprofit religious organization.

``SEC. 582. RELIGIOUS ORGANIZATIONS AS PROGRAM PARTICIPANTS.

    ``(a) In General.--Notwithstanding any other provision of 
law, a religious organization, on the same basis as any other 
nonprofit private provider--
            ``(1) may receive financial assistance under a 
        designated program; and
            ``(2) may be a provider of services under a 
        designated program.
    ``(b) Religious Organizations.--The purpose of this section 
is to allow religious organizations to be program participants 
on the same basis as any other nonprofit private provider 
without impairing the religious character of such 
organizations, and without diminishing the religious freedom of 
program beneficiaries.
    ``(c) Nondiscrimination Against Religious Organizations.--
            ``(1) Eligibility as program participants.--
        Religious organizations are eligible to be program 
        participants on the same basis as any other nonprofit 
        private organization as long as the programs are 
        implemented consistent with the Establishment Clause 
        and Free Exercise Clause of the First Amendment to the 
        United States Constitution. Nothing in this Act shall 
        be construed to restrict the ability of the Federal 
        Government, or a State or local government receiving 
        funds under such programs, to apply to religious 
        organizations the same eligibility conditions in 
        designated programs as are applied to any other 
        nonprofit private organization.
            ``(2) Nondiscrimination.--Neither the Federal 
        Government nor a State or local government receiving 
        funds under designated programs shall discriminate 
        against an organization that is or applies to be a 
        program participant on the basis that the organization 
        has a religious character.
    ``(d) Religious Character and Freedom.--
            ``(1) Religious organizations.--Except as provided 
        in this section, any religious organization that is a 
        program participant shall retain its independence from 
        Federal, State, and local government, including such 
        organization's control over the definition, 
        development, practice, and expression of its religious 
        beliefs.
            ``(2) Additional safeguards.--Neither the Federal 
        Government nor a State shall require a religious 
        organization to--
                    ``(A) alter its form of internal 
                governance; or
                    ``(B) remove religious art, icons, 
                scripture, or other symbols,
        in order to be a program participant.
    ``(e) Employment Practices.--Nothing in this section shall 
be construed to modify or affect the provisions of any other 
Federal or State law or regulation that relates to 
discrimination in employment. A religious organization's 
exemption provided under section 702 of the Civil Rights Act of 
1964 regarding employment practices shall not be affected by 
its participation in, or receipt of funds from, a designated 
program.
    ``(f) Rights of Program Beneficiaries.--
            ``(1) In general.--If an individual who is a 
        program beneficiary or a prospective program 
        beneficiary objects to the religious character of a 
        program participant, within a reasonable period of time 
        after the date of such objection such program 
        participant shall refer such individual to, and the 
        appropriate Federal, State, or local government that 
        administers a designated program or is a program 
        participant shall provide to such individual (if 
        otherwise eligible for such services), program services 
        that--
                    ``(A) are from an alternative provider that 
                is accessible to, and has the capacity to 
                provide such services to, such individual; and
                    ``(B) have a value that is not less than 
                the value of the services that the individual 
                would have received from the program 
                participant to which the individual had such 
                objection.
        Upon referring a program beneficiary to an alternative 
        provider, the program participant shall notify the 
        appropriate Federal, State, or local government agency 
        that administers the program of such referral.
            ``(2) Notices.--Program participants, public 
        agencies that refer individuals to designated programs, 
        and the appropriate Federal, State, or local 
        governments that administer designated programs or are 
        program participants shall ensure that notice is 
        provided to program beneficiaries or prospective 
        program beneficiaries of their rights under this 
        section.
            ``(3) Additional requirements.--A program 
        participant making a referral pursuant to paragraph (1) 
        shall--
                    ``(A) prior to making such referral, 
                consider any list that the State or local 
                government makes available of entities in the 
                geographic area that provide program services; 
                and
                    ``(B) ensure that the individual makes 
                contact with the alternative provider to which 
                the individual is referred.
            ``(4) Nondiscrimination.--A religious organization 
        that is a program participant shall not in providing 
        program services or engaging in outreach activities 
        under designated programs discriminate against a 
        program beneficiary or prospective program beneficiary 
        on the basis of religion or religious belief.
    ``(g) Fiscal Accountability.--
            ``(1) In general.--Except as provided in paragraph 
        (2), any religious organization that is a program 
        participant shall be subject to the same regulations as 
        other recipients of awards of Federal financial 
        assistance to account, in accordance with generally 
        accepted auditing principles, for the use of the funds 
        provided under such awards.
            ``(2) Limited audit.--With respect to the award 
        involved, a religious organization that is a program 
        participant shall segregate Federal amounts provided 
        under award into a separate account from non-Federal 
        funds. Only the award funds shall be subject to audit 
        by the government.
    ``(h) Compliance.--With respect to compliance with this 
section by an agency, a religious organization may obtain 
judicial review of agency action in accordance with chapter 7 
of title 5, United States Code.

``SEC. 583. LIMITATIONS ON USE OF FUNDS FOR CERTAIN PURPOSES.

    ``No funds provided under a designated program shall be 
expended for sectarian worship, instruction, or 
proselytization.

``SEC. 584. EDUCATIONAL REQUIREMENTS FOR PERSONNEL IN DRUG TREATMENT 
                    PROGRAMS.

    ``(a) Findings.--The Congress finds that--
            ``(1) establishing unduly rigid or uniform 
        educational qualification for counselors and other 
        personnel in drug treatment programs may undermine the 
        effectiveness of such programs; and
            ``(2) such educational requirements for counselors 
        and other personnel may hinder or prevent the provision 
        of needed drug treatment services.
    ``(b) Nondiscrimination.--In determining whether personnel 
of a program participant that has a record of successful drug 
treatment for the preceding three years have satisfied State or 
local requirements for education and training, a State or local 
government shall not discriminate against education and 
training provided to such personnel by a religious 
organization, so long as such education and training includes 
basic content substantially equivalent to the content provided 
by nonreligious organizations that the State or local 
government would credit for purposes of determining whether the 
relevant requirements have been satisfied.''.

                      Subtitle F--Other Provisions

SEC. 651. ACCELERATION OF PHASE-IN OF INCREASE IN VOLUME CAP ON PRIVATE 
                    ACTIVITY BONDS.

    (a) In General.--Paragraphs (1) and (2) of section 146(d) 
(relating to State ceiling) are amended to read as follows:
            ``(1) In general.--The State ceiling applicable to 
        any State for any calendar year shall be the greater 
        of--
                    ``(A) an amount equal to $75 ($62.50 in the 
                case of calendar year 2001) multiplied by the 
                State population, or
                    ``(B) $225,000,000 ($187,500,000 in the 
                case of calendar year 2001).
            ``(2) Cost-of-living adjustment.--In the case of a 
        calendar year after 2002, each of the dollar amounts 
        contained in paragraph (1) shall be increased by an 
        amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for such 
                calendar year by substituting `calendar year 
                2001' for `calendar year 1992' in subparagraph 
                (B) thereof.
        If any increase determined under the preceding sentence 
        is not a multiple of $5 ($5,000 in the case of the 
        dollar amount in paragraph (1)(B)), such increase shall 
        be rounded to the nearest multiple thereof.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to calendar years after 2000.

SEC. 652. MODIFICATIONS TO EXPENSING OF ENVIRONMENTAL REMEDIATION 
                    COSTS.

    (a) Expensing Not Limited to Sites in Targeted Areas.--
Subsection (c) of section 198 is amended to read as follows:
    ``(c) Qualified Contaminated Site.--For purposes of this 
section--
            ``(1) In general.--The term `qualified contaminated 
        site' means any area--
                    ``(A) which is held by the taxpayer for use 
                in a trade or business or for the production of 
                income, or which is property described in 
                section 1221(a)(1) in the hands of the 
                taxpayer, and
                    ``(B) at or on which there has been a 
                release (or threat of release) or disposal of 
                any hazardous substance.
            ``(2) National priorities listed sites not 
        included.--Such term shall not include any site which 
        is on, or proposed for, the national priorities list 
        under section 105(a)(8)(B) of the Comprehensive 
        Environmental Response, Compensation, and Liability Act 
        of 1980 (as in effect on the date of the enactment of 
        this section).
            ``(3) Taxpayer must receive statement from state 
        environmental agency.--An area shall be treated as a 
        qualified contaminated site with respect to 
        expenditures paid or incurred during any taxable year 
        only if the taxpayer receives a statement from the 
        appropriate agency of the State in which such area is 
        located that such area meets the requirement of 
        paragraph (1)(B).
            ``(4) Appropriate state agency.--For purposes of 
        paragraph (3), the chief executive officer of each 
        State may, in consultation with the Administrator of 
        the Environmental Protection Agency, designate the 
        appropriate State environmental agency within 60 days 
        of the date of the enactment of this section. If the 
        chief executive officer of a State has not designated 
        an appropriate environmental agency within such 60-day 
        period, the appropriate environmental agency for such 
        State shall be designated by the Administrator of the 
        Environmental Protection Agency.''.
    (b) Extension of Termination Date.--Subsection (h) of 
section 198 is amended by striking ``2001'' and inserting 
``2003''.
    (c) Effective Date.--The amendments made by this section 
shall apply to expenditures paid or incurred after the date of 
the enactment of this Act.

SEC. 653. EXTENSION OF DC HOMEBUYER TAX CREDIT.

    Section 1400C(i) (relating to application of section) is 
amended by striking ``2002'' and inserting ``2004''.

   TITLE VII--ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL PROVISIONS

                 Subtitle A--Administrative Provisions

SEC. 701. EXEMPTION OF CERTAIN REPORTING REQUIREMENTS.

    Section 3003(a)(1) of the Federal Reports Elimination and 
Sunset Act of 1995 (31 U.S.C. 1113 note) shall not apply to any 
report required to be submitted under any of the following 
provisions of law:
            (1) Section 13031(f) of the Consolidated Omnibus 
        Budget Reconciliation Act of 1985 (19 U.S.C. 58c(f)).
            (2) Section 16(c) of the Foreign Trade Zones Act 
        (19 U.S.C. 81p(c)).
            (3) The following provisions of the Tariff Act of 
        1930:
                    (A) Section 330(c)(1) (19 U.S.C. 
                1330(c)(1)).
                    (B) Section 607(c) (19 U.S.C. 1607(c)).
            (4) Section 5 of the International Coffee Agreement 
        Act of 1980 (19 U.S.C. 1356n).
            (5) Section 351(a)(2) of the Trade Expansion Act of 
        1962 (19 U.S.C. 1981(a)(2)).
            (6) Section 502 of the Automotive Products Trade 
        Act of 1965 (19 U.S.C. 2032).
            (7) Section 3131 of the Customs Enforcement Act of 
        1986 (19 U.S.C. 2081).
            (8) The following provisions of the Trade Act of 
        1974 (19 U.S.C. 2101 et seq.):
                    (A) Section 102(b)(4)(A)(ii)(I) (19 U.S.C. 
                2112(b)(4)(A)(ii)(I)).
                    (B) Section 102(e)(1) (19 U.S.C. 
                2112(e)(1)).
                    (C) Section 102(e)(2) (19 U.S.C. 
                2112(e)(2)).
                    (D) Section 104(d) (19 U.S.C. 2114(d)).
                    (E) Section 125(e) (19 U.S.C. 2135(e)).
                    (F) Section 135(e)(1) (19 U.S.C. 
                2155(e)(1)).
                    (G) Section 141(c) (19 U.S.C. 2171(c)).
                    (H) Section 162 (19 U.S.C. 2212).
                    (I) Section 163(b) (19 U.S.C. 2213(b)).
                    (J) Section 163(c) (19 U.S.C. 2213(c)).
                    (K) Section 203(b) (19 U.S.C. 2253(b)).
                    (L) Section 302(b)(2)(C) (19 U.S.C. 
                2412(b)(2)(C)).
                    (M) Section 303 (19 U.S.C. 2413).
                    (N) Section 309 (19 U.S.C. 2419).
                    (O) Section 407(a) (19 U.S.C. 2437(a)).
                    (P) Section 502(f) (19 U.S.C. 2462(f)).
                    (Q) Section 504 (19 U.S.C. 2464).
            (9) The following provisions of the Trade 
        Agreements Act of 1979 (19 U.S.C. 2501 et seq.):
                    (A) Section 2(b) (19 U.S.C. 2503(b)).
                    (B) Section 3(c) (19 U.S.C. 2504(c)).
                    (C) Section 305(c) (19 U.S.C. 2515(c)).
            (10) Section 303(g)(1) of the Convention on 
        Cultural Property Implementation Act (19 U.S.C. 
        2602(g)(1)).
            (11) The following provisions of the Caribbean 
        Basin Economic Recovery Act (19 U.S.C. 2701 et seq.):
                    (A) Section 212(a)(1)(A) (19 U.S.C. 
                2702(a)(1)(A)).
                    (B) Section 212(a)(2) (19 U.S.C. 
                2702(a)(2)).
            (12) The following provisions of the Omnibus Trade 
        and Competitiveness Act of 1988 (19 U.S.C. 2901 et 
        seq.):
                    (A) Section 1102 (19 U.S.C. 2902).
                    (B) Section 1103 (19 U.S.C. 2903).
                    (C) Section 1206(b) (19 U.S.C. 3006(b)).
            (13) Section 123(a) of the Customs and Trade Act of 
        1990 (Public Law 101-382) (19 U.S.C. 2083).
            (14) Section 243(b)(2) of the Caribbean Basin 
        Economic Recovery Expansion Act of 1990 (Public Law 
        101-382).
            (15) The following provisions of the Internal 
        Revenue Code of 1986:
                    (A) Section 6103(p)(5).
                    (B) Section 7608.
                    (C) Section 7802(f)(3).
                    (D) Section 8022(3).
                    (E) Section 9602(a).
            (16) The following provisions relating to the 
        revenue laws of the United States:
                    (A) Section 1552(c) of the Tax Reform Act 
                of 1986 (100 Stat. 2753).
                    (B) Section 231 of the Deficit Reduction 
                Act of 1984 (26 U.S.C. 801 note).
                    (C) Section 208 of the Tax Treatment 
                Extension Act of 1977 (26 U.S.C. 911 note).
                    (D) Section 7105 of the Technical and 
                Miscellaneous Revenue Act of 1988 (45 U.S.C. 
                369).
            (17) Section 4008 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1308).
            (18) Section 426 of the Black Lung Benefits Act (30 
        U.S.C. 936(b)).
            (19) Section 7502(g) of title 31, United States 
        Code.
            (20) The following provisions of the Social 
        Security Act:
                    (A) Section 215(i)(2)(C)(i) (42 U.S.C. 
                415(i)(2)(C)(i)).
                    (B) Section 221(i)(2) (42 U.S.C. 
                421(i)(2)).
                    (C) Section 221(i)(3) (42 U.S.C. 
                421(i)(3)).
                    (D) Section 233(e)(1) (42 U.S.C. 
                433(e)(1)).
                    (E) Section 452(a)(10) (42 U.S.C. 
                652(a)(10)).
                    (F) Section 452(g)(3)(B) (42 U.S.C. 
                652(g)(3)(B)).
                    (G) Section 506(a)(1) (42 U.S.C. 706(a)).
                    (H) Section 908 (42 U.S.C. 1108).
                    (I) Section 1114(f) (42 U.S.C. 1314(f)).
                    (J) Section 1120 (42 U.S.C. 1320).
                    (K) Section 1161 (42 U.S.C. 1320c-10).
                    (L) Section 1875(b) (42 U.S.C. 1395ll(b)).
                    (M) Section 1881 (42 U.S.C. 1395rr).
                    (N) Section 1882 (42 U.S.C. 1395ss(f)(2)).
            (21) Section 104(b) of the Social Security 
        Independence and Program Improvements Act of 1994 (42 
        U.S.C. 904 note).
            (22) Section 10 of the Railroad Retirement Act of 
        1937 (45 U.S.C. 231f).
            (23) The following provisions of the Railroad 
        Retirement Act of 1974:
                    (A) Section 22(a)(1) (45 U.S.C. 
                231u(a)(1)).
                    (B) Section 22(b)(1) (45 U.S.C. 
                231u(b)(1)).
            (24) Section 502 of the Railroad Retirement 
        Solvency Act of 1983 (45 U.S.C. 231f-1).
            (25) Section 47121(c) of title 49, United States 
        Code.
            (26) The following provisions of the Omnibus Budget 
        Reconciliation Act of 1987 (Public Law 100-203; 101 
        Stat. 1330-182):
                    (A) Section 4007(c)(4) (42 U.S.C. 1395ww 
                note).
                    (B) Section 4079 (42 U.S.C. 1395mm note).
                    (C) Section 4205 (42 U.S.C. 1395i-3 note).
                    (D) Section 4215 (42 U.S.C. 1396r note).
            (27) The following provisions of the Inspector 
        General Act of 1978 (Public Law 95-452):
                    (A) Section 5(b).
                    (B) Section 5(d).
            (28) The following provisions of the Public Health 
        Service Act:
                    (A) In section 308(a) (42 U.S.C. 242m(a)), 
                subparagraphs (A), (B), (C), and (D) of 
                paragraph (1).
                    (B) Section 403 (42 U.S.C. 283).
            (29) Section 404 of the Health Services and Centers 
        Amendments of 1978 (42 U.S.C. 242p) (Public Law 95-
        626).
            (30) The following provisions of the Older 
        Americans Act of 1965:
                    (A) Section 206(d) (42 U.S.C. 3017(d)).
                    (B) Section 207 (42 U.S.C. 3018).
            (31) Section 308 of the Age Discrimination Act of 
        1975 (42 U.S.C. 6106a(b)).
            (32) Section 509(c)(3) of the Americans with 
        Disabilities Act 0f 1990 (42 U.S.C. 12209(c)(3)).
            (33) Section 4207(f) of the Omnibus Budget 
        Reconciliation Act of 1990 (42 U.S.C. 1395b-1 note).

SEC. 702. EXTENSION OF DEADLINES FOR IRS COMPLIANCE WITH CERTAIN NOTICE 
                    REQUIREMENTS.

    (a) Annual Installment Agreement Notice.--Section 3506 of 
the Internal Revenue Service Restructuring and Reform Act of 
1998 is amended by striking ``July 1, 2000'' and inserting 
``September 1, 2001''.
    (b) Notice Requirements Relating to Computation of 
Penalty.--Subsection (c) of section 3306 of the Internal 
Revenue Service Restructuring and Reform Act of 1998 is 
amended--
            (1) by striking ``December 31, 2000'' and inserting 
        ``June 30, 2001'', and
            (2) by adding at the end the following: ``In the 
        case of any notice of penalty issued after June 30, 
        2001, and before July 1, 2003, the requirements of 
        section 6751(a) of the Internal Revenue Code of 1986 
        shall be treated as met if such notice contains a 
        telephone number at which the taxpayer can request a 
        copy of the taxpayer's assessment and payment history 
        with respect to such penalty.''.
    (c) Notice Requirements Relating to Interest Imposed.--
Subsection (c) of section 3308 of the Internal Revenue Service 
Restructuring and Reform Act of 1998 is amended--
            (1) by striking ``December 31, 2000'' and inserting 
        ``June 30, 2001'', and
            (2) by adding at the end the following: ``In the 
        case of any notice issued after June 30, 2001, and 
        before July 1, 2003, to which section 6631 of the 
        Internal Revenue Code of 1986 applies, the requirements 
        of section 6631 of such Code shall be treated as met if 
        such notice contains a telephone number at which the 
        taxpayer can request a copy of the taxpayer's payment 
        history relating to interest amounts included in such 
        notice.''.

SEC. 703. EXTENSION OF AUTHORITY FOR UNDERCOVER OPERATIONS.

    Paragraph (6), and the last sentence, of section 7608(c) 
are each amended by striking ``January 1, 2001'' and inserting 
``January 1, 2006''.

SEC. 704. CONFIDENTIALITY OF CERTAIN DOCUMENTS RELATING TO CLOSING AND 
                    SIMILAR AGREEMENTS AND TO AGREEMENTS WITH FOREIGN 
                    GOVERNMENTS.

    (a) Closing and Similar Agreements Treated As Return 
Information.--Paragraph (2) of section 6103(b) (defining return 
information) is amended by striking ``and'' at the end of 
subparagraph (B), by inserting ``and'' at the end of 
subparagraph (C), and by inserting after subparagraph (C) the 
following new subparagraph:
                    ``(D) any agreement under section 7121, and 
                any similar agreement, and any background 
                information related to such an agreement or 
                request for such an agreement,''.
    (b) Agreements With Foreign Governments.--
            (1) In general.--Subchapter B of chapter 61 
        (relating to miscellaneous provisions) is amended by 
        inserting after section 6104 the following new section:

``SEC. 6105. CONFIDENTIALITY OF INFORMATION ARISING UNDER TREATY 
                    OBLIGATIONS.

    ``(a) In General.--Tax convention information shall not be 
disclosed.
    ``(b) Exceptions.--Subsection (a) shall not apply--
            ``(1) to the disclosure of tax convention 
        information to persons or authorities (including courts 
        and administrative bodies) which are entitled to such 
        disclosure pursuant to a tax convention,
            ``(2) to any generally applicable procedural rules 
        regarding applications for relief under a tax 
        convention, or
            ``(3) in any case not described in paragraph (1) or 
        (2), to the disclosure of any tax convention 
        information not relating to a particular taxpayer if 
        the Secretary determines, after consultation with each 
        other party to the tax convention, that such disclosure 
        would not impair tax administration.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Tax convention information.--The term `tax 
        convention information' means any--
                    ``(A) agreement entered into with the 
                competent authority of one or more foreign 
                governments pursuant to a tax convention,
                    ``(B) application for relief under a tax 
                convention,
                    ``(C) any background information related to 
                such agreement or application,
                    ``(D) document implementing such agreement, 
                and
                    ``(E) any other information exchanged 
                pursuant to a tax convention which is treated 
                as confidential or secret under the tax 
                convention.
            ``(2) Tax convention.--The term `tax convention' 
        means--
                    ``(A) any income tax or gift and estate tax 
                convention, or
                    ``(B) any other convention or bilateral 
                agreement (including multilateral conventions 
                and agreements and any agreement with a 
                possession of the United States) providing for 
                the avoidance of double taxation, the 
                prevention of fiscal evasion, nondiscrimination 
                with respect to taxes, the exchange of tax 
                relevant information with the United States, or 
                mutual assistance in tax matters.
    ``(d) Cross References.--

          ``For penalties for the unauthorized disclosure of tax 
        convention information which is return or return information, 
        see sections 7213, 7213A, and 7431.''.

            (2) Clerical amendment.--The table of sections for 
        subchapter B of chapter 61 is amended by inserting 
        after the item relating to section 6104 the following 
        new item:

        ``Sec. 6105. Confidentiality of information arising under treaty 
                  obligations.''.

    (c) Exception From Public Inspection as Written 
Determination.--
            (1) Closing and similar agreements.--Paragraph (1) 
        of section 6110(b) is amended to read as follows:
            ``(1) Written determination.--
                    ``(A) In general.--The term `written 
                determination' means a ruling, determination 
                letter, technical advice memorandum, or Chief 
                Counsel advice.
                    ``(B) Exceptions.--Such term shall not 
                include any matter referred to in subparagraph 
                (C) or (D) of section 6103(b)(2).''.
            (2) Agreements with foreign governments.--Paragraph 
        (1) of section 6110(l) is amended by inserting ``or 
        6105'' after ``6104''.
    (d) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 705. INCREASE IN THRESHOLD FOR JOINT COMMITTEE REPORTS ON REFUNDS 
                    AND CREDITS.

    (a) General Rule.--Subsections (a) and (b) of section 6405 
are each amended by striking ``$1,000,000'' and inserting 
``$2,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the date of the enactment of this Act, 
except that such amendment shall not apply with respect to any 
refund or credit with respect to a report that has been made 
before such date of the enactment under section 6405 of the 
Internal Revenue Code of 1986.

SEC. 706. TREATMENT OF MISSING CHILDREN WITH RESPECT TO CERTAIN TAX 
                    BENEFITS.

    (a) In General.--Subsection (c) of section 151 (relating to 
additional exemption for dependents) is amended by adding at 
the end the following new paragraph:
            ``(6) Treatment of missing children.--
                    ``(A) In general.--Solely for the purposes 
                referred to in subparagraph (B), a child of the 
                taxpayer--
                            ``(i) who is presumed by law 
                        enforcement authorities to have been 
                        kidnapped by someone who is not a 
                        member of the family of such child or 
                        the taxpayer, and
                            ``(ii) who was (without regard to 
                        this paragraph) the dependent of the 
                        taxpayer for the portion of the taxable 
                        year before the date of the kidnapping,
                shall be treated as a dependent of the taxpayer 
                for all taxable years ending during the period 
                that the child is kidnapped.
                    ``(B) Purposes.--Subparagraph (A) shall 
                apply solely for purposes of determining--
                            ``(i) the deduction under this 
                        section,
                            ``(ii) the credit under section 24 
                        (relating to child tax credit), and
                            ``(iii) whether an individual is a 
                        surviving spouse or a head of a 
                        household (such terms are defined in 
                        section 2).
                    ``(C) Comparable treatment for earned 
                income credit.--For purposes of section 32, an 
                individual--
                            ``(i) who is presumed by law 
                        enforcement authorities to have been 
                        kidnapped by someone who is not a 
                        member of the family of such individual 
                        or the taxpayer, and
                            ``(ii) who had, for the taxable 
                        year in which the kidnapping occurred, 
                        the same principal place of abode as 
                        the taxpayer for more than one-half of 
                        the portion of such year before the 
                        date of the kidnapping,
                shall be treated as meeting the requirement of 
                section 32(c)(3)(A)(ii) with respect to a 
                taxpayer for all taxable years ending during 
                the period that the individual is kidnapped.
                    ``(D) Termination of treatment.--
                Subparagraphs (A) and (C) shall cease to apply 
                as of the first taxable year of the taxpayer 
                beginning after the calendar year in which 
                there is a determination that the child is dead 
                (or, if earlier, in which the child would have 
                attained age 18).''
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years ending after the date of the 
enactment of this Act.

SEC. 707. AMENDMENTS TO STATUTES REFERENCING YIELD ON 52-WEEK TREASURY 
                    BILLS.

    (a) Amendment to the Act of February 26, 1931.--Section 6 
of the Act of February 26, 1931 (40 U.S.C. 258e-1) (relating to 
the interest rate on compensation owed for takings of property) 
is amended--
            (1) in paragraph (1), by striking ``the coupon 
        issue yield equivalent (as determined by the Secretary 
        of the Treasury) of the average accepted auction price 
        for the last auction of 52 week United States Treasury 
        bills settled immediately before'' and inserting ``the 
        weekly average 1-year constant maturity Treasury yield, 
        as published by the Board of Governors of the Federal 
        Reserve System, for the calendar week preceding''; and
            (2) in paragraph (2), by striking ``the coupon 
        issue yield equivalent (as determined by the Secretary 
        of the Treasury) of the average accepted auction price 
        for the last auction of 52 week United States Treasury 
        bills settled immediately before'' and inserting ``the 
        weekly average 1-year constant maturity Treasury yield, 
        as published by the Board of Governors of the Federal 
        Reserve System, for the calendar week preceding''.
    (b) Amendment to Title 18, United States Code.--Section 
3612(f)(2)(B) of title 18, United States Code (relating to the 
interest rate on unpaid criminal fines and penalties of more 
than $2,500) is amended by striking ``the coupon issue yield 
equivalent (as determined by the Secretary of the Treasury) of 
the average accepted auction price for the last auction of 
fifty-two week United States Treasury bills settled before'' 
and inserting `the weekly average 1-year constant maturity 
Treasury yield, as published by the Board of Governors of the 
Federal Reserve System, for the calendar week preceding.''.
    (c) Amendment to the Internal Revenue Code.--Section 
995(f)(4) (relating to the interest rate on tax-deferred 
liability of shareholders of domestic international sales 
corporations) is amended by striking ``the average investment 
yield of United States Treasury bills with maturities of 52 
weeks which were auctioned during the 1-year period'' and 
inserting ``the average of the 1-year constant maturity 
Treasury yields, as published by the Board of Governors of the 
Federal Reserve System, for the 1-year period''.
    (d) Amendments to Title 28, United States Code.--
            (1) Amendment to section 1961.--Section 1961(a) of 
        title 28, United States Code (relating to the interest 
        rate on money judgments in civil cases recovered in 
        Federal district court) is amended by striking ``the 
        coupon issue yield equivalent (as determined by the 
        Secretary of the Treasury) of the average accepted 
        auction price for the last auction of fifty-two week 
        United States Treasury bills settled immediately prior 
        to'' and inserting ``the weekly average 1-year constant 
        maturity Treasury yield, as published by the Board of 
        Governors of the Federal Reserve System, for the 
        calendar week preceding.''.
            (2) Amendment to section 2516.--Section 2516(b) of 
        title 28, United States Code (relating to the interest 
        rate on a judgment against the United States affirmed 
        by the Supreme Court after review on petition of the 
        United States) is amended by striking ``the coupon 
        issue yield equivalent (as determined by the Secretary 
        of the Treasury) of the average accepted auction price 
        for the last auction of fifty-two week United States 
        Treasury bills settled immediately before'' and 
        inserting ``the weekly average 1-year constant maturity 
        Treasury yield, as published by the Board of Governors 
        of the Federal Reserve System, for the calendar week 
        preceding''.

SEC. 708. ADJUSTMENTS FOR CONSUMER PRICE INDEX ERROR.

    (a) Determinations by OMB.--As soon as practicable after 
the date of the enactment of this Act, the Director of the 
Office of Management and Budget shall determine with respect to 
each applicable Federal benefit program whether the CPI 
computation error for 1999 has or will result in a shortfall in 
payments to beneficiaries under such program (as compared to 
payments that would have been made if the error had not 
occurred). As soon as practicable after the date of the 
enactment of this Act, but not later than 60 days after such 
date, the Director shall direct the head of the Federal agency 
which administers such program to make a payment or payments 
that, insofar as the Director finds practicable and feasible--
            (1) are targeted to the amount of the shortfall 
        experienced by individual beneficiaries, and
            (2) compensate for the shortfall.
    (b) Coordination With Federal Agencies.--As soon as 
practicable after the date of the enactment of this Act, each 
Federal agency that administers an applicable Federal benefit 
program shall, in accordance with such guidelines as are issued 
by the Director pursuant to this section, make an initial 
determination of whether, and the extent to which, the CPI 
computation error for 1999 has or will result in a shortfall in 
payments to beneficiaries of an applicable Federal benefit 
program administered by such agency. Not later than 30 days 
after such date, the head of such agency shall submit a report 
to the Director and to each House of the Congress of such 
determination, together with a complete description of the 
nature of the shortfall.
    (c) Implementation Pursuant to Agency Reports.--Upon 
receipt of the report submitted by a Federal agency pursuant to 
subsection (b), the Director shall review the initial 
determination of the agency, the agency's description of the 
nature of the shortfall, and the compensation payments proposed 
by the agency. Prior to directing payment of such payments 
pursuant to subsection (a), the Director shall make appropriate 
adjustments (if any) in the compensation payments proposed by 
the agency that the Director determines are necessary to comply 
with the requirements of subsection (a) and transmit to the 
agency a summary report of the review, indicating any 
adjustments made by the Director. The agency shall make the 
compensation payments as directed by the Director pursuant to 
subsection (a) in accordance with the Director's summary 
report.
    (d) Income Disregard Under Federal Means-Tested Benefit 
Programs.--A payment made under this section to compensate for 
a shortfall in benefits shall, in accordance with guidelines 
issued by the Director pursuant to this section, be disregarded 
in determining income under title VIII of the Social Security 
Act or any applicable Federal benefit program that is means-
tested.
    (e) Funding.--Funds otherwise available under each 
applicable Federal benefit program for making benefit payments 
under such program are hereby made available for making 
compensation payments under this section in connection with 
such program.
    (f) No Judicial Review.--No action taken pursuant to this 
section shall be subject to judicial review.
    (g) Director's Report.--Not later than April 1, 2001, the 
Director shall submit to each House of the Congress a report on 
the activities performed by the Director pursuant to this 
section.
    (h) Definitions.--For purposes of this section:
            (1) Applicable federal benefit program.--The term 
        ``applicable Federal benefit program'' means any 
        program of the Government of the United States 
        providing for regular or periodic payments or cash 
        assistance paid directly to individual beneficiaries, 
        as determined by the Director of the Office of 
        Management and Budget.
            (2) Federal agency.--The term ``Federal agency'' 
        means a department, agency, or instrumentality of the 
        Government of the United States.
            (3) CPI computation error for 1999.--The term ``CPI 
        computation error for 1999'' means the error in the 
        computation of the Consumer Price Index announced by 
        the Bureau of Labor Statistics on September 28, 2000.
    (i) Tax Provisions.--If any Consumer Price Index (as 
defined in section 1(f)(5) of the Internal Revenue Code of 
1986) reflects the CPI computation error for 1999--
            (1) the correct amount of such Index shall (in such 
        manner and to such extent as the Secretary of the 
        Treasury determines to be appropriate) be taken into 
        account for purposes of such Code, and
            (2) tables prescribed under section 1(f) of such 
        Code to reflect such correct amount shall apply in lieu 
        of any tables that were prescribed based on the 
        erroneous amount.

SEC. 709. PREVENTION OF DUPLICATION OF LOSS THROUGH ASSUMPTION OF 
                    LIABILITIES GIVING RISE TO A DEDUCTION.

    (a) In General.--Section 358 (relating to basis to 
distributees) is amended by adding at the end the following new 
subsection:
    ``(h) Special Rules for Assumption of Liabilities To Which 
Subsection (d) Does Not Apply.--
            ``(1) In general.--If, after application of the 
        other provisions of this section to an exchange or 
        series of exchanges, the basis of property to which 
        subsection (a)(1) applies exceeds the fair market value 
        of such property, then such basis shall be reduced (but 
        not below such fair market value) by the amount 
        (determined as of the date of the exchange) of any 
        liability--
                    ``(A) which is assumed in exchange for such 
                property, and
                    ``(B) with respect to which subsection 
                (d)(1) does not apply to the assumption.
            ``(2) Exceptions.--Except as provided by the 
        Secretary, paragraph (1) shall not apply to any 
        liability if--
                    ``(A) the trade or business with which the 
                liability is associated is transferred to the 
                person assuming the liability as part of the 
                exchange, or
                    ``(B) substantially all of the assets with 
                which the liability is associated are 
                transferred to the person assuming the 
                liability as part of the exchange.
            ``(3) Liability.--For purposes of this subsection, 
        the term `liability' shall include any fixed or 
        contingent obligation to make payment, without regard 
        to whether the obligation is otherwise taken into 
        account for purposes of this title.''
    (b) Determination of Amount of Liability Assumed.--Section 
357(d)(1) is amended by inserting ``section 358(h),'' after 
``section 358(d),''.
    (c) Application of Comparable Rules to Partnerships and S 
Corporations.--The Secretary of the Treasury or his delegate--
            (1) shall prescribe rules which provide appropriate 
        adjustments under subchapter K of chapter 1 of the 
        Internal Revenue Code of 1986 to prevent the 
        acceleration or duplication of losses through the 
        assumption of (or transfer of assets subject to) 
        liabilities described in section 358(h)(3) of such Code 
        (as added by subsection (a)) in transactions involving 
        partnerships, and
            (2) may prescribe rules which provide appropriate 
        adjustments under subchapter S of chapter 1 of such 
        Code in transactions described in paragraph (1) 
        involving S corporations rather than partnerships.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to assumptions of liability after 
        October 18, 1999.
            (2) Rules.--The rules prescribed under subsection 
        (c) shall apply to assumptions of liability after 
        October 18, 1999, or such later date as may be 
        prescribed in such rules.

                  Subtitle B--Miscellaneous Provisions

SEC. 710. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAILROADS AND 
                    INLAND WATERWAY TRANSPORTATION WHICH REMAIN IN 
                    GENERAL FUND.

    (a) Taxes on Trains.--
            (1) In general.--Subparagraph (A) of section 
        4041(a)(1) is amended by striking ``or a diesel-powered 
        train'' each place it appears and by striking ``or 
        train''.
            (2) Conforming amendments.--
                    (A) Subparagraph (C) of section 4041(a)(1) 
                is amended by striking clause (ii) and by 
                redesignating clause (iii) as clause (ii).
                    (B) Subparagraph (C) of section 4041(b)(1) 
                is amended by striking all that follows 
                ``section 6421(e)(2)'' and inserting a period.
                    (C) Subsection (d) of section 4041 is 
                amended by redesignating paragraph (3) as 
                paragraph (4) and by inserting after paragraph 
                (2) the following new paragraph:
            ``(3) Diesel fuel used in trains.--There is hereby 
        imposed a tax of 0.1 cent per gallon on any liquid 
        other than gasoline (as defined in section 4083)--
                    ``(A) sold by any person to an owner, 
                lessee, or other operator of a diesel-powered 
                train for use as a fuel in such train, or
                    ``(B) used by any person as a fuel in a 
                diesel-powered train unless there was a taxable 
                sale of such fuel under subparagraph (A).
        No tax shall be imposed by this paragraph on the sale 
        or use of any liquid if tax was imposed on such liquid 
        under section 4081.''
                    (D) Subsection (e) of section 4082 is 
                amended by striking ``section 4041(a)(1)'' and 
                inserting ``subsections (d)(3) and (a)(1) of 
                section 4041, respectively''.
                    (E) Paragraph (3) of section 4083(a) is 
                amended by striking ``or a diesel-powered 
                train''.
                    (F) Paragraph (3) of section 6421(f) is 
                amended to read as follows:
            ``(3) Gasoline used in trains.--In the case of 
        gasoline used as a fuel in a train, this section shall 
        not apply with respect to the Leaking Underground 
        Storage Tank Trust Fund financing rate under section 
        4081.''
                    (G) Paragraph (3) of section 6427(l) is 
                amended to read as follows:
            ``(3) Refund of certain taxes on fuel used in 
        diesel-powered trains.--For purposes of this 
        subsection, the term `nontaxable use' includes fuel 
        used in a diesel-powered train. The preceding sentence 
        shall not apply to the tax imposed by section 4041(d) 
        and the Leaking Underground Storage Tank Trust Fund 
        financing rate under section 4081 except with respect 
        to fuel sold for exclusive use by a State or any 
        political subdivision thereof.''
    (b) Fuel Used on Inland Waterways.--
            (1) In general.--Paragraph (1) of section 4042(b) 
        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).
            (2) Conforming amendment.--Paragraph (2) of section 
        4042(b) is amended by striking subparagraph (C).
    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 2001.

SEC. 711. REPEAL OF REDUCTION OF DEDUCTIONS FOR MUTUAL LIFE INSURANCE 
                    COMPANIES.

    (a) In General.--Section 809 (relating to reductions in 
certain deductions of mutual life insurance companies) is 
hereby repealed.
    (b) Conforming Amendments Related to Repeal of Section 
809.--
            (1) Subsections (a)(2)(B) and (b)(1)(B) of section 
        807 are each amended by striking ``the sum of (i)'' and 
        by striking ``plus (ii) any excess described in section 
        809(a)(2) for the taxable year,''.
            (2)(A) The last sentence of section 807(d)(1) is 
        amended by striking ``(as defined in section 
        809(b)(4)(B))''.
            (B) Subsection (d) of section 807 is amended by 
        adding at the end the following new paragraph:
            ``(6) Statutory reserves.--For purposes of this 
        subsection, the term `statutory reserves' means the 
        aggregate amount set forth in the annual statement with 
        respect to items described in subsection (c). Such term 
        shall not include any reserve attributable to a 
        deferred and uncollected premium if the establishment 
        of such reserve is not permitted under section 
        811(c).''
            (3) Subsection (c) of section 808 is amended to 
        read as follows:
    ``(c) Amount of Deduction.--The deduction for policyholder 
dividends for any taxable year shall be an amount equal to the 
policyholder dividends paid or accrued during the taxable 
year.''
            (4) Subparagraph (A) of section 812(b)(3) is 
        amended by striking ``sections 808 and 809'' and 
        inserting ``section 808''.
            (5) Subsection (c) of section 817 is amended by 
        striking ``(other than section 809)''.
            (6) Subsection (c) of section 842 is amended by 
        striking paragraph (3) and by redesignating paragraph 
        (4) as paragraph (3).
            (7) The table of sections for subpart C of part I 
        of subchapter L of chapter 1 is amended by striking the 
        item relating to section 809.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 712. REPEAL OF POLICYHOLDERS SURPLUS ACCOUNT PROVISIONS.

    (a) Repeal.--Section 815 (relating to distributions to 
shareholders from pre-1984 policyholders surplus accounts) is 
hereby repealed.
    (b) Conforming Amendments.--
            (1) Section 801 is amended by striking subsection 
        (c).
            (2) The table of sections for subpart D of part I 
        of subchapter L of chapter 1 is amended by striking the 
        item relating to section 815.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 713. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

    (a) In General.--Part IV of subchapter A of chapter 1 
(relating to credits against tax) is amended by adding at the 
end the following new subpart:

``Subpart H--Nonrefundable Credit for Holders of Qualified Amtrak Bonds

        ``Sec. 54. Credit to holders of qualified Amtrak bonds.

``SEC. 54. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

    ``(a) Allowance of Credit.--In the case of a taxpayer who 
holds a qualified Amtrak bond on a credit allowance date of 
such bond which occurs during the taxable year, there shall be 
allowed as a credit against the tax imposed by this chapter for 
such taxable year an amount equal to the sum of the credits 
determined under subsection (b) with respect to credit 
allowance dates during such year on which the taxpayer holds 
such bond.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit 
        determined under this subsection with respect to any 
        credit allowance date for a qualified Amtrak bond is 25 
        percent of the annual credit determined with respect to 
        such bond.
            ``(2) Annual credit.--The annual credit determined 
        with respect to any qualified Amtrak bond is the 
        product of--
                    ``(A) the applicable credit rate, 
                multiplied by
                    ``(B) the outstanding face amount of the 
                bond.
            ``(3) Applicable credit rate.--For purposes of 
        paragraph (2), the applicable credit rate with respect 
        to an issue is the rate equal to an average market 
        yield (as of the day before the date of sale of the 
        issue) on outstanding long-term corporate debt 
        obligations (determined under regulations prescribed by 
        the Secretary).
            ``(4) Special rule for issuance and redemption.--In 
        the case of a bond which is issued during the 3-month 
        period ending on a credit allowance date, the amount of 
        the credit determined under this subsection with 
        respect to such credit allowance date shall be a 
        ratable portion of the credit otherwise determined 
        based on the portion of the 3-month period during which 
        the bond is outstanding. A similar rule shall apply 
        when the bond is redeemed.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed under 
        subsection (a) for any taxable year shall not exceed 
        the excess of--
                    ``(A) the sum of the regular tax liability 
                (as defined in section 26(b)) plus the tax 
                imposed by section 55, over
                    ``(B) the sum of the credits allowable 
                under this part (other than this subpart and 
                subpart C).
            ``(2) Carryover of unused credit.--If the credit 
        allowable under subsection (a) exceeds the limitation 
        imposed by paragraph (1) for such taxable year, such 
        excess shall be carried to the succeeding taxable year 
        and added to the credit allowable under subsection (a) 
        for such taxable year.
    ``(d) Qualified Amtrak Bond.--For purposes of this part--
            ``(1) In general.--The term `qualified Amtrak bond' 
        means any bond issued as part of an issue if--
                    ``(A) 95 percent or more of the proceeds of 
                such issue are to be used for any qualified 
                project,
                    ``(B) the bond is issued by the National 
                Railroad Passenger Corporation,
                    ``(C) the issuer--
                            ``(i) designates such bond for 
                        purposes of this section,
                            ``(ii) certifies that it meets the 
                        State contribution requirement of 
                        paragraph (3) with respect to such 
                        project and that it has received the 
                        required State contribution payment 
                        before the issuance of such bond, and
                            ``(iii) certifies that it has 
                        obtained the written approval of the 
                        Secretary of Transportation for such 
                        project, including a finding by the 
                        Inspector General of the Department of 
                        Transportation that there is a 
                        reasonable likelihood that the proposed 
                        program will result in a positive 
                        incremental financial contribution to 
                        the National Railroad Passenger 
                        Corporation and that the investment 
                        evaluation process includes a return on 
                        investment, leveraging of funds 
                        (including State capital and operating 
                        contributions), cost effectiveness, 
                        safety improvement, mobility 
                        improvement, and feasibility,
                    ``(D) the term of each bond which is part 
                of such issue does not exceed 20 years,
                    ``(E) the payment of principal with respect 
                to such bond is the obligation of the National 
                Railroad Passenger Corporation (regardless of 
                the establishment of the trust account under 
                subsection (j)), and
                    ``(F) the issue meets the requirements of 
                subsection (h).
            ``(2) Treatment of changes in use.--For purposes of 
        paragraph (1)(A), the proceeds of an issue shall not be 
        treated as used for a qualified project to the extent 
        that the issuer takes any action within its control 
        which causes such proceeds not to be used for a 
        qualified project. The Secretary shall prescribe 
        regulations specifying remedial actions that may be 
        taken (including conditions to taking such remedial 
        actions) to prevent an action described in the 
        preceding sentence from causing a bond to fail to be a 
        qualified Amtrak bond.
            ``(3) State contribution requirement.--
                    ``(A) In general.--For purposes of 
                paragraph (1)(C)(ii), the State contribution 
                requirement of this paragraph is met with 
                respect to any qualified project if the 
                National Railroad Passenger Corporation has a 
                written binding commitment from 1 or more 
                States to make matching contributions not later 
                than the date of issuance of the issue of not 
                less than 20 percent of the cost of the 
                qualified project.
                    ``(B) Use of state matching 
                contributions.--The matching contributions 
                described in subparagraph (A) with respect to 
                each qualified project shall be used--
                            ``(i) as necessary to redeem bonds 
                        which are a part of the issue with 
                        respect to such project, and
                            ``(ii) in the case of any remaining 
                        amount, at the election of the National 
                        Railroad Passenger Corporation and the 
                        contributing State--
                                    ``(I) to fund a qualified 
                                project,
                                    ``(II) to redeem other 
                                qualified Amtrak bonds, or
                                    ``(III) for the purposes of 
                                subclauses (I) and (II).
                    ``(C) State matching contributions may not 
                include federal funds.--For purposes of this 
                paragraph, State matching contributions shall 
                not be derived, directly or indirectly, from 
                Federal funds, including any transfers from the 
                Highway Trust Fund under section 9503.
                    ``(D) No state contribution requirement for 
                certain qualified projects.--With respect to 
                any qualified project described in paragraph 
                (2)(B) or (4) of subsection (e), the State 
                contribution requirement of this paragraph is 
                zero.
            ``(4) Qualified project.--
                    ``(A) In general.--The term `qualified 
                project' means--
                            ``(i) the acquisition, financing, 
                        or refinancing of equipment, rolling 
                        stock, and other capital improvements 
                        for the northeast rail corridor between 
                        Washington, D.C. and Boston, 
                        Massachusetts (including the project 
                        described in subsection (e)(2)(B)),
                            ``(ii) the acquisition, financing, 
                        or refinancing of equipment, rolling 
                        stock, and other capital improvements 
                        for the improvement of train speeds or 
                        safety (or both) on the high-speed rail 
                        corridors designated under section 
                        104(d)(2) of title 23, United States 
                        Code, and
                            ``(iii) the acquisition, financing, 
                        or refinancing of equipment, rolling 
                        stock, and other capital improvements 
                        for other intercity passenger rail 
                        corridors, including station 
                        rehabilitation or construction, track 
                        or signal improvements, or the 
                        elimination of grade crossings.
                    ``(B) Refinancing rules.--For purposes of 
                subparagraph (A), a refinancing shall 
                constitute a qualified project only if the 
                indebtedness being refinanced (including any 
                obligation directly or indirectly refinanced by 
                such indebtedness) was originally incurred by 
                the National Railroad Passenger Corporation--
                            ``(i) after the date of the 
                        enactment of this section,
                            ``(ii) for a term of not more than 
                        3 years,
                            ``(iii) to finance or acquire 
                        capital improvements described in 
                        subparagraph (A), and
                            ``(iv) in anticipation of being 
                        refinanced with proceeds of a qualified 
                        Amtrak bond.
    ``(e) Limitations on Amount of Bonds Designated.--
            ``(1) In general.--There is a qualified Amtrak bond 
        limitation for each fiscal year. Such limitation is--
                    ``(A) $1,000,000,000 for each of the fiscal 
                years 2001 through 2010, and
                    ``(B) except as provided in paragraph (5), 
                zero after fiscal year 2010.
            ``(2) Bonds for rail corridors.--
                    ``(A) In general.--Not more than 
                $3,000,000,000 of the limitation under 
                paragraph (1) may be designated for any 1 rail 
                corridor described in clause (i) or (ii) of 
                subsection (d)(4)(A).
                    ``(B) Specific qualified project 
                allocation.--Of the amount described in 
                subparagraph (A), the Secretary of 
                Transportation shall allocate $92,000,000 for 
                the acquisition and installation of platform 
                facilities, performance of railroad force 
                account work necessary to complete improvements 
                below street grade, and any other necessary 
                improvements related to construction at the 
                railroad station at the James A. Farley Post 
                Office Building in New York City, New York.
            ``(3) Bonds for other projects.--Not more than 10 
        percent of the limitation under paragraph (1) for any 
        fiscal year may be allocated to qualified projects 
        described in subsection (d)(4)(A)(iii).
            ``(4) Bonds for alaska railroad.--The Secretary of 
        Transportation may allocate to the Alaska Railroad a 
        portion of the qualified Amtrak limitation for any 
        fiscal year in order to allow the Alaska Railroad to 
        issue bonds which meet the requirements of this section 
        for use in financing any project described in 
        subsection (d)(4)(A)(iii). For purposes of this 
        section, the Alaska Railroad shall be treated in the 
        same manner as the National Railroad Passenger 
        Corporation.
            ``(5) Carryover of unused limitation.--If for any 
        fiscal year--
                    ``(A) the limitation amount under paragraph 
                (1), exceeds
                    ``(B) the amount of bonds issued during 
                such year which are designated under subsection 
                (d)(1)(C)(i),
        the limitation amount under paragraph (1) for the 
        following fiscal year (through fiscal year 2014) shall 
        be increased by the amount of such excess.
            ``(6) Preference for greater state participation.--
        In selecting qualified projects for allocation of the 
        qualified Amtrak bond limitation under this subsection, 
        the Secretary of Transportation shall give preference 
        to any project with a State matching contribution rate 
        exceeding 20 percent.
    ``(f) Other Definitions.--For purposes of this subpart--
            ``(1) Bond.--The term `bond' includes any 
        obligation.
            ``(2) Credit allowance date.--The term `credit 
        allowance date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
            ``(3) State.--The term `State' means the several 
        States and the District of Columbia, and any 
        subdivision thereof.
            ``(4) Program.--The term `program' means 1 or more 
        projects implemented over 1 or more years to support 
        the development of intercity passenger rail corridors.
    ``(g) Credit Included in Gross Income.--Gross income 
includes the amount of the credit allowed to the taxpayer under 
this section (determined without regard to subsection (c)) and 
the amount so included shall be treated as interest income.
    ``(h) Special Rules Relating to Arbitrage.--
            ``(1) In general.--Subject to paragraph (2), an 
        issue shall be treated as meeting the requirements of 
        this subsection if as of the date of issuance, the 
        issuer reasonably expects--
                    ``(A) to spend at least 95 percent of the 
                proceeds of the issue for 1 or more qualified 
                projects within the 3-year period beginning on 
                such date,
                    ``(B) to incur a binding commitment with a 
                third party to spend at least 10 percent of the 
                proceeds of the issue, or to commence 
                construction, with respect to such projects 
                within the 6-month period beginning on such 
                date, and
                    ``(C) to proceed with due diligence to 
                complete such projects and to spend the 
                proceeds of the issue.
            ``(2) Rules regarding continuing compliance after 
        3-year determination.--If at least 95 percent of the 
        proceeds of the issue is not expended for 1 or more 
        qualified projects within the 3-year period beginning 
        on the date of issuance, an issue shall be treated as 
        continuing to meet the requirements of this subsection 
        if either--
                    ``(A) the issuer uses all unspent proceeds 
                of the issue to redeem bonds of the issue 
                within 90 days after the end of such 3-year 
                period, or
                    ``(B) the following requirements are met:
                            ``(i) The issuer spends at least 75 
                        percent of the proceeds of the issue 
                        for 1 or more qualified projects within 
                        the 3-year period beginning on the date 
                        of issuance.
                            ``(ii) The issuer has proceeded 
                        with due diligence to spend the 
                        proceeds of the issue within such 3-
                        year period and continues to proceed 
                        with due diligence to spend such 
                        proceeds.
                            ``(iii) The issuer pays to the 
                        Federal Government any earnings on the 
                        proceeds of the issue that accrue after 
                        the end of such 3-year period.
                            ``(iv) Either--
                                    ``(I) at least 95 percent 
                                of the proceeds of the issue is 
                                expended for 1 or more 
                                qualified projects within the 
                                4-year period beginning on the 
                                date of issuance, or
                                    ``(II) the issuer uses all 
                                unspent proceeds of the issue 
                                to redeem bonds of the issue 
                                within 90 days after the end of 
                                such 4-year period.
    ``(i) Recapture of Portion of Credit Where Cessation of 
Compliance.--
            ``(1) In general.--If any bond which when issued 
        purported to be a qualified Amtrak bond ceases to be a 
        qualified Amtrak bond, the issuer shall pay to the 
        United States (at the time required by the Secretary) 
        an amount equal to the sum of--
                    ``(A) the aggregate of the credits 
                allowable under this section with respect to 
                such bond (determined without regard to 
                subsection (c)) for taxable years ending during 
                the calendar year in which such cessation 
                occurs and the 2 preceding calendar years, and
                    ``(B) interest at the underpayment rate 
                under section 6621 on the amount determined 
                under subparagraph (A) for each calendar year 
                for the period beginning on the first day of 
                such calendar year.
            ``(2) Failure to pay.--If the issuer fails to 
        timely pay the amount required by paragraph (1) with 
        respect to such bond, the tax imposed by this chapter 
        on each holder of any such bond which is part of such 
        issue shall be increased (for the taxable year of the 
        holder in which such cessation occurs) by the aggregate 
        decrease in the credits allowed under this section to 
        such holder for taxable years beginning in such 3 
        calendar years which would have resulted solely from 
        denying any credit under this section with respect to 
        such issue for such taxable years.
            ``(3) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the 
                taxable year shall be increased under paragraph 
                (2) only with respect to credits allowed by 
                reason of this section which were used to 
                reduce tax liability. In the case of credits 
                not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 
                shall be appropriately adjusted.
                    ``(B) No credits against tax.--Any increase 
                in tax under paragraph (2) shall not be treated 
                as a tax imposed by this chapter for purposes 
                of determining --
                            ``(i) the amount of any credit 
                        allowable under this part, or
                            ``(ii) the amount of the tax 
                        imposed by section 55.
    ``(j) Use of Trust Account.--
            ``(1) In general.--The amount of any matching 
        contribution with respect to a qualified project 
        described in subsection (d)(3)(B)(i) or 
        (d)(3)(B)(ii)(II) and the temporary period investment 
        earnings on proceeds of the issue with respect to such 
        project, and any earnings thereon, shall be held in a 
        trust account by a trustee independent of the National 
        Railroad Passenger Corporation to be used to the extent 
        necessary to redeem bonds which are part of such issue.
            ``(2) Use of remaining funds in trust account.--
        Upon the repayment of the principal of all qualified 
        Amtrak bonds issued under this section, any remaining 
        funds in the trust account described in paragraph (1) 
        shall be available--
                    ``(A) to the trustee described in paragraph 
                (1), to meet any remaining obligations under 
                any guaranteed investment contract used to 
                secure earnings sufficient to repay the 
                principal of such bonds, and
                    ``(B) to the issuer, for any qualified 
                project.
    ``(k) Other Special Rules.--
            ``(1) Partnership; s corporation; and other pass-
        thru entities.--Under regulations prescribed by the 
        Secretary, in the case of a partnership, trust, S 
        corporation, or other pass-thru entity, rules similar 
        to the rules of section 41(g) shall apply with respect 
        to the credit allowable under subsection (a).
            ``(2) Bonds held by regulated investment 
        companies.--If any qualified Amtrak bond is held by a 
        regulated investment company, the credit determined 
        under subsection (a) shall be allowed to shareholders 
        of such company under procedures prescribed by the 
        Secretary.
            ``(3) Credits may be stripped.--Under regulations 
        prescribed by the Secretary--
                    ``(A) In general.--There may be a 
                separation (including at issuance) of the 
                ownership of a qualified Amtrak bond and the 
                entitlement to the credit under this section 
                with respect to such bond. In case of any such 
                separation, the credit under this section shall 
                be allowed to the person who on the credit 
                allowance date holds the instrument evidencing 
                the entitlement to the credit and not to the 
                holder of the bond.
                    ``(B) Certain rules to apply.--In the case 
                of a separation described in subparagraph (A), 
                the rules of section 1286 shall apply to the 
                qualified Amtrak bond as if it were a stripped 
                bond and to the credit under this section as if 
                it were a stripped coupon.
            ``(4) Treatment for estimated tax purposes.--Solely 
        for purposes of sections 6654 and 6655, the credit 
        allowed by this section to a taxpayer by reason of 
        holding a qualified Amtrak bond on a credit allowance 
        date shall be treated as if it were a payment of 
        estimated tax made by the taxpayer on such date.
            ``(5) Credit may be transferred.--Nothing in any 
        law or rule of law shall be construed to limit the 
        transferability of the credit allowed by this section 
        through sale and repurchase agreements.
            ``(6) Reporting.--Issuers of qualified Amtrak bonds 
        shall submit reports similar to the reports required 
        under section 149(e).''.
    (b) Reporting.--Subsection (d) of section 6049 (relating to 
returns regarding payments of interest), as amended by section 
505(d), is amended by adding at the end the following new 
paragraph:
            ``(9) Reporting of credit on qualified amtrak 
        bonds.--
                    ``(A) In general.--For purposes of 
                subsection (a), the term `interest' includes 
                amounts includible in gross income under 
                section 54(g) and such amounts shall be treated 
                as paid on the credit allowance date (as 
                defined in section 54(f)(2)).
                    ``(B) Reporting to corporations, etc.--
                Except as otherwise provided in regulations, in 
                the case of any interest described in 
                subparagraph (A) of this paragraph, subsection 
                (b)(4) of this section shall be applied without 
                regard to subparagraphs (A), (H), (I), (J), 
                (K), and (L)(i).
                    ``(C) Regulatory authority.--The Secretary 
                may prescribe such regulations as are necessary 
                or appropriate to carry out the purposes of 
                this paragraph, including regulations which 
                require more frequent or more detailed 
                reporting.''.
    (c) Clerical Amendments.--
            (1) The table of subparts for part IV of subchapter 
        A of chapter 1 is amended by adding at the end the 
        following new item:

        ``Subpart H. Nonrefundable Credit for Holders of Qualified 
                  Amtrak Bonds.''.

            (2) Section 6401(b)(1) is amended by striking ``and 
        G'' and inserting ``G, and H''.
    (d) Effective Date.--The amendments made by this section 
shall apply to obligations issued after September 30, 2000.
    (e) Multi-Year Capital Spending Plan and Oversight.--
            (1) Amtrak capital spending plan.--
                    (A) In general.--The National Railroad 
                Passenger Corporation shall annually submit to 
                the President and Congress a multi-year capital 
                spending plan, as approved by the Board of 
                Directors of the Corporation.
                    (B) Contents of plan.--Such plan shall 
                identify the capital investment needs of the 
                Corporation over a period of not less than 5 
                years and the funding sources available to 
                finance such needs and shall prioritize such 
                needs according to corporate goals and 
                strategies.
                    (C) Initial submission date.--The first 
                plan shall be submitted before the issuance of 
                any qualified Amtrak bonds by the National 
                Railroad Passenger Corporation pursuant to 
                section 54 of the Internal Revenue Code of 1986 
                (as added by this section).
            (2) Oversight of amtrak trust account and qualified 
        projects.--
                    (A) Trust account oversight.--The Secretary 
                of the Treasury shall annually report to 
                Congress as to whether the amount deposited in 
                the trust account established by the National 
                Railroad Passenger Corporation under section 
                54(i) of such Code (as so added) is sufficient 
                to fully repay at maturity the principal of any 
                outstanding qualified Amtrak bonds issued 
                pursuant to section 54 of such Code (as so 
                added), together with amounts expected to be 
                deposited into such account, as certified by 
                the National Railroad Passenger Corporation in 
                accordance with procedures prescribed by the 
                Secretary of the Treasury.
                    (B) Project oversight.--The National 
                Railroad Passenger Corporation shall contract 
                for an annual independent assessment of the 
                costs and benefits of the qualified projects 
                financed by such qualified Amtrak bonds, 
                including an assessment of the investment 
                evaluation process of the Corporation. The 
                annual assessment shall be included in the plan 
                submitted under paragraph (1).
                    (C) Oversight funding.--Not more than 0.5 
                percent of the amounts made available through 
                the issuance of qualified Amtrak bonds by the 
                National Railroad Passenger Corporation 
                pursuant to section 54 of such Code (as so 
                added) may be used by the National Railroad 
                Passenger Corporation for assessments described 
                in subparagraph (B).
    (f) Protection of Highway Trust Fund.--
            (1) Certification by the secretary of the 
        treasury.--The issuance of any qualified Amtrak bonds 
        by the National Railroad Passenger Corporation or the 
        Alaska Railroad pursuant to section 54 of the Internal 
        Revenue Code of 1986 (as added by this section) is 
        conditioned on certification by the Secretary of the 
        Treasury, after consultation with the Secretary of 
        Transportation, within 30 days of a request by the 
        issuer, that with respect to funds of the Highway Trust 
        Fund described under paragraph (2), the issuer either--
                    (A) has not received such funds during 
                fiscal years commencing with fiscal year 2001 
                and ending before the fiscal year the bonds are 
                issued, or
                    (B) has repaid to the Highway Trust Fund 
                any such funds which were received during such 
                fiscal years.
            (2) Applicability.--This subsection shall apply to 
        funds received directly, or indirectly from a State or 
        local transit authority, from the Highway Trust Fund 
        established under section 9503 of the Internal Revenue 
        Code of 1986, except for funds authorized to be 
        expended under section 9503(c) of such Code, as in 
        effect on the date of the enactment of this Act.
            (3) No retroactive effect.--Nothing in this 
        subsection shall adversely affect the entitlement of 
        the holders of qualified Amtrak bonds to the tax credit 
        allowed pursuant to section 54 of the Internal Revenue 
        Code of 1986 (as so added) or to repayment of principal 
        upon maturity.

SEC. 714. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.

    (a) In General.--Subpart C of part II of subchapter E of 
chapter 1 (relating to taxable year for which deductions taken) 
is amended by inserting after section 468B the following new 
section:

``SEC. 468C. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual 
engaged in an eligible farming business or commercial fishing, 
there shall be allowed as a deduction for any taxable year the 
amount paid in cash by the taxpayer during the taxable year to 
a Farm, Fishing, and Ranch Risk Management Account (hereinafter 
referred to as the `FFARRM Account').
    ``(b) Limitation.--
            ``(1) Contributions.--The amount which a taxpayer 
        may pay into the FFARRM Account for any taxable year 
        shall not exceed 20 percent of so much of the taxable 
        income of the taxpayer (determined without regard to 
        this section) which is attributable (determined in the 
        manner applicable under section 1301) to any eligible 
        farming business or commercial fishing.
            ``(2) Distributions.--Distributions from a FFARRM 
        Account may not be used to purchase, lease, or finance 
        any new fishing vessel, add capacity to any fishery, or 
        otherwise contribute to the overcapitalization of any 
        fishery. The Secretary of Commerce shall implement 
        regulations to enforce this paragraph.
    ``(c) Eligible Businesses.--For purposes of this section--
            ``(1) Eligible farming business.--The term 
        `eligible farming business' means any farming business 
        (as defined in section 263A(e)(4)) which is not a 
        passive activity (within the meaning of section 469(c)) 
        of the taxpayer.
            ``(2) Commercial fishing.--The term `commercial 
        fishing' has the meaning given such term by section (3) 
        of the Magnuson-Stevens Fishery Conservation and 
        Management Act (16 U.S.C. 1802) but only if such 
        fishing is not a passive activity (within the meaning 
        of section 469(c)) of the taxpayer.
    ``(d) FFARRM Account.--For purposes of this section--
            ``(1) In general.--The term `FFARRM Account' means 
        a trust created or organized in the United States for 
        the exclusive benefit of the taxpayer, but only if the 
        written governing instrument creating the trust meets 
        the following requirements:
                    ``(A) No contribution will be accepted for 
                any taxable year in excess of the amount 
                allowed as a deduction under subsection (a) for 
                such year.
                    ``(B) The trustee is a bank (as defined in 
                section 408(n)) or another person who 
                demonstrates to the satisfaction of the 
                Secretary that the manner in which such person 
                will administer the trust will be consistent 
                with the requirements of this section.
                    ``(C) The assets of the trust consist 
                entirely of cash or of obligations which have 
                adequate stated interest (as defined in section 
                1274(c)(2)) and which pay such interest not 
                less often than annually.
                    ``(D) All income of the trust is 
                distributed currently to the grantor.
                    ``(E) The assets of the trust will not be 
                commingled with other property except in a 
                common trust fund or common investment fund.
            ``(2) Account taxed as grantor trust.--The grantor 
        of a FFARRM Account shall be treated for purposes of 
        this title as the owner of such Account and shall be 
        subject to tax thereon in accordance with subpart E of 
        part I of subchapter J of this chapter (relating to 
        grantors and others treated as substantial owners).
    ``(e) Inclusion of Amounts Distributed.--
            ``(1) In general.--Except as provided in paragraph 
        (2), there shall be includible in the gross income of 
        the taxpayer for any taxable year--
                    ``(A) any amount distributed from a FFARRM 
                Account of the taxpayer during such taxable 
                year, and
                    ``(B) any deemed distribution under--
                            ``(i) subsection (f )(1) (relating 
                        to deposits not distributed within 5 
                        years),
                            ``(ii) subsection (f )(2) (relating 
                        to cessation in eligible farming 
                        business), and
                            ``(iii) subparagraph (B) or (C) of 
                        subsection (f )(3) (relating to 
                        prohibited transactions and pledging 
                        account as security).
            ``(2) Exceptions.--Paragraph (1)(A) shall not apply 
        to--
                    ``(A) any distribution to the extent 
                attributable to income of the Account, and
                    ``(B) the distribution of any contribution 
                paid during a taxable year to a FFARRM Account 
                to the extent that such contribution exceeds 
                the limitation applicable under subsection (b) 
                if requirements similar to the requirements of 
                section 408(d)(4) are met.
        For purposes of subparagraph (A), distributions shall 
        be treated as first attributable to income and then to 
        other amounts.
    ``(f ) Special Rules.--
            ``(1) Tax on deposits in account which are not 
        distributed within 5 years.--
                    ``(A) In general.--If, at the close of any 
                taxable year, there is a nonqualified balance 
                in any FFARRM Account--
                            ``(i) there shall be deemed 
                        distributed from such Account during 
                        such taxable year an amount equal to 
                        such balance, and
                            ``(ii) the taxpayer's tax imposed 
                        by this chapter for such taxable year 
                        shall be increased by 10 percent of 
                        such deemed distribution.
                The preceding sentence shall not apply if an 
                amount equal to such nonqualified balance is 
                distributed from such Account to the taxpayer 
                before the due date (including extensions) for 
                filing the return of tax imposed by this 
                chapter for such year (or, if earlier, the date 
                the taxpayer files such return for such year).
                    ``(B) Nonqualified balance.--For purposes 
                of subparagraph (A), the term `nonqualified 
                balance' means any balance in the Account on 
                the last day of the taxable year which is 
                attributable to amounts deposited in such 
                Account before the 4th preceding taxable year.
                    ``(C) Ordering rule.--For purposes of this 
                paragraph, distributions from a FFARRM Account 
                (other than distributions of current income) 
                shall be treated as made from deposits in the 
                order in which such deposits were made, 
                beginning with the earliest deposits.
            ``(2) Cessation in eligible business.--At the close 
        of the first disqualification period after a period for 
        which the taxpayer was engaged in an eligible farming 
        business or commercial fishing, there shall be deemed 
        distributed from the FFARRM Account of the taxpayer an 
        amount equal to the balance in such Account (if any) at 
        the close of such disqualification period. For purposes 
        of the preceding sentence, the term `disqualification 
        period' means any period of 2 consecutive taxable years 
        for which the taxpayer is not engaged in an eligible 
        farming business or commercial fishing.
            ``(3) Certain rules to apply.--Rules similar to the 
        following rules shall apply for purposes of this 
        section:
                    ``(A) Section 220(f )(8) (relating to 
                treatment on death).
                    ``(B) Section 408(e)(2) (relating to loss 
                of exemption of account where individual 
                engages in prohibited transaction).
                    ``(C) Section 408(e)(4) (relating to effect 
                of pledging account as security).
                    ``(D) Section 408(g) (relating to community 
                property laws).
                    ``(E) Section 408(h) (relating to custodial 
                accounts).
            ``(4) Time when payments deemed made.--For purposes 
        of this section, a taxpayer shall be deemed to have 
        made a payment to a FFARRM Account on the last day of a 
        taxable year if such payment is made on account of such 
        taxable year and is made on or before the due date 
        (without regard to extensions) for filing the return of 
        tax for such taxable year.
            ``(5) Individual.--For purposes of this section, 
        the term `individual' shall not include an estate or 
        trust.
            ``(6) Deduction not allowed for self-employment 
        tax.--The deduction allowable by reason of subsection 
        (a) shall not be taken into account in determining an 
        individual's net earnings from self-employment (within 
        the meaning of section 1402(a)) for purposes of chapter 
        2.
    ``(g) Reports.--The trustee of a FFARRM Account shall make 
such reports regarding such Account to the Secretary and to the 
person for whose benefit the Account is maintained with respect 
to contributions, distributions, and such other matters as the 
Secretary may require under regulations. The reports required 
by this subsection shall be filed at such time and in such 
manner and furnished to such persons at such time and in such 
manner as may be required by such regulations.''.
    (b) Tax on Excess Contributions.--
            (1) Subsection (a) of section 4973 (relating to tax 
        on excess contributions to certain tax-favored accounts 
        and annuities) is amended by striking ``or'' at the end 
        of paragraph (3), by redesignating paragraph (4) as 
        paragraph (5), and by inserting after paragraph (3) the 
        following new paragraph:
            ``(4) a FFARRM Account (within the meaning of 
        section 468C(d)), or''.
            (2) Section 4973 is amended by adding at the end 
        the following new subsection:
    ``(g) Excess Contributions to FFARRM Accounts.--For 
purposes of this section, in the case of a FFARRM Account 
(within the meaning of section 468C(d)), the term `excess 
contributions' means the amount by which the amount contributed 
for the taxable year to the Account exceeds the amount which 
may be contributed to the Account under section 468C(b) for 
such taxable year. For purposes of this subsection, any 
contribution which is distributed out of the FFARRM Account in 
a distribution to which section 468C(e)(2)(B) applies shall be 
treated as an amount not contributed.''.
            (3) The section heading for section 4973 is amended 
        to read as follows:

``SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN ACCOUNTS, ANNUITIES, 
                    ETC.''.

            (4) The table of sections for chapter 43 is amended 
        by striking the item relating to section 4973 and 
        inserting the following new item:

        ``Sec. 4973. Excess contributions to certain accounts, 
                  annuities, etc.''.

    (c) Tax on Prohibited Transactions.--
            (1) Subsection (c) of section 4975 (relating to tax 
        on prohibited transactions) is amended by adding at the 
        end the following new paragraph:
            ``(6) Special rule for ffarrm accounts.--A person 
        for whose benefit a FFARRM Account (within the meaning 
        of section 468C(d)) is established shall be exempt from 
        the tax imposed by this section with respect to any 
        transaction concerning such account (which would 
        otherwise be taxable under this section) if, with 
        respect to such transaction, the account ceases to be a 
        FFARRM Account by reason of the application of section 
        468C(f )(3)(A) to such account.''.
            (2) Paragraph (1) of section 4975(e) is amended by 
        redesignating subparagraphs (E) and (F) as 
        subparagraphs (F) and (G), respectively, and by 
        inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) a FFARRM Account described in section 
                468C(d),''.
    (d) Failure To Provide Reports on FFARRM Accounts.--
Paragraph (2) of section 6693(a) (relating to failure to 
provide reports on certain tax-favored accounts or annuities) 
is amended by redesignating subparagraphs (C) and (D) as 
subparagraphs (D) and (E), respectively, and by inserting after 
subparagraph (B) the following new subparagraph:
                    ``(C) section 468C(g) (relating to FFARRM 
                Accounts),''.
    (e) Clerical Amendment.--The table of sections for subpart 
C of part II of subchapter E of chapter 1 is amended by 
inserting after the item relating to section 468B the following 
new item:

        ``Sec. 468C. Farm, Fishing and Ranch Risk Management 
                  Accounts.''.

    (f ) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 715. EXTENSION OF ENHANCED DEDUCTION FOR CORPORATE DONATIONS OF 
                    COMPUTER TECHNOLOGY.

    (a) Expansion of Computer Technology Donations to Public 
Libraries.--
            (1) In general.--Paragraph (6) of section 170(e) 
        (relating to special rule for contributions of computer 
        technology and equipment for elementary or secondary 
        school purposes) is amended by striking ``qualified 
        elementary or secondary educational contribution'' each 
        place it occurs in the headings and text and inserting 
        ``qualified computer contribution''.
            (2) Expansion of eligible donees.--Clause (i) of 
        section 170(e)(6)(B) (relating to qualified elementary 
        or secondary educational contribution) is amended by 
        striking ``or'' at the end of subclause (I), by adding 
        ``or'' at the end of subclause (II), and by inserting 
        after subclause (II) the following new subclause:
                                    ``(III) a public library 
                                (within the meaning of section 
                                213(2)(A) of the Library 
                                Services and Technology Act (20 
                                U.S.C. 9122(2)(A)), as in 
                                effect on the date of the 
                                enactment of the Community 
                                Renewal and New Markets Act of 
                                2000, established and 
                                maintained by an entity 
                                described in subsection 
                                (c)(1),''.
            (3) Extension of donation period.--Clause (ii) of 
        section 170(e)(6)(B) is amended by striking ``2 years'' 
        and inserting ``3 years''.
    (b) Conforming Amendments.--
            (1) Section 170(e)(6)(B)(iv) is amended by striking 
        ``in any grades of the K-12''.
            (2) The heading of paragraph (6) of section 170(e) 
        is amended by striking ``elementary or secondary school 
        purposes'' and inserting ``educational purposes''.
    (c) Extension of Deduction.--Section 170(e)(6)(F) (relating 
to termination) is amended by striking ``December 31, 2000'' 
and inserting ``December 31, 2003''.
    (d) Effective Date.--The amendments made by this section 
shall apply to contributions made after December 31, 2000.

SEC. 716. RELIEF FROM FEDERAL TAX LIABILITY ARISING WITH RESPECT TO 
                    CERTAIN CLAIMS AGAINST THE DEPARTMENT OF 
                    AGRICULTURE FOR DISCRIMINATION IN FARM CREDIT AND 
                    BENEFIT PROGRAMS.

    Notwithstanding any provision of the Internal Revenue Code 
of 1986, in the case of a person who is certified to be a 
member of the plaintiff class in the settlement of the 
consolidated actions entitled ``Pigford, et al. v. Glickman'', 
No. 97-1978 (D.D.C.) (PLF), and ``Brewington et al. v. 
Glickman'', No. 98-1693 (D.D.C.) (PLF), gross income for 
purposes of subtitle A of such Code shall not include--
            (1) any cash payment received before, on, or after 
        the date of the enactment of this Act by, or made on 
        behalf of, a person under such settlement, and
            (2) any amount which (but for this section) would 
        be includible in gross income by reason of the 
        discharge of indebtedness pursuant to such settlement.

SEC. 717. EXPANSION OF CREDIT FOR ADOPTION EXPENSES.

    (a) Increase in Expenses Allowable for Adoption.--Paragraph 
(1) of section 23(b) (relating to dollar limitation) is amended 
to read as follows:
            ``(1) Dollar limitation.--
                    ``(A) In general.--The aggregate amount of 
                qualified adoption expenses which may be taken 
                into account under subsection (a) for all 
                taxable years with respect to the adoption of a 
                child by the taxpayer shall not exceed the 
                applicable amount.
                    ``(B) Applicable amount.--For purposes of 
                subparagraph (A)--
                            ``(i) Child with special needs.--In 
                        the case of a child with special needs, 
                        the applicable amount for a taxable 
                        year shall be the amount determined in 
                        accordance with the following table:

        ``For taxable years                               The applicable
            beginning in:                                   amount is:  
            2001..............................................   $8,000 
            2002..............................................  $10,000 
            2003 and thereafter...............................  $12,000.

                            ``(ii) Other children.--In the case 
                        of a child who is not a child with 
                        special needs, the applicable amount 
                        for a taxable year shall be the amount 
                        determined in accordance with the 
                        following table:

        ``For taxable years                               The applicable
            beginning in:                                   amount is:  
            2001..............................................   $6,000 
            2002..............................................   $7,000 
            2003..............................................   $8,000 
            2004..............................................   $9,000 
            2005 and thereafter..............................$10,000.''.

    (b) Increase in Income Limitation.--Clause (i) of section 
23(b)(2)(A) (relating to income limitation) is amended by 
striking ``$75,000'' and inserting ``$150,000''.
    (c) Extension of Sunset.--Subparagraph (B) of section 
23(d)(2) (relating to eligible child) is amended by striking 
``2001'' and inserting ``2005''.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 718. STUDY CONCERNING UNITED STATES INSURANCE COMPANIES WITH 
                    CERTAIN OFFSHORE REINSURANCE AFFILIATES.

    (a) Study.--The Secretary of the Treasury shall conduct a 
study on the extent to which United States tax on investment 
income of United States insurance companies is being avoided 
through the use of affiliated corporations in Bermuda or other 
offshore locations. In conducting such study, the Secretary 
shall--
            (1) address issues concerning the application of 
        current United States tax law in preventing such 
        avoidance,
            (2) examine changes to United States tax law which 
        may be needed to prevent such avoidance, and
            (3) make such recommendations as the Secretary 
        considers appropriate.
    (b) Submission of Study to Congress.--Not later than 
December 31, 2001, the Secretary shall submit the study 
conducted under subsection (a), together with recommendations 
thereon, to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate.

SEC. 719. TREATMENT OF INDIAN TRIBAL GOVERNMENTS UNDER FEDERAL 
                    UNEMPLOYMENT TAX ACT.

    (a) In General.--Section 3306(c)(7) (defining employment) 
is amended--
            (1) by inserting ``or in the employ of an Indian 
        tribe,'' after ``service performed in the employ of a 
        State, or any political subdivision thereof,''; and
            (2) by inserting ``or Indian tribes'' after 
        ``wholly owned by one or more States or political 
        subdivisions''.
    (b) Payments in Lieu of Contributions.--Section 3309 
(relating to State law coverage of services performed for 
nonprofit organizations or governmental entities) is amended--
            (1) in subsection (a)(2) by inserting ``, including 
        an Indian tribe,'' after ``the State law shall provide 
        that a governmental entity'';
            (2) in subsection (b)(3)(B) by inserting ``, or of 
        an Indian tribe'' after ``of a State or political 
        subdivision thereof'';
            (3) in subsection (b)(3)(E) by inserting ``or 
        tribal'' after ``the State''; and
            (4) in subsection (b)(5) by inserting ``or of an 
        Indian tribe'' after ``an agency of a State or 
        political subdivision thereof''.
    (c) State Law Coverage.--Section 3309 (relating to State 
law coverage of services performed for nonprofit organizations 
or governmental entities) is amended by adding at the end the 
following new subsection:
    ``(d) Election by Indian Tribe.--The State law shall 
provide that an Indian tribe may make contributions for 
employment as if the employment is within the meaning of 
section 3306 or make payments in lieu of contributions under 
this section, and shall provide that an Indian tribe may make 
separate elections for itself and each subdivision, subsidiary, 
or business enterprise wholly owned by such Indian tribe. State 
law may require a tribe to post a payment bond or take other 
reasonable measures to assure the making of payments in lieu of 
contributions under this section. Notwithstanding the 
requirements of section 3306(a)(6), if, within 90 days of 
having received a notice of delinquency, a tribe fails to make 
contributions, payments in lieu of contributions, or payment of 
penalties or interest (at amounts or rates comparable to those 
applied to all other employers covered under the State law) 
assessed with respect to such failure, or if the tribe fails to 
post a required payment bond, then service for the tribe shall 
not be excepted from employment under section 3306(c)(7) until 
any such failure is corrected. This subsection shall apply to 
an Indian tribe within the meaning of section 4(e) of the 
Indian Self-Determination and Education Assistance Act (25 
U.S.C. 450b(e)).''.
    (d) Definitions.--Section 3306 (relating to definitions) is 
amended by adding at the end the following new subsection:
    ``(u) Indian Tribe.--For purposes of this chapter, the term 
`Indian tribe' has the meaning given to such term by section 
4(e) of the Indian Self-Determination and Education Assistance 
Act (25 U.S.C. 450b(e)), and includes any subdivision, 
subsidiary, or business enterprise wholly owned by such an 
Indian tribe.''.
    (e) Effective Date; Transition Rule.--
            (1) Effective date.--The amendments made by this 
        section shall apply to service performed on or after 
        the date of the enactment of this Act.
            (2) Transition rule.--For purposes of the Federal 
        Unemployment Tax Act, service performed in the employ 
        of an Indian tribe (as defined in section 3306(u) of 
        the Internal Revenue Code of 1986 (as added by this 
        section)) shall not be treated as employment (within 
        the meaning of section 3306 of such Code) if--
                    (A) it is service which is performed before 
                the date of the enactment of this Act and with 
                respect to which the tax imposed under the 
                Federal Unemployment Tax Act has not been paid, 
                and
                    (B) such Indian tribe reimburses a State 
                unemployment fund for unemployment benefits 
                paid for service attributable to such tribe for 
                such period.

                   Subtitle C--Technical Corrections

SEC. 721. AMENDMENTS RELATED TO TICKET TO WORK AND WORK INCENTIVES 
                    IMPROVEMENT ACT OF 1999.

    (a) Amendments Related to Section 502 of the Act.--
            (1) Section 280C(c)(1) is amended by striking ``or 
        credit'' after ``deduction'' each place it appears.
            (2) Section 30A is amended by redesignating 
        subsections (f) and (g) as subsections (g) and (h), 
        respectively, and by inserting after subsection (e) the 
        following new subsection:
    ``(f) Denial of Double Benefit.--Any wages or other 
expenses taken into account in determining the credit under 
this section may not be taken into account in determining the 
credit under section 41.''
    (b) Amendment Related to Section 545 of the Act.--Clause 
(ii) of section 857(b)(7)(B) is amended to read as follows:
                            ``(ii) Exception for certain 
                        amounts.--Clause (i) shall not apply to 
                        amounts received directly or indirectly 
                        by a real estate investment trust--
                                    ``(I) for services 
                                furnished or rendered by a 
                                taxable REIT subsidiary that 
                                are described in paragraph 
                                (1)(B) of section 856(d), or
                                    ``(II) from a taxable REIT 
                                subsidiary that are described 
                                in paragraph (7)(C)(ii) of such 
                                section.''
    (c) Clarification Related to Section 538 of the Act.--The 
reference to section 332(b)(1) of the Internal Revenue Code of 
1986 in Treasury Regulation section 1.1502-34 shall be deemed 
to include a reference to section 732(f) of such Code.
    (d) Effective Date.--Subsection (c) and the amendments made 
by this section shall take effect as if included in the 
provisions of the Ticket to Work and Work Incentives 
Improvement Act of 1999 to which they relate.

SEC. 722. AMENDMENTS RELATED TO TAX AND TRADE RELIEF EXTENSION ACT OF 
                    1998.

    (a) Amendment Related to Section 1004(b) of the Act.--
Subsection (d) of section 6104 is amended by adding at the end 
the following new paragraph:
            ``(6) Application to nonexempt charitable trusts 
        and nonexempt private foundations.--The organizations 
        referred to in paragraphs (1) and (2) of section 
        6033(d) shall comply with the requirements of this 
        subsection relating to annual returns filed under 
        section 6033 in the same manner as the organizations 
        referred to in paragraph (1).''.
    (b) Amendment Related to Section 4003 of the Act.--
Subsection (b) of section 4003 of the Tax and Trade Relief 
Extension Act of 1998 is amended by inserting 
``(7)(A)(i)(II),'' after ``(5)(A)(ii)(I),''.
    (c) Effective Date.--The amendments made by this section 
shall take effect as if included in the provisions of the Tax 
and Trade Relief Extension Act of 1998 to which they relate.

SEC. 723. AMENDMENTS RELATED TO INTERNAL REVENUE SERVICE RESTRUCTURING 
                    AND REFORM ACT OF 1998.

    (a) Amendments Related to Innocent Spouse Relief.--
            (1) Election may be made any time after deficiency 
        asserted.--Subparagraph (B) of section 6015(c)(3) is 
        amended by striking ``shall be made'' and inserting 
        ``may be made at any time after a deficiency for such 
        year is asserted but''.
            (2) Clarification regarding disallowance of refunds 
        and credits under section 6015(c).--
                    (A) In general.--Section 6015 is amended by 
                redesignating subsection (g) as subsection (h) 
                and by inserting after subsection (f) the 
                following new subsection:
    ``(g) Credits and Refunds.--
            ``(1) In general.--Except as provided in paragraphs 
        (2) and (3), notwithstanding any other law or rule of 
        law (other than section 6511, 6512(b), 7121, or 7122), 
        credit or refund shall be allowed or made to the extent 
        attributable to the application of this section.
            ``(2) Res judicata.--In the case of any election 
        under subsection (b) or (c), if a decision of a court 
        in any prior proceeding for the same taxable year has 
        become final, such decision shall be conclusive except 
        with respect to the qualification of the individual for 
        relief which was not an issue in such proceeding. The 
        exception contained in the preceding sentence shall not 
        apply if the court determines that the individual 
        participated meaningfully in such prior proceeding.
            ``(3) Credit and refund not allowed under 
        subsection (c).--No credit or refund shall be allowed 
        as a result of an election under subsection (c).''.
                    (B) Conforming amendment.--Paragraph (3) of 
                section 6015(e) is amended to read as follows:
            ``(3) Limitation on tax court jurisdiction.--If a 
        suit for refund is begun by either individual filing 
        the joint return pursuant to section 6532--
                    ``(A) the Tax Court shall lose jurisdiction 
                of the individual's action under this section 
                to whatever extent jurisdiction is acquired by 
                the district court or the United States Court 
                of Federal Claims over the taxable years that 
                are the subject of the suit for refund, and
                    ``(B) the court acquiring jurisdiction 
                shall have jurisdiction over the petition filed 
                under this subsection.''.
            (3) Clarifications regarding review by tax court.--
                    (A) Paragraph (1) of section 6015(e) is 
                amended in the matter preceding subparagraph 
                (A) by inserting after ``individual'' the 
                following: ``against whom a deficiency has been 
                asserted and''.
                    (B) Subparagraph (A) of section 6015(e)(1) 
                is amended to read as follows:
                    ``(A) In general.--In addition to any other 
                remedy provided by law, the individual may 
                petition the Tax Court (and the Tax Court shall 
                have jurisdiction) to determine the appropriate 
                relief available to the individual under this 
                section if such petition is filed--
                            ``(i) at any time after the earlier 
                        of--
                                    ``(I) the date the 
                                Secretary mails, by certified 
                                or registered mail to the 
                                taxpayer's last known address, 
                                notice of the Secretary's final 
                                determination of relief 
                                available to the individual, or
                                    ``(II) the date which is 6 
                                months after the date such 
                                election is filed with the 
                                Secretary, and
                            ``(ii) not later than the close of 
                        the 90th day after the date described 
                        in clause (i)(I).''.
                    (C) Subparagraph (B)(i) of section 
                6015(e)(1) is amended--
                            (i) by striking ``until the 
                        expiration of the 90-day period 
                        described in subparagraph (A)'' and 
                        inserting ``until the close of the 90th 
                        day referred to in subparagraph 
                        (A)(ii)'', and
                            (ii) by inserting ``under 
                        subparagraph (A)'' after ``filed with 
                        the Tax Court''.
                    (D)(i) Subsection (e) of section 6015 is 
                amended by adding at the end the following new 
                paragraph:
            ``(5) Waiver.--An individual who elects the 
        application of subsection (b) or (c) (and who agrees 
        with the Secretary's determination of relief) may waive 
        in writing at any time the restrictions in paragraph 
        (1)(B) with respect to collection of the outstanding 
        assessment (whether or not a notice of the Secretary's 
        final determination of relief has been mailed).''.
                    (ii) Paragraph (2) of section 6015(e) is 
                amended to read as follows:
            ``(2) Suspension of running of period of 
        limitations.--The running of the period of limitations 
        in section 6502 on the collection of the assessment to 
        which the petition under paragraph (1)(A) relates shall 
        be suspended--
                    ``(A) for the period during which the 
                Secretary is prohibited by paragraph (1)(B) 
                from collecting by levy or a proceeding in 
                court and for 60 days thereafter, and
                    ``(B) if a waiver under paragraph (5) is 
                made, from the date the claim for relief was 
                filed until 60 days after the waiver is filed 
                with the Secretary.''.
    (b) Amendments Related to Procedure and Administration.--
            (1) Disputes involving $50,000 or less.--Section 
        7463 is amended by adding at the end the following new 
        subsection:
    ``(f) Additional Cases in Which Proceedings May Be 
Conducted Under This Section.--At the option of the taxpayer 
concurred in by the Tax Court or a division thereof before the 
hearing of the case, proceedings may be conducted under this 
section (in the same manner as a case described in subsection 
(a)) in the case of--
            ``(1) a petition to the Tax Court under section 
        6015(e) in which the amount of relief sought does not 
        exceed $50,000, and
            ``(2) an appeal under section 6330(d)(1)(A) to the 
        Tax Court of a determination in which the unpaid tax 
        does not exceed $50,000.''.
            (2) Authority to enjoin collection actions.--
                    (A) Section 6330(e)(1) is amended by adding 
                at the end the following: ``Notwithstanding the 
                provisions of section 7421(a), the beginning of 
                a levy or proceeding during the time the 
                suspension under this paragraph is in force may 
                be enjoined by a proceeding in the proper 
                court, including the Tax Court. The Tax Court 
                shall have no jurisdiction under this paragraph 
                to enjoin any action or proceeding unless a 
                timely appeal has been filed under subsection 
                (d)(1) and then only in respect of the unpaid 
                tax or proposed levy to which the determination 
                being appealed relates.''.
                    (B) Section 7421(a) is amended by inserting 
                ``6330(e)(1),'' after ``6246(b),''.
            (3) Clarification.--Paragraph (3) of section 
        6331(k) is amended by striking ``(3), (4), and (5)'' 
        and inserting ``(3) and (4)''.
    (c) Amendment Related to Section 1103 of the Act.--
Paragraph (6) of section 6103(k) is amended--
            (1) by inserting ``and an officer or employee of 
        the Office of Treasury Inspector General for Tax 
        Administration'' after ``internal revenue officer or 
        employee'', and
            (2) by striking ``internal revenue'' in the heading 
        and inserting ``certain''.
    (d) Amendment Related to Section 3401 of the Act.--Section 
6330(d)(1)(A) is amended by striking ``to hear'' and inserting 
``with respect to''.
    (e) Amendment Related to Section 3509 of the Act.--
Subparagraph (A) of section 6110(g)(5) is amended by inserting 
``, any Chief Counsel advice,'' after ``technical advice 
memorandum''.
    (f) Effective Dates.--The amendments made by subsections 
(a) and (b) shall take effect on the date of the enactment of 
this Act. The amendments made by subsections (c), (d), and (e) 
shall take effect as if included in the provisions of the 
Internal Revenue Service Restructuring and Reform Act of 1998 
to which they relate.

SEC. 724. AMENDMENTS RELATED TO TAXPAYER RELIEF ACT OF 1997.

    (a) Amendment Related to Section 101 of the Act.--Paragraph 
(4) of section 6211(b) is amended by striking ``sections 32 and 
34'' and inserting ``sections 24(d), 32, and 34''.
    (b) Amendment Related to Section 302 of the Act.--The last 
sentence of section 3405(e)(1)(B) is amended by inserting 
``(other than a Roth IRA)'' after ``individual retirement 
plan''.
    (c) Amendment to Section 311 of the Act.--Paragraph (3) of 
section 311(e) of the Taxpayer Relief Act of 1997 (relating to 
election to recognize gain on assets held on January 1, 2001) 
is amended by adding at the end the following new sentence: 
``Such an election shall not apply to any asset which is 
disposed of (in a transaction in which gain or loss is 
recognized in whole or in part) before the close of the 1-year 
period beginning on the date that the asset would have been 
treated as sold under such election.''
    (d) Amendment Related to Section 402 of the Act.--The flush 
sentence at the end of clause (ii) of section 56(a)(1)(A) is 
amended by inserting before ``or to any other property'' the 
following: ``(and the straight line method shall be used for 
such 1250 property)''.
    (e) Amendments Related to Section  1072 of the Act.--
            (1) Clause (ii) of section 415(c)(3)(D) and 
        subparagraph (B) of section 403(b)(3) are each amended 
        by striking ``section 125 or'' and inserting ``section 
        125, 132(f)(4), or''.
            (2) Paragraph (2) of section 414(s) is amended by 
        striking ``section 125, 402(e)(3)'' and inserting 
        ``section 125, 132(f)(4), 402(e)(3)''.
    (f) Amendment Related to Section  1454 of the Act.--
Subsection (a) of section 7436 is amended by inserting before 
the period at the end of the first sentence ``and the proper 
amount of employment tax under such determination''.
    (g) Effective Date.--The amendments made by this section 
shall take effect as if included in the provisions of the 
Taxpayer Relief of 1997 to which they relate.

SEC. 725. AMENDMENTS RELATED TO BALANCED BUDGET ACT OF 1997.

    (a) Amendments Related to Section  9302 of the Act.--
            (1) Paragraph (1) of section 9302(j) of the 
        Balanced Budget Act of 1997 is amended by striking 
        ``tobacco products and cigarette papers and tubes'' and 
        inserting ``cigarettes''.
            (2)(A) Subsection (h) of section 5702 is amended to 
        read as follows:
    ``(h) Manufacturer of Cigarette Papers and Tubes.--
`Manufacturer of cigarette papers and tubes' means any person 
who manufactures cigarette paper, or makes up cigarette paper 
into tubes, except for his own personal use or consumption.''
            (B) Section 5702, as amended by subparagraph (A), 
        is amended by striking subsection (f) and by 
        redesignating subsections (g) through (p) as 
        subsections (f) through (o), respectively.
            (3) Subsection (c) of section 5761 is amended by 
        adding at the end the following: ``This subsection and 
        section 5754 shall not apply to any person who relands 
        or receives tobacco products in the quantity allowed 
        entry free of tax and duty under chapter 98 of the 
        Harmonized Tariff Schedule of the United States, and 
        such person may voluntarily relinquish to the Secretary 
        at the time of entry any excess of such quantity 
        without incurring the penalty under this subsection. No 
        quantity of tobacco products other than the quantity 
        referred to in the preceding sentence may be relanded 
        or received as a personal use quantity.''.
    (b) Effective Date.--The amendments made by this section 
shall take effect as if included in section 9302 of the 
Balanced Budget Act of 1997.

SEC. 726. AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION ACT OF 
                    1996.

    (a) Amendment Related to Section 1201 of the Act.--
Subparagraph (B) of section 51(d)(2) is amended--
            (1) by striking ``plan approved'' and inserting 
        ``program funded'', and
            (2) by striking ``(relating to assistance for needy 
        families with minor children)''.
    (b) Amendment Related to Section 1302 of the Act.--Clause 
(i) of section 1361(e)(1)(A) is amended by striking ``or'' 
before ``(III)'' and by adding at the end the following: ``or 
(IV) an organization described in section 170(c)(1) which holds 
a contingent interest in such trust and is not a potential 
current beneficiary,''.
    (c) Amendment Related to Section 1401 of the Act.--Clause 
(ii) of section 401(k)(10)(B) is amended by adding at the end 
the following new sentence: ``Such term includes a distribution 
of an annuity contract from--
                                    ``(I) a trust which forms a 
                                part of a plan described in 
                                section 401(a) and which is 
                                exempt from tax under section 
                                501(a), or
                                    ``(II) an annuity plan 
                                described in section 403(a).''.
    (d) Amendment Related to Section 1427 of the Act.--Clause 
(ii) of section 219(c)(1)(B) is amended by striking ``and'' at 
the end of subclause (I), by redesignating subclause (II) as 
subclause (III), and by inserting after subclause (I) the 
following new subclause:
                                    ``(II) the amount of any 
                                designated nondeductible 
                                contribution (as defined in 
                                section 408(o)) on behalf of 
                                such spouse for such taxable 
                                year, and''.
    (e) Effective Date.--The amendments made by this section 
shall take effect as if included in the provisions of the Small 
Business Job Protection Act of 1996 to which they relate.

SEC. 727. AMENDMENT RELATED TO REVENUE RECONCILIATION ACT OF 1990.

    (a) Amendment Related to Section 11511 of the Act.--
Subparagraph (C) of section 43(c)(1) is amended--
            (1) by inserting ``(as defined in section 193(b))'' 
        after ``expenses'', and
            (2) by striking ``under section 193''.
    (b) Effective Date.--The amendment made by this section 
shall take effect as if included in section 11511 of the 
Revenue Reconciliation Act of 1990.

SEC. 728. OTHER TECHNICAL CORRECTIONS.

    (a) Modified Endowment Contracts.--
            (1) Paragraph (2) of section 7702A(a) is amended by 
        inserting ``or this paragraph'' before the period.
            (2) Clause (ii) of section 7702A(c)(3)(A) is 
        amended by striking ``under the contract'' and 
        inserting ``under the old contract''.
            (3) The amendments made by this subsection shall 
        take effect as if included in the amendments made by 
        section 5012 of the Technical and Miscellaneous Revenue 
        Act of 1988.
    (b) Affiliated Corporations in Context of Worthless 
Securities.--
            (1) Subparagraph (A) of section 165(g)(3) is 
        amended to read as follows:
                    ``(A) the taxpayer owns directly stock in 
                such corporation meeting the requirements of 
                section 1504(a)(2), and''.
            (2) Paragraph (3) of section 165(g) is amended by 
        striking the last sentence.
            (3) The amendments made by this subsection shall 
        apply to taxable years beginning after December 31, 
        1984.
    (c) Certain Annuities Issued by Tax-Exempt Organizations 
Not Treated as Debt Instruments Under Original Issue Discount 
Rules.--
            (1) Clause (ii) of section 1275(a)(1)(B) is amended 
        by striking ``subchapter L'' and inserting ``subchapter 
        L (or by an entity described in section 501(c) and 
        exempt from tax under section 501(a) which would be 
        subject to tax under subchapter L were it not so 
        exempt)''.
            (2) The amendment made by this subsection shall 
        take effect as if included in the amendments made by 
        section 41 of the Tax Reform Act of 1984.
    (d) Tentative Carryback Adjustments of Losses From Section 
1256 Contracts.--
            (1) Subsection (a) of section 6411 is amended by 
        striking ``section 1212(a)(1)'' and inserting 
        ``subsection (a)(1) or (c) of section 1212''.
            (2) The amendment made by paragraph (1) shall take 
        effect as if included in the amendments made by section 
        504 of the Economic Recovery Tax Act of 1981.
    (e) Correction of Calculation of Amounts to be Deposited in 
Highway Trust Fund.--
            (1) Subsection (b) of section 9503 is amended by 
        striking paragraph (5) and redesignating paragraph (6) 
        as paragraph (5).
            (2) The amendment made by paragraph (1) shall apply 
        with respect to taxes received in the Treasury after 
        the date of the enactment of this Act.
    (f) Expenditures From Vaccine Injury Compensation Trust 
Fund.--Section 9510(c)(1)(A) is amended by striking ``December 
31, 1999'' and inserting ``October 18, 2000''.

SEC. 729. CLERICAL CHANGES.

            (1) Clause (i) of section 45(d)(7)(A) is amended by 
        striking ``paragraph (3)(A)'' and inserting 
        ``subsection (c)(3)(A)''.
            (2) Subsection (f) of section 67 is amended by 
        striking ``the last sentence'' and inserting ``the 
        second sentence''.
            (3) The heading for paragraph (5) of section 408(d) 
        is amended to read as follows:
            ``(5) Distributions of excess contributions after 
        due date for taxable year and certain excess rollover 
        contributions.--''.
            (4) Paragraph (3) of section 475(g) is amended by 
        striking ``267(b) of'' and inserting ``267(b) or''.
            (5) The heading for subparagraph (B) of section 
        529(e)(3) is amended by striking ``under guaranteed 
        plans''.
            (6) Clause (iii) of section 530(d)(4)(B) is amended 
        by striking ``; or'' at the end and inserting ``, or''.
            (7) Paragraphs (1)(C) and (2)(C) of section 664(d) 
        are each amended by striking the period after 
        ``subsection (g))''.
            (8)(A) Subsection (e) of section 678 is amended by 
        striking ``an electing small business corporation'' and 
        inserting ``an S corporation''.
            (B) Clause (v) of section 6103(e)(1)(D) is amended 
        to read as follows:
                            ``(v) if the corporation was an S 
                        corporation, any person who was a 
                        shareholder during any part of the 
                        period covered by such return during 
                        which an election under section 1362(a) 
                        was in effect, or''.
            (9) Paragraph (7) of section 856(c) is amended by 
        striking ``paragraph (4)(B)(ii)(III)'' and inserting 
        ``paragraph (4)(B)(iii)(III)''
            (10) Subparagraph (A) of section 856(l)(4) is 
        amended by striking ``paragraph (9)(D)(ii)'' and 
        inserting ``subsection (d)(9)(D)(ii)''.
            (11) Subparagraph (B) of section 871(f)(2) is 
        amended by striking ``19 U.S.C.'' and inserting ``(19 
        U.S.C.''.
            (12) Subparagraph (B) of section 995(b)(3) is 
        amended by striking ``the Military Security Act of 1954 
        (22 U.S.C. 1934)'' and inserting ``section 38 of the 
        International Security Assistance and Arms Export 
        Control Act of 1976 (22 U.S.C. 2778)''.
            (13) Section 1391(g)(3)(C) is amended by striking 
        ``paragraph (1)(B)'' and inserting ``paragraph (1)''.
            (14)(A) Paragraph (2) of section 2035(c) is amended 
        by striking ``paragraph (1)'' and inserting 
        ``subsection (a)''.
            (B) Subsection (d) of section 2035 is amended by 
        inserting ``and paragraph (1) of subsection (c)'' after 
        ``Subsection (a)''.
            (15) Paragraph (5) of section 3121(a) is amended by 
        striking the semicolon at the end of subparagraph (G) 
        and inserting a comma.
            (16) Subparagraph (B) of section 4946(c)(3) is 
        amended by striking ``the lowest rate of compensation 
        prescribed for GS-16 of the General Schedule under 
        section 5332'' and inserting ``the lowest rate of basic 
        pay for the Senior Executive Service under section 
        5382''.
            (17) Subsection (p) of section 6103 is amended--
                    (A) in paragraph (4), in the matter 
                preceding subparagraph (A)--
                            (i) by striking the second comma 
                        after ``(13)'', and
                            (ii) by striking ``(7)'' and all 
                        that follows through ``shall, as a 
                        condition'' and inserting ``(7), (8), 
                        (9), (12), (15), or (16) or any other 
                        person described in subsection (l)(16) 
                        shall, as a condition'', and
                    (B) in paragraph (4)(F)(ii), by striking 
                the second comma after ``(14)''.
            (18) Paragraph (5) of section 6166(k) is amended by 
        striking ``2035(d)(4)'' and inserting ``2035(c)(2)''.
            (19) Subsection (a) of section 6512 is amended by 
        striking ``; and'' at the end of paragraphs (1), (2), 
        and (5) and inserting ``, and''.
            (20) Paragraph (1) of section 6611(g) is amended by 
        striking the comma after ``(b)(3)''.
            (21) Subparagraphs (A) and (B) of section 
        6655(e)(5) are amended by striking ``subsections (d)(5) 
        and (l)(3)(B)'' and inserting ``subsection (d)(5)''.
            (22) The subchapter heading for subchapter D of 
        chapter 67 is amended by capitalizing the first letter 
        of the second word.
            (23)(A) Section 6724(d)(1)(B) is amended by 
        striking clauses (xiv) through (xvii) and inserting the 
        following:
                            ``(xiv) subparagraph (A) or (C) of 
                        subsection (c)(4) of section 4093 
                        (relating to information reporting with 
                        respect to tax on diesel and aviation 
                        fuels),
                            ``(xv) section 4101(d) (relating to 
                        information reporting with respect to 
                        fuels taxes),
                            ``(xvi) subparagraph (C) of section 
                        338(h)(10) (relating to information 
                        required to be furnished to the 
                        Secretary in case of elective 
                        recognition of gain or loss), or
                            ``(xvii) section 264(f)(5)(A)(iv) 
                        (relating to reporting with respect to 
                        certain life insurance and annuity 
                        contracts), and''.
            (B) Section 6010(o)(4)(C) of the Internal Revenue 
        Service Restructuring and Reform Act of 1998 is amended 
        by striking ``inserting `or', and by adding at the 
        end'' and inserting ``inserting `, or', and by adding 
        after subparagraph (Z)''.
            (24) Subsection (a) of section 7421 is amended by 
        striking ``6672(b)'' and inserting ``6672(c)''.
            (25) Paragraph (3) of section 7430(c) is amended--
                    (A) in the paragraph heading, by striking 
                ``Attorneys'' and inserting ``Attorneys' '', 
                and
                    (B) in subparagraph (B), by striking 
                ``attorneys fees'' each place it appears and 
                inserting ``attorneys' fees''.
            (26) Paragraph (2) of section 7603(b) is amended by 
        striking the semicolon at the end of subparagraphs (A), 
        (B), (C), (D), (E), (F), and (G) and inserting a comma.
            (27) Clause (ii) of section 7802(b)(2)(B) is 
        amended by striking ``; and'' at the end and inserting 
        ``, and''.
            (28) Paragraph (3) of section 7811(a) is amended by 
        striking ``taxpayer assistance order'' and inserting 
        ``Taxpayer Assistance Order''.
            (29) Paragraph (1) of section 7811(d) is amended by 
        striking ``Ombudsman's'' and inserting ``National 
        Taxpayer Advocate's''.
            (30) Paragraph (3) of section 7872(f) is amended by 
        striking ``foregoing'' and inserting ``forgoing''.

                     Subtitle D--Pay-Go Adjustment

SEC. 731. AVOIDANCE OF A PAY-GO SEQUESTRATION FOR FISCAL YEAR 2001.

    (a) Pay-Go Adjustments.--(1) In preparing the final 
sequestration report required by section 254(f)(3) of the 
Balanced Budget and Emergency Deficit Control Act of 1985 for 
fiscal year 2001, in addition to the information required by 
that section, the Director of the Office of Management and 
Budget shall change any balance of direct spending and receipts 
legislation for fiscal year 2001 under section 252 of that Act 
to zero.
    (2) Notwithstanding Rule 3 of the Budget Scorekeeping 
Guidelines set forth in the joint explanatory statement of the 
committee of conference accompanying the conference report on 
the bill H.R. 2015 of the 105th Congress (House Report No. 105-
217, filed July 30, 1997), the legislation enacted in sections 
504 and 505 of the Department of Transportation and Related 
Agencies Appropriations Act, 2001, section 312 of the 
Legislative Branch Appropriations Act, 2001, and section 1003 
of division B of H.R. 4516 (106th Congress), as enacted, that 
would have been estimated by the Office of Management and 
Budget as changing direct spending or receipts under section 
252 of the Balanced Budget and Emergency Deficit Control Act of 
1985 were it included in an Act other than an appropriations 
Act shall be treated as direct spending or receipts 
legislation, as appropriate, under section 252 of the Balanced 
Budget and Emergency Deficit Control Act of 1985.
    (b) Exemption of Certain Budgetary Reports From 
Termination.--Section 3003(a)(1) of the Federal Reports 
Elimination and Sunset Act of 1995 (31 U.S.C. 1113 note) does 
not apply to any report required to be submitted under any of 
the following provisions of law:
            (1) Sections 1105(a), 1106(a) and (b), and 1109(a) 
        of title 31, United States Code, and any other law 
        relating to the budget of the United States Government.
            (2) The Balanced Budget and Emergency Deficit 
        Control Act of 1985 (2 U.S.C. 900 et seq.).
            (3) Sections 202(e)(1) and (3) of the Congressional 
        Budget Act of 1974 (2 U.S.C. 602(e)(1) and (3)).
            (4) Section 1014(e) of the Congressional Budget and 
        Impoundment Control Act of 1974 (2 U.S.C. 685(e)).
      Following is explanatory language for H.R. 5542 as 
introduced on October 25, 2000. References in the following to 
the ``conference agreement'' refer to the text of that bill.




                            C O N T E N T S

                              ----------                              
                                                                   Page
TITLE I. FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION........   191
TITLE II. SMALL BUSINESS TAX RELIEF PROVISIONS...................   212
    A. Extension of the Work Opportunity Tax Credit..............   212
    B. Increase the Maximum Dollar Amount of Reforestation 
        Expenditures Eligible for Amortization and Credit........   213
    C. Capital Gains Treatment Under Section 631 (b)To Apply to 
        Outright Sales of Timber.................................   214
    D. Increase Section 179 Expensing............................   215
    E. Increase Deduction for Business Meals.....................   216
    F. Increased Deduction for Business Meals While Operating 
        Under Department of Transportation Hours of Service 
        Limitations..............................................   217
    G. Repeal of Modification of Installment Method..............   218
    H. Coordinate Farmers and Fisherman Income Averaging and the 
        Alternative Minimum Tax..................................   220
    I. Repeal Special Occupational Taxes on Producers and 
        Marketers of Alcoholic Beverages.........................   220
    J. Exclusion From Gross Income for Certain Forgiven Mortgage 
        Obligations..............................................   221
    K. Clarification of Cash Accounting Rules for Small 
        Businesses...............................................   222
    L. Authorize Payment of Interest on Business Checking 
        Accounts.................................................   223
TITLE III. HEALTH INSURANCE AND LONG-TERM CARE INSURANCE 
  PROVISIONS.....................................................   224
    A. Accelerate 100-Percent Self-Employed Health Insurance 
        Deduction................................................   224
    B. Above-the-Line Deduction for Health Insurance Expenses....   225
    C. Above-the-Line Deduction for Long-Term Care Expenses......   228
    D. Medical Savings Accounts (``MSAs'').......................   230
    E. Deduction for Providing Long-Term Care to Household 
        Members..................................................   232
TITLE IV. PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT 
  PROVISIONS.....................................................   235
Subtitle A: Individual Retirement Arrangements (``IRAs'')........   235
Subtitle B: Expanding Coverage...................................   242
    A. Increase in Benefit and Contribution Limits...............   242
    B. Plans Loans for S Corporation Shareholders, Partners, and 
        Sole Proprietors.........................................   244
    C. Modification of Top-Heavy Rules...........................   246
    D. Elective Deferrals Not Taken Into Account for Purposes of 
        Deduction Limits.........................................   249
    E. Repeal of Coordination Requirements for Deferred 
        Compensation Plans of State and Local Governments and 
        Tax-Exempt Organizations.................................   250
    F. Eliminate IRS User Fees for Certain Requests Regarding 
        Employer Plans...........................................   251
    G. Deduction Limits..........................................   252
    H. Option to Treat Elective Deferrals as After-Tax 
        Contributions............................................   254
Subtitle C: Enhancing Fairness for Women.........................   257
    A. Additional Catch-Up Contributions.........................   257
    B. Equitable Treatment for Contributions of Employees to 
        Defined Contribution Plans...............................   259
    C. Faster Vesting of Employer Matching Contributions.........   261
    D. Simplify and Update the Minimum Distribution Rules........   262
    E. Clarification of Tax Treatment of Division of Section 457 
        Plan Benefits Upon Divorce...............................   265
    F. Modifications Relating to Hardship Withdrawals Plans......   266
    G. Pension Coverage for Domestic and Similar Workers.........   268
Subtitle D: Increasing Portability for Participants..............   269
    A. Rollovers of Retirement Plan and IRA Distributions........   269
    B. Waiver of 60-Day Rule.....................................   273
    C. Treatment of Forms of Distribution........................   274
    D. Rationalization of Restrictions on Distributions..........   278
    E. Purchase of Service Credit Under Governmental Pension 
        Plans....................................................   279
    F. Employers May Disregard Rollovers for Purposes of Cash-Out 
        Rules....................................................   280
    G. Minimum Distribution and Inclusion Requirements for 
        Section 457 Plans........................................   281
Subtitle E: Strengthening Pension Security and Enforcement.......   282
    A. Phase in Repeal of 155 Percent of Current Liability 
        Funding Limit; Deduction for Contributions to Fund 
        Termination Liability....................................   282
    B. Excise Tax Relief for Sound Pension Funding...............   284
    C. Notice of Significant Reduction in Plan Benefit Accruals..   285
    D. Modification to Section 415 Limits for Multiemployer Plans   293
    E. Prohibited Allocation of Stock in an S Corporation ESOP...   294
    F. Investment of Employee Contributions in 401(k) Plans......   295
    G. Periodic Pension Benefit Statements.......................   297
Subtitle F: Reducing Regulatory Burdens..........................   300
    A. Modification of Timing of Plan Valuations.................   300
    B. ESOP Dividends May Be Reinvested Without Loss of Dividend 
        Deduction................................................   300
    C. Repeal Transition Rule Relating to Certain Highly 
        Compensated Employees....................................   301
    D. Employees of Tax-Exempt Entities..........................   302
    E. Treatment of Employer-Provided Retirement Advice..........   303
    F. Reporting Simplification..................................   304
    G. Improvement to Employee Plans Compliance Resolution System   306
    H. Repeal of the Multiple Use Test...........................   307
    I. Flexibility in Nondiscrimination, Coverage, and Line of 
        Business Rules...........................................   309
    J. Extension to All Governmental Plans of Moratorium on 
        Application of Certain Nondiscrimination Rules Applicable 
        to State and Local Government............................   310
    K. Notice and Consent Period Regarding Distributions; 
        Disclosure of Optional Forms of (sec. 611 of the House 
        bill and sec. 611 of the Senate amendment)...............   311
    L. Annual Report Dissemination...............................   313
    M. Modifications to the SAVER Act............................   313
    N. Studies...................................................   314
Subtitle G: Other ERISA Provisions...............................   315
    A. Extension of PBGC Missing Participants Program............   315
    B. Reduce PBGC Premiums for Small and New Plans..............   316
    C. Authorization for PBGC To Pay Interest on Premium 
        Overpayment Refunds......................................   318
    D. Rules for Substantial Owner Benefits in Terminated Plans..   318
    E. Multiemployer Plan Benefits Guarantee.....................   319
    F. Civil Penalties for Breach of Fiduciary Responsibility....   320
    G. Benefit Suspension Notice.................................   321
Subtitle H: Provisions Relating to Plan Amendments...............   322
TITLE V. INCENTIVES FOR PUBLIC SCHOOL CONSTRUCTION AND 
  MODERNIZATION..................................................   323
TITLE VI. COMMUNITY RENEWAL PROVISIONS...........................   330
    A. Renewal Community Provisions..............................   330
    B. Empowerment Zone Tax Incentives...........................   336
        1. Extension and expansion of empowerment zones..........   336
        2. Rollover of gain from the sale of qualified 
            empowerment zone incentives..........................   340
        3. Increased exclusion of gain from the sale of 
            qualifying empowerment zone stock....................   340
    C. New Markets Tax Credit....................................   341
    D. Increase the Low-Income Housing Tax Credit Cap and Make 
        Other Modifications......................................   345
    E. Accelerate Scheduled Increase in State Volume Limits on 
        Tax-Exempt Private Activity Bonds........................   350
    F. Extension and Modification to Expensing of Environmental 
        Remediation Costs........................................   351
    G. Expansion of District of Columbia Homebuyer Tax Credit....   352
TITLE VII. ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL 
  CORRECTIONS PROVISIONS.........................................   353
Subtitle A. Administrative Provisions............................   353
    A. Exempt Certain Reports From Elimination Under the Federal 
        Reports Elimination and Sunset Act of 1995...............   353
    B. Extension of Deadlines for IRS Compliance With Certain 
        Notice Requirements......................................   354
    C. Extension of Authority for Undercover Operations..........   355
    D. Competent Authority and Pre-Filing Agreements.............   355
    E. Increase in Joint Committee on Taxation Refund Review 
        Threshold................................................   363
    F. Clarify the Allowance of Certain Tax Benefits With Respect 
        to Kidnapped Children....................................   364
    G. Conforming Changes to Accommodate Reduced Issuances of 
        Certain Treasury Securities..............................   365
    H. Authorization of Agencies To Use Corrected Consumer Price 
        Index....................................................   366
    I. Prevent Duplication or Acceleration of Loss Through 
        Assumption of Certain Liabilities........................   368
Subtitle B. Miscellaneous Provisions.............................   371
    A. Repeal Certain Excise Taxes on Rail Diesel Fuel and Inland 
        Waterway Barge Fuels.....................................   371
    B. Repeal of Reduction of Deductions for Mutual Life 
        Insurance Companies and of Policyholder Surplus Accounts 
        of Life Insurance Companies..............................   371
    C. Tax-Credit Bonds for the National Railroad Passenger 
        Corporation (``Amtrak'') and the Alaska Railroad.........   374
    D. Farm, Fish, and Ranch Risk Management Accounts (``FFARRM 
        Accounts'')..............................................   378
    E. Extension and Modification of Enhanced Deduction for 
        Corporate Donations of Computer Technology...............   379
    F. Settlement of Certain Discrimination Claims Brought by 
        Certain Farmers Against the Department of Agriculture....   381
    G. Extension of the Adoption Tax Credit......................   382
    H. Study of Tax Treatment With Respect to Certain Offshore 
        Insurance Companies......................................   383
    I. Treatment of Indian Tribes as Non-Profit Organizations and 
        State or Local Governments for Purposes of the Federal 
        Unemployment Tax (``FUTAS'').............................   384
Subtitle C. Technical Corrections Provisions.....................   385
TITLE VIII. EXCLUSION FROM PAYGO SCORECARD.......................   394
TAX COMPLEXITY ANALYSIS..........................................   394
       TITLE I. FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION

  Repeal of FSC Provisions and Exclusion for Extraterritorial Income 
 (secs. 101-104 of the bill and secs. 114, 921-927, and 941-943 of the 
                                 Code)

                              present law

Summary of U.S. income taxation of foreign persons
      Income earned by a foreign corporation from its foreign 
operations generally is subject to U.S. tax only when such 
income is distributed to a U.S. person that holds stock in such 
corporation. Accordingly, a U.S. person that conducts foreign 
operations through a foreign corporation generally is subject 
to U.S. tax on the income from those operations when the income 
is repatriated to the United States through a dividend 
distribution to the U.S. person.\1\ The income is reported on 
the U.S. person's tax return for the year the distribution is 
received, and the United States imposes tax on such income at 
that time. An indirect foreign tax credit may reduce the U.S. 
tax imposed on such income.
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    \1\ A variety of anti-deferral regimes impose current U.S. tax on 
income earned by a U.S. person through a foreign corporation. The 
Internal Revenue Code of 1986, as amended, (the ``Code'') sets forth 
the following anti-deferral regimes: the controlled foreign corporation 
rules of subpart F (secs. 951-954), the passive foreign investment 
company rules (secs. 1291-1298), the foreign personal holding company 
rules (secs. 551-558), the personal holding company rules (secs. 541-
547), the accumulated earnings tax rules (secs. 531-537), and the 
foreign investment company rules (sec. 1246). Detailed rules for 
coordination among the anti-deferral regimes are provided to prevent a 
U.S. person from being subject to U.S. tax on the same item of income 
under multiple regimes.
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Foreign sales corporations
      The income of an eligible foreign sales corporation 
(``FSC'') is partially subject to U.S. income tax and partially 
exempt from U.S. income tax. In addition, a U.S. corporation 
generally is not subject to U.S. income tax on dividends 
distributed from the FSC out of certain earnings.
      A FSC must be located and managed outside the United 
States, and must perform certain economic processes outside the 
United States. A FSC is often owned by a U.S. corporation that 
produces goods in the United States. The U.S. corporation 
either supplies goods to the FSC for resale abroad or pays the 
FSC a commission in connection with such sales. The income of 
the FSC, a portion of which is exempt from U.S. income tax 
under the FSC rules, equals the FSC's gross markup or gross 
commission income less the expenses incurred by the FSC. The 
gross markup or the gross commission is determined according to 
specified pricing rules.
      A FSC generally is not subject to U.S. income tax on its 
exempt foreign trade income. The exempt foreign trade income of 
a FSC is treated as foreign-source income that is not 
effectively connected with the conduct of a trade or business 
within the United States.
      Foreign trade income, other than exempt foreign trade 
income, generally is treated as U.S.-source income effectively 
connected with the conduct of a trade or business conducted 
through a permanent establishment within the United States. 
Thus, a FSC's income, other than exempt foreign trade income, 
generally is subject to U.S. tax currently and is treated as 
U.S.-source income for purposes of the foreign tax credit 
limitation.
      Foreign trade income of a FSC is defined as the FSC's 
gross income attributable to foreign trading gross receipts. 
Foreign trading gross receipts generally are the gross receipts 
attributable to the following types of transactions: the sale 
of export property; the lease or rental of export property; 
services related and subsidiary to such a sale or lease of 
export property; engineering and architectural services for 
projects outside the United States; and export management 
services. Investment income and carrying charges are excluded 
from the definition of foreign trading gross receipts.
      The term ``export property'' generally means property (1) 
which is manufactured, produced, grown or extracted in the 
United States by a person other than a FSC; (2) which is held 
primarily for sale, lease, or rental in the ordinary course of 
a trade or business for direct use or consumption outside the 
United States; and (3) not more than 50 percent of the fair 
market value of which is attributable to articles imported into 
the United States. The term ``export property'' does not 
include property leased or rented by a FSC for use by any 
member of a controlled group of which the FSC is a member; 
patents, copyrights (other than films, tapes, records, similar 
reproductions, and other than computer software, whether or not 
patented), and other intangibles; oil or gas (or any primary 
product thereof); unprocessed softwood timber; or products the 
export of which is prohibited or curtailed. Export property 
also excludes property designated by the President as being in 
short supply.
      If export property is sold to a FSC by a related person 
(or a commission is paid by a related person to a FSC with 
respect to export property), the income with respect to the 
export transaction must be allocated between the FSC and the 
related person. The taxable income of the FSC and the taxable 
income of the related person are computed based upon a transfer 
price determined under section 482 or under one of two formulas 
specified in the FSC provisions.
      The portion of a FSC's foreign trade income that is 
treated as exempt foreign trade income depends on the pricing 
rule used to determine the income of the FSC. If the amount of 
income earned by the FSC is based on section 482 pricing, the 
exempt foreign trade income generally is 30 percent of the 
foreign trade income the FSC derives from a transaction. If the 
income earned by the FSC is determined under one of the two 
formulas specified in the FSC provisions, the exempt foreign 
trade income generally is 15/23 of the foreign trade income the 
FSC derives from the transaction.
      A FSC is not required or deemed to make distributions to 
its shareholders. Actual distributions are treated as being 
made first out of earnings and profits attributable to foreign 
trade income, and then out of any other earnings and profits. A 
U.S. corporation generally is allowed a 100 percent dividends-
received deduction for amounts distributed from a FSC out of 
earnings and profits attributable to foreign trade income. The 
100 percent dividends-received deduction is not allowed for 
nonexempt foreign trade income determined under section 482 
pricing. Any distribution made by a FSC out of earnings and 
profits attributable to foreign trade income to a foreign 
shareholder is treated as U.S.-source income that is 
effectively connected with a business conducted through a 
permanent establishment of the shareholder within the United 
States. Thus, the foreign shareholder is subject to U.S. tax on 
such a distribution.

                               House Bill

      No provision. However, H.R. 4986, as passed by the House, 
repeals the present-law FSC rules and replaces them with an 
exclusion for extraterritorial income.

                            Senate Amendment

      No provision. However, the Senate Finance Committee 
reported favorably an amended version of H.R. 4986 to the 
Senate (the ``Senate Finance Committee amendment''). The Senate 
has taken no action with respect to the Senate Finance 
Committee amendment. The Senate Finance Committee amendment 
generally follows H.R. 4986, as passed by the House, with one 
amendment to strike a provision providing for a dividends-
received deduction for certain dividends allocable to 
qualifying foreign trade income. Like H.R. 4986, the Senate 
Finance Committee amendment repeals the present-law FSC rules 
and replaces them with an exclusion for extraterritorial 
income.

                          Conference Agreement

      The conference agreement generally follows H.R. 4986, as 
passed by the House, and the Senate Finance Committee 
amendment, with some modifications. The conference agreement, 
like the Senate Finance Committee amendment, does not include 
the provision in the House bill that provides a dividends-
received deduction for certain dividends allocable to 
qualifying foreign trade income.
Repeal of the FSC rules
      The conference agreement repeals the present-law FSC 
rules found in sections 921 through 927 of the Code.
Exclusion of extraterritorial income
      The conference agreement provides that gross income for 
U.S. tax purposes does not include extraterritorial income. 
Because the exclusion of such extraterritorial income is a 
means of avoiding double taxation, no foreign tax credit is 
allowed for income taxes paid with respect to such excluded 
income. Extraterritorial income is eligible for the exclusion 
to the extent that it is ``qualifying foreign trade income.'' 
Because U.S. income tax principles generally deny deductions 
for expenses related to exempt income, otherwise deductible 
expenses that are allocated to qualifying foreign trade income 
generally are disallowed.
      The conference agreement applies in the same manner with 
respect to both individuals and corporations who are U.S. 
taxpayers. In addition, the exclusion from gross income applies 
for individual and corporate alternative minimum tax purposes.
Qualifying foreign trade income
      Under the conference agreement, qualifying foreign trade 
income is the amount of gross income that, if excluded, would 
result in a reduction of taxable income by the greatest of (1) 
1.2 percent of the ``foreign trading gross receipts'' derived 
by the taxpayer from the transaction,2 (2) 15 
percent of the ``foreign trade income'' derived by the taxpayer 
from the transaction, or (3) 30 percent of the ``foreign sale 
and leasing income'' derived by the taxpayer from the 
transaction. The amount of qualifying foreign trade income 
determined using 1.2 percent of the foreign trading gross 
receipts is limited to 200 percent of the qualifying foreign 
trade income that would result using 15 percent of the foreign 
trade income. Notwithstanding the general rule that qualifying 
foreign trade income is based on one of the three calculations 
that results in the greatest reduction in taxable income, a 
taxpayer may choose instead to use one of the other two 
calculations that does not result in the greatest reduction in 
taxable income. Although these calculations are determined by 
reference to a reduction of taxable income (a net income 
concept), qualifying foreign trade income is an exclusion from 
gross income. Hence, once a taxpayer determines the appropriate 
reduction of taxable income, that amount must be ``grossed up'' 
for related expenses in order to determine the amount of gross 
income excluded.3
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    \2\ The term ``transaction'' means (1) any sale, exchange, or other 
disposition; (2) any lease or rental; and (3) any furnishing of 
services.
    \3\ For an example of these calculations, see the General Example, 
below.
---------------------------------------------------------------------------
      If a taxpayer uses 1.2 percent of foreign trading gross 
receipts to determine the amount of qualifying foreign trade 
income with respect to a transaction, the taxpayer or any other 
related persons will be treated as having no qualifying foreign 
trade income with respect to any other transaction involving 
the same property.4 For example, assume that a 
manufacturer and a distributor of the same product are related 
persons. The manufacturer sells the product to the distributor 
at an arm's-length price of $80 (generating $30 of profit) and 
the distributor sells the product to an unrelated customer 
outside of the United States for $100 (generating $20 of 
profit). If the distributor chooses to calculate its qualifying 
foreign trade income on the basis of 1.2 percent of foreign 
trading gross receipts, then the manufacturer will be 
considered to have no qualifying foreign trade income and, 
thus, would have no excluded income. The distributor's 
qualifying foreign trade income would be 1.2 percent of $100, 
and the manufacturer's qualifying foreign trade income would be 
zero. This limitation is intended to prevent a duplication of 
exclusions from gross income because the distributor's $100 of 
gross receipts includes the $80 of gross receipts of the 
manufacturer. Absent this limitation, $80 of gross receipts 
would have been double counted for purposes of the exclusion. 
If both persons were permitted to use 1.2 percent of their 
foreign trading gross receipts in this example, then the 
related-person group would have an exclusion based on $180 of 
foreign trading gross receipts notwithstanding that the 
related-person group really only generated $100 of gross 
receipts from the transaction. However, if the distributor 
chooses to calculate its qualifying foreign trade income on the 
basis of 15 percent of foreign trade income (15 percent of $20 
of profit), then the manufacturer would also be eligible to 
calculate its qualifying foreign trade income in the same 
manner (15 percent of $30 of profit).5 Thus, in the 
second case, each related person may exclude an amount of 
income based on their respective profits. The total foreign 
trade income of the related-person group is $50. Accordingly, 
allowing each person to calculate the exclusion based on their 
respective foreign trade income does not result in duplication 
of exclusions.
---------------------------------------------------------------------------
    \4\ Persons are considered to be related if they are treated as a 
single employer under section 52(a) or (b) (determined without taking 
into account section 1563(b), thus including foreign corporations) or 
section 414(m) or (o).
    \5\  The manufacturer also could compute qualifying foreign trade 
income based on 30 percent of foreign sale and leasing income.
---------------------------------------------------------------------------
      Under the conference agreement, a taxpayer may determine 
the amount of qualifying foreign trade income either on a 
transaction-by-transaction basis or on an aggregate basis for 
groups of transactions, so long as the groups are based on 
product lines or recognized industry or trade usage. Under the 
grouping method, the conferees intend that taxpayers be given 
reasonable flexibility to identify product lines or groups on 
the basis of recognized industry or trade usage. In general, 
provided that the taxpayer's grouping is not unreasonable, it 
will not be rejected merely because the grouped products fall 
within more than one of the two-digit Standard Industrial 
Classification codes.6 The Secretary of the Treasury 
is granted authority to prescribe rules for grouping 
transactions in determining qualifying foreign trade income.
---------------------------------------------------------------------------
    \6\ By reference to Standard Industrial Classification codes, the 
conferees intend to include industries as defined in the North American 
Industrial Classification System.
---------------------------------------------------------------------------
      Qualifying foreign trade income must be reduced by 
illegal bribes, kickbacks and similar payments, and by a factor 
for operations in or related to a country associated in 
carrying out an international boycott, or participating or 
cooperating with an international boycott.
      In addition, the conference agreement directs the 
Secretary of the Treasury to prescribe rules for marginal 
costing in those cases in which a taxpayer is seeking to 
establish or maintain a market for qualifying foreign trade 
property.
            Foreign trading gross receipts
      Under the conference agreement, ``foreign trading gross 
receipts'' are gross receipts derived from certain activities 
in connection with ``qualifying foreign trade property'' with 
respect to which certain ``economic processes'' take place 
outside of the United States. Specifically, the gross receipts 
must be (1) from the sale, exchange, or other disposition of 
qualifying foreign trade property; (2) from the lease or rental 
of qualifying foreign trade property for use by the lessee 
outside of the United States; (3) for services which are 
related and subsidiary to the sale, exchange, disposition, 
lease, or rental of qualifying foreign trade property (as 
described above); (4) for engineering or architectural services 
for construction projects located outside of the United States; 
or (5) for the performance of certain managerial services for 
unrelated persons. Gross receipts from the lease or rental of 
qualifying foreign trade property include gross receipts from 
the license of qualifying foreign trade property. Consistent 
with the policy adopted in the Taxpayer Relief Act of 
1997,7 this includes the license of computer 
software for reproduction abroad.
---------------------------------------------------------------------------
    \7\ The Taxpayer Relief Act of 1997, Public Law 105-34.
---------------------------------------------------------------------------
      Foreign trading gross receipts do not include gross 
receipts from a transaction if the qualifying foreign trade 
property or services are for ultimate use in the United States, 
or for use by the United States (or an instrumentality thereof) 
and such use is required by law or regulation. Foreign trading 
gross receipts also do not include gross receipts from a 
transaction that is accomplished by a subsidy granted by the 
government (or any instrumentality thereof) of the country or 
possession in which the property is manufactured.
      A taxpayer may elect to treat gross receipts from a 
transaction as not foreign trading gross receipts. As a 
consequence of such an election, the taxpayer could utilize any 
related foreign tax credits in lieu of the exclusion as a means 
of avoiding double taxation. It is intended that this election 
be accomplished by the taxpayer's treatment of such items on 
its tax return for the taxable year. Provided that the 
taxpayer's taxable year is still open under the statute of 
limitations for making claims for refund under section 6511, a 
taxpayer can make redeterminations as to whether the gross 
receipts from a transaction constitute foreign trading gross 
receipts.
            Foreign economic processes
      Under the conference agreement, gross receipts from a 
transaction are foreign trading gross receipts only if certain 
economic processes take place outside of the United States. The 
foreign economic processes requirement is satisfied if the 
taxpayer (or any person acting under a contract with the 
taxpayer) participates outside of the United States in the 
solicitation (other than advertising), negotiation, or making 
of the contract relating to such transaction and incurs a 
specified amount of foreign direct costs attributable to the 
transaction.8 For this purpose, foreign direct costs 
include only those costs incurred in the following categories 
of activities: (1) advertising and sales promotion; (2) the 
processing of customer orders and the arranging for delivery; 
(3) transportation outside of the United States in connection 
with delivery to the customer; (4) the determination and 
transmittal of a final invoice or statement of account or the 
receipt of payment; and (5) the assumption of credit risk. An 
exception from the foreign economic processes requirement is 
provided for taxpayers with foreign trading gross receipts for 
the year of $5 million or less.9
---------------------------------------------------------------------------
    \8\ The foreign direct costs attributable to the transaction 
generally must exceed 50 percent of the total direct costs attributable 
to the transaction, but the requirement also will be satisfied if, with 
respect to at least two categories of direct costs, the foreign direct 
costs equal or exceed 85 percent of the total direct costs attributable 
to each category.
    \9\ For this purpose, the receipts of related persons are 
aggregated and, in the case of pass- through entities, the 
determination of whether the foreign trading gross receipts exceed $5 
million is made both at the entity and at the partner/shareholder 
level.
---------------------------------------------------------------------------
      The foreign economic processes requirement must be 
satisfied with respect to each transaction and, if so, any 
gross receipts from such transaction could be considered as 
foreign trading gross receipts. For example, all of the lease 
payments received with respect to a multi-year lease contract, 
which contract met the foreign economic processes requirement 
at the time it was entered into, would be considered as foreign 
trading gross receipts. On the other hand, a sale of property 
that was formerly a leased asset, which was not sold pursuant 
to the original lease agreement, generally would be considered 
a new transaction that must independently satisfy the foreign 
economic processes requirement.
      A taxpayer's foreign economic processes requirement is 
treated as satisfied with respect to a sales transaction 
(solely for the purpose of determining whether gross receipts 
are foreign trading gross receipts) if any related person has 
satisfied the foreign economic processes requirement in 
connection with another sales transaction involving the same 
qualifying foreign trade property.
            Qualifying foreign trade property
      Under the conference agreement, the threshold for 
determining if gross receipts will be treated as foreign 
trading gross receipts is whether the gross receipts are 
derived from a transaction involving ``qualifying foreign trade 
property.'' Qualifying foreign trade property is property 
manufactured, produced, grown, or extracted (``manufactured'') 
within or outside of the United States that is held primarily 
for sale, lease, or rental,10 in the ordinary course 
of a trade or business, for direct use, consumption, or 
disposition outside of the United States.11 In 
addition, not more than 50 percent of the fair market value of 
such property can be attributable to the sum of (1) the fair 
market value of articles manufactured outside of the United 
States plus (2) the direct costs of labor performed outside of 
the United States.12
---------------------------------------------------------------------------
    \10\ In addition, consistent with the policy adopted in the 
Taxpayer Relief Act of 1997, computer software licensed for 
reproduction is considered as property held primarily for sale, lease, 
or rental.
    \11\ ``United States'' includes Puerto Rico for these purposes 
because Puerto Rico is included in the customs territory of the United 
States.
    \12\ For this purpose, the fair market value of any article 
imported into the United States is its appraised value as determined 
under the Tariff Act of 1930. In addition, direct labor costs are 
determined under the principles of section 263A and do not include 
costs that would be treated as direct labor costs attributable to 
``articles,'' again applying principles of section 263A.
---------------------------------------------------------------------------
      The conferees understand that under current industry 
practice, the purchaser of an aircraft contracts separately for 
the aircraft engine and the airframe, albeit contracting with 
the airframe manufacturer to attach the separately purchased 
engine. The conferees intend that an aircraft engine be 
qualifying foreign trade property (assuming that all other 
requirements are satisfied) if (1) it is specifically designed 
to be separated from the airframe to which it is attached 
without significant damage to either the engine or the 
airframe, (2) it is reasonably expected to be separated from 
the airframe in the ordinary course of business (other than by 
reason of temporary separation for servicing, maintenance, or 
repair) before the end of the useful life of either the engine 
or the airframe, whichever is shorter, and (3) the terms under 
which the aircraft engine was sold were directly and separately 
negotiated between the manufacturer of the aircraft engine and 
the person to whom the aircraft will be ultimately delivered. 
By articulating this application of the foreign destination 
test in the case of certain separable aircraft engines, the 
conferees intend no inference with respect to the application 
of any destination test under present law or with respect to 
any other rule of law outside the conference agreement. 
13
---------------------------------------------------------------------------
    \13\ See, e.g., sections 927(a)(1)(B) and 993(c)(1)(B).
---------------------------------------------------------------------------
      The conference agreement excludes certain property from 
the definition of qualifying foreign trade property. The 
excluded property is (1) property leased or rented by the 
taxpayer for use by a related person, (2) certain 
intangibles,14 (3) oil and gas (or any primary 
product thereof), (4) unprocessed softwood timber, (5) certain 
products the transfer of which are prohibited or curtailed to 
effectuate the policy set forth in Public Law 96-72, and (6) 
property designated by Executive order as in short supply. In 
addition, it is the intention of the conferees that property 
that is leased or licensed to a related person who is the 
lessor, licensor, or seller of the same property in a sublease, 
sublicense, sale, or rental to an unrelated person for the 
ultimate and predominate use by the unrelated person outside of 
the United States is not excluded property by reason of such 
lease or license to a related person.
---------------------------------------------------------------------------
    \14\ The intangibles that are treated as excluded property under 
the bill are: patents, inventions, models, designs, formulas, or 
processes whether or not patented, copyrights (other than films, tapes, 
records, or similar reproductions, and other than computer software 
(whether or not patented), for commercial or home use), goodwill, 
trademarks, trade brands, franchises, or other like property. Computer 
software that is licensed for reproduction outside of the United States 
is not excluded from the definition of qualifying foreign trade 
property.
---------------------------------------------------------------------------
      With respect to property that is manufactured outside of 
the United States, rules are provided to ensure consistent U.S. 
tax treatment with respect to manufacturers. The conference 
agreement requires that property manufactured outside of the 
United States be manufactured by (1) a domestic corporation, 
(2) an individual who is a citizen or resident of the United 
States, (3) a foreign corporation that elects to be subject to 
U.S. taxation in the same manner as a U.S. corporation, or (4) 
a partnership or other pass-through entity all of the partners 
or owners of which are described in (1), (2), or (3) 
above.15
---------------------------------------------------------------------------
    \15\ Except as provided by the Secretary of the Treasury, tiered 
partnerships or pass-through entities will be considered as 
partnerships or pass-through entities for purposes of this rule if each 
of the partnerships or entities is directly or indirectly wholly-owned 
by persons described in (1), (2), or (3) above.
---------------------------------------------------------------------------
            Foreign trade income
      Under the conference agreement, ``foreign trade income'' 
is the taxable income of the taxpayer (determined without 
regard to the exclusion of qualifying foreign trade income) 
attributable to foreign trading gross receipts. Certain 
dividends-paid deductions of cooperatives are disregarded in 
determining foreign trade income for this purpose.
            Foreign sale and leasing income
      Under the conference agreement, ``foreign sale and 
leasing income'' is the amount of the taxpayer's foreign trade 
income (with respect to a transaction) that is properly 
allocable to activities that constitute foreign economic 
processes (as described above). For example, a distribution 
company's profit from the sale of qualifying foreign trade 
property that is associated with sales activities, such as 
solicitation or negotiation of the sale, advertising, 
processing customer orders and arranging for delivery, 
transportation outside of the United States, and other 
enumerated activities, would constitute foreign sale and 
leasing income.
      Foreign sale and leasing income also includes foreign 
trade income derived by the taxpayer in connection with the 
lease or rental of qualifying foreign trade property for use by 
the lessee outside of the United States. Income from the sale, 
exchange, or other disposition of qualifying foreign trade 
property that is or was subject to such a lease 16 
(i.e., the sale of the residual interest in the leased 
property) gives rise to foreign sale and leasing income. Except 
as provided in regulations, a special limitation applies to 
leased property that (1) is manufactured by the taxpayer or (2) 
is acquired by the taxpayer from a related person for a price 
that was other than arm's length. In such cases, foreign sale 
and leasing income may not exceed the amount of foreign sale 
and leasing income that would have resulted if the taxpayer had 
acquired the leased property in a hypothetical arm's-length 
purchase and then engaged in the actual sale or lease of such 
property. For example, if a manufacturer leases qualifying 
foreign trade property that it manufactured, the foreign sale 
and leasing income derived from that lease may not exceed the 
amount of foreign sale and leasing income that the manufacturer 
would have earned with respect to that lease had it purchased 
the property for an arm's-length price on the day that the 
manufacturer entered into the lease. For purposes of 
calculating the limit on foreign sale and leasing income, the 
manufacturer's basis and, thus, depreciation would be based on 
this hypothetical arm's-length price. This limitation is 
intended to prevent foreign sale and leasing income from 
including profit associated with manufacturing activities.
---------------------------------------------------------------------------
    \16\ For this purpose, such a lease includes a lease that gave rise 
to exempt foreign trade income under the FSC provisions.
---------------------------------------------------------------------------
      For purposes of determining foreign sale and leasing 
income, only directly allocable expenses are taken into account 
in calculating the amount of foreign trade income. In addition, 
income properly allocable to certain intangibles is excluded 
for this purpose.
General example
      The following is an example of the calculation of 
qualifying foreign trade income.
      XYZ Corporation, a U.S. corporation, manufactures 
property that is sold to unrelated customers for use outside of 
the United States. XYZ Corporation satisfies the foreign 
economic processes requirement through conducting activities 
such as solicitation, negotiation, transportation, and other 
sales-related activities outside of the United States with 
respect to its transactions. During the year, qualifying 
foreign trade property was sold for gross proceeds totaling 
$1,000. The cost of this qualifying foreign trade property was 
$600. XYZ Corporation incurred $275 of costs that are directly 
related to the sale and distribution of qualifying foreign 
trade property. XYZ Corporation paid $40 of income tax to a 
foreign jurisdiction related to the sale and distribution of 
the qualifying foreign trade property. XYZ Corporation also 
generated gross income of $7,600 (gross receipts of $24,000 and 
cost of goods sold of $16,400) and direct expenses of $4,225 
that relate to the manufacture and sale of products other than 
qualifying foreign trade property. XYZ Corporation also 
incurred $500 of overhead expenses. XYZ Corporation's financial 
information for the year is summarized as follows:


------------------------------------------------------------------------
                                                   Other
                                      Total       property    QFTP \17\
------------------------------------------------------------------------
Gross receipts...................   $25,000.00   $24,000.00    $1,000.00
Cost of goods sold...............    17,000.00    16,400.00       600.00
                                  --------------------------------------
Gross income.....................     8,000.00     7,600.00       400.00
Direct expenses..................     4,500.00     4,225.00       275.00
Overhead expenses................       500.00
                                  -------------
Net income.......................     3,000.00
------------------------------------------------------------------------
\17\ ``QFTP'' refers to qualifying foreign trade property.


      Illustrated below is the computation of the amount of 
qualifying foreign trade income that is excluded from XYZ 
Corporation's gross income and the amount of related expenses 
that are disallowed. In order to calculate qualifying foreign 
trade income, the amount of foreign trade income first must be 
determined. Foreign trade income is the taxable income 
(determined without regard to the exclusion of qualifying 
foreign trade income) attributable to foreign trading gross 
receipts. In this example, XYZ Corporation's foreign trading 
gross receipts equal $1,000. This amount of gross receipts is 
reduced by the related cost of goods sold, the related direct 
expenses, and a portion of the overhead expenses in order to 
arrive at the related taxable income.18 Thus, XYZ 
Corporation's foreign trade income equals $100, calculated as 
follows:

    \18\ Overhead expenses must be apportioned in a reasonable manner 
that does not result in a material distortion of income. In this 
example, the apportionment of the $500 of overhead expenses on the 
basis of gross income is assumed not to result in a material distortion 
of income and is assumed to be a reasonable method of apportionment. 
Thus, $25 ($500 of total overhead expenses multiplied by 5 percent, 
i.e., $400 of gross income from the sale of qualifying foreign trade 
property divided by $8,000 of total gross income) is apportioned to 
qualifying foreign trading gross receipts. The remaining $475 ($500 of 
total overhead expenses less the $25 apportioned to qualifying income) 
is apportioned to XYZ Corporation's other income.

Foreign trading gross receipts..........................       $1,000.00
Cost of goods sold......................................          600.00
                    --------------------------------------------------------
                    ____________________________________________________
Gross income............................................          400.00
Direct expenses.........................................          275.00
Apportioned overhead expenses...........................           25.00
                    --------------------------------------------------------
                    ____________________________________________________
Foreign trade income....................................          100.00

      Foreign sale and leasing income is defined as an amount 
of foreign trade income (calculated taking into account only 
directly-related expenses) that is properly allocable to 
certain specified foreign activities. Assume for purposes of 
this example that of the $125 of foreign trade income ($400 of 
gross income from the sale of qualifying foreign trade property 
less only the direct expenses of $275), $35 is properly 
allocable to such foreign activities (e.g., solicitation, 
negotiation, advertising, foreign transportation, and other 
enumerated sales-like activities) and, therefore, is considered 
to be foreign sale and leasing income.
      Qualifying foreign trade income is the amount of gross 
income that, if excluded, will result in a reduction of taxable 
income equal to the greatest of (1) 30 percent of foreign sale 
and leasing income, (2) 1.2 percent of foreign trading gross 
receipts, or (3) 15 percent of foreign trade income. Thus, in 
order to calculate the amount that is excluded from gross 
income, taxable income must be determined and then ``grossed 
up'' for allocable expenses in order to arrive at the 
appropriate gross income figure. First, for each method of 
calculating qualifying foreign trade income, the reduction in 
taxable income is determined. Then, the $275 of direct and $25 
of overhead expenses, totaling $300, attributable to foreign 
trading gross receipts is apportioned to the reduction in 
taxable income based on the proportion of the reduction in 
taxable income to foreign trade income. This apportionment is 
done for each method of calculating qualifying foreign trade 
income. The sum of the taxable income reduction and the 
apportioned expenses equals the respective qualifying foreign 
trade income (i.e., the amount of gross income excluded) under 
each method, as follows:

------------------------------------------------------------------------
                                              1.2%      15%       30%
                                            FTGR \1\  FTI \2\  FS&LI; \3\
------------------------------------------------------------------------
  Reduction of taxable income:
    1.2% of FTGR (1.2% * $1,000)..........     12.00
    15% of FTI (15% * $100)...............              15.00
    30% of FS&LI; (30% * $35)..............                        10.50
  Gross-up for disallowed expenses:
    $300 * ($12/$100).....................     36.00
    $300 * ($15/$100).....................              45.00
    $275 * ($10.50/$100) \4\..............                        28.88
                                           -----------------------------
      Qualifying foreign trade income.....     48.00    60.00    39.38
------------------------------------------------------------------------
\1\ ``FTGR'' refers to foreign trading gross receipts.
\2\ ``FTI'' refers to foreign trade income.
\3\ ``FS&LI;'' refers to foreign sale and leasing income.
\4\ Because foreign sale and leasing income only takes into account
  direct expenses, it is appropriate to take into account only such
  expenses for purposes of this calculation.

      In the example, the $60 of qualifying foreign trade 
income is excluded from XYZ Corporation's gross income 
(determined based on 15 percent of foreign trade income).\19\ 
In connection with excluding $60 of gross income, certain 
expenses that are allocable to this income are not deductible 
for U.S. Federal income tax purposes. Thus, $45 ($300 of 
related expenses multiplied by 15 percent, i.e., $60 of 
qualifying foreign trade income divided by $400 of gross income 
from the sale of qualifying foreign trade property) of expenses 
are disallowed.\20\
---------------------------------------------------------------------------
    \19\ Note that XYZ Corporation could choose to use one of the other 
two methods notwithstanding that they would result in a smaller 
exclusion.
    \20\ The $300 of allocable expenses includes both the $275 of 
direct expenses and the $25 of overhead expenses. Thus, the $45 of 
disallowed expenses represents the sum of $41.25 of direct expenses 
plus $3.75 of overhead expenses. If qualifying foreign trade income 
were determined using 30 percent of foreign sale and leasing income, 
the disallowed expenses would include only the appropriate portion of 
the direct expenses.

----------------------------------------------------------------------------------------------------------------
                                                                 Other                   Excluded/
                                                                property       QFTP      disallowed     Total
----------------------------------------------------------------------------------------------------------------
Gross receipts..............................................   $24,000.00    $1,000.00
Cost of goods sold..........................................    16,400.00       600.00
                                                             --------------------------
Gross income................................................     7,600.00       400.00      (60.00)     7,940.00
Direct expenses.............................................     4,225.00       275.00      (41.25)     4,458.75
Overhead expenses...........................................       475.00        25.00       (3.75)       496.25
                                                                                                    ------------
Taxable income..............................................                                            2,985.00
----------------------------------------------------------------------------------------------------------------

      XYZ Corporation paid $40 of income tax to a foreign 
jurisdiction related to the sale and distribution of the 
qualifying foreign trade property. A portion of this $40 of 
foreign income tax is treated as paid with respect to the 
qualifying foreign trade income and, therefore, is not 
creditable for U.S. foreign tax credit purposes. In this case, 
$6 of such taxes paid ($40 of foreign taxes multiplied by 15 
percent, i.e., $60 of qualifying foreign trade income divided 
by $400 of gross income from the sale of qualifying foreign 
trade property) is treated as paid with respect to the 
qualifying foreign trade income and, thus, is not creditable.
      The results in this example are the same regardless of 
whether XYZ Corporation manufactures the property within the 
United States or outside of the United States through a foreign 
branch. If XYZ Corporation were an S corporation or limited 
liability company, the results also would be the same, and the 
exclusion would pass through to the S corporation owners or 
limited liability company owners as the case may be.
            Other rules
            Foreign-source income limitation
      The conference agreement provides a limitation with 
respect to the sourcing of taxable income applicable to certain 
sale transactions giving rise to foreign trading gross 
receipts. This limitation only applies with respect to sale 
transactions involving property that is manufactured within the 
United States. The special source limitation does not apply 
when qualifying foreign trade income is determined using 30 
percent of the foreign sale and leasing income from the 
transaction.
      This foreign-source income limitation is determined in 
one of two ways depending on whether the qualifying foreign 
trade income is calculated based on 1.2 percent of foreign 
trading gross receipts or on 15 percent of foreign trade 
income. If the qualifying foreign trade income is calculated 
based on 1.2 percent of foreign trading gross receipts, the 
related amount of foreign- source income may not exceed the 
amount of foreign trade income that (without taking into 
account this special foreign-source income limitation) would be 
treated as foreign-source income if such foreign trade income 
were reduced by 4 percent of the related foreign trading gross 
receipts.
      For example, assume that foreign trading gross receipts 
are $2,000 and foreign trade income is $100. Assume also that 
the taxpayer chooses to determine qualifying foreign trade 
income based on 1.2 percent of foreign trading gross receipts. 
Taxable income after taking into account the exclusion of the 
qualifying foreign trade income and the disallowance of related 
deductions is $76. Assume that the taxpayer manufactured its 
qualifying foreign trade property in the United States and that 
title to such property passed outside of the United States. 
Absent a special sourcing rule, under section 863(b) (and the 
regulations thereunder) the $76 of taxable income would be 
sourced as $38 U.S. source and $38 foreign source. Under the 
special sourcing rule, the amount of foreign-source income may 
not exceed the amount of the foreign trade income that 
otherwise would be treated as foreign source if the foreign 
trade income were reduced by 4 percent of the related foreign 
trading gross receipts. Reducing foreign trade income by 4 
percent of the foreign trading gross receipts (4 percent of 
$2,000, or $80) would result in $20 ($100 foreign trade income 
less $80). Applying section 863(b) to the $20 of reduced 
foreign trade income would result in $10 of foreign-source 
income and $10 of U.S.-source income. Accordingly, the 
limitation equals $10. Thus, although under the general 
sourcing rule $38 of the $76 taxable income would be treated as 
foreign source, the special sourcing rule limits foreign-source 
income in this example to $10 (with the remaining $66 being 
treated as U.S.-source income).
      If the qualifying foreign trade income is calculated 
based on 15 percent of foreign trade income, the amount of 
related foreign-source income may not exceed 50 percent of the 
foreign trade income that (without taking into account this 
special foreign-source income limitation) would be treated as 
foreign-source income.
      For example, assume that foreign trade income is $100 and 
the taxpayer chooses to determine its qualifying foreign trade 
income based on 15 percent of foreign trade income. Taxable 
income after taking into account the exclusion of the 
qualifying foreign trade income and the disallowance of related 
deductions is $85. Assume that the taxpayer manufactured its 
qualifying foreign trade property in the United States and that 
title to such property passed outside of the United States. 
Absent a special sourcing rule, under section 863(b) the $85 of 
taxable income would be sourced as $42.50 U.S. source and 
$42.50 foreign source. Under the special sourcing rule, the 
amount of foreign-source income may not exceed 50 percent of 
the foreign trade income that otherwise would be treated as 
foreign source. Applying section 863(b) to the $100 of foreign 
trade income would result in $50 of foreign-source income and 
$50 of U.S.-source income. Accordingly, the limitation equals 
$25, which is 50 percent of the $50 foreign-source income. 
Thus, although under the general sourcing rule $42.50 of the 
$85 taxable income would be treated as foreign source, the 
special sourcing rule limits foreign-source income in this 
example to $25 (with the remaining $60 being treated as U.S.-
source income).\21\
---------------------------------------------------------------------------
    \21\ The foreign-source income limitation provisions also apply 
when source is determined solely in accordance with section 862 (e.g., 
a distributor of qualifying foreign trade property that is manufactured 
in the United States by an unrelated person and sold for use outside of 
the United States).
---------------------------------------------------------------------------
            Treatment of withholding taxes
      The conference agreement generally provides that no 
foreign tax credit is allowed for foreign taxes paid or accrued 
with respect to qualifying foreign trade income (i.e., excluded 
extraterritorial income). In determining whether foreign taxes 
are paid or accrued with respect to qualifying foreign trade 
income, foreign withholding taxes generally are treated as not 
paid or accrued with respect to qualifying foreign trade 
income.\22\ Accordingly, the conference agreement's denial of 
foreign tax credits would not apply to such taxes. For this 
purpose, the term ``withholding tax'' refers to any foreign tax 
that is imposed on a basis other than residence and that is 
otherwise a creditable foreign tax under sections 901 or 
903.\23\ It is intended that such taxes would be similar in 
nature to the gross-basis taxes described in sections 871 and 
881.
---------------------------------------------------------------------------
    \22\ With respect to the withholding taxes that are paid or accrued 
(a prerequisite to the taxes being otherwise creditable), the provision 
in the bill treats such taxes as not being paid or accrued with respect 
to qualifying foreign trade income.
    \23\ This also would apply to any withholding tax that is 
creditable for U.S. foreign tax credit purposes under an applicable 
treaty.
---------------------------------------------------------------------------
      If, however, qualifying foreign trade income is 
determined based on 30 percent of foreign sale and leasing 
income, the special rule for withholding taxes is not 
applicable. Thus, in such cases foreign withholding taxes may 
be treated as paid or accrued with respect to qualifying 
foreign trade income and, accordingly, are not creditable under 
the conference agreement.
            Election to be treated as a U.S. corporation
      The conference agreement provides that certain foreign 
corporations may elect, on an original return, to be treated as 
domestic corporations. The election applies to the taxable year 
when made and all subsequent taxable years unless revoked by 
the taxpayer or terminated for failure to qualify for the 
election. Such election is available for a foreign corporation 
(1) that manufactures property in the ordinary course of such 
corporation's trade or business, or (2) if substantially all of 
the gross receipts of such corporation are foreign trading 
gross receipts. For this purpose, ``substantially all'' is 
based on the relevant facts and circumstances.
      In order to be eligible to make this election, the 
foreign corporation must waive all benefits granted to such 
corporation by the United States pursuant to a treaty.\24\ 
Absent such a waiver, it would be unclear, for example, whether 
the permanent establishment article of a relevant tax treaty 
would override the electing corporation's treatment as a 
domestic corporation under this provision. A foreign 
corporation that elects to be treated as a domestic corporation 
is not permitted to make an S corporation election. The 
Secretary is granted authority to prescribe rules to ensure 
that the electing foreign corporation pays its U.S. income tax 
liabilities and to designate one or more classes of 
corporations that may not make such an election.\25\ If such an 
election is made, for purposes of section 367 the foreign 
corporation is treated as transferring (as of the first day of 
the first taxable year to which the election applies) all of 
its assets to a domestic corporation in connection with an 
exchange to which section 354 applies.
---------------------------------------------------------------------------
    \24\ The waiver of treaty benefits applies to the corporation 
itself and not, for example, to employees of or independent contractors 
associated with the corporation.
    \25\ For example, the Secretary of the Treasury may prescribe rules 
to prevent ``per se'' corporations under the entity-classification 
rules from making such an election.
---------------------------------------------------------------------------
      If a corporation fails to meet the applicable 
requirements, described above, for making the election to be 
treated as a domestic corporation for any taxable year 
beginning after the year of the election, the election will 
terminate. In addition, a taxpayer, at its option and at any 
time, may revoke the election to be treated as a domestic 
corporation. In the case of either a termination or a 
revocation, the electing foreign corporation will not be 
considered as a domestic corporation effective beginning on the 
first day of the taxable year following the year of such 
termination or revocation. For purposes of section 367, if the 
election to be treated as a domestic corporation is terminated 
or revoked, such corporation is treated as a domestic 
corporation transferring (as of the first day of the first 
taxable year to which the election ceases to apply) all of its 
property to a foreign corporation in connection with an 
exchange to which section 354 applies. Moreover, once a 
termination occurs or a revocation is made, the former electing 
corporation may not again elect to be taxed as a domestic 
corporation under the provisions of the conference agreement 
for a period of five tax years beginning with the first taxable 
year that begins after the termination or revocation.
      For example, assume a U.S. corporation owns 100 percent 
of a foreign corporation. The foreign corporation manufactures 
outside of the United States and sells what would be qualifying 
foreign trade property were it manufactured by a person subject 
to U.S. taxation. Such foreign corporation could make the 
election under this provision to be treated as a domestic 
corporation. As a result, its earnings no longer would be 
deferred from U.S. taxation. However, by electing to be subject 
to U.S. taxation, a portion of its income would be qualifying 
foreign trade income.\26\ The requirement that the foreign 
corporation be treated as a domestic corporation (and, 
therefore, subject to U.S. taxation) is intended to provide 
parity between U.S. corporations that manufacture abroad in 
branch form and U.S. corporations that manufacture abroad 
through foreign subsidiaries. The election, however, is not 
limited to U.S.-owned foreign corporations. A foreign-owned 
foreign corporation that wishes to qualify for the treatment 
provided under the conference agreement could avail itself of 
such election (unless otherwise precluded from doing so by 
Treasury regulations).
---------------------------------------------------------------------------
    \26\ The sourcing limitation described above would not apply to 
this example because the property is manufactured outside of the United 
States.
---------------------------------------------------------------------------
            Shared partnerships
      The conference agreement provides rules relating to 
allocations of qualifying foreign trade income by certain 
shared partnerships. To the extent that such a partnership (1) 
maintains a separate account for transactions involving foreign 
trading gross receipts with each partner, (2) makes 
distributions to each partner based on the amounts in the 
separate account, and (3) meets such other requirements as the 
Treasury Secretary may prescribe by regulations, such 
partnership then would allocate to each partner items of 
income, gain, loss, and deduction (including qualifying foreign 
trade income) from such transactions on the basis of the 
separate accounts. It is intended that with respect to, and 
only with respect to, such allocations and distributions (i.e., 
allocations and distributions related to transactions between 
the partner and the shared partnership generating foreign 
trading gross receipts), these rules would apply in lieu of the 
otherwise applicable partnership allocation rules such as those 
in section 704(b). For this purpose, a partnership is a foreign 
or domestic entity that is considered to be a partnership for 
U.S. Federal income tax purposes.
      Under the conference agreement, any partner's interest in 
the shared partnership is not taken into account in determining 
whether such partner is a ``related person'' with respect to 
any other partner for purposes of the conference agreement's 
provisions. Also, the election to exclude certain gross 
receipts from foreign trading gross receipts must be made 
separately by each partner with respect to any transaction for 
which the shared partnership maintains a separate account.
            Certain assets not taken into account for purposes of 
                    interest expense allocation
      The conference agreement also provides that qualifying 
foreign trade property that is held for lease or rental, in the 
ordinary course of a trade or business, for use by the lessee 
outside of the United States is not taken into account for 
interest allocation purposes.
            Distributions of qualifying foreign trade income by 
                    cooperatives
      Agricultural and horticultural producers often market 
their products through cooperatives, which are member-owned 
corporations formed under Subchapter T of the Code. At the 
cooperative level, the conference agreement provides the same 
treatment of foreign trading gross receipts derived from 
products marketed through cooperatives as it provides for 
foreign trading gross receipts of other taxpayers. That is, the 
qualifying foreign trade income attributable to those foreign 
trading gross receipts is excluded from the gross income of the 
cooperative. Absent a special rule, however, patronage 
dividends or per-unit retain allocations attributable to 
qualifying foreign trade income paid to members of cooperatives 
would be taxable in the hands of those members. The conferees 
believe that this would disadvantage agricultural and 
horticultural producers who choose to market their products 
through cooperatives relative to those individuals who market 
their products directly or through pass-through entities such 
as partnerships, limited liability companies, or S 
corporations. Accordingly, the conference agreement provides 
that the amount of any patronage dividends or per-unit retain 
allocations paid to a member of an agricultural or 
horticultural cooperative (to which Part I of Subchapter T 
applies), which is allocable to qualifying foreign trade income 
of the cooperative, is treated as qualifying foreign trade 
income of the member (and, thus, excludable from such member's 
gross income). In order to qualify, such amount must be 
designated by the organization as allocable to qualifying 
foreign trade income in a written notice mailed to its patrons 
not later than the payment period described in section 1382(d). 
The cooperative cannot reduce its income (e.g., cannot claim a 
``dividends-paid deduction'') under section 1382 for such 
amounts.
            Gap period before administrative guidance is issued
      The conferees recognize that there may be a gap in time 
between the enactment of the bill and the issuance of detailed 
administrative guidance. It is intended that during this gap 
period before administrative guidance is issued, taxpayers and 
the Internal Revenue Service may apply the principles of 
present-law regulations and other administrative guidance under 
sections 921 through 927 to analogous concepts under the 
conference agreement. Some examples of the application of the 
principles of present-law regulations to the conference 
agreement are described below. These limited examples are 
intended to be merely illustrative and are not intended to 
imply any limitation regarding the application of the 
principles of other analogous rules or concepts under present 
law.
            Marginal costing and grouping
      Under the conference agreement, the Secretary of the 
Treasury is provided authority to prescribe rules for using 
marginal costing and for grouping transactions in determining 
qualifying foreign trade income. It is intended that similar 
principles under present-law regulations apply for these 
purposes.27
---------------------------------------------------------------------------
    \27\ See, e.g., Treas. Reg. sec. 1.924(d)-1(c)(5) and (e); Temp. 
Treas. Reg. sec. 1.925(a)-1T(c)(8); Temp. Treas. Reg. sec. 1.925(b)-1T.
---------------------------------------------------------------------------
            Excluded property
      The conference agreement provides that qualifying foreign 
trade property does not include property leased or rented by 
the taxpayer for use by a related person. It is intended that 
similar principles under present-law regulations apply for this 
purpose. Thus, excluded property does not apply, for example, 
to property leased by the taxpayer to a related person if the 
property is held for sublease, or is subleased, by the related 
person to an unrelated person and the property is ultimately 
used by such unrelated person predominantly outside of the 
United States.28 In addition, consistent with the 
policy adopted in the Taxpayer Relief Act of 1997, computer 
software that is licensed for reproduction outside of the 
United States is not excluded property. Accordingly, the 
license of computer software to a related person for 
reproduction outside of the United States for sale, sublicense, 
lease, or rental to an unrelated person for use outside of the 
United States is not treated as excluded property by reason of 
the license to the related person.
---------------------------------------------------------------------------
    \28\ See Temp. Treas. Reg. sec. 1.927(a)-1T(f)(2)(i). The bill also 
provides that oil or gas or primary products from oil or gas are 
excluded from the definition of qualifying foreign trade property. It 
is intended that similar principles under present-law regulations apply 
for these purposes. Thus, for this purpose, petrochemicals, medicinal 
products, insecticides, and alcohols are not considered primary 
products from oil or gas and, thus, are not treated as excluded 
property. See Temp. Treas. Reg. sec. 1.927(a)-1T(g)(2)(iv).
---------------------------------------------------------------------------
            Foreign trading gross receipts
      Under the conference agreement, foreign trading gross 
receipts are gross receipts from, among other things, the sale, 
exchange, or other disposition of qualifying foreign trade 
property, and from the lease of qualifying foreign trade 
property for use by the lessee outside of the United States. It 
is intended that the principles of present-law regulations that 
define foreign trading gross receipts apply for this purpose. 
For example, a sale includes an exchange or other disposition 
and a lease includes a rental or sublease and a license or a 
sublicense.29
---------------------------------------------------------------------------
    \29\ See Temp. Treas. Reg. sec. 1.924(a)-1T(a)(2).
---------------------------------------------------------------------------
            Foreign use requirement
      Under the conference agreement, property constitutes 
qualifying foreign trade property if, among other things, the 
property is held primarily for lease, sale, or rental, in the 
ordinary course of business, for direct use, consumption, or 
disposition outside of the United States.30 It is 
intended that the principles of the present-law regulations 
apply for purposes of this foreign use requirement. For 
example, for purposes of determining whether property is sold 
for use outside of the United States, property that is sold to 
an unrelated person as a component to be incorporated into a 
second product which is produced, manufactured, or assembled 
outside of the United States will not be considered to be used 
in the United States (even if the second product ultimately is 
used in the United States), provided that the fair market value 
of such seller's components at the time of delivery to the 
purchaser constitutes less than 20 percent of the fair market 
value of the second product into which the components are 
incorporated (determined at the time of completion of the 
production, manufacture, or assembly of the second 
product).31
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    \30\ Foreign trading gross receipts eligible for exclusion from the 
tax base do not include gross receipts from a transaction if the 
qualifying foreign trade property is for ultimate use in the United 
States.
    \31\ See Temp. Treas. Reg. sec. 1.927(a)-1T(d)(4)(ii).
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      In addition, for purposes of the foreign use requirement, 
property is considered to be used by a purchaser or lessee 
outside of the United States during a taxable year if it is 
used predominantly outside of the United States.32 
For this purpose, property is considered to be used 
predominantly outside of the United States for any period if, 
during that period, the property is located outside of the 
United States more than 50 percent of the time.33 An 
aircraft or other property used for transportation purposes 
(e.g., railroad rolling stock, a vessel, a motor vehicle, or a 
container) is considered to be used outside of the United 
States for any period if, for the period, either the property 
is located outside of the United States more than 50 percent of 
the time or more than 50 percent of the miles traveled in the 
use of the property are traveled outside of the United 
States.34 An orbiting satellite is considered to be 
located outside of the United States for these 
purposes.35
---------------------------------------------------------------------------
    \32\ See Temp. Treas. Reg. sec. 1.927(a)-1T(d)(4)(iii), (iv), and 
(v).
    \33\ See Temp. Treas. Reg. sec. 1.927(a)-1T(d)(4)(vi).
    \34\ Id.
    \35\ Id.
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            Foreign economic processes
      Under the conference agreement, gross receipts from a 
transaction are foreign trading gross receipts eligible for 
exclusion from the tax base only if certain economic processes 
take place outside of the United States. The foreign economic 
processes requirement compares foreign direct costs to total 
direct costs. It is intended that the principles of the 
present-law regulations apply during the gap period for 
purposes of the foreign economic processes requirement 
including the measurement of direct costs. The conferees 
recognize that the measurement of foreign direct costs under 
the present-law regulations often depend on activities 
conducted by the FSC, which is a separate entity. The conferees 
are aware that some of these concepts will have to be modified 
when new guidance is promulgated as a result of the conference 
agreement's elimination of the requirement for a separate 
entity.
Effective date
            In general
      The conference agreement is effective for transactions 
entered into after September 30, 2000. In addition, no 
corporation may elect to be a FSC after September 30, 2000.
      The conference agreement also provides a rule requiring 
the termination of a dormant FSC when the FSC has been inactive 
for a specified period of time. Under this rule, a FSC that 
generates no foreign trade income for any five consecutive 
years beginning after December 31, 2001, will cease to be 
treated as a FSC.
            Transition rules
            Winding down existing FSCs and binding contract relief
      The conference agreement provides a transition period for 
existing FSCs and for binding contractual agreements. The new 
rules do not apply to transactions in the ordinary course of 
business 36 involving a FSC before January 1, 2002. 
Furthermore, the new rules do not apply to transactions in the 
ordinary course of business after December 31, 2001, if such 
transactions are pursuant to a binding contract between a FSC 
(or a person related to the FSC on September 30, 2000) and any 
other person (that is not a related person) and such contract 
is in effect on September 30, 2000, and all times thereafter. 
For this purpose, binding contracts include purchase options, 
renewal options, and replacement options that are enforceable 
against a lessor or seller (provided that the options are a 
part of a contract that is binding and in effect on September 
30, 2000).
---------------------------------------------------------------------------
    \36\ The mere entering into of a single transaction, such as a 
lease, would not, in and of itself, prevent the transaction from being 
in the ordinary course of business.
---------------------------------------------------------------------------
            Old earnings and profits of corporations electing to be 
                    treated as domestic corporations
      A transition rule also is provided for certain 
corporations electing to be treated as a domestic corporation 
under the bill. In the case of a corporation to which this 
transition rule applies, the corporation's earnings and profits 
accumulated in taxable years ending before October 1, 2000 are 
not included in the gross income of the shareholder by reason 
of the deemed asset transfer for section 367 purposes that the 
bill provides. Thus, although the electing corporation may be 
treated as transferring all of its assets to a domestic 
corporation in a reorganization described in section 
368(a)(1)(F), the earnings and profits amount that would 
otherwise be treated as a deemed dividend to the U.S. 
shareholder under the regulations under section 367(b) will not 
include the earnings and profits accumulated in taxable years 
ending before October 1, 2000. This treatment is similar to the 
treatment of earnings and profits of a foreign insurance 
company that makes the election to be treated as a domestic 
corporation under section 953(d), which election was a model 
for the election to be treated as a domestic corporation under 
the bill. Under section 953(d), earnings and profits 
accumulated in taxable years beginning before January 1, 1988 
were not included in the earnings and profits amount that would 
be a deemed dividend for section 367(b) purposes.
      Like the pre-1988 earnings and profits of a domesticating 
foreign insurance company under section 953(d), the earnings 
and profits to which this transition rule applies would 
continue to be treated as earnings and profits of a foreign 
corporation even after the corporation elects to be treated as 
a domestic corporation. Thus, a distribution out of earnings 
and profits of an electing corporation accumulated in taxable 
years ending before October 1, 2000 would be treated as a 
distribution made by a foreign corporation.37 Rules 
similar to those applicable to corporations making the section 
953(d) election that prevent the repatriation of pre-election 
period earnings and profits without current U.S. taxation apply 
for this purpose. Thus, for example, the earnings and profits 
accumulated in taxable years beginning before October 1, 2000 
would continue to be taken into account for section 1248 
purposes.38
---------------------------------------------------------------------------
    \37\ It is anticipated that ordering rules similar to those that 
have been applied in guidance under section 953(d) would apply to 
distributions from the electing corporation. See Notice 89-79, 1989-2 
C.B. 392.
    \38\ See the rules of section 953(d)(4)(ii), (iii) and (iv).
---------------------------------------------------------------------------
      The earnings and profits to which the transition rule 
applies are the earnings and profits accumulated by the 
electing corporation in taxable years ending before October 1, 
2000. The transition rule will not apply to earnings and 
profits accumulated before that date that are succeeded to 
after that date by the electing corporation in a transaction to 
which section 381 applies unless, like the electing 
corporation, the distributor or transferor (from whom the 
electing corporation acquired the earnings and profits) could 
have itself made the election under the bill to be treated as a 
domestic corporation and would have been eligible for the 
transition relief.
      The transition rule for old earnings and profits applies 
to two classes of taxpayers. The first class is FSCs in 
existence on September 30, 2000 that make an election to be 
treated as a domestic corporation because they satisfy the 
requirement that substantially all of their gross receipts are 
foreign trading gross receipts. To be eligible for the 
transition relief, the election must be made not later than for 
the FSC's first taxable year beginning after December 31, 2001.
      The second class of corporations to which this transition 
relief applies is certain controlled foreign corporations (as 
defined in section 957). Notwithstanding other requirements for 
making the election to be treated as a domestic corporation 
provided under the bill's general provisions, such controlled 
foreign corporations are eligible under the transition rule to 
make the election to be treated as a domestic corporation and 
will not have the resulting deemed asset transfer cause a 
deemed inclusion of earnings and profits for earnings and 
profits accumulated in taxable years ending before October 1, 
2000. To be eligible for the transition relief, such a 
controlled foreign corporation must be in existence on 
September 30, 2000. The controlled foreign corporation must be 
wholly owned, directly or indirectly, by a domestic 
corporation.39 The controlled foreign corporation 
must never have made an election to be treated as a FSC and 
must make the election to be treated as a domestic corporation 
not later than for its first taxable year beginning after 
December 31, 2001. In addition, the controlled foreign 
corporation must satisfy certain tests with respect to its 
income and activities. For administrative convenience, these 
tests are limited to the three taxable years preceding the 
first taxable year for which the election to be treated as a 
domestic corporation applies. First, during that three-year 
period, all of the controlled foreign corporation's gross 
income must be subpart F income. Thus, the income was subject 
to full inclusion to the U.S. shareholder and, accordingly, 
subject to current U.S. taxation. Second, during that three-
year period, the controlled foreign corporation must have, in 
the ordinary course of its trade or business, entered into 
transactions in which it regularly sold or paid commissions to 
a related FSC (which also was in existence on September 30, 
2000).40 If an electing corporation in this second 
class ceases to be (directly or indirectly) wholly owned by the 
domestic corporation that owns it on September 30, 2000, the 
election to be treated as a domestic corporation is terminated.
---------------------------------------------------------------------------
    \39\ The ultimate owner must be an actual domestic corporation, not 
a corporation that elects to be treated as a domestic corporation under 
the bill. In addition, although the controlled foreign corporation must 
be wholly owned for this purpose, it is intended that the mere nominal 
ownership of an insignificant number of shares of insignificant value 
(which may, for example, be required by foreign law) by someone 
unrelated to the domestic parent would not cause the controlled foreign 
corporation to fail to be wholly owned for these purposes.
    \40\ It is intended that, if the controlled foreign corporation's 
and related FSC's taxable years are still open under the statute of 
limitations for claims for refund under section 6511, redeterminations 
with respect to sales or commissions paid to the FSC are permitted for 
this purpose. See Temp. Treas. Reg. sec. 1.925(a)-1T(d)(4).
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            Limitation on use of the gross receipts method
      Similar to the limitation on use of the gross receipts 
method under the conference agreement's operative provisions, 
the conference agreement provides a rule that limits the use of 
the gross receipts method for transactions after the effective 
date of the conference agreement if that same property 
generated foreign trade income to a FSC using the gross 
receipts method. Under the rule, if any person used the gross 
receipts method under the FSC regime, neither that person nor 
any related person will have qualifying foreign trade income 
with respect to any other transaction involving the same item 
of property.
            Coordination of new regime with prior law
      Notwithstanding the transition period, FSCs (or related 
persons) may elect to have the rules of the conference 
agreement apply in lieu of the rules applicable to FSCs. Thus, 
for transactions to which the transition rules apply (i.e., 
transactions after September 30, 2000 that occur (1) before 
January 1, 2002 or (2) after December 31, 2001 pursuant to a 
binding contract which is in effect on September 30, 2000), 
taxpayers may choose to apply either the FSC rules or the 
amendments made by this bill, but not both. In addition, a 
taxpayer would not be able to avail itself of the rules of the 
conference agreement in addition to the rules applicable to 
domestic international sales corporations because the 
conference agreement provides that the exclusion of 
extraterritorial income will not apply if a taxpayer is a 
member of any controlled group of which a domestic 
international sales corporation is a member.

             TITLE II. SMALL BUSINESS TAX RELIEF PROVISIONS

 A. Extension of the Work Opportunity Tax Credit (sec. 201 of the bill 
                        and sec. 51 of the Code)

                              Present Law

      The work opportunity tax credit (``WOTC'') is available 
on an elective basis for employers hiring individuals from one 
or more of eight targeted groups. The credit generally is equal 
to 25 percent of qualified first-year wages for employment of 
at least 120 hours but less than 400 hours and 40 percent of 
qualified first-year wages for employment of 400 hours or more. 
Qualified first-year wages consist of wages attributable to 
service rendered by a member of a targeted group during the 
one-year period beginning with the day the individual begins 
work for the employer.
      No more than $6,000 of wages during the first year of 
employment is permitted to be taken into account with respect 
to any individual. Thus, the maximum credit per individual is 
$2,400. With respect to qualified summer youth employees, the 
maximum credit is 40 percent of up to $3,000 of qualified 
first-year wages, for a maximum credit of $1,200. The credit is 
only effective for wages paid to, or incurred with respect to, 
qualified individuals who begin work for the employer before 
January 1, 2002.
      The employer's deduction for wages is reduced by the 
amount of the credit.

                               House Bill

      No provision.

                            Senate Amendment

      No provision. However, H.R. 833, as passed by the Senate, 
permanently extends the WOTC.
      Effective date.--The provision is effective for wages 
paid to, or incurred with respect to, qualified individuals who 
begin work for the employer on or after July 1, 1999. 
Subsequent to Senate passage of H.R. 833, Public Law 106-170 
extended the WOTC for 30 months (through December 31, 2001) and 
clarified the definition of the first year of employment for 
purposes of the WOTC.

                          Conference Agreement

      The conference agreement extends the WOTC for 30 months 
(through June 30, 2004). It is effective for wages paid to, or 
incurred with respect to, qualified individuals who begin work 
for the employer on or after January 1, 2002, and before July 
1, 2004.

  B. Increase the Maximum Dollar Amount of Reforestation Expenditures 
 Eligible for Amortization and Credit (sec. 202 of the bill and secs. 
                       48(b) and 194 of the Code)

                              Present Law

Amortization of reforestation costs (sec. 194)
      A taxpayer may elect to amortize up to $10,000 ($5,000 in 
the case of a separate return by a married individual) of 
qualifying reforestation expenditures incurred during the 
taxable year with respect to qualifying timber property. 
Amortization is taken over 84 months (seven years) and is 
subject to a mandatory half-year convention.41 In 
the case of an individual, the amortization deduction is 
allowed in determining adjusted gross income (i.e., an ``above-
the-line deduction'') rather than as an itemized deduction. The 
amount eligible for amortization has not been increased since 
the election was added to the Code in 1980.42
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    \41\ Under the half-year convention, all reforestation expenditures 
are considered to be incurred on the first day of the first month of 
the second half of the taxable year. Thus, an amortization deduction 
equal to \6/84\ of the expenditures for the year is allowed in the 
first and eighth years and an amortization deduction equal to \1/7\ 
(\12/84\) of such expenditures is allowed in the second through seventh 
years.
    \42\ Sec. 301(a) of the Multiemployer Pension Plan Amendments Act 
of 1980.
---------------------------------------------------------------------------
      Qualifying reforestation expenditures are the direct 
costs a taxpayer incurs in connection with the forestation or 
reforestation of a site by planting or seeding, and include 
costs for the preparation of the site, the cost of the seed or 
seedlings, and the cost of the labor and tools (including 
depreciation of long lived assets such as tractors and other 
machines) used in the reforestation activity. Qualifying 
reforestation expenditures do not include expenditures that 
would otherwise be deductible and do not include costs for 
which the taxpayer has been reimbursed under a governmental 
cost sharing program, unless the amount of the reimbursement is 
also included in the taxpayer's gross income.
      Qualifying timber property includes any woodlot or other 
site that is located in the United States that will contain 
trees in significant commercial quantities and that is held by 
the taxpayer for the planting, cultivating, caring for, and 
cutting of trees for sale or use in the commercial production 
of timber products. The regulations require that the site 
consist of at least one acre that is devoted to such 
activities.43 A taxpayer may hold qualifying timber 
property in fee or by lease. Where the property is held by one 
person for life with the remainder to another person, the life 
tenant is considered the owner of the property for this 
purpose.
---------------------------------------------------------------------------
    \43\ Treas. Reg. sec. 1.194-3(a).
---------------------------------------------------------------------------
      Reforestation amortization is subject to recapture as 
ordinary income on sale of qualifying timber property within 10 
years of the year in which the qualifying reforestation 
expenditures were incurred.44
---------------------------------------------------------------------------
    \44\ Sec. 1245(b)(7); Treas. Reg. sec. 1.194-1(c).
---------------------------------------------------------------------------
Reforestation tax credit (sec. 48(b))
      A tax credit is allowed equal to 10 percent of the 
reforestation expenditures incurred during the year that are 
properly elected to be amortized. An amount allowed as a credit 
is subject to recapture if the qualifying timber property to 
which the expenditure relates is disposed of within five years.

                               House Bill

      No provision, but H.R. 3081 as passed by the House 
increases the amount of reforestation expenditures eligible for 
seven-year amortization and the reforestation credit from 
$10,000 to $25,000 per taxable year (from $5,000 to $12,500 in 
the case of a separate return by a married individual).
      For taxable years beginning in 2001 through 2003, H.R. 
3081 removes the limitation on the amount of expenditures 
eligible for seven-year amortization.
      Effective date.--The provision is effective for 
expenditures paid or incurred in taxable years beginning after 
December 31, 2000. For taxable years beginning in 2001, 2002, 
and 2003, the amount of reforestation expenditures eligible for 
the credit is limited to $25,000 and no limit applies to the 
amount of expenditures eligible for seven-year amortization. 
For taxable years beginning after 2003, the amount of 
reforestation expenditures eligible for seven-year amortization 
and for the credit is limited to $25,000.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement includes the provision in H.R. 
3081.

 C. Capital Gains Treatment Under Section 631(b) to Apply to Outright 
 Sales of Timber (sec. 202(c) of the bill and sec. 631(b) of the Code)

                              Present Law

      Gain on the cutting and sale of timber generally is 
eligible for capital gains treatment, provided the growing 
timber has been held for more than one year. If the taxpayer 
sells the timber at the time it is cut, the capital gain is 
measured as the difference between the sales price of the 
timber less cost of sales and any unrecovered costs of growing 
the timber.
      If the taxpayer sells the timber prior to its being cut, 
a special rule allows the taxpayer to treat the sale as a 
capital gain, provided the taxpayer retains an economic 
interest in the timber and holds the timber for more than one 
year prior to the date of disposal. The date of disposal is 
deemed to be the date the timber is cut, unless the taxpayer 
receives payment for the timber prior to the date it is cut and 
elects to treat the date of payment as the date of disposal.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      In the case of a sale of timber by the owner of the land 
from which the timber is cut, the requirement that a taxpayer 
retain an economic interest in the timber in order to treat 
gains on sales prior to the time the timber is cut as capital 
gains does not apply. Outright sales of timber by the landowner 
will qualify for capital gains treatment in the same manner as 
sales with a retained economic interest qualify under present 
law, except that the date-of-disposal rule will not apply.
      Effective date.--The provision is effective for sales of 
timber after the date of enactment.

 D. Increase Section 179 Expensing (sec. 1203 of the bill and sec. 179 
                              of the Code)

                              Present Law

      Present law provides that, in lieu of depreciation, a 
taxpayer with a sufficiently small amount of annual investment 
may elect to deduct up to $20,000 (for taxable years beginning 
in 2000) of the cost of qualifying property placed in service 
for the taxable year (sec. 179). In general, qualifying 
property is defined as depreciable tangible personal property 
that is purchased for use in the active conduct of a trade or 
business. The $20,000 amount is reduced (but not below zero) by 
the amount by which the cost of qualifying property placed in 
service during the taxable year exceeds $200,000. In addition, 
the amount eligible to be expensed for a taxable year may not 
exceed the taxable income for a taxable year that is derived 
from the active conduct of a trade or business (determined 
without regard to this provision). Any amount that is not 
allowed as a deduction because of the taxable income limitation 
may be carried forward to succeeding taxable years (subject to 
similar limitations).
      The $20,000 amount is increased to $25,000 for taxable 
years beginning in 2003 and thereafter. The increase is phased 
in as follows: for taxable years beginning in 2001 or 2002, the 
amount is $24,000; and for taxable years beginning in 2003 and 
thereafter, the amount is $25,000.

                               House Bill

      No provision. However, H.R. 3081, as passed by the House, 
provides that the maximum dollar amount that may be deducted 
under section 179 is increased to $30,000 for taxable years 
beginning in 2001 and thereafter.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                            Senate Amendment

      No provision. However, H.R. 833, as passed by the Senate, 
includes a provision identical to the provision of H.R. 3081, 
as passed by the House.

                          Conference Agreement

      The conference agreement includes the provision in H.R. 
3081 and H.R. 833, with a modification. Under the conference 
agreement, the maximum dollar amount that may be deducted under 
section 179 is increased to $35,000 for taxable years beginning 
in 2001 and thereafter.

E. Increase Deduction for Business Meals (sec. 204 of the bill and sec. 
                          274(n) of the Code)

                              Present Law

      Ordinary and necessary business expenses, as well as 
expenses incurred for the production of income, are generally 
deductible, subject to a number of restrictions and limitations 
(secs. 162 and 212). No deduction generally is allowed for 
personal, living, or family expenses (sec. 262).
      Meal and entertainment expenses incurred for business 
reasons or for the production of income are deductible if 
certain legal and substantiation requirements are met. 
Generally, the amount allowable as a deduction for business 
meal and entertainment expenses is limited to 50 percent of the 
otherwise deductible amount (sec. 274(n)). Exceptions to this 
50-percent rule are provided for food and beverages provided to 
crew members of certain vessels and off-shore oil or gas 
platforms or drilling rigs, as well as to individuals subject 
to the hours of service limitations of the Department of 
Transportation. No deduction is allowed for meal or beverage 
expenses unless they are not lavish or extravagant under the 
circumstances (sec. 274(k)(1)(A)). In addition, no deduction is 
allowed for amounts paid or incurred for membership in any club 
organized for business, pleasure, recreation, or other social 
purpose (sec. 274(a)(3)).
      An expense for food or beverages is not deductible unless 
the taxpayer establishes that the item was directly related to 
the ``active conduct'' of the taxpayer's trade or business or, 
in the case of an item directly preceding or following a 
substantial and bona fide business discussion, that the item 
was ``associated with'' the active conduct of the taxpayer's 
trade or business (sec. 274(a)(1)(A)). Accordingly, a business 
meal expense generally is not deductible unless there is a 
substantial and bona fide business discussion during, directly 
preceding, or directly following the meal. Also, the taxpayer 
or an employee of the taxpayer must be present at the meal 
(sec. 274(k)(1)(B)).
      Separate requirements apply to deductions with respect to 
individuals who are traveling away from home in pursuit of a 
trade or business. The absence of a business discussion is 
irrelevant for purposes of the ``active conduct'' and 
``associated with'' tests described above if the individual 
either has the meal alone or has the meal with other persons 
provided that no deduction is claimed with respect to those 
other persons.
      No deduction is allowed with respect to business meal and 
entertainment expenses unless the taxpayer substantiates by 
adequate records or by sufficient evidence corroborating the 
taxpayer's own statement (1) the amount of the expense, (2) the 
time and place of the expense, (3) the business purpose of the 
expense, and (4) the business relationship of the taxpayer to 
the persons entertained (sec. 274(d)). The Code authorizes the 
IRS to provide simpler rules for amounts below a threshold 
specified by the IRS. Accordingly, the IRS provides standard 
meal allowances (generally $30 per day, but higher in specified 
high-cost areas and for employees ``in the transportation 
industry'') that taxpayers who are traveling away from home on 
business may utilize as an alternative to the substantiation 
procedures specified above (Treas. Reg. sec. 1.274(d)-1T).

                               house bill

      No provision. However, H.R. 3081, as passed by the House, 
increases the business meals deduction from the present-law 50 
percent to 55 percent for taxable years beginning in 2001 and 
to 60 percent for taxable years beginning in 2002 and 
thereafter. The bill does not alter the 50-percent limitation 
with respect to the business entertainment deduction.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                            Senate amendment

      No provision. However, H.R. 833, as passed by the Senate, 
phases in an increase from 50 percent to 80 percent in the 
deductible percentage of business meal expense for small 
businesses. The present-law 50 percent limitation continues to 
apply to entertainment expenses. The increase in the deductible 
percentage is phased in according to the following schedule:

                                                              Deductible
        Taxable years beginning in:                          percentage:
        2001......................................................    55
        2002......................................................    60
        2003......................................................    65
        2004......................................................    70
        2005......................................................    75
        2006 and thereafter.......................................    80

      Effective date.--The provision is effective for taxable 
years beginning after 2000.

                          conference agreement

      The conference agreement increases the business meals 
deduction from the present-law 50 percent to 70 percent for 
taxable years beginning after December 31, 2000.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

    F. Increased Deduction for Business Meals While Operating Under 
Department of Transportation Hours of Service Limitations (sec. 205 of 
                 the bill and sec. 274(n) of the Code)

                              present law

      Ordinary and necessary business expenses, as well as 
expenses incurred for the production of income, are generally 
deductible, subject to a number of restrictions and 
limitations. Generally, the amount allowable as a deduction for 
food and beverage is limited to 50 percent of the otherwise 
deductible amount. Exceptions to this 50 percent rule are 
provided for food and beverages provided to crew members of 
certain vessels and offshore oil or gas platforms or drilling 
rigs.
      The 1997 Act increased to 80 percent the deductible 
percentage of the cost of food and beverages consumed while 
away from home by an individual during, or incident to, a 
period of duty subject to the hours of service limitations of 
the Department of Transportation.
      Individuals subject to the hours of service limitations 
of the Department of Transportation include:
      (1) certain air transportation employees such as pilots, 
crew, dispatchers, mechanics, and control tower operators 
pursuant to Federal Aviation Administration regulations,
      (2) interstate truck operators and interstate bus drivers 
pursuant to Department of Transportation regulations,
      (3) certain railroad employees such as engineers, 
conductors, train crews, dispatchers and control operations 
personnel pursuant to Federal Railroad Administration 
regulations, and
      (4) certain merchant mariners pursuant to Coast Guard 
regulations.
      The increase in the deductible percentage is phased in 
according to the following schedule:

                                                              Deductible
        Taxable years beginning in:                          percentage:
        1998, 1999................................................    55
        2000, 2001................................................    60
        2002, 2003................................................    65
        2004, 2005................................................    70
        2006, 2007................................................    75
        2008 and thereafter.......................................    80

                               house bill

      No provision. However, H.R. 3081, as passed by the House, 
accelerates the increase in the deduction for business meals 
while operating under Department of Transportation hours of 
service limitations so that it becomes 80 percent in 2001 and 
thereafter.
      Effective date.--The provision is effective for taxable 
years beginning after 2000.

                            senate amendment

      No provision.

                          conference agreement

      The conference agreement includes the provision in H.R. 
3081.

 G. Repeal of Modification of Installment Method (sec. 206 of the bill 
                  and secs. 453 and 453A of the Code)

                              present law

      The installment method of accounting allows a taxpayer to 
defer the recognition of income from the disposition of certain 
property until payment is received. Sales to customers in the 
ordinary course of business are not eligible for the 
installment method, except for sales of property that is used 
or produced in the trade or business of farming and sales of 
timeshares and residential lots if an election to pay interest 
under section 453(l)(2)(B) is made. Section 536(a) of the 
Ticket to Work and Work Incentives Improvement Act of 1999 
prohibited the use of the installment method for a transaction 
that would otherwise be required to be reported using the 
accrual method of accounting, effective for dispositions 
occurring on or after December 17, 1999.
      A pledge rule provides that if an installment obligation 
is pledged as security for any indebtedness, the net proceeds 
45 of such indebtedness are treated as a payment on 
the obligation, triggering the recognition of income. Actual 
payments received on the installment obligation subsequent to 
the receipt of the loan proceeds are not taken into account 
until such subsequent payments exceed the loan proceeds that 
were treated as payments. The pledge rule does not apply to 
sales of property used or produced in the trade or business of 
farming, to sales of timeshares and residential lots where the 
taxpayer elects to pay interest under section 453(l)(2)(B), or 
to dispositions where the sales price does not exceed $150,000. 
The Ticket to Work and Work Incentives Improvement Act of 1999 
provided that the right to satisfy a loan with an installment 
obligation will be treated as a pledge of the installment 
obligation, effective for dispositions occurring on or after 
December 17, 1999.
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    \45\ The net proceeds equal the gross loan proceeds less the direct 
expenses of obtaining the loan.
---------------------------------------------------------------------------

                               house bill

      No provision. However, H.R. 3081, as passed by the House, 
repeals the prohibition on the use of the installment method of 
accounting for dispositions of property that would otherwise be 
reported for Federal income tax purposes using the accrual 
method of accounting. Accordingly, any disposition of property 
that otherwise qualifies to be reported using the installment 
method of accounting may be reported using that method without 
regard to whether the disposition would otherwise be reported 
using the accrual method of accounting.
      The provision leaves unchanged the rule added by section 
536(b) of the Ticket to Work and Work Incentives Improvement 
Act of 1999 that modified the installment method pledge rule.
      Effective date.--The provision is effective for sales or 
other dispositions on or after December 17, 1999.

                            senate amendment

      No provision. However, H.R. 833, as passed by the Senate, 
contains the provisions enacted in the Ticket to Work and Work 
Incentives Improvement Act of 1999 prohibiting the use of the 
installment method for a transaction that would otherwise be 
required to be reported using the accrual method of accounting 
and expanding the pledge rule.

                          conference agreement

      The conference agreement includes the provision in H.R. 
3081.

     H. Coordinate Farmers and Fisherman Income Averaging and the 
Alternative Minimum Tax (sec. 207 of the bill and secs. 55 and 1301 of 
                               the Code)

                              present law

      An individual taxpayer engaged in a farming business as 
defined by section 263A(e)(4) may elect to compute his or her 
current year tax liability by averaging, over the prior three-
year period, all or portion of his or her taxable income from 
the trade or business of farming. The averaging election is not 
coordinated with the alternative minimum tax. Thus, some 
farmers may become subject to the alternative minimum tax 
solely as a result of the averaging election.

                               house bill

      No provision. However, H.R. 3081, as passed by the House, 
extends to individuals engaged in the trade or business of 
fishing the same election to income average that is available 
to farmers. For this purpose, the trade or business of fishing 
is the conduct of commercial fishing as defined in section 3 of 
the Magnuson-Stevens Fishery Conservation and Management Act 
(16 U.S.C. 1802) and includes the trade or business of 
catching, taking, or harvesting fish that are intended to enter 
commerce through sale, barter or trade.
      The bill also coordinates farmers and fishermen income 
averaging with the alternative minimum tax. Under the bill, a 
farmer or fisherman will owe alternative minimum tax only to 
the extent he or she will owe alternative minimum tax had 
averaging not been elected. This result is achieved by 
excluding the impact of the election to average farm and 
fishing income from the calculation of both regular tax and 
tentative minimum tax, solely for the purpose of determining 
alternative minimum tax.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                            senate amendment

      No provision. However, the provision of H.R. 3081 is 
included in S. 3152.

                          conference agreement

      The conference agreement follows H.R. 3081 and S. 3152.

  I. Repeal Special Occupational Taxes on Producers and Marketers of 
 Alcoholic Beverages (sec. 208 of the bill and secs. 5081, 5091, 5111, 
                   5121, 5131, and 5276 of the Code)

                              Present Law

      Under present law, special occupational taxes are imposed 
on producers and others engaged in the marketing of distilled 
spirits, wine, and beer. These excise taxes are imposed as part 
of a broader Federal tax and regulatory engine governing the 
production and marketing of alcoholic beverages. The special 
occupational taxes are payable annually, on July 1 of each 
year. The present tax rates are as follows:
      Producers: Distilled spirits and wines (sec. 5081)--
$1,000 per year, per premise; Brewers (sec. 5091)--$1,000 per 
year, per premise.
      Wholesale dealers (sec. 5111): Liquors, wines, or beer--
$500 per year.
      Retail dealers (sec. 5121): Liquors, wines, or beer--$250 
per year.
      Nonbeverage use of distilled spirits (sec. 5131)--$500 
per year.
      Industrial use of distilled spirits (sec. 5276)--$250 per 
year.

                               House Bill

      No provision, but H.R., 3081, as passed by the House 
repeals the special occupational taxes on producers and 
marketers of alcoholic beverages. The provision is effective on 
July 1, 2001. The provision does not affect liability for taxes 
imposed with respect to periods before July 1, 2001.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement includes the provision of H.R. 
3081, as passed by the House.

     J. Exclusion From Gross Income for Certain Forgiven Mortgage 
      Obligations (sec. 209 of the bill and sec. 108 of the Code)

                              Present Law

      Gross income includes all income from whatever source 
derived, including income from the discharge of indebtedness. 
However, gross income does not include discharge of 
indebtedness income if: (1) the discharge occurs in a Title 11 
case; (2) the discharge occurs when the taxpayer is insolvent; 
(3) the indebtedness discharged is qualified farm indebtedness; 
or (4) except in the case of a C corporation, the indebtedness 
discharged is qualified real property business indebtedness. No 
exclusion is provided under present law for qualified 
residential indebtedness.

                               House Bill

      No provision. However, H.R. 3081, as passed by the House, 
permits eligible individuals to elect an exclusion from 
discharge of indebtedness income to the extent such income is 
attributable to the sale of real property securing qualified 
residential indebtedness. Qualified residential indebtedness is 
defined as indebtedness incurred or assumed by the taxpayer for 
the acquisition, construction, reconstruction, or substantial 
improvement of the taxpayer's principal residence (within the 
meaning of section 121) and which is secured by such residence. 
For this purpose, refinanced indebtedness qualifies for the 
exclusion only to the extent that the principal amount of the 
refinanced indebtedness does not exceed the principal amount of 
the indebtedness before the refinancing. The exclusion does not 
apply to qualified farm indebtedness or qualified real property 
business indebtedness.
      Effective date.--The provision is effective for 
discharges of indebtedness after December 31, 2000.

                            Senate Amendment

      No provision. However, the provision of H.R. 3081 is 
included in S. 3152.

                          Conference Agreement

      The conference agreement follows H.R. 3081 and S. 3152.

 K. Clarification of Cash Accounting Rules for Small Businesses (sec. 
               210 of the bill and sec. 446 of the Code)

                              Present Law

      Section 446(c) of the Code generally allows a taxpayer to 
select the method of accounting it will use to compute its 
taxable income if such method clearly reflects the income of 
the taxpayer. A taxpayer is entitled to adopt any one of the 
permissible methods for each separate trade or business, 
subject to certain restrictions. The regulations under section 
446 require that a taxpayer use an accrual method of accounting 
with regard to purchases and sales of merchandise whenever 
section 471 requires the taxpayer to account for such items as 
inventory. 46 In general, section 471 provides that 
whenever, in the opinion of the Secretary of the Treasury, the 
use of inventories is necessary to clearly determine the income 
of the taxpayer, inventories must be taken by the taxpayer. 
Treas. Reg. sec. 1.471-1 requires a taxpayer to account for 
inventories when the production, purchase, or sale of 
merchandise is an income-producing factor in the taxpayer's 
business. Treas. Reg. sec. 1.162-3 requires taxpayers carrying 
materials and supplies (other than incidental materials and 
supplies) on hand to deduct the cost of materials and supplies 
only in the amount that they are actually consumed and used in 
operations during the tax year.
---------------------------------------------------------------------------
    \46\ Treas. Reg. sec. 1.446-1(c)(2)
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement provides that, notwithstanding 
any other provision of the Code, a taxpayer is not required to 
use an accrual method of accounting if the average annual gross 
receipts of the taxpayer (or any predecessor) do not exceed 
$2.5 million for all prior taxable years beginning after 
October 31, 1999 (including the prior taxable years of any 
predecessor). Thus, even if the production, purchase, or sale 
of merchandise is an income-producing factor in the taxpayer's 
business, the taxpayer is not required to use an accrual method 
of accounting with regard to such purchases and sales if the 
average annual gross receipts of the taxpayer do not exceed 
$2.5 million.
      The provision also provides that a taxpayer meeting the 
average annual gross receipts test is not required to account 
for inventories under section 471. If a taxpayer elects not to 
account for inventory under section 471, the taxpayer is 
required to treat such inventory in the same manner as a 
material or supply that is not incidental. It is the intention 
of the conferees that a taxpayer that elects to treat inventory 
as a material or supply is to include in expense the charges 
for materials and supplies only in the amount that they are 
actually consumed and used in operation during the taxable year 
for which the return is made, provided that the costs of such 
materials and supplies have not been deducted in determining 
the net income or loss or taxable income for any previous 
year.47
---------------------------------------------------------------------------
    \47\ See Treas. Reg. sec. 1.162-3.
---------------------------------------------------------------------------
      Average annual gross receipts are determined by averaging 
the gross receipts of the three taxable year period ending with 
such prior taxable year.
      For example, assume a calendar year entity had gross 
receipts of $1.5 million in 1998, $2.5 million in 1999, $3.5 
million in 2000, and $4.5 million in 2001. In addition, the 
sale of inventory is an income-producing factor in the 
taxpayer's business. Average annual gross receipts are $2.5 
million in 2000 and $3.5 million in 2001. In calendar year 
2001, the entity may use the cash method of accounting 
notwithstanding that the production, purchase, or sale of 
merchandise is an income-producing factor in the taxpayer's 
trade or business, because it had average annual gross receipts 
of $2.5 million or less for all prior taxable years. In 
calendar year 2002, the entity may not use the cash method of 
accounting with regard to purchases and sales of merchandise, 
because average annual gross receipts for a prior taxable year 
(2001) exceed $2.5 million.
      In addition, the rules of paragraph (2) and (3) section 
448(c) (regarding the aggregation of related taxpayers, 
taxpayers not in existence for the entire three year period, 
short taxable years, definition of gross receipts, and 
treatment of predecessors) shall apply for purposes of 
determining the average annual gross receipts test.
      Effective date.--The provision is effective for taxable 
years beginning after date of enactment. Any change in the 
taxpayer's method of accounting permitted as a result of the 
provision is treated as a voluntary change initiated by the 
taxpayer with the consent of the Secretary of the Treasury. Any 
required section 481(a) adjustment is to be taken into account 
over a period not to exceed four years under principles 
consistent with those in Rev. Proc. 99-49.48
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    \48\ 1999-52 I.R.B. 725.
---------------------------------------------------------------------------

 L. Authorize Payment of Interest on Business Checking Accounts (sec. 
                            211 of the bill)

      The bill would eliminate the Federal prohibition on 
depository institutions paying interest on demand deposits. 
Thus, under the bill, depository institutions would be 
permitted to pay interest on business checking accounts.
      Effective date.--The repeal of the prohibition on the 
payment of interest would be effective two years after the date 
of enactment. During the two year period beginning on the date 
of enactment, the bill would permit depository institutions to 
offer business customers checking accounts that allow the funds 
in the account to be swept into an interest-bearing account on 
a daily basis.

  TITLE III. HEALTH INSURANCE AND LONG-TERM CARE INSURANCE PROVISIONS

  A. Accelerate 100-Percent Self-Employed Health Insurance Deduction 
           (sec. 301 of the bill and sec. 162(l) of the Code)

                              Present Law

      Under present law, the individual income tax treatment of 
health insurance expenses depends on the individual's 
circumstances. Self-employed individuals may deduct a portion 
of health insurance expenses for the individual and his or her 
spouse and dependents. The deductible percentage of health 
insurance expenses of a self-employed individual is 60 percent 
in 2000 through 2001, 70 percent in 2002, and 100 percent in 
2003 and thereafter. The deduction for health insurance 
expenses of self-employed individuals is not available for any 
month in which the taxpayer is eligible to participate in a 
subsidized health plan maintained by the employer of the 
taxpayer or the taxpayer's spouse.
      Employees can exclude from income 100 percent of 
employer-provided health insurance.
      Individuals who itemize deductions may deduct their 
health insurance expenses only to the extent that the total 
medical expenses of the individual exceed 7.5 percent of 
adjusted gross income (sec. 213). Subject to certain dollar 
limitations, premiums for qualified long-term care insurance 
are treated as medical expenses for purposes of the itemized 
deduction for medical expenses (sec. 213). The amount of 
qualified long-term care insurance premiums that may be taken 
into account for 2000 is as follows: $220 in the case of an 
individual 40 years old or less; $410 in the case of an 
individual who is over 40 but not more than 50; $820 in the 
case of an individual who is more than 50 but not more than 60; 
$2,220 in the case of an individual who is more than 60 but not 
more than 70; and $2,750 in the case of an individual who is 
more than 70. These dollar limits are indexed for inflation.
      The self-employed health deduction also applies to 
qualified long-term care insurance premiums treated as medical 
care for purposes of the itemized deduction for medical 
expenses.

                               House Bill

      No provision. However, H.R. 3081, as passed by the House, 
increases the deduction for health insurance expenses (and 
qualified long-term care insurance expenses) of self-employed 
individuals to 100 percent beginning in 2001. H.R. 3081 also 
provides that the deduction is not available in any month in 
which the taxpayer participates in an employer-subsidized 
health plan.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                            Senate Amendment

      No provision. However, H.R. 833, as passed by the Senate, 
increases the deduction for health insurance expenses (and 
qualified long-term care insurance expenses) of self-employed 
individuals to 100 percent beginning in 2001.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement includes the provision in H.R. 
3081.

B. Above-the-Line Deduction for Health Insurance Expenses (sec. 302 of 
                 the bill and new sec. 222 of the Code)

                              Present Law

      Under present law, the individual income tax treatment of 
health insurance expenses depends on the individual's 
circumstances. Self-employed individuals may deduct a portion 
of health insurance expenses for the individual and his or her 
spouse and dependents. The deductible percentage of health 
insurance expenses of a self-employed individual is 60 percent 
in 2000 and 2001; 70 percent in 2002; and 100 percent in 2003 
and thereafter. The deduction for health insurance expenses of 
self-employed individuals is not available for any month in 
which the taxpayer is eligible to participate in a subsidized 
health plan maintained by the employer of the taxpayer or the 
taxpayer's spouse. The deduction applies to qualified long-term 
care insurance premiums treated as medical expenses under the 
itemized deduction for medical expenses, described below.
      Employees can exclude from income 100 percent of 
employer-provided health insurance or qualified long-term care 
insurance.
      Individuals who itemize deductions may deduct their 
health insurance expenses only to the extent that the total 
medical expenses of the individual exceed 7.5 percent of 
adjusted gross income (sec. 213). Subject to certain dollar 
limitations, premiums for qualified long-term care insurance 
are treated as medical expenses for purposes of the itemized 
deduction for medical expenses (sec. 213). The amount of 
qualified long-term care insurance premiums that may be taken 
into account for 2000 is as follows: $220 in the case of an 
individual 40 years old or less; $410 in the case of an 
individual who is more than 40 but not more than 50; $820 in 
the case of an individual who is more than 50 but not more than 
60; $2,200 in the case of an individual who is more than 60 but 
not more than 70; and $2,750 in the case of an individual who 
is more than 70. These dollar limits are indexed for inflation.

                               House Bill

      No provision.

                            Senate Amendment

      No provision. However, H.R. 833, as passed by the Senate, 
provides an above-the-line deduction for a percentage of the 
amount paid during the year for insurance which constitutes 
medical care (as defined under sec. 213, other than long-term 
care insurance treated as medical care under sec. 213) for the 
taxpayer and his or her spouse and dependents.49 The 
deductible percentage is: 25 percent in 2002, 2003, and 2004; 
35 percent in 2005; 65 percent in 2006; and 100 percent in 2007 
and thereafter.
---------------------------------------------------------------------------
    \49\ The deduction only applies to health insurance that 
constitutes medical care; it does not apply to medical expenses. The 
deduction applies to self-insured arrangements (provided such 
arrangements constitute insurance, e.g., there is appropriate risk-
shifting) and coverage under employer plans treated as insurance under 
section 104. Another provision of the bill provides a similar deduction 
for qualified long-term care insurance expenses.
---------------------------------------------------------------------------
      The deduction is not available to an individual for any 
month in which the individual is covered under an employer-
sponsored health plan if at least 50 percent of the cost of the 
coverage is paid or incurred by the employer.50 
Thus, the individual must pay for more than 50 percent of the 
cost of the coverage in order to be eligible for the deduction. 
For purposes of this rule, any amount excludable from the gross 
income of the employee under the exclusion for employer-
provided health coverage is treated as paid or incurred by the 
employer; thus, for example, health insurance purchased by an 
employee through a cafeteria plan with salary reduction amounts 
is considered to be paid for by the employer.51 In 
determining whether the 50-percent threshold is met, all health 
plans of the employer in which the employee participates are 
treated as a single plan. If the employer pays for less than 50 
percent of the cost of all health plans in which the individual 
participates, the deduction is available only with respect to 
each plan with respect to which the employer subsidy is less 
than 50 percent. Cost is determined as under the health care 
continuation rules.
---------------------------------------------------------------------------
    \50\ This rule is applied separately with respect to qualified 
long-term care insurance.
    \51\ Excludable employer contributions to a health flexible 
spending arrangement or medical savings account (including salary 
reduction contributions) are also considered amounts paid by the 
employer for health insurance that constitutes medical care. Salary 
reduction contributions are not considered to be amounts paid by the 
employee.
---------------------------------------------------------------------------
      The deduction is not available with respect to insurance 
providing coverage for accidents, disability, dental care, 
vision care, or a specific disease or making payments of a 
fixed amount per day (or other period) on account of 
hospitalization. Such insurance and employer payments for such 
insurance are not taken into account in determining whether the 
employee pays for more than 50 percent of the cost of health 
insurance.
      The deduction is not available to individuals enrolled in 
Medicare, Medicaid, the Federal Employees Health Benefit 
Program (``FEHBP''),52 Champus, VA, Indian Health 
Service, or Children's Health Insurance programs. Thus, for 
example, the deduction is not available with respect to Medigap 
coverage, because such coverage is provided to individuals 
enrolled in Medicare.
---------------------------------------------------------------------------
    \52\ This rule does not prevent individuals covered by the FEHBP 
from deducting premiums for health care continuation coverage, provided 
the requirements for the deduction are otherwise met.
---------------------------------------------------------------------------
      The provision authorizes the Secretary to prescribe rules 
necessary to carry out the provision, including appropriate 
reporting requirements for employers.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2001.

                          Conference Agreement

      The conference agreement includes the provision in H.R. 
833, except that the deductible percentage is 25 percent in 
2001 through 2003, 35 percent in 2004, 65 percent in 2005, and 
100 percent in 2006 and thereafter.
      The following examples illustrate the application of the 
rule denying the deduction if the employer pays 50 percent or 
more of the cost of the coverage.
      Example 1: Employee A participates in an employer-
sponsored health plan. The annual cost for single coverage is 
$3,000, and the annual additional cost for coverage for A's 
spouse and dependents is $1,000. The employer pays 100 percent 
of the cost of individual coverage, but does not pay any 
additional amount for family coverage. A chooses family 
coverage. The total amount the employer pays for the insurance 
is $3,000, which is 75 percent of the total cost of the 
coverage ($4,000). A also purchases qualified long-term care 
insurance under an employer-sponsored plan, and pays for 100 
percent of the cost of this coverage on an after-tax basis. The 
deduction is not available with respect to A's expenses for 
health insurance.53
---------------------------------------------------------------------------
    \53\ Under another provision of the bill, a deduction is available 
with respect to A's qualified long-term care insurance premiums.
---------------------------------------------------------------------------
      Example 2: Employee B participates in two employer-
sponsored health plans. One plan provides major medical 
coverage. The cost of this plan is $2,000 per year. The 
employer pays one-half of the cost of this plan. The second 
plan provides only dental insurance. The cost of the dental 
plan is $300 per year, which is paid by the employee. In 
determining whether B is entitled to the deduction, the dental 
plan is disregarded. Thus, the total cost of the health plans 
in which B participates is $2,000. The employer pays for 50 
percent of this total cost. B may not deduct her share of the 
premium for the major medical plan, nor the cost of the dental 
insurance.
      Example 3: Employee C participates in an employer-
sponsored health plan. The cost of the plan is $4,000. The 
employer pays $1,000 of the cost of the plan directly, and 
Employee C pays the remainder of the $3,000 cost of the plan by 
salary reduction through a cafeteria plan. The $1,000 employer 
contribution and the $3,000 salary reduction contributions are 
all employer payments. Thus, the employer pays for the entire 
cost of the plan, and the deduction is not available.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

   C. Above-the-Line Deduction for Long-Term Care Insurance Expenses 
     (secs. 1302 and 1304 of the bill and new sec. 222 of the Code)

                              Present Law

      Under present law, the individual income tax treatment of 
health insurance expenses depends on the individual's 
circumstances. Self-employed individuals may deduct a portion 
of health insurance expenses for the individual and his or her 
spouse and dependents. The deductible percentage of health 
insurance expenses of a self-employed individual is 60 percent 
in 2000 and 2001; 70 percent in 2002; and 100 percent in 2003 
and thereafter. The deduction for health insurance expenses of 
self-employed individuals is not available for any month in 
which the taxpayer is eligible to participate in a subsidized 
health plan maintained by the employer of the taxpayer or the 
taxpayer's spouse. The deduction applies to qualified long-term 
care insurance premiums treated as medical expenses under the 
itemized deduction for medical expenses, described below.
      Employees can exclude from income 100 percent of 
employer-provided health insurance or qualified long-term care 
insurance.
      Individuals who itemize deductions may deduct their 
health insurance expenses only to the extent that the total 
medical expenses of the individual exceed 7.5 percent of 
adjusted gross income (sec. 213). Subject to certain dollar 
limitations, premiums for qualified long-term care insurance 
are treated as medical expenses for purposes of the itemized 
deduction for medical expenses (sec. 213). The amount of 
qualified long-term care insurance premiums that may be taken 
into account for 2000 is as follows: $220 in the case of an 
individual 40 years old or less; $410 in the case of an 
individual who is more than 40 but not more than 50; $820 in 
the case of an individual who is more than 50 but not more than 
60; $2,200 in the case of an individual who is more than 60 but 
not more than 70; and $2,750 in the case of an individual who 
is more than 70. These dollar limits are indexed for inflation.
      In order for a long-term care contract to be qualified 
for purposes of the Code, the contract must satisfy certain 
consumer protection provisions of the long-term care insurance 
model act and regulations promulgated by the National 
Association of Insurance Commissioners (``NAIC'') adopted as of 
January 1993. In addition, issuers of qualified long-term care 
contracts are required to satisfy certain disclosure 
requirements. An excise tax is imposed with respect to the 
failure to meet the applicable disclosure 
requirements.54
---------------------------------------------------------------------------
    \54\ These provisions apply for all provisions of the Code relating 
to qualified long-term care contracts, not only the above-the-line 
deduction.
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      No provision. However, H.R. 833, as passed by the Senate, 
provides an above-the-line deduction for a percentage of the 
amount paid during the year for qualified long-term care 
insurance for the taxpayer and his or her spouse and 
dependents, subject to the present-law premium limitations.\55\ 
The deductible percentage is: 25 percent in 2002, 2003, and 
2004; 35 percent in 2005; 65 percent in 2006; and 100 percent 
in 2007 and thereafter.
---------------------------------------------------------------------------
    \55\ The deduction only applies to insurance that constitutes 
medical care; it does not apply to long-term care expenses. The 
deduction applies to self-insured arrangements (provided such 
arrangements constitute insurance, e.g., there is appropriate risk-
shifting) and coverage under employer plans treated as insurance under 
section 104. Another provision of the bill provides a similar deduction 
for health insurance expenses.
---------------------------------------------------------------------------
      The deduction is not available to an individual for any 
month in which the individual is covered under an employer-
sponsored long-term care plan if at least 50 percent of the 
cost of the coverage is paid or incurred by the employer.\56\ 
For purposes of this rule, any amounts excludable from the 
gross income of the employee with respect to qualified long-
term care insurance are treated as paid or incurred by the 
employer. In determining whether the 50-percent threshold is 
met, all plans of the employer providing long-term care 
insurance in which the employee participates are treated as a 
single plan. If the employer pays less than 50 percent of the 
cost of all long-term care plans in which the individual 
participates, the deduction is available only with respect to 
each plan with respect to which the employer pays for less than 
50 percent of the cost. Cost is determined as under the health 
care continuation rules.
---------------------------------------------------------------------------
    \56\ This rule is applied separately with respect to health 
insurance.
---------------------------------------------------------------------------
      The provision authorizes the Secretary to prescribe rules 
necessary to carry out the provision, including appropriate 
reporting requirements for employers.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2001.

                          Conference Agreement

      The conference agreement includes the provision in H.R. 
833, except that the deductible percentage is 25 percent in 
2001 through 2003, 35 percent in 2004, 65 percent in 2005, and 
100 percent in 2006 and thereafter.\57\
---------------------------------------------------------------------------
    \57\ See the description of the above-the-line deduction for health 
insurance expenses for examples of the operation of the rule denying 
the deduction if the employer pays for 50 percent or more of the cost 
of the coverage.
---------------------------------------------------------------------------
      The conference agreement adds additional consumer 
protection provisions for qualified long-term care contracts. 
In order to be a qualified contract for purposes of the Code, a 
long-term care insurance contract must satisfy the NAIC model 
act and regulations relating to contingent nonforfeiture 
benefits, if the policyholder declines the offer of a 
nonforfeiture provision. In addition, the conference agreement 
modifies the disclosure requirements applicable to issuers of 
long-term care contracts by adding the NAIC requirements 
regarding suitability and disclosure of rating practices. The 
conference agreement also updates present-law references to the 
NAIC model act and regulations to reflect current provisions.
      Effective date.--The above-the-line deduction is 
effective for taxable years beginning after December 31, 2000. 
The consumer protection provisions are effective with respect 
to policies issued more than 1 year after the date of 
enactment.

 D. Medical Savings Accounts (``MSAs'') (sec. 303 of the bill and sec. 
                            220 of the Code)

                              Present Law

      Within limits, contributions to a medical savings account 
(``MSA'') \58\ are deductible in determining adjusted gross 
income (``AGI'') if made by an eligible individual and are 
excludable from gross income and wages for employment tax 
purposes if made by the employer of an eligible individual. 
Earnings on amounts in an MSA are not currently taxable. 
Distributions from an MSA for medical expenses are not taxable. 
Distributions not used for medical expenses are taxable. In 
addition, distributions not used for medical expenses are 
subject to an additional 15-percent tax unless the distribution 
is made after age 65, death, or disability.
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    \58\ In general, an MSA is a trust or custodial account created 
exclusively for the benefit of the account holder and is subject to 
rules similar to those applicable to individual retirement 
arrangements. The trustee of an MSA can be a bank, insurance company, 
or other person who demonstrates to the satisfaction of the Secretary 
that the manner in which such person will administer the trust will be 
consistent with applicable requirements.
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      MSAs are available to self-employed individuals \59\ and 
to employees covered under an employer-sponsored high 
deductible plan of a small employer. An employer is a small 
employer if it employed, on average, no more than 50 employees 
on business days during either the preceding or the second 
preceding year.
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    \59\ Self-employed individuals include more than 2-percent 
shareholders of S corporations who are treated as partners for purposes 
of fringe benefit rules pursuant to section 1372. Self-employed 
individuals are eligible for an MSA regardless of the size of the 
entity for which the individual performs services.
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      In order for an employee of a small employer to be 
eligible to make MSA contributions (or to have employer 
contributions made on his or her behalf), the employee must be 
covered under an employer-sponsored high deductible health plan 
(see the definition below) and must not be covered under any 
other health plan (other than a plan that provides certain 
permitted coverage).
      Similarly, in order to be eligible to make contributions 
to an MSA, a self-employed individual must be covered under a 
high deductible health plan and no other health plan (other 
than a plan that provides certain permitted coverage, described 
below). A self-employed individual is not an eligible 
individual (by reason of being self-employed) if the high 
deductible plan under which the individual is covered is 
established or maintained by an employer of the individual (or 
the individual's spouse).
      The maximum annual contribution that can be made to an 
MSA for a year is 65 percent of the deductible under the high 
deductible plan in the case of individual coverage and 75 
percent of the deductible in the case of family coverage.
      A high deductible plan is a health plan with an annual 
deductible of at least $1,550 and no more than $2,350 in the 
case of individual coverage and at least $3,100 and no more 
than $4,650 in the case of family coverage. In addition, the 
maximum out-of-pocket expenses with respect to allowed costs 
(including the deductible) must be no more than $3,100 in the 
case of individual coverage and no more than $5,700 in the case 
of family coverage.60 A plan does not fail to 
qualify as a high deductible plan merely because it does not 
have a deductible for preventive care as required by State law. 
A plan does not qualify as a high deductible health plan if 
substantially all of the coverage under the plan is for 
permitted coverage (as described above). In the case of a self-
insured plan, the plan must in fact be insurance (e.g., there 
must be appropriate risk shifting) and not merely a 
reimbursement arrangement.
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    \60\ These dollar amounts are for 2000. These amounts are indexed 
for inflation in $50 increments.
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      The number of taxpayers benefiting annually from an MSA 
contribution is limited to a threshold level (generally 750,000 
taxpayers). If it is determined in a year that the threshold 
level has been exceeded (called a ``cut-off'' year) then, in 
general, for succeeding years during the 4-year pilot period 
1997-2000, only those individuals who (1) made an MSA 
contribution or had an employer MSA contribution for the year 
or a preceding year (i.e., are active MSA participants) or (2) 
are employed by a participating employer, is eligible for an 
MSA contribution. In determining whether the threshold for any 
year has been exceeded, MSAs of individuals who were not 
covered under a health insurance plan for the six month period 
ending on the date on which coverage under a high deductible 
plan commences would not be taken into account.61 
However, if the threshold level is exceeded in a year, 
previously uninsured individuals are subject to the same 
restriction on contributions in succeeding years as other 
individuals. That is, they would not be eligible for an MSA 
contribution for a year following a cut-off year unless they 
are an active MSA participant (i.e., had an MSA contribution 
for the year or a preceding year) or are employed by a 
participating employer.
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    \61\ Permitted coverage, as described above, does not constitute 
coverage under a health insurance plan for this purpose.
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      The number of MSAs established has not exceeded the 
threshold level.
      After December 31, 2000, no new contributions may be made 
to MSAs except by or on behalf of individuals who previously 
had MSA contributions and employees who are employed by a 
participating employer. An employer is a participating employer 
if (1) the employer made any MSA contributions for any year to 
an MSA on behalf of employees or (2) at least 20 percent of the 
employees covered under a high deductible plan made MSA 
contributions of at least $100 in the year 2000.
      Self-employed individuals who made contributions to an 
MSA during the period 1997-2000 also may continue to make 
contributions after 2000.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement extends the MSA program through 
2002. The same rules that apply to the limit on MSAs for 1999 
apply to 2000 and 2001. Thus, for example, the threshold level 
in those years is 750,000 taxpayers.
      Effective date.--The provision is effective on the date 
of enactment.

 E. Deduction for Providing Long-Term Care to Household Members (sec. 
             305 of the bill and new sec. 223 of the Code)

                              present law

      Under present law, the individual income tax treatment of 
health insurance expenses depends on the individual's 
circumstances. Self-employed individuals may deduct a portion 
of health insurance expenses for the individual and his or her 
spouse and dependents. The deductible percentage of health 
insurance expenses of a self-employed individual is 60 percent 
in 2000 and 2001; 70 percent in 2002; and 100 percent in 2003 
and thereafter. The deduction for health insurance expenses of 
self-employed individuals is not available for any month in 
which the taxpayer is eligible to participate in a subsidized 
health plan maintained by the employer of the taxpayer or the 
taxpayer's spouse. The deduction applies to qualified long-term 
care insurance premiums treated as medical expenses under the 
itemized deduction for medical expenses, described below.
      Employees can exclude from income 100 percent of 
employer-provided health insurance or qualified long-term care 
insurance.
      Individuals who itemize deductions may deduct their 
health insurance expenses only to the extent that the total 
medical expenses of the individual exceed 7.5 percent of 
adjusted gross income (sec. 213). Subject to certain dollar 
limitations, premiums for qualified long-term care insurance 
are treated as medical expenses for purposes of the itemized 
deduction for medical expenses (sec. 213). The amount of 
qualified long-term care insurance premiums that may be taken 
into account for 2000 is as follows: $220 in the case of an 
individual 40 years old or less; $410 in the case of an 
individual who is more than 40 but not more than 50; $820 in 
the case of an individual who is more than 50 but not more than 
60; $2,200 in the case of an individual who is more than 60 but 
not more than 70; and $2,750 in the case of an individual who 
is more than 70. These dollar limits are indexed for inflation.
      To qualify as a dependent under present law, an 
individual must: (1) be a specified relative or member of the 
taxpayer's household; (2) be a citizen or resident of the U.S. 
or resident of Canada or Mexico; (3) not be required to file a 
joint tax return with his or her spouse; (4) have gross income 
below the dependent exemption amount ($2,800 in 2000) if not 
the taxpayer's child; and (5) receive over half of his or her 
support from the taxpayer. If no one person contributes over 
half the support of an individual, the taxpayer is treated as 
meeting the support requirement if: (1) over half the support 
is received from persons each of whom, but for the fact that he 
or she did not provide over half such support, could claim the 
individual as a dependent; (2) the taxpayer contributes over 10 
percent of such support; and (3) other caregivers who provide 
over 10 percent of the support file written declarations 
stating that they will not claim the individual as a dependent.

                               house bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement provides taxpayers who maintain 
a household including one or more qualifying individuals a 
deduction with respect to each qualifying individual with long-
term care needs, regardless of the expenses incurred in the 
care of the qualifying dependent. The deduction does not reduce 
adjusted gross income (i.e., is not ``above-the-line''); 
however, the deduction is available whether or not the taxpayer 
itemizes deductions. The deductible amount is reduced by 
amounts received under a long-term care contract (whether or 
not qualified and including contracts that pay on a per diem or 
similar basis) covering the qualifying dependent. The deduction 
is phased out for higher income taxpayers in the same manner as 
the personal exemption amount.62 The deduction is 
taken into account in determining alternative minimum taxable 
income.
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    \62\ The deduction is added to the taxpayer's personal exemptions 
for purposes of the personal exemption phaseout. For 2000, the personal 
exemption amount phases out over the following ranges of adjusted gross 
income: $193,400-$315,900 for married taxpayers filing a joint return; 
$161,150-$283,650 for taxpayers filing as heads of households; and 
$128,950-$251,450 for unmarried taxpayers.
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      The deductible amount is $3,000 in 2001 and increases by 
$1,000 each year thereafter until the limit is $10,000 in 2010 
and thereafter.
      An individual is a qualifying individual with respect to 
a taxpayer if the individual (1) is the spouse of the taxpayer 
or a relative of the taxpayer determined under the rules 
relating to the dependency exemption, and (2) lives in a 
household maintained by the taxpayer for the entire taxable 
year. In addition, if the individual is not the taxpayer's 
spouse or a child of the taxpayer (as determined under the 
dependency rules), the individual's gross income for the year 
must be less than the sum of the personal exemption amount, the 
standard deduction for a single taxpayer and, if applicable, 
the additional deduction for the elderly and blind.
      A qualifying individual must be certified before the due 
date for the return for the taxable year (without regard to 
extensions) as having long-term care needs (as described below 
based on the age of the individual) for at least 180 
consecutive days. Some portion of the 180-day period must fall 
within the taxable year. The deduction is not available unless 
the certification was made no more than 39\1/2\ months before 
the due date for the return (or such other time as specified by 
the Secretary).
      In general, an individual who is at least six years of 
age is considered to have long-term care needs if the 
individual is unable to perform at least three activities of 
daily living (``ADLs'') without substantial assistance due to a 
loss of functional capacity including individuals born with a 
condition that is comparable to a loss of functional capacity. 
As under the present-law rules relating to long-term care, ADLs 
are eating, toileting, transferring, bathing, dressing and 
continence. Substantial assistance includes both hands-on 
assistance (that is, the physical assistance of another person 
without which the individual would be unable to perform the 
ADL) and stand-by assistance (that is, the presence of another 
person within arm's reach of the individual that is necessary 
to prevent, by physical intervention, injury to the individual 
when performing the ADL).
      As an alternative to the two-ADL test, an individual is 
considered to have long-term care needs if the individual (1) 
requires substantial supervision to protect the individual from 
threats to health and safety due to severe cognitive impairment 
and (2) is unable to perform, without reminding or cuing 
assistance, at least one ADL or to the extent provided in 
regulations,63 is unable to engage in age 
appropriate activities.
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    \63\ The regulations are to be prescribed by the Secretary, in 
consultation with the Secretary of Health and Human Services.
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      A child between the ages of two and six is considered to 
have long-term care needs if the child requires substantial 
assistance with two of the following ADLs: eating, 
transferring, and mobility.
      A child under the age of two is considered to have long-
term care needs if the child requires specific durable medical 
equipment (e.g., a respirator) by reason of a severe health 
condition or requires a skilled practitioner to address the 
child's condition when the parents are absent.
      For purposes of the provision, a taxpayer would be 
considered to be maintaining a household for any period only if 
over one-half the cost of maintaining the household for the 
period is provided by the taxpayer (or, if married, the 
taxpayer and his or her spouse). If the taxpayer is married at 
the end of the taxable year, the deduction is available only if 
the taxpayer and his or her spouse file a joint return. An 
individual legally separated is not considered married. An 
individual is not considered married if the individual (1) 
files a separate return for the year, (2) maintains a household 
which constitutes the principal place of abode for a qualifying 
individual for more than one-half of the year, and (3) during 
the last six months of the year the individual's spouse is not 
a member of the individual's household.
      The deduction is not available unless the taxpayer 
identification number of the qualifying individual is included 
on the taxpayer's return for the year. In addition, the 
deduction is not available unless the taxpayer includes on the 
return a physician identification number (e.g., the Unique 
Physician Identification Number currently required for Medicare 
billing). The IRS is authorized to use mathematical error 
procedures to deny claims for the deduction during return 
processing if the taxpayer does not provide valid taxpayer 
identification numbers and physician identification numbers.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

  TITLE IV. PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS 
                              1

Subtitle A. Individual Retirement Arrangements (``IRAs'') (sec. 401-404 
 of the bill) (sec. 101 of the House bill, secs. 101-104 of the Senate 
          amendment, and secs. 219, 408, and 408A of the Code)

                              Present Law

In general
      There are two general types of individual retirement 
arrangements (``IRAs'') under present law: traditional IRAs, to 
which both deductible and nondeductible contributions may be 
made, and Roth IRAs. The Federal income tax rules regarding 
each type of IRA (and IRA contribution) differ.
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    \1\ The provisions of the bill as passed by the House and the 
Senate did not contain provisions relating to pensions and individual 
retirement arrangements. Provisions described under the House bill 
refer to the provisions of H.R. 1102, the ``Comprehensive Retirement 
Security and Pension Reform Act of 2000,'' as passed by the House. For 
legislative history, see H.R. Rep. No. 106-753. Provisions described 
under the Senate amendment refer to the provisions of H.R. 1102, the 
``Retirement Security and Savings Act of 2000,'' as reported by the 
Senate Committee on Finance on September 13, 2000. For legislative 
history, see S.Rep. No. 106-411.
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Traditional IRAs
      Under present law, an individual may make deductible 
contributions to an IRA up to the lesser of $2,000 or the 
individual's compensation if neither the individual nor the 
individual's spouse is an active participant in an employer-
sponsored retirement plan. In the case of a married couple, 
deductible IRA contributions of up to $2,000 can be made for 
each spouse (including, for example, a homemaker who does not 
work outside the home), if the combined compensation of both 
spouses is at least equal to the contributed amount. If the 
individual (or the individual's spouse) is an active 
participant in an employer-sponsored retirement plan, the 
$2,000 deduction limit is phased out for taxpayers with 
modified adjusted gross income (``AGI'') over certain levels 
for the taxable year.
      The AGI phase-out limits for taxpayers who are active 
participants in employer-sponsored plans are as follows:

Single Taxpayers

                                                     AGI Phase-out range
Taxable years beginning in:
    2000................................................  $32,000-42,000
    2001................................................   33,000-43,000
    2002................................................   34,000-44,000
    2003................................................   40,000-50,000
    2004................................................   45,000-55,000
    2005 and thereafter.................................   50,000-60,000

Taxpayers Filing Joint Returns

                                                         Phase-out range
Taxable years beginning in:
    2000................................................  $52,000-62,000
    2001................................................   53,000-63,000
    2002................................................   54,000-64,000
    2003................................................   60,000-70,000
    2004................................................   65,000-75,000
    2005................................................   70,000-80,000
    2006................................................   75,000-85,000
    2007 and thereafter.................................  80,000-100,000

      The AGI phase-out range for married taxpayers filing a 
separate return is $0 to $10,000.
      If the individual is not an active participant in an 
employer-sponsored retirement plan, but the individual's spouse 
is, the $2,000 deduction limit is phased out for taxpayers with 
AGI between $150,000 and $160,000.
      To the extent an individual cannot or does not make 
deductible contributions to an IRA or contributions to a Roth 
IRA, the individual may make nondeductible contributions to a 
traditional IRA.
      Amounts held in a traditional IRA are includible in 
income when withdrawn (except to the extent the withdrawal is a 
return of nondeductible contributions). Includible amounts 
withdrawn prior to attainment of age 59\1/2\ are subject to an 
additional 10-percent early withdrawal tax, unless the 
withdrawal is due to death or disability, is made in the form 
of certain periodic payments, is used to pay medical expenses 
in excess of 7.5 percent of AGI, is used to purchase health 
insurance for an unemployed individual, is used for education 
expenses, or is used for first-time homebuyer expenses of up to 
$10,000.
Roth IRAs
      Individuals with AGI below certain levels may make 
nondeductible contributions to a Roth IRA. The maximum annual 
contribution that may be made to a Roth IRA is the lesser of 
$2,000 or the individual's compensation for the year. The 
contribution limit is reduced to the extent an individual makes 
contributions to any other IRA for the same taxable year. As 
under the rules relating to IRAs generally, a contribution of 
up to $2,000 for each spouse may be made to a Roth IRA provided 
the combined compensation of the spouses is at least equal to 
the contributed amount. The maximum annual contribution that 
can be made to a Roth IRA is phased out for single taxpayers 
with AGI between $95,000 and $110,000 and for taxpayers filing 
a joint return with AGI between $150,000 and $160,000. For 
married taxpayers filing a separate return, the phase-out range 
is $0 to $10,000.
      Taxpayers with modified AGI of $100,000 or less generally 
may convert a traditional IRA into a Roth IRA. The amount 
converted is includible in income as if a withdrawal had been 
made, except that the 10-percent early withdrawal tax does not 
apply and, if the conversion occurred in 1998, the income 
inclusion may be spread ratably over 4 years. Married taxpayers 
who file separate returns cannot convert a traditional IRA into 
a Roth IRA.
      Amounts held in a Roth IRA that are withdrawn as a 
qualified distribution are neither includible in income, nor 
subject to the additional 10-percent tax on early withdrawals. 
A qualified distribution is a distribution that (1) is made 
after the 5-taxable year period beginning with the first 
taxable year for which the individual made a contribution to a 
Roth IRA, and (2) which is made after attainment of age 59\1/
2\, on account of death or disability, or is made for first-
time homebuyer expenses of up to $10,000.
      To the extent attributable to earnings, distributions 
from a Roth IRA that are not qualified distributions are 
includible in income and subject to the 10-percent early 
withdrawal tax (unless an exception applies).2 The 
same exceptions to the early withdrawal tax that apply to IRAs 
apply to Roth IRAs.
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    \2\ Early distribution of converted amounts may also accelerate 
income inclusion of converted amounts that are taxable under the 4-year 
rule applicable to 1998 conversions.
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Taxation of charitable contributions
      Generally, a taxpayer who itemizes deductions may deduct 
cash contributions to charity, as well as the fair market value 
of contributions of property. The amount of the deduction 
otherwise allowable for the taxable year with respect to a 
charitable contribution may be reduced, depending on the type 
of property contributed, the type of charitable organization to 
which the property is contributed, and the income of the 
taxpayer.
      For donations of cash by individuals, total deductible 
contributions to public charities may not exceed 50 percent of 
a taxpayer's AGI for a taxable year. To the extent a taxpayer 
has not exceeded the 50-percent limitation, contributions of 
cash to private foundations and certain other nonprofit 
organizations and contributions of capital gain property to 
public charities generally may be deducted up to 30 percent of 
the taxpayer's AGI. If a taxpayer makes a contribution in one 
year which exceeds the applicable 50-percent or 30-percent 
limitation, the excess amount of the contribution may be 
carried over and deducted during the next five taxable years.
      In addition to the percentage limitations imposed 
specifically on charitable contributions, present law imposes a 
reduction on most itemized deductions, including charitable 
contribution deductions, for taxpayers with AGI in excess of a 
threshold amount, which is indexed annually for inflation. The 
threshold amount for 2000 is $128,950 ($64,475 for married 
individuals filing separate returns). For those deductions that 
are subject to the reduction, the total amount of itemized 
deductions is reduced by 3 percent of AGI over the threshold 
amount, but not by more than 80 percent of itemized deductions 
subject to the reduction. The effect of this reduction may be 
to limit a taxpayer's ability to deduct charitable 
contributions.

                               House Bill

Increase in annual contribution limits
      The House bill increases the maximum annual dollar 
contribution limit for IRA contributions from $2,000 to $3,000 
in 2001, $4,000 in 2002, and $5,000 in 2003. The limit is 
indexed for inflation in $500 increments in 2004 and 
thereafter.
Additional catch-up contributions
      In the case of individuals who have attained age 50 
before the end of the taxable year, the IRA contribution limit 
is $5,000, beginning in 2001.
Increase in AGI limits for deductible IRA contributions
      No provision.
Roth IRAs
      No provision.
Deemed IRAs under employer plans
      No provision.
Tax-free IRA withdrawals for charitable purposes
      No provision.
Effective date
      The provision is effective for taxable years beginning 
after December 31, 2000.

                            Senate Amendment

Increase in annual contribution limits
      The Senate amendment is the same as the House bill.
Additional catch-up contributions
      The bill provides that individuals who have attained age 
50 may make additional catch-up IRA contributions. The 
otherwise maximum contribution limit (before application of the 
AGI phase-out limits) for an individual who has attained age 50 
before the end of the taxable year is increased by 50 percent.
Increase in AGI limits for deductible IRA contributions
      Under the bill, the increases in the AGI phase-out limits 
for active participants in an employer-sponsored plan are 
evened out. In addition, the phase-out range for married 
taxpayers filing separately is conformed to the phase-out range 
for single taxpayers. The AGI phase-out limits under the bill 
are as follows.

            Taxpayers Filing Returns Other Than Joint Returns

                                                     AGI Phase-out range
Taxable years beginning in:
    2001................................................  $36,000-46,000
    2002................................................   40,000-50,000
    2003................................................   44,000-54,000
    2004................................................   48,000-58,000
    2005 and thereafter.................................   50,000-60,000

                     Taxpayers Filing Joint Returns

                                                     AGI Phase-out range
Taxable years beginning in:
    2001................................................  $56,000-66,000
    2002................................................   60,000-70,000
    2003................................................   64,000-74,000
    2004................................................   68,000-78,000
    2005................................................   72,000-82,000
    2006................................................   76,000-86,000
    2007 and thereafter.................................  80,000-100,000

      The present-law income phase-out range for an individual 
who is not an active participant in an employer-sponsored plan, 
but whose spouse is, remains at $150,000 to $160,000.
Roth IRAs
      The bill increases the income phase-out range for Roth 
IRA contributions to $190,000 to $220,000 for married couples 
filing a joint return. In addition, the bill applies to married 
taxpayers filing a separate return the same phase-out range 
that applies to single taxpayers.
      Under the bill, the income limit for conversions of 
traditional IRAs to Roth IRAs is $200,000 for married couples 
filing a joint return. For all other taxpayers (including 
married taxpayers filing a separate return), the limit is 
$100,000.
Deemed IRAs under employer plans
      The bill provides that, if an eligible retirement plan 
permits employees to make voluntary employee contributions to a 
separate account or annuity that (1) is established under the 
plan, and (2) meets the requirements applicable to either 
traditional IRAs or Roth IRAs, then the separate account or 
annuity is deemed to be a traditional IRA or a Roth IRA, as 
applicable, for all purposes of the Code. For example, the 
reporting requirements applicable to IRAs apply. The deemed 
IRA, and contributions thereto, are not subject to the Code 
rules pertaining to the eligible retirement plan. In addition, 
the deemed IRA, and contributions thereto, are not taken into 
account in applying such rules to any other contributions under 
the plan. The deemed IRA, and contributions thereto, are 
subject to the exclusive benefit and fiduciary rules of ERISA 
to the extent otherwise applicable to the plan, but are not 
subject to the ERISA reporting and disclosure, participation, 
vesting, funding, and enforcement requirements that apply to 
the eligible retirement plan. An eligible retirement plan is a 
qualified plan (sec. 401(a)), tax-sheltered annuity (sec. 
403(b)), or a governmental section 457 plan.
Tax-free IRA withdrawals for charitable purposes
      The bill provides an exclusion from gross income for 
qualified charitable distributions from an IRA: (1) to an 
organization to which deductible contributions can be made; (2) 
to a charitable remainder annuity trust or charitable remainder 
unitrust; (3) to a pooled income fund (as defined in sec. 
642(c)(5)); or (4) for the issuance of a charitable gift 
annuity. The exclusion applies with respect to distributions 
described in (2), (3), or (4) only if no person holds an income 
interest in the trust, fund, or annuity attributable to such 
distributions other than the IRA owner, his or her spouse, or a 
charitable organization.
      In determining the character of distributions from a 
charitable remainder annuity trust or a charitable remainder 
unitrust to which a qualified charitable distribution from an 
IRA is made, the charitable remainder trust is required to 
treat as ordinary income the portion of the distribution from 
the IRA to the trust which would have been includible in income 
but for the provision, and is required to treat any remaining 
portion of the distribution as corpus. Similarly, in 
determining the amount includible in gross income by reason of 
a payment from a charitable gift annuity purchased with a 
qualified charitable distribution from an IRA, the taxpayer is 
not permitted to treat the portion of the distribution from the 
IRA that would have been taxable but for the provision and 
which is used to purchase the annuity as an investment in the 
annuity contract.
      A qualified charitable distribution is any distribution 
from an IRA which (1) is made after age 70\1/2\ of the account 
holder, (2) qualifies as a charitable contribution (within the 
meaning of sec. 170(c)), and (3) is made directly to the 
organization or to a charitable remainder annuity trust, 
charitable remainder unitrust, pooled income fund, or 
charitable gift annuity (as described above). 3 A 
taxpayer is not permitted to claim a charitable contribution 
deduction for amounts transferred from his or her IRA to a 
charity or to a trust, fund, or annuity that, because of the 
provision, are excluded from the taxpayer's income. Conversely, 
if the amounts transferred would otherwise be nontaxable, e.g., 
a qualified distribution from a Roth IRA, the regularly 
applicable deduction rules would apply.
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    \3\ It is intended that, in the case of transfer to a trust, fund, 
or annuity, the full amount distributed from an IRA will meet the 
definition of a qualified charitable distribution if the charitable 
organization's interest in the distribution would qualify as a 
charitable contribution under section 170.
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Effective date
      The provisions are generally effective for taxable years 
beginning after December 31, 2000. The provision relating to 
deemed IRAs under employer plans is effective for plan years 
beginning after December 31, 2001.

                          Conference Agreement

Increase in annual contribution limits
      The conference agreement follows the House bill and the 
Senate amendment.
Additional catch-up contributions
      The conference agreement follows the Senate amendment, 
with modifications. Under the conference agreement, the maximum 
catch-up amount is phased in over the same period as the 
increase in the IRA contribution limit. The maximum catch-up 
contribution is $500 in 2001, $1,000 in 2002, and $1,500 in 
2003. The $1,500 amount is indexed for inflation beginning 
after 2003 (when the indexing of the $5,000 basic contribution 
limit begins).
Increase in AGI limits for deductible IRA contributions
      The conference agreement follows the Senate amendment.
Roth IRAs
      The conference agreement follows the Senate amendment.
Deemed IRAs under employer plans
      The conference agreement follows the Senate amendment. As 
under the Senate amendment, if an eligible retirement plan 
permits employees to make voluntary employee contributions to a 
separate account or annuity that (1) is established under the 
plan, and (2) meets the requirements applicable to either 
traditional IRAs or Roth IRAs, then the separate account or 
annuity is deemed to be a traditional IRA or a Roth IRA, as 
applicable, for all purposes of the Code. For example, the IRA 
reporting requirements apply. The deemed IRA, and contributions 
thereto, are not subject to the Code rules pertaining to the 
eligible retirement plan. In addition, the deemed IRA, and 
contributions thereto, are not taken into account in applying 
such rules to any other contributions under the plan. The 
deemed IRA, and contributions thereto, are subject to the 
exclusive benefit and fiduciary rules of ERISA to the extent 
otherwise applicable to the plan, but are not subject to the 
ERISA reporting and disclosure, participation, vesting, 
funding, and enforcement requirements that apply to the 
eligible retirement plan. Except as otherwise specified, the 
provision does not affect the treatment of the deemed IRA as 
part of the qualified plan.
Tax-free IRA withdrawals for charitable purposes
      The conference agreement follows the Senate amendment, 
with the modification that the tax-free treatment is available 
only for a distribution made to an organization to which 
charitable contributions (as defined in sec. 170(c)) can be 
made, and not for distributions to charitable remainder trusts, 
pooled income funds, or for the issuance of charitable gift 
annuities. The conferees clarify that the exclusion does not 
apply unless the distribution meets the requirements generally 
applicable to deductible contributions (other than the 
percentage limits on such deductions). Thus, for example, the 
substantiation rules and the rule limiting the deductible 
amount of a contribution to the excess, if any, of the value of 
the contribution over the value of any benefit received by the 
donor, would apply. It is intended that the Secretary will 
issue such rules as are necessary to apply to distributions 
made to organizations pursuant to the provision.
      The conference agreement also clarifies that amounts that 
would have been includible in gross income but for the 
provision are not deductible in any year. In addition, such 
amounts are not taken into account in determining the 
deductible amount for any year.
      Except as provided in the provision, a distribution under 
the provision is treated the same as other IRA distributions. 
Thus, for example, the distribution is taken into account in 
determining whether the minimum distribution requirements are 
satisfied.
Effective date
      The provisions are generally effective for taxable years 
beginning after December 31, 2000. The provision relating to 
deemed IRAs under employer plans is effective for plan years 
beginning after December 31, 2001.

       Subtitle B. Expanding Coverage (secs. 411-418 of the bill)

 A. Increase in Benefit and Contribution Limits (sec. 201 of the House 
 bill, sec. 201 of the Senate amendment, and secs. 401(a)(17), 402(g), 
                   408(p), 415, and 457 of the Code)

                              Present Law

In general
      Under present law, limits apply to contributions and 
benefits under qualified plans (sec. 415), the amount of 
compensation that may be taken into account under a plan for 
determining benefits (sec. 401(a)(17)), the maximum amount of 
elective deferrals that an individual may make to a salary 
reduction plan or tax sheltered annuity (sec. 402(g)), and 
deferrals under an eligible deferred compensation plan of a 
tax-exempt organization or a State or local government (sec. 
457).
Limitations on contributions and benefits
      Under present law, the limits on contributions and 
benefits under qualified plans are based on the type of plan. 
Under a defined contribution plan, the qualification rules 
limit the annual additions to the plan with respect to each 
plan participant to the lesser of (1) 25 percent of 
compensation or (2) $30,000 (for 2000). Annual additions are 
the sum of employer contributions, employee contributions, and 
forfeitures with respect to an individual under all defined 
contribution plans of the same employer. The $30,000 limit is 
indexed for inflation in $5,000 increments.
      Under a defined benefit plan, the maximum annual benefit 
payable at retirement is generally the lesser of (1) 100 
percent of average compensation, or (2) $135,000 (for 2000). 
The dollar limit is adjusted for inflation in $5,000 
increments.
      Under present law, in general, the dollar limit on annual 
benefits is reduced if benefits under the plan begin before the 
social security retirement age (currently, age 65) and 
increased if benefits begin after social security retirement 
age.
Compensation limitation
      Under present law, the annual compensation of each 
participant that may be taken into account for purposes of 
determining contributions and benefits under a plan, applying 
the deduction rules, and for nondiscrimination testing purposes 
is limited to $170,000 (for 2000). The compensation limit is 
indexed for inflation in $10,000 increments.
Elective deferral limitations
      Under present law, under certain salary reduction 
arrangements, an employee may elect to have the employer make 
payments as contributions to a plan on behalf of the employee, 
or to the employee directly in cash. Contributions made at the 
election of the employee are called elective deferrals.
      The maximum annual amount of elective deferrals that an 
individual may make to a qualified cash or deferred arrangement 
(a ``section 401(k) plan''), a tax-sheltered annuity (``section 
403(b) annuity'') or a salary reduction simplified employee 
pension plan (``SEP'') is $10,500 (for 2000). The maximum 
annual amount of elective deferrals that an individual may make 
to a SIMPLE plan is $6,000. These limits are indexed for 
inflation in $500 increments.
Section 457 plans
      The maximum annual deferral under a deferred compensation 
plan of a State or local government or a tax-exempt 
organization (a ``section 457 plan'') is the lesser of (1) 
$8,000 (for 2000) or (2) 33\1/2\ percent of compensation. The 
$8,000 limit is indexed for inflation in $500 increments. Under 
a special catch-up rule, the section 457 plan may provide that, 
for one or more of the participant's last 3 years before 
retirement, the otherwise applicable limit is increased to the 
lesser of (1) $15,000 or (2) the sum of the otherwise 
applicable limit for the year plus the amount by which the 
limit applicable in preceding years of participation exceeded 
the deferrals for that year.

                               House Bill

Limits on contributions and benefits
      The House bill increases the $30,000 annual addition 
limit for defined contribution plans to $40,000. This amount is 
indexed for inflation in $1,000 increments.\4\
---------------------------------------------------------------------------
    \4\ The 25 percent of compensation limitation is increased to 100 
percent of compensation under another provision of the House bill.
---------------------------------------------------------------------------
      The House bill increases the $135,000 annual benefit 
limit under a defined benefit plan to $160,000. The dollar 
limit is reduced for benefit commencement before age 62 and 
increased for benefit commencement after age 65.
Compensation limitation
      The House bill increases the limit on compensation that 
may be taken into account under a plan to $200,000. This amount 
is indexed for inflation in $5,000 increments.
Elective deferral limitations
      The House bill increases the dollar limit on annual 
elective deferrals under section 401(k) plans, section 403(b) 
annuities and salary reduction SEPs to $11,000 in 2001, and in 
$1,000 annual increments thereafter until the limits reach 
$15,000 in 2005. The $15,000 limit is indexed for inflation in 
$500 increments beginning in 2006. Beginning in 2001, the House 
bill increases the maximum annual elective deferrals that may 
be made to a SIMPLE plan in $1,000 annual increments until the 
limit reaches $10,000 in 2004. The $10,000 limit is indexed for 
inflation in $500 increments beginning in 2005.
Section 457 plans
      The House bill increases the dollar limit on deferrals 
under a section 457 plan to conform to the elective deferral 
limitation. Thus, the limit is $11,000 in 2001, and is 
increased in $1,000 annual increments thereafter until the 
limit reaches $15,000 in 2005. The $15,000 limit is indexed for 
inflation in $500 increments beginning in 2006. The limit is 
twice the otherwise applicable dollar limit in the three years 
prior to retirement.5
---------------------------------------------------------------------------
    \5\ Another provision of the House bill increases the 33\1/3\ 
percentage of compensation limit to 100 percent.
---------------------------------------------------------------------------
Effective date
      The House bill is effective for years beginning after 
December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except with respect to the provision relating to the defined 
contribution plan dollar limit. The Senate amendment retains 
the present-law $30,000 limit, and indexes the limit for 
inflation in $1,000 increments.
      Effective date.--Same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill. In 
adopting rules regarding the application of the increase in the 
defined benefit plan limits under the bill, the conferees 
intend that the Secretary will apply rules similar to those 
adopted in Notice 99-44 regarding benefit increases due to the 
repeal of the combined plan limit under former section 415(e). 
Thus, for example, a defined benefit plan could provide for 
benefit increases to reflect the provisions of the bill for a 
current or former employee who has commenced benefits under the 
plan prior to the effective date of the bill if the employee or 
former employee has an accrued benefit under the plan (other 
than an accrued benefit resulting from a benefit increase 
solely as a result of the increases in the section 415 limits 
under the bill). As under the notice, the maximum amount of 
permitted increase is generally the amount that could have been 
provided had the provisions of the bill been in effect at the 
time of the commencement of benefit. In no case can benefits 
reflect increases that could not be paid prior to the effective 
date because of the limits in effect under present law. In 
addition, in no case can plan amendments providing increased 
benefits under the relevant provision of the bill be effective 
prior to the effective date of the provision.

   B. Plan Loans for S Corporation Shareholders, Partners, and Sole 
    Proprietors (sec. 202 of the House bill, sec. 202 of the Senate 
                 amendment, and sec. 4975 of the Code)

                              Present Law

      The Internal Revenue Code prohibits certain transactions 
(``prohibited transactions'') between a qualified plan and a 
disqualified person in order to prevent persons with a close 
relationship to the qualified plan from using that relationship 
to the detriment of plan participants and 
beneficiaries.6 Certain types of transactions are 
exempted from the prohibited transaction rules, including loans 
from the plan to plan participants, if certain requirements are 
satisfied. In addition, the Secretary of Labor can grant an 
administrative exemption from the prohibited transaction rules 
if she finds the exemption is administratively feasible, in the 
interest of the plan and plan participants and beneficiaries, 
and protective of the rights of participants and beneficiaries 
of the plan. Pursuant to this exemption process, the Secretary 
of Labor grants exemptions both with respect to specific 
transactions and classes of transactions.
---------------------------------------------------------------------------
    \6\ Title I of the Employee Retirement Income Security Act of 1974, 
as amended (``ERISA''), also contains prohibited transaction rules. The 
Code and ERISA provisions are substantially similar, although not 
identical.
---------------------------------------------------------------------------
      The statutory exemptions to the prohibited transaction 
rules do not apply to certain transactions in which the plan 
makes a loan to an owner-employee.7 Loans to 
participants other than owner-employees are permitted if loans 
are available to all participants on a reasonably equivalent 
basis, are not made available to highly compensated employees, 
are made in accordance with specific provisions in the plan, 
bear a reasonable rate of interest, and are adequately secured. 
In addition, the Code places limits on the amount of loans and 
the repayment terms.
---------------------------------------------------------------------------
    \7\ Certain transactions involving a plan and S corporation 
shareholders are permitted.
---------------------------------------------------------------------------
      For purposes of the prohibited transaction rules, an 
owner-employee means (1) a sole proprietor, (2) a partner who 
owns more than 10 percent of either the capital interest or the 
profits interest in the partnership, (3) an employee or officer 
of an S corporation who owns more than 5 percent of the 
outstanding stock of the corporation, and (4) the owner of an 
individual retirement arrangement (``IRA''). The term owner-
employee also includes certain family members of an owner-
employee and certain corporations owned by an owner-employee.
      Under the Internal Revenue Code, a two-tier excise tax is 
imposed on disqualified persons who engage in a prohibited 
transaction. The first level tax is equal to 15 percent of the 
amount involved in the transaction. The second level tax is 
imposed if the prohibited transaction is not corrected within a 
certain period, and is equal to 100 percent of the amount 
involved.

                               House Bill

      The House bill generally eliminates the special present-
law rules relating to plan loans made to an owner-employee 
(other than the owner of an IRA). Thus, the general statutory 
exemption applies to such transactions. Present law continues 
to apply with respect to IRAs.
      Effective date.--The House bill is effective with respect 
to loans made after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House 
bill.8
---------------------------------------------------------------------------
    \8\ The Senate amendment also amends the corresponding provisions 
of ERISA.
---------------------------------------------------------------------------
      Effective date.--The Senate amendment is effective for 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.
      Effective date.--The conference agreement follows the 
Senate amendment. Thus, as under the Senate amendment, a loan 
that is a prohibited transaction solely because of the present-
law restriction would cease to be a prohibited transaction on 
January 1, 2000. However, the loan would continue to be a 
prohibited transaction prior to January 1, 2000.

 C. Modification of Top-Heavy Rules (sec. 203 of the House bill, sec. 
         203 of the Senate amendment, and sec. 416 of the Code)

                              Present Law

In general
      Under present law, additional qualification requirements 
apply to plans that primarily benefit an employer's key 
employees (``top-heavy plans''). These additional requirements 
provide (1) more rapid vesting for plan participants who are 
non-key employees and (2) minimum nonintegrated employer 
contributions or benefits for plan participants who are non-key 
employees.
Definition of top-heavy plan
      In general, a top-heavy plan is a plan under which more 
than 60 percent of the contributions or benefits are provided 
to key employees.
      For purposes of determining whether a plan is a top-heavy 
plan, benefits derived both from employer and employee 
contributions, including employee elective contributions, are 
taken into account. In addition, the accrued benefit of a 
participant in a defined benefit plan and the account balance 
of a participant in a defined contribution plan includes any 
amount distributed within the 5-year period ending on the 
determination date.
      An individual's accrued benefit or account balance is not 
taken into account in determining whether a plan is top-heavy 
if the individual has not performed services for the employer 
during the 5-year period ending on the determination date.
      SIMPLE plans are not subject to the top-heavy rules.
Definition of key employee
      A key employee is an employee who, during the plan year 
containing the determination date for the plan year in question 
or any of the 4 preceding plan years, is (1) an officer earning 
over one-half of the defined benefit plan dollar limitation of 
section 415 ($67,500 for 2000), (2) a 5-percent owner of the 
employer, (3) a 1-percent owner of the employer earning over 
$150,000, or (4) one of the 10 employees earning more than the 
defined contribution plan dollar limit ($30,000 for 2000) with 
the largest ownership interests in the employer. A family 
ownership attribution rule applies to the determination of 1-
percent owner status, 5-percent owner status, and largest 
ownership interest. Under this attribution rule, an individual 
is treated as owning stock owned by the individual's spouse, 
children, grandchildren, or parents.
Minimum benefit for non-key employees
      A minimum benefit generally must be provided to all non-
key employees in a top-heavy plan. In general, a top-heavy 
defined benefit plan must provide a minimum benefit equal to 
the lesser of (1) 2 percent of compensation multiplied by the 
employee's years of service, or (2) 20 percent of compensation. 
A top-heavy defined contribution plan must provide a minimum 
annual contribution equal to the lesser of (1) 3 percent of 
compensation, or (2) the percentage of compensation at which 
contributions were made for key employees (including employee 
elective contributions made by key employees and employer 
matching contributions).
      For purposes of the minimum benefit rules, only benefits 
derived from employer contributions (other than amounts 
employees have elected to defer) to the plan are taken into 
account, and an employee's social security benefits are 
disregarded (i.e., the minimum benefit is nonintegrated). 
Employer matching contributions may be used to satisfy the 
minimum contribution requirement; however, in such a case the 
contributions are not treated as matching contributions for 
purposes of applying the special nondiscrimination requirements 
applicable to employee elective contributions and matching 
contributions under sections 401 (k) and (m). Thus, such 
contributions would have to meet the general nondiscrimination 
test of section 401(a)(4).9
---------------------------------------------------------------------------
    \9\ Tres. Reg. sec. 1.416-1 Q&A; M-19.
---------------------------------------------------------------------------
Top-heavy vesting
      Benefits under a top-heavy plan must vest at least as 
rapidly as under one of the following schedules: (1) 3-year 
cliff vesting, which provides for 100 percent vesting after 3 
years of service; and (2) 2-6 year graded vesting, which 
provides for 20 percent vesting after 2 years of service, and 
20 percent more each year thereafter so that a participant is 
fully vested after 6 years of service.10
---------------------------------------------------------------------------
    \10\ Benefits under a plan that is not top heavy must vest at least 
as rapidly as under one of the following schedules: (1) 5-year cliff 
vesting; and (2) 3-7 year graded vesting, which provides for 20 percent 
vesting after 3 years of service and 20 percent more each year 
thereafter so that a participant is fully vested after 7 years of 
service.
---------------------------------------------------------------------------
Qualified cash or deferred arrangements
      Under a qualified cash or deferred arrangement (a 
``section 401(k) plan''), an employee may elect to have the 
employer make payments as contributions to a qualified plan on 
behalf of the employee, or to the employee directly in cash. 
Contributions made at the election of the employee are called 
elective deferrals. A special nondiscrimination test applies to 
elective deferrals under cash or deferred arrangements, which 
compares the elective deferrals of highly compensated employees 
with elective deferrals of nonhighly compensated employees. 
(This test is called the actual deferral percentage test or the 
``ADP'' test). Employer matching contributions under qualified 
defined contribution plans are also subject to a similar 
nondiscrimination test. (This test is called the actual 
contribution percentage test or the ``ACP'' test.)
      Under a design-based safe harbor, a cash or deferred 
arrangement is deemed to satisfy the ADP test if the plan 
satisfies one of two contribution requirements and satisfies a 
notice requirement.

                               House Bill

Definition of top-heavy plan
      The provision provides that a plan consisting of a cash-
or-deferred arrangement that satisfies the design-based safe 
harbor for such plans and matching contributions that satisfy 
the safe harbor rule for such contributions is not a top-heavy 
plan. Matching or nonelective contributions provided under such 
a plan may be taken into account in satisfying the minimum 
contribution requirements applicable to top-heavy 
plans.11
---------------------------------------------------------------------------
    \11\ This provision is not intended to preclude the use of 
nonelective contributions that are used to satisfy the safe harbor 
rules from being used to satisfy other qualified retirement plan 
nondiscrimination rules, including those involving cross-testing.
---------------------------------------------------------------------------
      In determining whether a plan is top-heavy, the provision 
provides that distributions during the year ending on the date 
the top-heavy determination is being made are taken into 
account; however, the present-law 5-year rule applies with 
respect to in-service distributions. Similarly, the provision 
provides that an individual's accrued benefit or account 
balance is not taken into account if the individual has not 
performed services for the employer during the 1-year period 
ending on the date the top-heavy determination is being made.
Definition of key employee
      The provision (1) provides that an employee is not 
considered a key employee by reason of officer status unless 
the employee earns more than $150,000 in compensation for the 
year, and (2) repeals the top-10 owner key employee category.
      The provision repeals the 4-year lookback rule for 
determining key employee status and provides that an employee 
is a key employee only if he or she is a key employee during 
the plan year containing the determination date for the plan 
year in question.
      The family ownership attribution rule no longer applies 
in determining whether an individual is a 5-percent owner of 
the employer for purposes of the top-heavy rules only. The 
family ownership attribution rule continues to apply to other 
provisions that cross reference the top-heavy rules, such as 
the definition of highly compensated employee and the 
definition of 1-percent owner under the top-heavy rules.
Minimum benefit for non-key employees
      Under the provision, matching contributions are taken 
into account in determining whether the minimum benefit 
requirement has been satisfied.12
---------------------------------------------------------------------------
    \12\ Thus, this provision overrides the provision in Treasury 
regulations that, if matching contributions are used to satisfy the 
minimum benefit requirement, then they are not treated as matching 
contributions for purposes of the section 401(m) nondiscrimination 
rules.
---------------------------------------------------------------------------
      The provision provides that, in determining the minimum 
benefit required under a defined benefit plan, a year of 
service does not include any year in which no employee benefits 
under the plan (as determined under sec. 410).
Effective date
      The provision is effective for years beginning after 
December 31, 2000.

                            Senate Amendment

      The Senate amendment follows the House bill, with the 
following modifications.
      Under the Senate amendment, an employee is considered a 
key employee if, during the prior year, the employee was (1) an 
officer with compensation in excess of $85,000 (for 2000), (2) 
a 5-percent owner, or (3) a 1-percent owner with compensation 
in excess of $150,000. The present-law limits on the number of 
officers treated as key employees under (1) continue to apply. 
An employee who was not an employee in the preceding plan year, 
or who was an employee only for part of the year, is treated as 
a key employee if it can be reasonably anticipated that the 
employee will meet the definition of a key employee for current 
plan year.
      The Senate amendment provides that, in determining the 
minimum benefit required under a defined benefit plan, a year 
of service does not include any year in which no key employee 
or former key employee benefits under the plan (as determined 
under sec. 410).
      Effective date.--The Senate amendment is effective for 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the House bill, with the 
following modifications. Under the conference agreement, an 
employee is a key employee if, during the plan year containing 
the determination date for the plan year in question, the 
employee was (1) an officer with compensation in excess of 
$115,000 (indexed for inflation after 2001), (2) a 5-percent 
owner, or (3) a 1-percent owner with compensation in excess of 
$150,000. The present-law limits on the number of officers 
treated as key employees under (1) continue to apply. As under 
the House bill, the family ownership attribution rule no longer 
applies in determining whether an individual is a 5-percent 
owner of the employer for purposes of the top-heavy rules only. 
The family ownership attribution rule continues to apply to 
other provisions that cross reference the top-heavy rules, such 
as the definition of highly compensated employee and the 
definition of 1-percent owner under the top-heavy rules.
      The conference agreement follows the Senate amendment in 
providing that, in determining the minimum benefit required 
under a defined benefit plan, a year of service does not 
include any year in which no key employee or former key 
employee benefits under the plan (as determined under sec. 
410).
      Effective date.--The conference agreement is effective 
for years beginning after December 31, 2000.

D. Elective Deferrals Not Taken Into Account for Purposes of Deduction 
 Limits (sec. 204 of the House bill, sec. 204 of the Senate amendment, 
                       and sec. 404 of the Code)

                              Present Law

      Employer contributions to one or more qualified 
retirement plans are deductible subject to certain limits. In 
general, the deduction limit depends on the kind of plan.
      In the case of a defined benefit pension plan or a money 
purchase pension plan, the employer generally may deduct the 
amount necessary to satisfy the minimum funding cost of the 
plan for the year. If a defined benefit pension plan has more 
than 100 participants, the maximum amount deductible is at 
least equal to the plan's unfunded current liabilities.
      In the case of a profit-sharing or stock bonus plan, the 
employer generally may deduct an amount equal to 15 percent of 
compensation of the employees covered by the plan for the year.
      If an employer sponsors both a defined benefit pension 
plan and a defined contribution plan that covers some of the 
same employees (or a money purchase pension plan and another 
kind of defined contribution plan), the total deduction for all 
plans for a plan year generally is limited to the greater of 
(1) 25 percent of compensation or (2) the contribution 
necessary to meet the minimum funding requirements of the 
defined benefit pension plan for the year (or the amount of the 
plan's unfunded current liabilities, in the case of a plan with 
more than 100 participants).
      For purposes of the deduction limits, employee elective 
deferral contributions to a section 401(k) plan are treated as 
employer contributions and, thus, are subject to the generally 
applicable deduction limits.
      Subject to certain exceptions, nondeductible 
contributions are subject to a 10-percent excise tax.

                               House Bill

      Under the House bill, elective deferral contributions are 
not subject to the deduction limits, and the application of a 
deduction limitation to any other employer contribution to a 
qualified retirement plan does not take into account elective 
deferral contributions.
      Effective date.--The House bill is effective for years 
beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

E. Repeal of Coordination Requirements for Deferred Compensation Plans 
 of State and Local Governments and Tax-Exempt Organizations (sec. 205 
 of the House bill, sec. 205 of the Senate amendment, and sec. 457 of 
                               the Code)

                              Present Law

      Compensation deferred under an eligible deferred 
compensation plan of a tax-exempt or State and local government 
employer (a ``section 457 plan'') is not includible in gross 
income until paid or made available. In general, the maximum 
permitted annual deferral under such a plan is the lesser of 
(1) $8,000 (in 2000) or (2) 33\1/3\ percent of compensation. 
The $8,000 limit is indexed for inflation in $500 increments.
      The $8,000 limit (as modified under the catch-up rule), 
applies to all deferrals under all section 457 plans in which 
the individual participates. In addition, in applying the 
$8,000 limit, contributions under a tax-sheltered annuity 
(``section 403(b) annuity''), elective deferrals under a 
qualified cash or deferred arrangement (``section 401(k) 
plan''), salary reduction contributions under a simplified 
employee pension plan (``SEP''), and contributions under a 
SIMPLE plan are taken into account. Further, the amount 
deferred under a section 457 plan is taken into account in 
applying a special catch-up rule for section 403(b) annuities.

                               House Bill

      The House bill repeals the rules coordinating the section 
457 dollar limit with contributions under other types of 
plans.13
---------------------------------------------------------------------------
    \13\ The limits on deferrals under a section 457 plan are modified 
under other provisions of the House bill.
---------------------------------------------------------------------------
      Effective date.--The House bill is effective for years 
beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

  F. Eliminate IRS User Fees for Certain Requests Regarding Employer 
                   Plans (sec. 206 of the House bill)

                              Present Law

      An employer that maintains a retirement plan for the 
benefit of its employees may request from the Internal Revenue 
Service (``IRS'') a determination as to whether the form of the 
plan satisfies the requirements applicable to tax-qualified 
plans (sec. 401(a)). In order to obtain a determination letter 
on the qualified status of the plan, the employer must pay a 
user fee. The Secretary determines the user fee to be made for 
various types of requests, subject to statutory minimum 
requirements for average fees based on the category of the 
request. The user fee for a employee plan determination letter 
request may range from $125 to $1,250, depending upon the scope 
of the request and the type and format of the 
plan.14
---------------------------------------------------------------------------
    \14\ Authorization for the user fees was originally enacted in 
section 10511 of the Revenue Act of 1987 (Pub. L. No. 100-203, December 
22, 1987). The authorization was extended through September 30, 2003, 
by Public Law Number 104-117 (An Act to provide that members of the 
Armed Forces preforming services for the peacekeeping efforts in Bosnia 
and Herzegovina, Croatia, and Macedonia shall be entitled to tax 
benefits in the same manner as if such services were performed in a 
combat zone, and for other purposes (March 20, 1996)).
---------------------------------------------------------------------------
      In general, a qualified plan which does not meet the 
qualification requirements as a result of a disqualifying 
provision may be amended retroactively to comply with such 
requirements if the necessary amendments are adopted within the 
remedial amendment period. The remedial amendment period with 
respect to plan amendments needed to reflect changes in the law 
generally ends by the due date for the employer's tax return 
for the taxable year in which the change in the law occurs. The 
Secretary is authorized to extend the otherwise applicable 
remedial amendment period. Pursuant to this authority, the 
Secretary has provided extended remedial amendment periods with 
respect to recent legislation affecting qualified 
plans.15
---------------------------------------------------------------------------
    \15\ See, e.g., Rev. Proc. 99-23, 1999-16 IRB 6.
---------------------------------------------------------------------------

                               House Bill

      Under the House bill, a small employer (100 or fewer 
employees) is not required to pay a user fee for any 
determination letter request with respect to the qualified 
status of a retirement plan that the employer maintains, if the 
request is made within the first 5 plan years of the plan. The 
House bill applies only to requests by employers for 
determination letters concerning the qualified retirement plans 
they maintain. Therefore, a sponsor of a prototype plan is 
required to pay a user fee for a request for a notification 
letter, opinion letter, or similar ruling. A small employer 
that adopts a prototype plan, however, is not required to pay a 
user fee for a determination letter request with respect to the 
employer's plan.
      Effective date.--The House bill is effective for 
determination letter requests made after December 31, 2000.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill, with the 
following modification. Under the conference agreement, a small 
employer also is not required to pay a user fee for a 
determination letter request made prior to the end of a 
remedial amendment period beginning within the first 5 plan 
years of the plan. In addition, determination letter requests 
for which user fees are not required under the conference 
agreement are not taken into account in determining average 
user fees.

G. Deduction Limits (sec. 207 of the House bill, sec. 206 of the Senate 
                  amendment, and sec. 404 of the Code)

                              Present Law

      Employer contributions to one or more qualified 
retirement plans are deductible subject to certain limits. In 
general, the deduction limit depends on the kind of plan. 
Subject to certain exceptions, nondeductible contributions are 
subject to a 10-percent excise tax.
      In the case of a defined benefit pension plan or a money 
purchase pension plan, the employer generally may deduct the 
amount necessary to satisfy the minimum funding cost of the 
plan for the year. If a defined benefit pension plan has more 
than 100 participants, the maximum amount deductible is at 
least equal to the plan's unfunded current liabilities.
      In some cases, the amount of deductible contributions is 
limited by compensation. In the case of a profit-sharing or 
stock bonus plan, the employer generally may deduct an amount 
equal to 15 percent of compensation of the employees covered by 
the plan for the year.
      If an employer sponsors both a defined benefit pension 
plan and a defined contribution plan that covers some of the 
same employees (or a money purchase pension plan and another 
kind of defined contribution plan), the total deduction for all 
plans for a plan year generally is limited to the greater of 
(1) 25 percent of compensation or (2) the contribution 
necessary to meet the minimum funding requirements of the 
defined benefit pension plan for the year (or the amount of the 
plan's unfunded current liabilities, in the case of a plan with 
more than 100 participants).
      In the case of an employee stock ownership plan 
(``ESOP''), principal payments on a loan used to acquire 
qualifying employer securities are deductible up to 25 percent 
of compensation.
      For purposes of the deduction limits, employee elective 
deferral contributions to a qualified cash or deferred 
arrangement (``section 401(k) plan'') are treated as employer 
contributions and, thus, are subject to the generally 
applicable deduction limits.16
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    \16\ Another provision in the House bill provides that elective 
deferrals are not subject to the deduction limits.
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      For purposes of the deduction rules, compensation 
generally includes only taxable compensation, and thus does not 
include salary reduction amounts, such as elective deferrals 
under a section 401(k) plan or a tax-sheltered annuity 
(``section 403(b) annuity''), elective contributions under a 
deferred compensation plan of a tax-exempt organization or a 
State or local government (``section 457 plan''), and salary 
reduction contributions under a section 125 cafeteria plan. For 
purposes of the contribution limits under section 415, 
compensation does include such salary reduction amounts.

                               House Bill

      Under the House bill, the definition of compensation for 
purposes of the deduction rules includes salary reduction 
amounts treated as compensation under section 415. In addition, 
the annual limitation on the amount of deductible contributions 
to a profit-sharing or stock bonus plan is increased from 15 
percent to 20 percent of compensation of the employees covered 
by the plan for the year.
      Effective date.--The House bill is effective for years 
beginning after December 31, 2000.

                            Senate Amendment

      Under the Senate amendment, the definition of 
compensation for purposes of the deduction rules includes 
salary reduction amounts treated as compensation under section 
415. In addition, the annual limitation on the amount of 
deductible contributions to a profit-sharing or stock bonus 
plan is increased from 15 percent to 25 percent of compensation 
of the employees covered by the plan for the year. Also, the 
Senate amendment provides that, except to the extent provided 
in regulations, a money purchase pension plan is treated like a 
profit-sharing or stock bonus plan for purposes of the 
deduction rules.

                          Conference Agreement

      The conference agreement follows the Senate amendment. 
The conferees intend that the Treasury regulations authorized 
by the conference agreement will address the need for an 
appropriate increase of the annual limitation on the amount of 
deductible contributions to a money purchase pension plan by an 
amount that equals the minimum funding requirement attributable 
to the prior plan year, but only to the extent that such amount 
was not deductible for the prior taxable year because the 
amount was not contributed prior to the due date of the 
employer's federal income tax return for the prior taxable year 
(even though the amount was contributed within 8\1/2\ months 
after the end of the prior plan year and therefore satisfied 
the minimum funding requirement).

H. Option To Treat Elective Deferrals as After-Tax Contributions (sec. 
 208 of the House bill, sec. 207 of the Senate amendment, and new sec. 
                           402A of the Code)

                              Present Law

      A qualified cash or deferred arrangement (``section 
401(k) plan'') or a tax-sheltered annuity (``section 403(b) 
annuity'') may permit a participant to elect to have the 
employer make payments as contributions to the plan or to the 
participant directly in cash. Contributions made to the plan at 
the election of a participant are elective deferrals. Elective 
deferrals must be nonforfeitable and are subject to an annual 
dollar limitation (sec. 402(g)) 17 and distribution 
restrictions. In addition, elective deferrals under a section 
401(k) plan are subject to special nondiscrimination rules. 
Elective deferrals that do not exceed the annual dollar 
limitation (and earnings attributable thereto) are not 
includible in a participant's gross income until distributed 
from the plan.
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    \17\ The limit on elective deferrals is $10,500 for 2000. This 
limit is increased under another provision of the bill.
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      Elective deferrals for a taxable year that exceed the 
annual dollar limitation (``excess deferrals'') are includible 
in gross income for the taxable year. If an employee makes 
elective deferrals under a plan (or plans) of a single employer 
that exceed the annual dollar limitation (``excess 
deferrals''), then the plan may provide for the distribution of 
the excess deferrals, with earnings thereon. If the excess 
deferrals are made to more than one plan of unrelated 
employers, then the plan may permit the individual to allocate 
excess deferrals among the various plans, no later than the 
March 1 (April 15 under the applicable regulations) following 
the end of the taxable year. If excess deferrals are 
distributed not later than April 15 following the end of the 
taxable year, along with earnings attributable to the excess 
deferrals, then the excess deferrals are not again includible 
in income when distributed. The earnings are includible in 
income in the year distributed. If excess deferrals (and income 
thereon) are not distributed by the applicable April 15, then 
the excess deferrals (and income thereon) are includible in 
income when received by the participant. Thus, excess deferrals 
that are not distributed by the applicable April 15th are 
taxable both in the taxable year when the deferral was made and 
in the year the participant receives a distribution of the 
excess deferral.
      Individuals with adjusted gross income below certain 
levels generally may make nondeductible contributions to a Roth 
IRA and may convert a deductible or nondeductible IRA into a 
Roth IRA. Amounts held in a Roth IRA that are withdrawn as a 
qualified distribution are not includible in income, nor 
subject to the additional 10-percent tax on early withdrawals. 
A qualified distribution is a distribution that (1) is made 
after the 5-taxable year period beginning with the first 
taxable year for which the individual made a contribution to a 
Roth IRA, and (2) is made after attainment of age 59\1/2\, is 
made on account of death or disability, or is a qualified 
special purpose distribution (i.e., for first-time homebuyer 
expenses of up to $10,000). A distribution from a Roth IRA that 
is not a qualified distribution is includible in income to the 
extent attributable to earnings, and is subject to the 10-
percent tax on early withdrawals (unless an exception 
applies).18
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    \18\ Early distributions of converted amounts may also accelerate 
income inclusion of converted amounts that are taxable under the 4-year 
rule applicable to 1998 conversions.
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                               House Bill

      A section 401(k) plan or a section 403(b) annuity is 
permitted to include a ``qualified plus contribution program'' 
that permits a participant to elect to have all or a portion of 
the participant's elective deferrals under the plan treated as 
designated plus contributions. Designated plus contributions 
are elective deferrals that the participant designates as not 
excludable from the participant's gross income.
      The annual dollar limitation on a participant's 
designated plus contributions is the section 402(g) annual 
limitation on elective deferrals, reduced by the participant's 
elective deferrals that the participant does not designate as 
designated plus contributions. Designated plus contributions 
are treated as any other elective deferral for purposes of 
nonforfeitability requirements and distribution restrictions. 
Under a section 401(k) plan, designated plus contributions also 
are treated as any other elective deferral for purposes of the 
special nondiscrimination requirements.
      The plan is required to establish a separate account, and 
maintain separate recordkeeping, for a participant's designated 
plus contributions (and earnings allocable thereto). A 
qualified distribution from a participant's designated plus 
contributions account is not includible in the participant's 
gross income. A qualified distribution is a distribution that 
is made after the end of a specified nonexclusion period and 
that is (1) made on or after the date on which the participant 
attains age 59\1/2\, (2) made to a beneficiary (or to the 
estate of the participant) on or after the death of the 
participant, or (3) attributable to the participant's being 
disabled.19 The nonexclusion period is the 5-year-
taxable period beginning with the earlier of (1) the first 
taxable year for which the participant made a designated plus 
contribution to any designated plus contribution account 
established for the participant under the plan, or (2) if the 
participant has made a rollover contribution to the designated 
plus contribution account that is the source of the 
distribution from a designated plus contribution account 
established for the participant under another plan, the first 
taxable year for which the participant made a designated plus 
contribution to the previously established account.
---------------------------------------------------------------------------
    \19\ A qualified special purpose distribution, as defined under the 
rules relating to Roth IRAs, does not qualify as a tax-free 
distribution from a designated plus contributions account.
---------------------------------------------------------------------------
      A distribution from a designated plus contributions 
account that is a corrective distribution of an elective 
deferral (and income allocable thereto) that exceeds the 
section 402(g) annual limit on elective deferrals is not a 
qualified distribution.
      A participant is permitted to roll over a distribution 
from a designated plus contributions account only to another 
designated plus contributions account or a Roth IRA of the 
participant.
      The Secretary of the Treasury is directed to require the 
plan administrator of each section 401(k) plan or section 
403(b) annuity that permits participants to make designated 
plus contributions to make such returns and reports regarding 
designated plus contributions to the Secretary, plan 
participants and beneficiaries, and other persons that the 
Secretary may designate.
      Effective date.--The House bill is effective for taxable 
years beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that the Senate amendment refers to designated plus 
contributions as ``Roth contributions.''
      The Senate amendment also includes additional 
clarifications in the legislative history. The Senate amendment 
provides that it is intended that the Secretary generally will 
not permit retroactive designations of elective deferrals as 
Roth contributions. The Senate amendment also clarifies that 
Roth contributions to a section 403(b) annuity are treated the 
same as other salary reduction contributions to the annuity 
(except that Roth contributions are includible in gross 
income). The Senate amendment provides that it is intended that 
the Secretary will provide ordering rules regarding the return 
of excess contributions under the special nondiscrimination 
rules (pursuant to sec. 401(k)(8)) in the event a participant 
has made both Roth contributions and regular elective 
contributions. It is intended that such rules will generally 
permit a plan to allow participants to designate which 
contributions are returned first or to permit the plan to 
specify which contributions are returned first.

                          Conference Agreement

      The conference agreement follows the Senate amendment. 
The conference agreement clarifies the treatment of excess 
deferrals to the extent attributable to excess Roth 
contributions. In general, the conference agreement conforms 
the treatment of excess Roth contributions to the treatment of 
excess deferrals attributable to non-Roth elective deferrals. 
If excess Roth contributions (including earnings thereon) are 
distributed no later than the April 15th following the taxable 
year, then the Roth contributions are not includible in gross 
income as a result of the distribution, because such 
contributions are includible in gross income when made. 
Earnings on such excess contributions are treated the same as 
earnings on excess deferrals distributed no later than April 
15th, i.e., they are includible in income when distributed. If 
excess Roth contributions are not distributed no later than the 
applicable April 15th, then such contributions (and earnings 
thereon) are taxable when distributed. Thus, as is the case 
with excess elective deferrals that are not distributed by the 
applicable April 15th, the contributions are includible in 
income in the year when made and again when distributed from 
the plan. Earnings on such contributions are taxable when 
received.
      It is intended that the Secretary will provide ordering 
rules regarding the return of excess deferrals in the event a 
participant has made both Roth contributions and regular 
contributions to the plan. It is intended that such rules will 
generally permit a plan to allow participants to designate 
which contributions are returned first or to permit the plan to 
specify which contributions are returned first. It is also 
intended that the Secretary will provide ordering rules to 
determine the extent to which a distribution consists of excess 
Roth contributions.

  Subtitle C. Enhancing Fairness for Women (secs. 421-427 of the bill)

A. Additional Salary Reduction Catch-Up Contributions (sec. 301 of the 
House bill, sec. 301 of the Senate amendment, and sec. 414 of the Code)

                              Present Law

Elective deferral limitations
      Under present law, under certain salary reduction 
arrangements, an employee may elect to have the employer make 
payments as contributions to a plan on behalf of the employee, 
or to the employee directly in cash. Contributions made at the 
election of the employee are called elective deferrals.
      The maximum annual amount of elective deferrals that an 
individual may make to a qualified cash or deferred arrangement 
(a ``401(k) plan''), a tax-sheltered annuity (``section 403(b) 
annuity'') or a salary reduction simplified employee pension 
plan (``SEP'') is $10,500 (for 2000). The maximum annual amount 
of elective deferrals that an individual may make to a SIMPLE 
plan is $6,000. These limits are indexed for inflation in $500 
increments.
Section 457 plans
      The maximum annual deferral under a deferred compensation 
plan of a State or local government or a tax-exempt 
organization (a ``section 457 plan'') is the lesser of (1) 
$8,000 (for 2000) or (2) 33\1/3\ percent of compensation. The 
$8,000 dollar limit is indexed for inflation in $500 
increments. Under a special catch-up rule, the section 457 plan 
may provide that, for one or more of the participant's last 3 
years before retirement, the otherwise applicable limit is 
increased to the lesser of (1) $15,000 or (2) the sum of the 
otherwise applicable limit for the year plus the amount by 
which the limit applicable in preceding years of participation 
exceeded the deferrals for that year.

                               House Bill

      The provision provides that the otherwise applicable 
dollar limit on elective deferrals un