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106th Congress                                                   Report
 1st Session            HOUSE OF REPRESENTATIVES                106-238

_______________________________________________________________________




 
                     FINANCIAL FREEDOM ACT OF 1999

                               __________

                              R E P O R T

                                 of the

                      COMMITTEE ON WAYS AND MEANS

                        HOUSE OF REPRESENTATIVES

                              to accompany

                               H.R. 2488

 A BILL TO PROVIDE FOR RECONCILIATION PURSUANT TO SECTIONS 105 AND 211 
    OF THE CONCURRENT RESOLUTION ON THE BUDGET FOR FISCAL YEAR 2000

                             together with

                            DISSENTING VIEWS




 July 16, 1999.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                               --------

                    U.S. GOVERNMENT PRINTING OFFICE                    
57-957                     WASHINGTON : 1999




                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. INTRODUCTION................................................   122
          A. Purpose and Summary.................................   122
          B. Background and Need for Legislation.................   146
          C. Legislative History.................................   146
 II. EXPLANATION OF THE BILL.....................................   147
     Title I. Broad-Based Tax Relief.............................   147
          A. Reduction in Individual Income Tax Rates (sec. 101).   147
          B. Marriage Penalty Relief Provisions..................   149
              1. Standard deduction tax relief (sec. 111)........   149
              2. Adjust student loan interest deduction income 
                  limits (sec. 112)..............................   151
              3. Increase income limit for Roth IRA conversions 
                  (sec. 113).....................................   152
          C. Repeal Individual Alternative Minimum Tax (sec. 121)   153
     Title II. Savings and Investment Tax Relief Provisions......   156
          A. Partial Exclusion for Interest and Dividends (sec. 
              201)...............................................   156
          B. Reduce Individual Capital Gains Rates (sec. 202)....   157
          C. Apply Capital Gains Rates to Capital Gains Earned by 
              Designated Settlement Funds (sec. 203).............   160
          D. Exclusion of Gain on the Sale of a Principal 
              Residence by a Member of the Uniformed Service or 
              the Foreign Service of the United States or Certain 
              Other Individuals Relocated Outside of the United 
              States (sec. 204)..................................   160
          E. Clarify the Tax Treatment of Income and Losses on 
              Derivatives (sec. 205).............................   161
          F. Treatment of Loss on Worthless Stock of Subsidiary 
              (sec. 206).........................................   164
     Title III. Business Investment and Job Creation.............   165
          A. Alternative Tax for Corporate Capital Gains (sec. 
              301)...............................................   165
          B. Repeal Corporate Alternative Minimum Tax (sec. 302a)   165
          C. Repeal of Limitation of Foreign Tax Credit under 
              Alternative Minimum Tax (sec. 302(b))..............   168
     Title IV. Education Tax Relief Provisions...................   169
          A. Expand Education Savings Accounts (sec. 401)........   169
          B. Allow Tax-Free Distributions from State and Private 
              Education Programs (sec. 402)......................   175
          C. Eliminate Tax on Awards Under National Health 
              Service Corps Scholarship Program, F. Edward Hebert 
              Armed Forces Health Professions Scholarship and 
              Financial Assistance Program, National Institutes 
              of Health Undergraduate Scholarship Program and 
              Certain State-Sponsored Scholarship Programs (sec. 
              403)...............................................   178
          D. Liberalize Tax-Exempt Bond Arbitrage Rebate 
              Exceptions for Public School Construction Bonds 
              (secs. 404-405)....................................   180
          E. Eliminate 60-Month Limit on Student Loan Interest 
              Deduction (sec. 406)...............................   182
     Title V. Health Care Tax Relief Provisions..................   183
          A. Above-the-Line Deduction for Health Insurance 
              Expenses (sec. 502)................................   183
          B. Provisions Relating to Long-Term Care Insurance 
              (secs. 501 and 502)................................   185
          C. Extend Availability of Medical Savings Accounts 
              (sec. 503).........................................   187
          D. Additional Personal Exemption for Caretakers (sec. 
              504)...............................................   192
          E. Expand Human Clinical Trials Expenses Qualifying for 
              the Orphan Drug Tax Credit (sec. 505)..............   194
          F. Add Certain Vaccines Against Streptococcus 
              Pneumoniae to the List of Taxable Vaccines (sec. 
              506)...............................................   195
          G. Above-the-Line Deduction for Prescription Drug 
              Insurance Coverage of Medicare Beneficiaries if 
              Certain Medicare and Low-Income Assistance 
              Provisions Are in Effect (sec. 507)................   197
     Title VI. Death Tax Relief Provisions.......................   198
          A. Phase in Repeal of Estate, Gift, and Generation-
              Skipping Taxes (secs. 601-603, 611, and 621).......   198
          B. Modify Generation-Skipping Tax Rules................   200
              1. Deemed allocation of the generation-skipping 
                  transfer (``GST'') tax exemption to lifetime 
                  transfers to trusts that are not direct skips 
                  (sec. 631).....................................   200
              2. Retroactive allocation of the GST tax exemption 
                  (sec. 631).....................................   203
              3. Severing of trusts holding property having an 
                  inclusion ratio of greater than zero (sec. 632)   204
              4. Modification of certain valuation rules (sec. 
                  633)...........................................   205
              5. Relief from late elections (sec. 634)...........   206
              6. Substantial compliance (sec. 634)...............   206
     Title VII. Distressed Communities and Industries Provisions.   207
          A. Renewal Community Provisions (secs. 701-706)........   207
          B. Provide That Federal Production Payments to Farmers 
              Are Taxable in the Year Received (secs. 711).......   216
          C. Allow Net Operating Losses From Oil and Gas 
              Properties to be Carried Back for Up to Five Years 
              (sec. 721).........................................   217
          D. Deduction for Delay Rental Payments (sec. 722)......   218
          E. Election to Expense Geological and Geophysical 
              Expenditures (sec. 723)............................   219
          F. Temporary Suspension of Limitation Based on 65 
              Percent of Taxable Income (sec. 724)...............   221
          G. Determination of Small Refiner Exception to Oil 
              Depletion Deduction (sec. 725).....................   223
          H. Increase the Maximum Dollar Amount of Reforestation 
              Expenditures Eligible for Amortization and Credit 
              (sec. 731).........................................   223
          I. Capital Gain Treatment Under Section 631(b) to Apply 
              to Outright Sales by Landowners (sec. 732).........   225
          J. Minimum Tax Relief for the Steel Industry (sec. 741)   226
     Title VIII. Small Business Tax Relief Provisions............   228
          A. Accelerate 100-Percent Self-Employed Health 
              Insurance Deduction (sec. 801).....................   228
          B. Increase Section 179 Expensing (sec. 802)...........   229
          C. Repeal of Temporary Federal Unemployment Surtax 
              (sec. 803).........................................   230
          D. Restore 80-Percent Meals Deduction (sec. 804).......   230
     Title IX. International Tax Relief Provisions...............   231
          A. Allocate Interest Expense on Worldwide Basis (sec. 
              901)...............................................   231
          B. Look-Through Rules to Apply to Dividends from 
              Noncontrolled Section 902 Corporations (sec. 902)..   239
          C. Subpart F Treatment of Pipeline Transportation 
              Income and Income from Transmission of High Voltage 
              Electricity (secs. 903-904)........................   241
          D. Recharacterization Overall Domestic Loss (sec. 905).   243
          E. Treatment of Military Property of Foreign Sales 
              Corporations (sec. 906)............................   245
          F. Modify Treatment of RIC Dividends Paid to Foreign 
              Persons (sec. 907).................................   246
          G. Repeal of Special Rules for Applying Foreign Tax 
              Credit in Case of Foreign Oil And Gas Income (sec. 
              908)...............................................   252
          H. Study of Proper Treatment of European Union under 
              Subpart F Same Country Exceptions (sec. 909).......   254
          I. Provide Waiver From Denial of Foreign Tax Credits 
              (sec. 910).........................................   255
          J. Prohibit Disclosure of APAs and APA Background Files 
              (sec. 911).........................................   256
          K. Increase Dollar Limitation on Section 911 Exclusion 
              (sec. 912).........................................   261
     Title X. Tax-Exempt Organization Provisions.................   263
          A. Provide Tax Exemption for Organizations Created by a 
              State to Provide Property and Casualty Insurance 
              Coverage for Property for Which Such Coverage Is 
              Otherwise Unavailable (sec. 1001)..................   263
          B. Conform Provisions Relating to Arbitrage Treatment 
              to Reflect Proposed State Constitutional Amendments 
              (sec. 1002)........................................   266
          C. Denial of Charitable Contribution Deduction for 
              Transfers Associated with Split-Dollar Insurance 
              Arrangements (sec. 1003)...........................   267
          D. Authorize Secretary of Treasury to Grant Waivers 
              from Section 4941 Prohibitions (sec. 1004).........   272
          E. Extend Declaratory Judgment Procedures to Non-
              501(c)(3) Tax-Exempt Organizations (sec. 1005).....   274
          F. Modify Section 512(b)(13) (sec. 1006)...............   276
     Title XI. Real Estate Tax Relief Provisions.................   277
          A. Provisions Relating to REITs (secs. 1101-1106, 1111, 
              1121, 1131, 1141, and 1151)........................   277
          B. Modify At-Risk Rules for Publicly Traded Nonrecourse 
              Debt (sec. 1161)...................................   283
          C. Qualified Lessee Construction Allowances Not Limited 
              to Short-Term Leases for Certain Retailers (sec. 
              1171)..............................................   284
          D. Exclusion From Gross Income for Certain 
              Contributions to the Capital of Certain Retailers 
              (sec. 1172)........................................   286
     Title XII. Pension Reform Provisions........................   288
          A. Expanding Coverage..................................   288
              1. Increase contribution and benefit limits (sec. 
                  1201)..........................................   288
              2. Plans loans for Subchapter S shareholders, 
                  partners, and sole proprietors (sec. 1202).....   291
              3. Modification of top-heavy rules (sec. 1203).....   292
              4. Elective deferrals not taken into account for 
                  purposes of deduction limits (sec. 1204).......   296
              5. Reduce PBGC premiums for small and new plans 
                  (secs. 1205-1206)..............................   297
              6. Repeal of coordination requirements for deferred 
                  compensation plans of State and local 
                  governments and tax-exempt organizations (sec. 
                  1207)..........................................   298
              7. Eliminate IRS user fees for determination letter 
                  requests regarding small employer plans (sec. 
                  1208)..........................................   299
              8. Definition of compensation for purposes of 
                  deduction limits (sec. 1209)...................   300
              9. Option to treat elective deferrals as after-tax 
                  contributions (sec. 1210)......................   301
              10. Increase minimum benefit under defined benefit 
                  plans (sec. 1211)..............................   303
          B. Enhancing Fairness for Women........................   304
              1. Additional salary reduction catch-up 
                  contributions (sec. 1221)......................   304
              2. Equitable treatment for contributions of 
                  employees to defined contribution plans (sec. 
                  1222)..........................................   305
              3. Faster vesting of employer matching 
                  contributions (sec. 1223)......................   307
              4. Simplify and update the minimum distribution 
                  rules (secs. 1224 and 1239)....................   308
              5. Clarification of tax treatment of division of 
                  section 457 plan benefits upon divorce (sec. 
                  1225)..........................................   311
          C. Increasing Portability for Participants.............   312
              1. Rollovers of retirement plan and IRA 
                  distributions (secs. 1231-1233 and 1239).......   312
              2. Waiver of 60-day rule (sec. 1234)...............   316
              3. Treatment of forms of distribution (sec. 1235)..   316
              4. Rationalization of restrictions on distributions 
                  (sec. 1236)....................................   318
              5. Purchase of service credit under governmental 
                  pension plans (sec. 1237)......................   319
              6. Employers may disregard rollovers for purposes 
                  of cash-out rules (sec. 1238)..................   320
          D. Strengthening Pension Security and Enforcement......   321
              1. Phase in repeal of 150 percent of current 
                  liability funding limit; deduction for 
                  contributions to fund termination liability 
                  (secs. 1241-1242)..............................   321
              2. Extension of PBGC missing participants program 
                  (sec. 1243)....................................   322
              3. Excise tax relief for sound pension funding 
                  (sec. 1244)....................................   323
              4. Notice of significant reduction in plan benefit 
                  accruals (sec. 1245)...........................   325
          E. Reducing Regulatory Burdens.........................   327
              1. Repeal of the multiple use test (sec. 1251).....   327
              2. Flexibility in nondiscrimination and line of 
                  business rules (sec. 1253).....................   328
              3. Modification of timing of plan valuations (sec. 
                  1252)..........................................   329
              4. Rules for substantial owner benefits in 
                  terminated plans (sec. 1254)...................   330
              5. ESOP dividends may be reinvested without loss of 
                  dividend deduction (sec. 1255).................   331
              6. Notice and consent period regarding 
                  distributions (sec. 1256)......................   332
              7. Repeal transition rule relating to certain 
                  highly compensated employees (sec. 1257).......   333
              8. Employees of tax-exempt entities (sec. 1258)....   334
              9. Treatment of employer-provided retirement advice 
                  (sec. 1259)....................................   335
              10. Provisions relating to plan amendments (sec. 
                  1260)..........................................   336
              11. Reporting simplification (sec. 1262)...........   336
              12. Model plans for small businesses (sec. 1261)...   337
              13. Improvement to Employer Plans Compliance 
                  Resolution System (sec. 1263)..................   338
     Title XIII. Miscellaneous Provisions........................   340
          A. Expand the Exclusion from Income for Certain Foster 
              Care Payments (sec. 1301)..........................   340
          B. Provide Exclusion for Mileage Reimbursements by 
              Charitable Organizations (sec. 1302)...............   341
          C. Expand Employer Reporting on Annual Wage and Tax 
              Statements (sec. 1303).............................   342
          D. Survivor Benefits of Public Safety Officers Killed 
              in the Line of Duty (sec. 1304)....................   343
          E. Distributions from Publicly Traded Partnerships 
              Treated as Qualifying Income of Regulated 
              Investment Companies (secs. 1311-1312).............   344
          F. Equalize the Tax Treatment of ``Clean Fuel'' 
              Vehicles and Oversized Vehicles (sec. 1313)........   345
          G. Nuclear Decommissioning Costs (sec. 1314)...........   346
          H. Permit Consolidation of Life and Nonlife Insurance 
              Companies (sec. 1315)..............................   349
          I. Consolidate Code Provisions Governing the Hazardous 
              Substance Superfund and the Leaking Underground 
              Storage Tank Trust Fund (sec. 1321)................   350
          J. Repeal Certain Excise Taxes on Rail Diesel Fuel and 
              Inland Waterway Barge Fuels (sec. 1322)............   351
          K. Repeal Excise Tax on Fishing Tackle Boxes (sec. 
              1323)..............................................   353
          L. Modify Excise Tax on Arrow Components and 
              Accessories (sec. 1324)............................   353
          M. Increase in Low-Income Housing Tax Credit Cap and 
              Make Other Modifications (secs. 1331-1337).........   354
          N. Entrepreneurial Equity Capital Formation (secs. 
              1341-1347).........................................   358
          O. Accelerate Scheduled Increase in State Volume Limits 
              on Tax-Exempt Private Activity Bonds (sec. 1351)...   359
          P. Tax Treatment of Alaska Native Settlement Trusts 
              (sec. 1352)........................................   360
          Q. Increase Joint Committee on Taxation Refund Review 
              Threshold to $2 Million (sec. 1353)................   362
          R. Clarification of Depreciation Study (sec. 1354).....   363
          S. Tax Court Provisions................................   363
              1. Tax Court filing fee (sec. 1361)................   363
              2. Use of practitioner fee (sec. 1362).............   364
              3. Tax Court authority to apply equitable 
                  recoupment (sec. 1363).........................   364
          T. Allow Certain Wholesaled Distributors and Control 
              State Entities to Elect to Be Treated as Distilled 
              Spirits Plants Operators (secs. 1371-1380).........   365
     Title XIV. Extension of Expiring Tax Provisions.............   368
          A. Extension of Research and Experimentation Credit and 
              Increase in the Rates for the Alternative 
              Incremental Research Credit (sec. 1401)............   368
          B. Extend Exceptions Under Subpart F for Active 
              Financing Income (sec. 1402).......................   371
          C. Extend Suspension of Net Income Limitation on 
              Percentage Depletion From Marginal Oil and Gas 
              Wells (sec. 1403)..................................   373
          D. Extend the Work Opportunity Tax Credit (sec. 1404)..   374
          E. Extend the Welfare-to-Work Tax Credit (sec. 1404)...   375
     Title XV. Revenue Offset Provisions.........................   376
          A. Expand Reporting of Cancellation of Indebtedness 
              Income (sec. 1501).................................   376
          B. Extension of IRS User Fees (sec. 1502)..............   377
          C. Impose Limitation on Prefunding of Certain Employee 
              Benefits (sec. 1503)...............................   378
          D. Increase Elective Withholding Rate for Nonperiodic 
              Distributions from Deferred Compensation Plans 
              (sec. 1504)........................................   379
          E. Modify Treatment of Closely-Held REITs (sec. 1505)..   381
          F. Limit Conversion of Character of Income from 
              Constructive Ownership Transactions (sec. 1506)....   383
          G. Treatment of Excess Pension Assets Used for Retiree 
              Health Benefits (sec. 1507)........................   386
          H. Modify Installment Method and Prohibit its Use by 
              Accrual Method Taxpayers (sec. 1508)...............   389
          I. Limitation on Use of Nonaccrual Experience Method of 
              Accounting (sec. 1509).............................   391
          J. Deny the Exclusion of Gain on the Sale of a 
              Principal Residence Which Was Acquired in a Like-
              Kind Exchange Within the Prior Five Years..........   392
     Title XVI. Tax Technical Corrections (secs. 1601-1605)......   393
III.  VOTES OF THE COMMITTEE.....................................   397
 IV.  BUDGET EFFECTS OF THE BILL.................................   401
          A. Committee Estimates of Budgetary Effects............   401
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures.......................................   415
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................   415
  V. OTHER MATTERS TO BE DISCUSSED UNDER RULES OF THE HOUSE......   415
          A. Committee Oversight Findings and Recommendations....   415
          B. Summary of Findings and Recommendations of the 
              Committee on Government Reform.....................   415
          C. Constitutional Authority Statement..................   416
          D. Information Relating to Unfunded Mandates...........   416
          E. Applicability of House Rule XXI5(b).................   417
          F. Tax Complexity Analysis.............................   417
 VI. CHANGES IN EXISTING LAW OF THE BILL, AS REPORTED............   425
VII. MINORITY/DISSENTING VIEWS...................................   427




106th Congress                                                   Report
  1st Session           HOUSE OF REPRESENTATIVES                106-238

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




                     FINANCIAL FREEDOM ACT OF 1999
                                _______


 July 16, 1999.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 2488]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2488) to amend the Internal Revenue Code of 1986 to 
reduce individual income tax rates, to provide marriage penalty 
relief, to reduce taxes on savings and investments, to provide 
estate and gift tax relief, to provide incentives for education 
savings and health care, and for other purposes, having 
considered the same, report favorably thereon with amendments 
and recommend that the bill as amended do pass.
  The amendments are as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE; ETC.

  (a) Short Title.--This Act may be cited as the ``Financial Freedom 
Act of 1999''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
  (c) Section 15 Not To Apply.--No amendment made by this Act shall be 
treated as a change in a rate of tax for purposes of section 15 of the 
Internal Revenue Code of 1986.
  (d) Table of Contents.--The table of contents for this Act is as 
follows:
Sec. 1. Short title; etc.

                    TITLE I--BROAD-BASED TAX RELIEF

    Subtitle A--10-Percent Reduction in Individual Income Tax Rates

Sec. 101. 10-percent reduction in individual income tax rates.

                Subtitle B--Marriage Penalty Tax Relief

Sec. 111. Elimination of marriage penalty in standard deduction.
Sec. 112. Elimination of marriage penalty in deduction for interest on 
education loans.
Sec. 113. Rollover from regular IRA to Roth IRA.

      Subtitle C--Repeal of Alternative Minimum Tax on Individuals

Sec. 121. Repeal of alternative minimum tax on individuals.

       TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS

Sec. 201. Exemption of certain interest and dividend income from tax.
Sec. 202. Reduction in individual capital gain tax rates.
Sec. 203. Capital gains tax rates applied to capital gains of 
designated settlement funds.
Sec. 204. Special rule for members of uniformed services and foreign 
service, and other employees, in determining exclusion of gain from 
sale of principal residence.
Sec. 205. Treatment of certain dealer derivative financial instruments, 
hedging transactions, and supplies as ordinary assets.
Sec. 206. Worthless securities of financial institutions.

     TITLE III--INCENTIVES FOR BUSINESS INVESTMENT AND JOB CREATION

Sec. 301. Reduction in corporate capital gain tax rate.
Sec. 302. Repeal of alternative minimum tax on corporations.

                 TITLE IV--EDUCATION SAVINGS INCENTIVES

Sec. 401. Modifications to education individual retirement accounts.
Sec. 402. Modifications to qualified tuition programs.
Sec. 403. Exclusion of certain amounts received under the National 
Health Service Corps scholarship program, the F. Edward Hebert Armed 
Forces Health Professions Scholarship and Financial Assistance Program, 
and certain other programs.
Sec. 404. Additional increase in arbitrage rebate exception for 
governmental bonds used to finance educational facilities.
Sec. 405. Modification of arbitrage rebate rules applicable to public 
school construction bonds.
Sec. 406. Repeal of 60-month limitation on deduction for interest on 
education loans.

                    TITLE V--HEALTH CARE PROVISIONS

Sec. 501. Deduction for health and long-term care insurance costs of 
individuals not participating in employer-subsidized health plans.
Sec. 502. Long-term care insurance permitted to be offered under 
cafeteria plans and flexible spending arrangements.
Sec. 503. Expansion of availability of medical savings accounts.
Sec. 504. Additional personal exemption for taxpayer caring for elderly 
family member in taxpayer's home.
Sec. 505. Expanded human clinical trials qualifying for orphan drug 
credit.
Sec. 506. Inclusion of certain vaccines against streptococcus 
pneumoniae to list of taxable vaccines.
Sec. 507. Above-the-line deduction for prescription drug insurance 
coverage of medicare beneficiaries if certain medicare and low-income 
assistance provisions in effect.

                      TITLE VI--ESTATE TAX RELIEF

  Subtitle A--Repeal of Estate, Gift, and Generation-Skipping Taxes; 
                  Repeal of Step Up in Basis At Death

Sec. 601. Repeal of estate, gift, and generation-skipping taxes.
Sec. 602. Termination of step up in basis at death.
Sec. 603. Carryover basis at death.

  Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal

Sec. 611. Additional reductions of estate and gift tax rates.

   Subtitle C--Unified Credit Replaced With Unified Exemption Amount

Sec. 621. Unified credit against estate and gift taxes replaced with 
unified exemption amount.

     Subtitle D--Modifications of Generation-Skipping Transfer Tax

Sec. 631. Deemed allocation of GST exemption to lifetime transfers to 
trusts; retroactive allocations.
Sec. 632. Severing of trusts.
Sec. 633. Modification of certain valuation rules.
Sec. 634. Relief provisions.

    TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES

           Subtitle A--American Community Renewal Act of 1999

Sec. 701. Short title.
Sec. 702. Designation of and tax incentives for renewal communities.
Sec. 703. Extension of expensing of environmental remediation costs to 
renewal communities.
Sec. 704. Extension of work opportunity tax credit for renewal 
communities
Sec. 705. Conforming and clerical amendments.
Sec. 706. Evaluation and reporting requirements.

                     Subtitle B--Farming Incentive

Sec. 711. Production flexibility contract payments.

                   Subtitle C--Oil and Gas Incentives

Sec. 721. 5-year net operating loss carryback for losses attributable 
to operating mineral interests of independent oil and gas producers.
Sec. 722. Deduction for delay rental payments.
Sec. 723. Election to expense geological and geophysical expenditures.
Sec. 724. Temporary suspension of limitation based on 65 percent of 
taxable income.
Sec. 725. Determination of small refiner exception to oil depletion 
deduction.

                     Subtitle D--Timber Incentives

Sec. 731. Temporary suspension of maximum amount of amortizable 
reforestation expenditures.
Sec. 732. Capital gain treatment under section 631(b) to apply to 
outright sales by land owner.

                  Subtitle E--Steel Industry Incentive

Sec. 741. Minimum tax relief for steel industry.

                TITLE VIII--RELIEF FOR SMALL BUSINESSES

Sec. 801. Deduction for 100 percent of health insurance costs of self-
employed individuals.
Sec. 802. Increase in expense treatment for small businesses.
Sec. 803. Repeal of Federal unemployment surtax.
Sec. 804. Restoration of 80 percent deduction for meal expenses.

                   TITLE IX--INTERNATIONAL TAX RELIEF

Sec. 901. Interest allocation rules.
Sec. 902. Look-thru rules to apply to dividends from noncontrolled 
section 902 corporations.
Sec. 903. Clarification of treatment of pipeline transportation income.
Sec. 904. Subpart F treatment of income from transmission of high 
voltage electricity.
Sec. 905. Recharacterization of overall domestic loss.
Sec. 906. Treatment of military property of foreign sales corporations.
Sec. 907. Treatment of certain dividends of regulated investment 
companies.
Sec. 908. Repeal of special rules for applying foreign tax credit in 
case of foreign oil and gas income.
Sec. 909. Study of proper treatment of European Union under same 
country exceptions.
Sec. 910. Application of denial of foreign tax credit with respect to 
certain foreign countries.
Sec. 911. Advance pricing agreements treated as confidential taxpayer 
information.
Sec. 912. Increase in dollar limitation on section 911 exclusion.

        TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS

Sec. 1001. Exemption from income tax for State-created organizations 
providing property and casualty insurance for property for which such 
coverage is otherwise unavailable.
Sec. 1002. Modification of special arbitrage rule for certain funds.
Sec. 1003. Charitable split-dollar life insurance, annuity, and 
endowment contracts.
Sec. 1004. Exemption procedure from taxes on self-dealing.
Sec. 1005. Expansion of declaratory judgment remedy to tax-exempt 
organizations.
Sec. 1006. Modifications to section 512(b)(13).

                    TITLE XI--REAL ESTATE PROVISIONS

    Subtitle A--Provisions Relating to Real Estate Investment Trusts

   Part I--Treatment of Income and Services Provided by Taxable REIT 
                              Subsidiaries

Sec. 1101. Modifications to asset diversification test.
Sec. 1102. Treatment of income and services provided by taxable REIT 
subsidiaries.
Sec. 1103. Taxable REIT subsidiary.
Sec. 1104. Limitation on earnings stripping.
Sec. 1105. 100 percent tax on improperly allocated amounts.
Sec. 1106. Effective date.

                       Part II--Health Care REITs

Sec. 1111. Health care REITs.

      Part III--Conformity With Regulated Investment Company Rules

Sec. 1121. Conformity with regulated investment company rules.

 Part IV--Clarification of Exception From Impermissible Tenant Service 
                                 Income

Sec. 1131. Clarification of exception for independent operators.

           Part V--Modification of Earnings and Profits Rules

Sec. 1141. Modification of earnings and profits rules.

          Part VI--Study Relating to Taxable REIT Subsidiaries

Sec. 1151. Study relating to taxable REIT subsidiaries.

     Subtitle B--Modification of At-Risk Rules for Publicly Traded 
                            Nonrecourse Debt

Sec. 1161. Treatment under at-risk rules of publicly traded nonrecourse 
debt.

     Subtitle C--Treatment of Construction Allowances and Certain 
                 Contributions to Capital of Retailers

Sec. 1171. Exclusion from gross income of qualified lessee construction 
allowances not limited for certain retailers to short-term leases.
Sec. 1172. Exclusion from gross income for certain contributions to the 
capital of certain retailers.

               TITLE XII--PROVISIONS RELATING TO PENSIONS

                     Subtitle A--Expanding Coverage

Sec. 1201. Increase in benefit and contribution limits.
Sec. 1202. Plan loans for subchapter S owners, partners, and sole 
proprietors.
Sec. 1203. Modification of top-heavy rules.
Sec. 1204. Elective deferrals not taken into account for purposes of 
deduction limits.
Sec. 1205. Reduced PBGC premium for new plans of small employers.
Sec. 1206. Reduction of additional PBGC premium for new and small 
plans.
Sec. 1207. Repeal of coordination requirements for deferred 
compensation plans of State and local governments and tax-exempt 
organizations.
Sec. 1208. Elimination of user fee for requests to IRS regarding 
pension plans.
Sec. 1209. Deduction limits.
Sec. 1210. Option to treat elective deferrals as after-tax 
contributions.
Sec. 1211. Increase in minimum defined benefit limit under section 415.

                Subtitle B--Enhancing Fairness for Women

Sec. 1221. Additional salary reduction catch-up contributions.
Sec. 1222. Equitable treatment for contributions of employees to 
defined contribution plans.
Sec. 1223. Faster vesting of certain employer matching contributions.
Sec. 1224. Simplify and update the minimum distribution rules.
Sec. 1225. Clarification of tax treatment of division of section 457 
plan benefits upon divorce.

          Subtitle C--Increasing Portability for Participants

Sec. 1231. Rollovers allowed among various types of plans.
Sec. 1232. Rollovers of IRAs into workplace retirement plans.
Sec. 1233. Rollovers of after-tax contributions.
Sec. 1234. Hardship exception to 60-day rule.
Sec. 1235. Treatment of forms of distribution.
Sec. 1236. Rationalization of restrictions on distributions.
Sec. 1237. Purchase of service credit in governmental defined benefit 
plans.
Sec. 1238. Employers may disregard rollovers for purposes of cash-out 
amounts.
Sec. 1239. Minimum distribution and inclusion requirements for section 
457 plans.

       Subtitle D--Strengthening Pension Security and Enforcement

Sec. 1241. Repeal of 150 percent of current liability funding limit.
Sec. 1242. Maximum contribution deduction rules modified and applied to 
all defined benefit plans.
Sec. 1243. Missing participants.
Sec. 1244. Excise tax relief for sound pension funding.
Sec. 1245. Excise tax on failure to provide notice by defined benefit 
plans significantly reducing future benefit accruals.

                Subtitle E--Reducing Regulatory Burdens

Sec. 1251. Repeal of the multiple use test.
Sec. 1252. Modification of timing of plan valuations.
Sec. 1253. Flexibility and nondiscrimination and line of business 
rules.
Sec. 1254. Substantial owner benefits in terminated plans.
Sec. 1255. ESOP dividends may be reinvested without loss of dividend 
deduction.
Sec. 1256. Notice and consent period regarding distributions.
Sec. 1257. Repeal of transition rule relating to certain highly 
compensated employees.
Sec. 1258. Employees of tax-exempt entities.
Sec. 1259. Clarification of treatment of employer-provided retirement 
advice.
Sec. 1260. Provisions relating to plan amendments.
Sec. 1261. Model plans for small businesses.
Sec. 1262. Simplified annual filing requirement for plans with fewer 
than 25 employees.
Sec. 1263. Improvement of Employee Plans Compliance Resolution System.

                  TITLE XIII--MISCELLANEOUS PROVISIONS

         Subtitle A--Provisions Primarily Affecting Individuals

Sec. 1301. Exclusion for foster care payments to apply to payments by 
qualified placement agencies.
Sec. 1302. Mileage reimbursements to charitable volunteers excluded 
from gross income.
Sec. 1303. W-2 to include employer social security taxes.
Sec. 1304. Consistent treatment of survivor benefits for public safety 
officers killed in the line of duty.

         Subtitle B--Provisions Primarily Affecting Businesses

Sec. 1311. Distributions from publicly traded partnerships treated as 
qualifying income of regulated investment companies.
Sec. 1312. Special passive activity rule for publicly traded 
partnerships to apply to regulated investment companies.
Sec. 1313. Large electric trucks, vans, and buses eligible for 
deduction for clean-fuel vehicles in lieu of credit. 
Sec. 1314. Modifications to special rules for nuclear decommissioning 
costs.
Sec. 1315. Consolidation of life insurance companies with other 
corporations.

            Subtitle C--Provisions Relating to Excise Taxes

Sec. 1321. Consolidation of Hazardous Substance Superfund and Leaking 
Underground Storage Tank Trust Fund.
Sec. 1322. Repeal of certain motor fuel excise taxes on fuel used by 
railroads and on inland waterway transportation.
Sec. 1323. Repeal of excise tax on fishing tackle boxes.
Sec. 1324. Clarification of excise tax imposed on arrow components.

         Subtitle D--Improvements in Low-Income Housing Credit

Sec. 1331. Increase in State ceiling on low-income housing credit.
Sec. 1332. Modification of criteria for allocating housing credits 
among projects.
Sec. 1333. Additional responsibilities of housing credit agencies.
Sec. 1334. Modifications to rules relating to basis of building which 
is eligible for credit.
Sec. 1335. Other modifications.
Sec. 1336. Carryforward rules.
Sec. 1337. Effective date.

          Subtitle E--Entrepreneurial Equity Capital Formation

 Part I--Tax-free Conversions of Specialized Small Business Investment 
                   Companies Into Pass-thru Entities

Sec. 1341. Modifications to provisions relating to regulated investment 
companies.
Sec. 1342. Tax-free reorganization of specialized small business 
investment company as a partnership.

  Part II--Additional Incentives Related to Investing in Specialized 
                  Small Business Investment Companies

Sec. 1346. Expansion of nonrecognition treatment for securities gain 
rolled over into specialized small business investment companies.
Sec. 1347. Modifications to exclusion for gain from qualified small 
business stock.

                      Subtitle F--Other Provisions

Sec. 1351. Increase in volume cap on private activity bonds.
Sec. 1352. Tax treatment of Alaska Native Settlement Trusts.
Sec. 1353. Increase in threshold for Joint Committee reports on refunds 
and credits.
Sec. 1354. Clarification of depreciation study.

                    Subtitle G--Tax Court Provisions

Sec. 1361. Tax Court filing fee in all cases commenced by filing 
petition.
Sec. 1362. Expanded use of Tax Court practice fee.
Sec. 1363. Confirmation of authority of Tax Court to apply doctrine of 
equitable recoupment.

 Subtitle H--Tax-Free Transfer of Bottled Distilled Spirits to Bonded 
                                Dealers

Sec. 1371. Tax-free transfer of bottled distilled spirits from 
distilled spirits plant to bonded dealer.
Sec. 1372. Establishment of distilled spirits plant.
Sec. 1373. Distilled spirits plants.
Sec. 1374. Bonded dealers.
Sec. 1375. Time for collecting tax on distilled spirits.
Sec. 1376. Exemption from occupational tax not applicable.
Sec. 1377. Technical, conforming, and clerical amendments.
Sec. 1378. Cooperative agreements.
Sec. 1379. Effective date.
Sec. 1380. Study.

              TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS

Sec. 1401. Research credit.
Sec. 1402. Subpart F exemption for active financing income.
Sec. 1403. Taxable income limit on percentage depletion for marginal 
production.
Sec. 1404. Work opportunity credit and welfare-to-work credit.

                       TITLE XV--REVENUE OFFSETS

Sec. 1501. Returns relating to cancellations of indebtedness by 
organizations lending money.
Sec. 1502. Extension of Internal Revenue Service user fees.
Sec. 1503. Limitations on welfare benefit funds of 10 or more employer 
plans.
Sec. 1504. Increase in elective withholding rate for nonperiodic 
distributions from deferred compensation plans.
Sec. 1505. Controlled entities ineligible for REIT status.
Sec. 1506. Treatment of gain from constructive ownership transactions.
Sec. 1507. Transfer of excess defined benefit plan assets for retiree 
health benefits.
Sec. 1508. Modification of installment method and repeal of installment 
method for accrual method taxpayers.
Sec. 1509. Limitation on use of nonaccrual experience method of 
accounting.
Sec. 1510. Exclusion of like-kind exchange property from nonrecognition 
treatment on the sale of a principal residence.

                    TITLE XVI--TECHNICAL CORRECTIONS

Sec. 1601. Amendments related to Tax and Trade Relief Extension Act of 
1998.
Sec. 1602. Amendments related to Internal Revenue Service Restructuring 
and Reform Act of 1998.
Sec. 1603. Amendments related to Taxpayer Relief Act of 1997.
Sec. 1604. Other technical corrections.
Sec. 1605. Clerical changes.

                    TITLE I--BROAD-BASED TAX RELIEF

    Subtitle A--10-Percent Reduction in Individual Income Tax Rates

SEC. 101. 10-PERCENT REDUCTION IN INDIVIDUAL INCOME TAX RATES.

  (a) Regular Income Tax Rates.--
          (1) In general.--Subsection (f) of section 1 is amended by 
        adding at the end the following new paragraph:
          ``(8) Rate reductions.--In prescribing the tables under 
        paragraph (1) which apply with respect to taxable years 
        beginning in a calendar year after 2000, each rate in such 
        tables (without regard to this paragraph) shall be reduced by 
        the number of percentage points (rounded to the next lowest 
        tenth) equal to the applicable percentage (determined in 
        accordance with the following table) of such rate:
                ``For taxable years beginning
                                                         The applicable
                  in calendar year--
                                                        percentage is--
                  2001 through 2004........................        2.5 
                  2005 through 2007........................        5.0 
                  2008.....................................        7.5 
                  2009 and thereafter......................    10.0.'' 
          (2) Technical amendments.--
                  (A) Subparagraph (B) of section 1(f)(2) is amended by 
                inserting ``except as provided in paragraph (8),'' 
                before ``by not changing''.
                  (B) Subparagraph (C) of section 1(f)(2) is amended by 
                inserting ``and the reductions under paragraph (8) in 
                the rates of tax'' before the period.
                  (C) The heading for subsection (f) of section 1 is 
                amended by inserting ``Rate Reductions;'' before 
                ``Adjustments''.
                  (D) Section 1(g)(7)(B)(ii)(II) is amended by striking 
                ``15 percent'' and inserting ``the percentage 
                applicable to the lowest income bracket in subsection 
                (c)''.
                  (E) Subparagraphs (A)(ii)(I) and (B)(i) of section 
                1(h)(1) are each amended by striking ``28 percent'' and 
                inserting ``25.2 percent''.
                  (F) Section 531 is amended by striking ``39.6 percent 
                of the accumulated taxable income'' and inserting ``the 
                product of the accumulated taxable income and the 
                percentage applicable to the highest income bracket in 
                section 1(c)''.
                  (G) Section 541 is amended by striking ``39.6 percent 
                of the undistributed personal holding company income'' 
                and inserting ``the product of the undistributed 
                personal holding company income and the percentage 
                applicable to the highest income bracket in section 
                1(c)''.
                  (H) Section 3402(p)(1)(B) is amended by striking 
                ``specified is 7, 15, 28, or 31 percent'' and all that 
                follows and inserting ``specified is--
                          ``(i) 7 percent,
                          ``(ii) a percentage applicable to 1 of the 3 
                        lowest income brackets in section 1(c), or
                          ``(iii) such other percentage as is permitted 
                        under regulations prescribed by the 
                        Secretary.''
                  (I) Section 3402(p)(2) is amended by striking ``15 
                percent of such payment'' and inserting ``the product 
                of such payment and the percentage applicable to the 
                lowest income bracket in section 1(c)''.
                  (J) Section 3402(q)(1) is amended by striking ``28 
                percent of such payment'' and inserting ``the product 
                of such payment and the percentage applicable to the 
                next to the lowest income bracket in section 1(c)''.
                  (K) Section 3402(r)(3) is amended by striking ``31 
                percent'' and inserting ``the rate applicable to the 
                third income bracket in such section''.
                  (L) Section 3406(a)(1) is amended by striking ``31 
                percent of such payment'' and inserting ``the product 
                of such payment and the percentage applicable to the 
                third income bracket in section 1(c)''.
  (b) Minimum Tax Rates.--Subparagraph (A) of section 55(b)(1) is 
amended by adding at the end the following new clause:
                          ``(iv) Rate reduction.--In the case of 
                        taxable years beginning after 2000, each rate 
                        in clause (i) (without regard to this clause) 
                        shall be reduced by the number of percentage 
                        points (rounded to the next lowest tenth) equal 
                        to the applicable percentage (determined in 
                        accordance with section 1(f)(8)) of such 
                        rate.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2000.

                Subtitle B--Marriage Penalty Tax Relief

SEC. 111. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.

  (a) In General.--Paragraph (2) of section 63(c) (relating to standard 
deduction) is amended--
          (1) by striking ``$5,000'' in subparagraph (A) and inserting 
        ``twice the dollar amount in effect under subparagraph (C) for 
        the taxable year'',
          (2) by adding ``or'' at the end of subparagraph (B),
          (3) by striking ``in the case of'' and all that follows in 
        subparagraph (C) and inserting ``in any other case.'', and
          (4) by striking subparagraph (D).
  (b) Phase-in.--Subsection (c) of section 63 is amended by adding at 
the end the following new paragraph:
          ``(7) Phase-in of increase in basic standard deduction.--In 
        the case of taxable years beginning before January 1, 2003--
                  ``(A) paragraph (2)(A) shall be applied by 
                substituting for `twice'--
                          ``(i) `1.778 times' in the case of taxable 
                        years beginning during 2001, and
                          ``(ii) `1.889 times' in the case of taxable 
                        years beginning during 2002, and
                  ``(B) the basic standard deduction for a married 
                individual filing a separate return shall be one-half 
                of the amount applicable under paragraph (2)(A).
        If any amount determined under subparagraph (A) is not a 
        multiple of $50, such amount shall be rounded to the next 
        lowest multiple of $50.''.
  (c) Technical Amendments.--
          (1) Subparagraph (B) of section 1(f)(6) is amended by 
        striking ``(other than with'' and all that follows through 
        ``shall be applied'' and inserting ``(other than with respect 
        to sections 63(c)(4) and 151(d)(4)(A)) shall be applied''.
          (2) Paragraph (4) of section 63(c) is amended by adding at 
        the end the following flush sentence:
        ``The preceding sentence shall not apply to the amount referred 
        to in paragraph (2)(A).''.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2000.

SEC. 112. ELIMINATION OF MARRIAGE PENALTY IN DEDUCTION FOR INTEREST ON 
                    EDUCATION LOANS.

  (a) In General.--Subparagraph (B) of section 221(b)(2) (relating to 
limitation based on modified adjusted gross income) is amended--
          (1) by striking ``$60,000'' in clause (i)(II) and inserting 
        ``twice such amount'', and
          (2) by inserting ``($30,000 in the case of a joint return)'' 
        after ``$15,000'' in clause (ii).
  (b) Conforming Amendment.--Paragraph (1) of section 221(g) is amended 
by striking ``and $60,000 amounts in subsection (b)(2) shall each'' and 
inserting ``amount in subsection (b)(2) shall''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 113. ROLLOVER FROM REGULAR IRA TO ROTH IRA.

  (a) In General.--Clause (i) of section 408A(c)(3)(B) is amended by 
inserting ``($160,000 in the case of a joint return)'' after 
``$100,000''.
  (b) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 1999.

      Subtitle C--Repeal of Alternative Minimum Tax on Individuals

SEC. 121. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDIVIDUALS.

  (a) In General.--Subsection (a) of section 55 is amended by adding at 
the end the following new flush sentence:
``For purposes of this title, the tentative minimum tax on any taxpayer 
other than a corporation for any taxable year beginning after December 
31, 2007, shall be zero.''
  (b) Reduction of Tax on Individuals Prior to Repeal.--Section 55 is 
amended by adding at the end the following new subsection:
  ``(f) Phaseout of Tax on Individuals.--
          ``(1) In general.--The tax imposed by this section on a 
        taxpayer other than a corporation for any taxable year 
        beginning after December 31, 2002, and before January 1, 2008, 
        shall be the applicable percentage of the tax which would be 
        imposed but for this subsection.
          ``(2) Applicable percentage.--For purposes of paragraph (1), 
        the applicable percentage shall be determined in accordance 
        with the following table:
        ``For taxable years beginning
                                                         The applicable
          in calendar year--
                                                        percentage is--
          2003.............................................        80  
          2004.............................................        70  
          2005.............................................        60  
          2006 or 2007.....................................     50.''  
  (c) Nonrefundable Personal Credits Fully Allowed Against Regular Tax 
Liability.--
          (1) In general.--Subsection (a) of section 26 (relating to 
        limitation based on amount of tax) is amended to read as 
        follows:
  ``(a) Limitation Based on Amount of Tax.--The aggregate amount of 
credits allowed by this subpart for the taxable year shall not exceed 
the taxpayer's regular tax liability for the taxable year.''
          (2) Child credit.--Subsection (d) of section 24 is amended by 
        striking paragraph (2) and by redesignating paragraph (3) as 
        paragraph (2).
  (d) Limitation on Use of Credit for Prior Year Minimum Tax 
Liability.--Subsection (c) of section 53 is amended to read as follows:
  ``(c) Limitation.--
          ``(1) In general.--Except as otherwise provided in this 
        subsection, the credit allowable under subsection (a) for any 
        taxable year shall not exceed the excess (if any) of--
                  ``(A) the regular tax liability of the taxpayer for 
                such taxable year reduced by the sum of the credits 
                allowable under subparts A, B, D, E, and F of this 
                part, over
                  ``(B) the tentative minimum tax for the taxable year.
          ``(2) Taxable years beginning after 2007.--In the case of any 
        taxable year beginning after 2007, the credit allowable under 
        subsection (a) to a taxpayer other than a corporation for any 
        taxable year shall not exceed 90 percent of the excess (if any) 
        of--
                  ``(A) regular tax liability of the taxpayer for such 
                taxable year, over
                  ``(B) the sum of the credits allowable under subparts 
                A, B, D, E, and F of this part.''
  (e) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 1998.

       TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS

SEC. 201. EXEMPTION OF CERTAIN INTEREST AND DIVIDEND INCOME FROM TAX.

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

``SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTEREST RECEIVED BY 
                    INDIVIDUALS.

  ``(a) Exclusion From Gross Income.--Gross income does not include 
dividends and interest otherwise includible in gross income which are 
received during the taxable year by an individual.
  ``(b) Limitations.--
          ``(1) Maximum amount.--The aggregate amount excluded under 
        subsection (a) for any taxable year shall not exceed--
                  ``(A) in the case of any taxable year beginning in 
                2001 or 2002, $100 ($200 in the case of a joint 
                return), and
                  ``(B) in the case of any taxable year beginning after 
                2002, $200 ($400 in the case of a joint return).
          ``(2) Certain dividends excluded.--Subsection (a) shall not 
        apply to any dividend from a corporation which for the taxable 
        year of the corporation in which the distribution is made is a 
        corporation exempt from tax under section 521 (relating to 
        farmers' cooperative associations).
  ``(c) Special Rules.--For purposes of this section--
          ``(1) Exclusion not to apply to capital gain dividends from 
        regulated investment companies and real estate investment 
        trusts.--
                  ``For treatment of capital gain dividends, see 
sections 854(a) and 857(c).
          ``(2) Certain nonresident aliens ineligible for exclusion.--
        In the case of a nonresident alien individual, subsection (a) 
        shall apply only in determining the taxes imposed for the 
        taxable year pursuant to sections 871(b)(1) and 877(b).
          ``(3) Dividends from employee stock ownership plans.--
        Subsection (a) shall not apply to any dividend described in 
        section 404(k).''.
  (b) Conforming Amendments.--
          (1) Subparagraph (C) of section 32(c)(5) is amended by 
        striking ``or'' at the end of clause (i), by striking the 
        period at the end of clause (ii) and inserting ``; or'', and by 
        inserting after clause (ii) the following new clause:
                          ``(iii) interest and dividends received 
                        during the taxable year which are excluded from 
                        gross income under section 116.''.
          (2) Subparagraph (A) of section 32(i)(2) is amended by 
        inserting ``(determined without regard to section 116)'' before 
        the comma.
          (3) Subparagraph (B) of section 86(b)(2) is amended to read 
        as follows:
                  ``(B) increased by the sum of--
                          ``(i) the amount of interest received or 
                        accrued by the taxpayer during the taxable year 
                        which is exempt from tax, and
                          ``(ii) the amount of interest and dividends 
                        received during the taxable year which are 
                        excluded from gross income under section 
                        116.''.
          (4) Subsection (d) of section 135 is amended by redesignating 
        paragraph (4) as paragraph (5) and by inserting after paragraph 
        (3) the following new paragraph:
          ``(4) Coordination with section 116.--This section shall be 
        applied before section 116.''.
          (5) Paragraph (2) of section 265(a) is amended by inserting 
        before the period ``, or to purchase or carry obligations or 
        shares, or to make deposits, to the extent the interest thereon 
        is excludable from gross income under section 116''.
          (6) Subsection (c) of section 584 is amended by adding at the 
        end the following new flush sentence:
``The proportionate share of each participant in the amount of 
dividends or interest received by the common trust fund and to which 
section 116 applies shall be considered for purposes of such section as 
having been received by such participant.''.
          (7) Subsection (a) of section 643 is amended by redesignating 
        paragraph (7) as paragraph (8) and by inserting after paragraph 
        (6) the following new paragraph:
          ``(7) Dividends or interest.--There shall be included the 
        amount of any dividends or interest excluded from gross income 
        pursuant to section 116.''.
          (8) Section 854(a) is amended by inserting ``section 116 
        (relating to partial exclusion of dividends and interest 
        received by individuals) and'' after ``For purposes of''.
          (9) Section 857(c) is amended to read as follows:
  ``(c) Restrictions Applicable to Dividends Received From Real Estate 
Investment Trusts.--
          ``(1) Treatment for section 116.--For purposes of section 116 
        (relating to partial exclusion of dividends and interest 
        received by individuals), a capital gain dividend (as defined 
        in subsection (b)(3)(C)) received from a real estate investment 
        trust which meets the requirements of this part shall not be 
        considered as a dividend.
          ``(2) Treatment for section 243.--For purposes of section 243 
        (relating to deductions for dividends received by 
        corporations), a dividend received from a real estate 
        investment trust which meets the requirements of this part 
        shall not be considered as a dividend.''.
          (10) The table of sections for part III of subchapter B of 
        chapter 1 is amended by inserting after the item relating to 
        section 115 the following new item:

                              ``Sec. 116. Partial exclusion of 
                                        dividends and interest received 
                                        by individuals.''.

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

SEC. 202. REDUCTION IN INDIVIDUAL CAPITAL GAIN TAX RATES.

  (a) In General.--
          (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by 
        striking ``10 percent'' and inserting ``7.5 percent''.
          (2) The following sections are each amended by striking ``20 
        percent'' and inserting ``15 percent'':
                  (A) Section 1(h)(1)(C).
                  (B) Section 55(b)(3)(C).
                  (C) Section 1445(e)(1).
                  (D) The second sentence of section 7518(g)(6)(A).
                  (E) The second sentence of section 607(h)(6)(A) of 
                the Merchant Marine Act, 1936.
          (3) Sections 1(h)(1)(D) and 55(b)(3)(D) are each amended by 
        striking ``25 percent'' and inserting ``20 percent''.
  (b) Conforming Amendments.--
          (1) Section 311 of the Taxpayer Relief Act of 1997 is amended 
        by striking subsection (e).
          (2) Section 1(h) is amended--
                  (A) by striking paragraphs (2), (9), and (13),
                  (B) by redesignating paragraphs (3) through (8) as 
                paragraphs (2) through (7), respectively, and
                  (C) by redesignating paragraphs (10), (11), and (12) 
                as paragraphs (8), (9), and (10), respectively.
          (3) Paragraph (3) of section 55(b) is amended by striking 
        ``In the case of taxable years beginning after December 31, 
        2000, rules similar to the rules of section 1(h)(2) shall apply 
        for purposes of subparagraphs (B) and (C).''.
          (4) Paragraph (7) of section 57(a) is amended--
                  (A) by striking ``42 percent'' and inserting ``6 
                percent'', and
                  (B) by striking the last sentence.
  (c) Transitional Rules for Taxable Years Which Include July 1, 
1999.--For purposes of applying section 1(h) of the Internal Revenue 
Code of 1986 in the case of a taxable year which includes July 1, 
1999--
          (1) The amount of tax determined under subparagraph (B) of 
        section 1(h)(1) of such Code shall be the sum of--
                  (A) 7.5 percent of the lesser of--
                          (i) the net capital gain taking into account 
                        only gain or loss properly taken into account 
                        for the portion of the taxable year on or after 
                        such date (determined without regard to 
                        collectibles gain or loss, gain described in 
                        section (1)(h)(6)(A)(i) of such Code, and 
                        section 1202 gain), or
                          (ii) the amount on which a tax is determined 
                        under such subparagraph (without regard to this 
                        subsection), plus
                  (B) 10 percent of the excess (if any) of--
                          (i) the amount on which a tax is determined 
                        under such subparagraph (without regard to this 
                        subsection), over
                          (ii) the amount on which a tax is determined 
                        under subparagraph (A).
          (2) The amount of tax determined under subparagraph (C) of 
        section (1)(h)(1) of such Code shall be the sum of--
                  (A) 15 percent of the lesser of--
                          (i) the excess (if any) of the amount of net 
                        capital gain determined under subparagraph 
                        (A)(i) of paragraph (1) of this subsection over 
                        the amount on which a tax is determined under 
                        subparagraph (A) of paragraph (1) of this 
                        subsection, or
                          (ii) the amount on which a tax is determined 
                        under such subparagraph (C) (without regard to 
                        this subsection), plus
                  (B) 20 percent of the excess (if any) of--
                          (i) the amount on which a tax is determined 
                        under such subparagraph (C) (without regard to 
                        this subsection), over
                          (ii) the amount on which a tax is determined 
                        under subparagraph (A) of this paragraph.
          (3) The amount of tax determined under subparagraph (D) of 
        section (1)(h)(1) of such Code shall be the sum of--
                  (A) 20 percent of the lesser of--
                          (i) the amount which would be determined 
                        under section 1(h)(6)(A)(i) of such Code taking 
                        into account only gain properly taken into 
                        account for the portion of the taxable year on 
                        or after such date, or
                          (ii) the amount on which a tax is determined 
                        under such subparagraph (D) (without regard to 
                        this subsection), plus  
                  (B) 25 percent of the excess (if any) of--
                          (i) the amount on which a tax is determined 
                        under such subparagraph (D) (without regard to 
                        this subsection), over
                          (ii) the amount on which a tax is determined 
                        under subparagraph (A) of this paragraph.  
          (4) For purposes of applying section 55(b)(3) of such Code, 
        rules similar to the rules of paragraphs (1), (2), and (3) of 
        this subsection shall apply.
          (5) In applying this subsection with respect to any pass-thru 
        entity, the determination of when gains and loss are properly 
        taken into account shall be made at the entity level.
          (6) Terms used in this subsection which are also used in 
        section 1(h) of such Code shall have the respective meanings 
        that such terms have in such section.
  (d) Effective Dates.--
          (1) In general.--Except as otherwise provided by this 
        subsection, the amendments made by this section shall apply to 
        taxable years ending after June 30, 1999.
          (2) Withholding.--The amendment made by subsection (a)(2)(C) 
        shall apply to amounts paid after the date of the enactment of 
        this Act.
          (3) Small business stock.--The amendments made by subsection 
        (b)(4) shall apply to dispositions on or after July 1, 1999.

SEC. 203. CAPITAL GAINS TAX RATES APPLIED TO CAPITAL GAINS OF 
                    DESIGNATED SETTLEMENT FUNDS.

  (a) In General.--Paragraph (1) of section 468B(b) (relating to 
taxation of designated settlement funds) is amended by inserting 
``(subject to section 1(h))'' after ``maximum rate''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 204. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES AND FOREIGN 
                    SERVICE, AND OTHER EMPLOYEES, IN DETERMINING 
                    EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.

  (a) In General.--Subsection (d) of section 121 (relating to exclusion 
of gain from sale of principal residence) is amended by adding at the 
end the following new paragraphs:
          ``(9) Members of uniformed services and foreign service.--
                  ``(A) In general.--The running of the 5-year period 
                described in subsection (a) shall be suspended with 
                respect to an individual during any time that such 
                individual or such individual's spouse is serving on 
                qualified official extended duty as a member of the 
                uniformed services or of the Foreign Service.
                  ``(B) Qualified official extended duty.--For purposes 
                of this paragraph--
                          ``(i) In general.--The term `qualified 
                        official extended duty' means any period of 
                        extended duty as a member of the uniformed 
                        services or a member of the Foreign Service 
                        during which the member serves at a duty 
                        station which is at least 50 miles from such 
                        property or is under Government orders to 
                        reside in Government quarters.
                          ``(ii) Uniformed services.--The term 
                        `uniformed services' has the meaning given such 
                        term by section 101(a)(5) of title 10, United 
                        States Code, as in effect on the date of the 
                        enactment of the Financial Freedom Act of 1999.
                          ``(iii) Foreign service of the united 
                        states.--The term `member of the Foreign 
                        Service' has the meaning given the term `member 
                        of the Service' by paragraph (1), (2), (3), 
                        (4), or (5) of section 103 of the Foreign 
                        Service Act of 1980, as in effect on the date 
                        of the enactment of the Financial Freedom Act 
                        of 1999.
                          ``(iv) Extended duty.--The term `extended 
                        duty' means any period of active duty pursuant 
                        to a call or order to such duty for a period in 
                        excess of 90 days or for an indefinite period.
          ``(10) Other employees.--
                  ``(A) In general.--The running of the 5-year period 
                described in subsection (a) shall be suspended with 
                respect to an individual during any time that such 
                individual or such individual's spouse is serving as an 
                employee for a period in excess of 90 days in an 
                assignment by the such employee's employer outside the 
                United States.
                  ``(B) Limitations and special rules.--
                          ``(i) Maximum period of suspension.--The 
                        suspension under subparagraph (A) with respect 
                        to a principal residence shall not exceed (in 
                        the aggregate) 5 years.
                          ``(ii) Members of uniformed services and 
                        foreign service.--Subparagraph (A) shall not 
                        apply to an individual to whom paragraph (9) 
                        applies.
                          ``(iii) Self-employed individual not 
                        considered an employee.--For purposes of this 
                        paragraph, the term `employee' does not include 
                        an individual who is an employee within the 
                        meaning of section 401(c)(1) (relating to self-
                        employed individuals).''.
  (b) Effective Date.--The amendment made by this section shall apply 
to sales and exchanges after the date of the enactment of this Act.

SEC. 205. TREATMENT OF CERTAIN DEALER DERIVATIVE FINANCIAL INSTRUMENTS, 
                    HEDGING TRANSACTIONS, AND SUPPLIES AS ORDINARY 
                    ASSETS.

  (a) In General.--Section 1221 (defining capital assets) is amended--
          (1) by striking ``For purposes'' and inserting the following:
  ``(a) In General.--For purposes'',
          (2) by striking the period at the end of paragraph (5) and 
        inserting a semicolon, and
          (3) by adding at the end the following:
          ``(6) any commodities derivative financial instrument held by 
        a commodities derivatives dealer, unless--
                  ``(A) it is established to the satisfaction of the 
                Secretary that such instrument has no connection to the 
                activities of such dealer as a dealer, and
                  ``(B) such instrument is clearly identified in such 
                dealer's records as being described in subparagraph (A) 
                before the close of the day on which it was acquired, 
                originated, or entered into (or such other time as the 
                Secretary may by regulations prescribe);
          ``(7) any hedging transaction which is clearly identified as 
        such before the close of the day on which it was acquired, 
        originated, or entered into (or such other time as the 
        Secretary may by regulations prescribe); or
          ``(8) supplies of a type regularly used or consumed by the 
        taxpayer in the ordinary course of a trade or business of the 
        taxpayer.
  ``(b) Definitions and Special Rules.--
          ``(1) Commodities derivative financial instruments.--For 
        purposes of subsection (a)(6)--
                  ``(A) Commodities derivatives dealer.--The term 
                `commodities derivatives dealer' means a person which 
                regularly offers to enter into, assume, offset, assign, 
                or terminate positions in commodities derivative 
                financial instruments with customers in the ordinary 
                course of a trade or business.
                  ``(B) Commodities derivative financial instrument.--
                          ``(i) In general.--The term `commodities 
                        derivative financial instrument' means any 
                        contract or financial instrument with respect 
                        to commodities (other than a share of stock in 
                        a corporation, a beneficial interest in a 
                        partnership or trust, a note, bond, debenture, 
                        or other evidence of indebtedness, or a section 
                        1256 contract (as defined in section 1256(b)) 
                        the value or settlement price of which is 
                        calculated by or determined by reference to a 
                        specified index.
                          ``(ii) Specified index.--The term `specified 
                        index' means any one or more or any combination 
                        of--
                                  ``(I) a fixed rate, price, or amount, 
                                or
                                  ``(II) a variable rate, price, or 
                                amount,
                        which is based on any current, objectively 
                        determinable financial or economic information 
                        with respect to commodities which is not within 
                        the control of any of the parties to the 
                        contract or instrument and is not unique to any 
                        of the parties' circumstances.
          ``(2) Hedging transaction.--
                  ``(A) In general.--For purposes of this section, the 
                term `hedging transaction' means any transaction 
                entered into by the taxpayer in the normal course of 
                the taxpayer's trade or business primarily--
                          ``(i) to manage risk of price changes or 
                        currency fluctuations with respect to ordinary 
                        property which is held or to be held by the 
                        taxpayer, or
                          ``(ii) to manage risk of interest rate or 
                        price changes or currency fluctuations with 
                        respect to borrowings made or to be made, or 
                        ordinary obligations incurred or to be 
                        incurred, by the taxpayer.
                  ``(B) Treatment of nonidentification or improper 
                identification of hedging transactions.--
                Notwithstanding subsection (a)(7), the Secretary shall 
                prescribe regulations to properly characterize of any 
                income, gain, expense, or loss arising from a 
                transaction--
                          ``(i) which is a hedging transaction but 
                        which was not identified as such in accordance 
                        with subsection (a)(7), or
                          ``(ii) which was so identified but is not a 
                        hedging transaction.
          ``(3) Regulations.--The Secretary shall prescribe such 
        regulations as are appropriate to carry out the purposes of 
        paragraph (6) and (7) of subsection (a) in the case of 
        transactions involving related parties.''.
  (b) Management of Risk.--
          (1) Section 475(c)(3) is amended by striking ``reduces'' and 
        inserting ``manages''.
          (2) Section 871(h)(4)(C)(iv) is amended by striking ``to 
        reduce'' and inserting ``to manage''.
          (3) Clauses (i) and (ii) of section 988(d)(2)(A) are each 
        amended by striking ``to reduce'' and inserting ``to manage''.
          (4) Paragraph (2) of section 1256(e) is amended to read as 
        follows:
          ``(2) Definition of hedging transaction.--For purposes of 
        this subsection, the term `hedging transaction' means any 
        hedging transaction (as defined in section 1221(b)(2)(A)) if, 
        before the close of the day on which such transaction was 
        entered into (or such earlier time as the Secretary may 
        prescribe by regulations), the taxpayer clearly identifies such 
        transaction as being a hedging transaction.''
  (c) Effective Date.--The amendments made by this section shall apply 
to any instrument held, acquired, or entered into, any transaction 
entered into, and supplies held or acquired on or after the date of 
enactment of this Act.

SEC. 206. WORTHLESS SECURITIES OF FINANCIAL INSTITUTIONS.

  (a) In General.--The first sentence following section 165(g)(3)(B) 
(relating to securities of affiliated corporation) is amended to read 
as follows: ``In computing gross receipts for purposes of the preceding 
sentence, (i) gross receipts from sales or exchanges of stocks and 
securities shall be taken into account only to the extent of gains 
therefrom, and (ii) gross receipts from royalties, rents, dividends, 
interest, annuities, and gains from sales or exchanges of stocks and 
securities derived from (or directly related to) the conduct of an 
active trade or business of an insurance company subject to tax under 
subchapter L or a qualified financial institution (as defined in 
subsection (l)(3)) shall be treated as from such sources other than 
royalties, rents, dividends, interest, annuities, and gains.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to securities which become worthless in taxable years beginning after 
December 31, 1999.

     TITLE III--INCENTIVES FOR BUSINESS INVESTMENT AND JOB CREATION

SEC. 301. REDUCTION IN CORPORATE CAPITAL GAIN TAX RATE.

  (a) In General.--Section 1201 is amended to read as follows:

``SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.

  ``(a) General Rule.--If for any taxable year a corporation has a net 
capital gain, then, in lieu of the tax imposed by sections 11, 511, or 
831(a) or (b), there is hereby imposed a tax (if such tax is less than 
the tax imposed by such sections) which shall consist of the sum of--
          ``(1) a tax computed on the taxable income reduced by the net 
        capital gain, at the rates and in the manner as if this 
        subsection had not been enacted, plus
          ``(2) the applicable percentage of the net capital gain (or, 
        if less, taxable income).
  ``(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--
  2000.....................................................      34.1  
  2001.....................................................      33.9  
  2002.....................................................      32.7  
  2003.....................................................      31.7  
  2004.....................................................      30.8  
  2005.....................................................      29.8  
  2006.....................................................      29.2  
  2007.....................................................      28.0  
  2008.....................................................      27.4  
  2009.....................................................      26.2  
  2010 and thereafter......................................     25.0.  

  ``(c) Cross References.--For computation of the alternative tax--
          ``(1) in the case of life insurance companies, see section 
        801(a)(2),
          ``(2) in the case of regulated investment companies and their 
        shareholders, see section 852(b)(3)(A) and (D), and
          ``(3) in the case of real estate investment trusts, see 
        section 857(b)(3)(A).''
  (b) Technical Amendments.--
          (1) Paragraphs (1) and (2) of section 1445(e) are each 
        amended by striking ``35 percent'' and inserting ``the 
        applicable percentage determined under section 1201(b) for the 
        calendar year in which the payment is made''.
          (2)(A) The second sentence of section 7518(g)(6)(A) is 
        amended by striking ``34 percent'' and inserting ``the 
        applicable percentage (within the meaning of section 
        1201(b))''.
          (B) The second sentence of section 607(h)(6)(A) of the 
        Merchant Marine Act, 1936, is amended by striking ``34 
        percent'' and inserting ``the applicable percentage (within the 
        meaning of section 1201(b) of the Internal Revenue Code of 
        1986)''.
  (c) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 1999.
          (2) Withholding.--The amendment made by subsection (b)(1) 
        shall apply to amounts paid after December 31, 1999.

SEC. 302. REPEAL OF ALTERNATIVE MINIMUM TAX ON CORPORATIONS.

  (a) In General.--The last sentence of section 55(a), as amended by 
section 121, is amended by striking ``on any taxpayer other than a 
corporation''.
  (b) Repeal of 90 Percent Limitation on Foreign Tax Credit.--
          (1) In general.--Section 59(a) (relating to alternative 
        minimum tax foreign tax credit) is amended by striking 
        paragraph (2) and by redesignating paragraphs (3) and (4) as 
        paragraphs (2) and (3), respectively.
          (2) Conforming amendment.--Section 53(d)(1)(B)(i)(II) is 
        amended by striking ``and if section 59(a)(2) did not apply''.
  (c) Limitation on Use of Credit for Prior Year Minimum Tax 
Liability.--
          (1) In general.--Subsection (c) of section 53, as amended by 
        section 121, is amended by redesignating paragraph (2) as 
        paragraph (3) and by inserting after paragraph (1) the 
        following new paragraph:
          ``(2) Corporations for taxable years beginning after 2002.--
        In the case of corporation for any taxable year beginning after 
        2002 and before 2008, the limitation under paragraph (1) shall 
        be increased by the applicable percentage (determined in 
        accordance with the following table) of the tentative minimum 
        tax for the taxable year.

        ``For taxable years beginning
                                                         The applicable
          in calendar year--
                                                        percentage is--
          2003.............................................        20  
          2004.............................................        30  
          2005.............................................        40  
          2006 or 2007.....................................       50.  

        In no event shall the limitation determined under this 
        paragraph be greater than the sum of the tax imposed by section 
        55 and the regular tax reduced by the sum of the credits 
        allowed under subparts A, B, D, E, and F of this part.''
          (2) Conforming amendments.--
                  (A) Section 55(e) is amended by striking paragraph 
                (5).
                  (B) Paragraph (3) of section 53(c), as redesignated 
                by paragraph (1), is amended by striking ``to a 
                taxpayer other than a corporation''.
  (d) Effective Date.--
          (1) In general.--Except as provided in paragraphs (2) and 
        (3), the amendments made by this section shall apply to taxable 
        years beginning after December 31, 2002.
          (2) Repeal of 90 percent limitation on foreign tax credit.--
        The amendments made by subsection (b) shall apply to taxable 
        years beginning after December 31, 2001.
          (3) Subsection (c)(2)(A).--The amendment made by subsection 
        (c)(2)(A) shall apply to taxable years beginning after December 
        31, 2007.

                 TITLE IV--EDUCATION SAVINGS INCENTIVES

SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.

  (a) Maximum Annual Contributions.--
          (1) In general.--Section 530(b)(1)(A)(iii) (defining 
        education individual retirement account) is amended by striking 
        ``$500'' and inserting ``$2,000''.
          (2) Conforming amendment.--Section 4973(e)(1)(A) is amended 
        by striking ``$500'' and inserting ``$2,000''.
  (b) Tax-Free Expenditures for Elementary and Secondary School 
Expenses.--
          (1) In general.--Section 530(b)(2) (defining qualified higher 
        education expenses) is amended to read as follows:
          ``(2) Qualified education expenses.--
                  ``(A) In general.--The term `qualified education 
                expenses' means--
                          ``(i) qualified higher education expenses (as 
                        defined in section 529(e)(3)), and
                          ``(ii) qualified elementary and secondary 
                        education expenses (as defined in paragraph 
                        (4)).
                  ``(B) Qualified state tuition programs.--Such term 
                shall include any contribution to a qualified State 
                tuition program (as defined in section 529(b)) on 
                behalf of the designated beneficiary (as defined in 
                section 529(e)(1)); but there shall be no increase in 
                the investment in the contract for purposes of applying 
                section 72 by reason of any portion of such 
                contribution which is not includible in gross income by 
                reason of subsection (d)(2).''
          (2) Qualified elementary and secondary education expenses.--
        Section 530(b) (relating to definitions and special rules) is 
        amended by adding at the end the following new paragraph:
          ``(4) Qualified elementary and secondary education 
        expenses.--
                  ``(A) In general.--The term `qualified elementary and 
                secondary education expenses' means--
                          ``(i) expenses for tuition, fees, academic 
                        tutoring, special needs services, books, 
                        supplies, computer equipment (including related 
                        software and services), and other equipment 
                        which are incurred in connection with the 
                        enrollment or attendance of the designated 
                        beneficiary of the trust as an elementary or 
                        secondary school student at a public, private, 
                        or religious school, and
                          ``(ii) expenses for room and board, uniforms, 
                        transportation, and supplementary items and 
                        services (including extended day programs) 
                        which are required or provided by a public, 
                        private, or religious school in connection with 
                        such enrollment or attendance.
                  ``(B) Special rule for homeschooling.--Such term 
                shall include expenses described in subparagraph (A)(i) 
                in connection with education provided by homeschooling 
                if the requirements of any applicable State or local 
                law are met with respect to such education.
                  ``(C) School.--The term `school' means any school 
                which provides elementary education or secondary 
                education (kindergarten through grade 12), as 
                determined under State law.''
          (3) Conforming amendments.--Section 530 is amended--
                  (A) by striking ``higher'' each place it appears in 
                subsections (b)(1) and (d)(2), and
                  (B) by striking ``higher'' in the heading for 
                subsection (d)(2).
  (c) Waiver of Age Limitations for Children With Special Needs.--
Section 530(b)(1) (defining education individual retirement account) is 
amended by adding at the end the following flush sentence:
        ``The age limitations in subparagraphs (A)(ii) and (E) and 
        paragraphs (5) and (6) of subsection (d) shall not apply to any 
        designated beneficiary with special needs (as determined under 
        regulations prescribed by the Secretary).''
  (d) Entities Permitted To Contribute to Accounts.--Section 530(c)(1) 
(relating to reduction in permitted contributions based on adjusted 
gross income) is amended by striking ``The maximum amount which a 
contributor'' and inserting ``In the case of a contributor who is an 
individual, the maximum amount the contributor''.
  (e) Time When Contributions Deemed Made.--
          (1) In general.--Section 530(b) (relating to definitions and 
        special rules), as amended by subsection (b)(2), is amended by 
        adding at the end the following new paragraph:
          ``(5) Time when contributions deemed made.--An individual 
        shall be deemed to have made a contribution to an education 
        individual retirement account on the last day of the preceding 
        taxable year if the contribution is made on account of such 
        taxable year and is made not later than the time prescribed by 
        law for filing the return for such taxable year (not including 
        extensions thereof).''
          (2) Extension of time to return excess contributions.--
        Subparagraph (C) of section 530(d)(4) (relating to additional 
        tax for distributions not used for educational expenses) is 
        amended--
                  (A) by striking clause (i) and inserting the 
                following new clause:
                          ``(i) such distribution is made before the 
                        1st day of the 6th month of the taxable year 
                        following the taxable year, and'', and
                  (B) by striking ``due date of return'' in the heading 
                and inserting ``certain date''.
  (f) Coordination With Hope and Lifetime Learning Credits and 
Qualified Tuition Programs.--
          (1) In general.--Section 530(d)(2)(C) is amended to read as 
        follows:
                  ``(C) Coordination with hope and lifetime learning 
                credits and qualified tuition programs.--For purposes 
                of subparagraph (A)--
                          ``(i) Credit coordination.--The total amount 
                        of qualified higher education expenses with 
                        respect to an individual for the taxable year 
                        shall be reduced--
                                  ``(I) as provided in section 
                                25A(g)(2), and
                                  ``(II) by the amount of such expenses 
                                which were taken into account in 
                                determining the credit allowed to the 
                                taxpayer or any other person under 
                                section 25A.
                          ``(ii) Coordination with qualified tuition 
                        programs.--If, with respect to an individual 
                        for any taxable year--
                                  ``(I) the aggregate distributions 
                                during such year to which subparagraph 
                                (A) and section 529(c)(3)(B) apply, 
                                exceed
                                  ``(II) the total amount of qualified 
                                education expenses (after the 
                                application of clause (i)) for such 
                                year,
                        the taxpayer shall allocate such expenses among 
                        such distributions for purposes of determining 
                        the amount of the exclusion under subparagraph 
                        (A) and section 529(c)(3)(B).''
          (2) Conforming amendments.--
                  (A) Subsection (e) of section 25A is amended to read 
                as follows:
  ``(e) Election Not To Have Section Apply.--A taxpayer may elect not 
to have this section apply with respect to the qualified tuition and 
related expenses of an individual for any taxable year.''
                  (B) Section 135(d)(2)(A) is amended by striking 
                ``allowable'' and inserting ``allowed''.
                  (C) Section 530(d)(2)(D) is amended--
                          (i) by striking ``or credit'', and
                          (ii) by striking ``credit or'' in the 
                        heading.
                  (D) Section 4973(e)(1) is amended by adding ``and'' 
                at the end of subparagraph (A), by striking 
                subparagraph (B), and by redesignating subparagraph (C) 
                as subparagraph (B).
  (g) Renaming Education Individual Retirement Accounts as Education 
Savings Accounts.--
          (1) In general.--
                  (A) Section 530 (as amended by the preceding 
                provisions of this section) is amended by striking 
                ``education individual retirement account'' each place 
                it appears and inserting ``education savings account''.
                  (B) The heading for paragraph (1) of section 530(b) 
                is amended by striking ``Education individual 
                retirement account'' and inserting ``Education savings 
                account''.
                  (C) The heading for section 530 is amended to read as 
                follows:

``SEC. 530. EDUCATION SAVINGS ACCOUNTS.''.

                  (D) The item in the table of contents for part VII of 
                subchapter F of chapter 1 relating to section 530 is 
                amended to read as follows:

                              ``Sec. 530. Education savings 
                                        accounts.''.

          (2) Conforming amendments.--
                  (A) The following provisions are each amended by 
                striking ``education individual retirement'' each place 
                it appears and inserting ``education savings'':
                          (i) Section 25A(e)(2).
                          (ii) Section 26(b)(2)(E).
                          (iii) Section 72(e)(9).
                          (iv) Section 135(c)(2)(C).
                          (v) Subsections (a) and (e) of section 4973.
                          (vi) Subsections (c) and (e) of section 4975.
                          (vii) Section 6693(a)(2)(D).
                  (B) The headings for each of the following provisions 
                are amended by striking ``education individual 
                retirement accounts'' each place it appears and 
                inserting ``education savings accounts''.
                          (i) Section 72(e)(9).
                          (ii) Section 135(c)(2)(C).
                          (iii) Section 4973(e).
                          (iv) Section 4975(c)(5).
  (h) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2000.
          (2) Subsection (g).--The amendments made by subsection (g) 
        shall take effect on the date of the enactment of this Act.

SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.

  (a) Eligible Educational Institutions Permitted To Maintain Qualified 
Tuition Programs.--
          (1) In general.--Section 529(b)(1) (defining qualified State 
        tuition program) is amended by inserting ``or by 1 or more 
        eligible educational institutions'' after ``maintained by a 
        State or agency or instrumentality thereof ''.
          (2) Private qualified tuition programs limited to benefit 
        plans.--Clause (ii) of section 529(b)(1)(A) is amended by 
        inserting ``in the case of a program established and maintained 
        by a State or agency or instrumentality thereof,'' before ``may 
        make''.
          (3) Conforming amendments.--
                  (A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 
                529, 530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are each 
                amended by striking ``qualified State tuition'' each 
                place it appears and inserting ``qualified tuition''.
                  (B) The headings for sections 72(e)(9) and 
                135(c)(2)(C) are each amended by striking ``qualified 
                state tuition'' and inserting ``qualified tuition''.
                  (C) The headings for sections 529(b) and 530(b)(2)(B) 
                are each amended by striking ``Qualified state 
                tuition'' and inserting ``Qualified tuition''.
                  (D) The heading for section 529 is amended by 
                striking ``state''.
                  (E) The item relating to section 529 in the table of 
                sections for part VIII of subchapter F of chapter 1 is 
                amended by striking ``State''.
  (b) Exclusion From Gross Income of Education Distributions From 
Qualified Tuition Programs.--
          (1) In general.--Section 529(c)(3)(B) (relating to 
        distributions) is amended to read as follows:
                  ``(B) Distributions for qualified higher education 
                expenses.--
                          ``(i) In general.--For purposes of this 
                        paragraph--
                                  ``(I) no amount shall be includible 
                                in gross income under subparagraph (A) 
                                by reason of a distribution which 
                                consists of providing a benefit to the 
                                distributee which, if paid for by the 
                                distributee, would constitute payment 
                                of a qualified higher education 
                                expense, and
                                  ``(II) in the case of distributions 
                                not described in subclause (I), the 
                                amount otherwise includible in gross 
                                income under subparagraph (A) shall be 
                                reduced by an amount which bears the 
                                same ratio to the otherwise includible 
                                amount as the qualified higher 
                                education expenses (other than expenses 
                                paid by distributions described in 
                                subclause (I)) bear to the aggregate of 
                                such distributions.
                          ``(ii) Exception for institutional 
                        programs.--In the case of any taxable year 
                        beginning before January 1, 2004, clause (i) 
                        shall not apply with respect to any 
                        distribution during such taxable year under a 
                        qualified tuition program established and 
                        maintained by 1 or more eligible educational 
                        institutions.
                          ``(iii) In-kind distributions.--Any benefit 
                        furnished to a designated beneficiary under a 
                        qualified tuition program shall be treated as a 
                        distribution to the beneficiary for purposes of 
                        this paragraph.
                          ``(iv) Coordination with hope and lifetime 
                        learning credits.--The total amount of 
                        qualified higher education expenses with 
                        respect to an individual for the taxable year 
                        shall be reduced--
                                  ``(I) as provided in section 
                                25A(g)(2), and
                                  ``(II) by the amount of such expenses 
                                which were taken into account in 
                                determining the credit allowed to the 
                                taxpayer or any other person under 
                                section 25A.
                          ``(v) Coordination with education savings 
                        accounts.--If, with respect to an individual 
                        for any taxable year--
                                  ``(I) the aggregate distributions to 
                                which clause (i) and section 
                                530(d)(2)(A) apply, exceed
                                  ``(II) the total amount of qualified 
                                higher education expenses otherwise 
                                taken into account under clause (i) 
                                (after the application of clause (iv)) 
                                for such year,
                        the taxpayer shall allocate such expenses among 
                        such distributions for purposes of determining 
                        the amount of the exclusion under clause (i) 
                        and section 530(d)(2)(A).''
          (2) Conforming amendments.--
                  (A) Section 135(d)(2)(B) is amended by striking ``the 
                exclusion under section 530(d)(2)'' and inserting ``the 
                exclusions under sections 529(c)(3)(B)(i) and 
                530(d)(2)''.
                  (B) Section 221(e)(2)(A) is amended by inserting 
                ``529,'' after ``135,''.
  (c) Rollover to Different Program for Benefit of Same Designated 
Beneficiary.--Section 529(c)(3)(C) (relating to change in 
beneficiaries) is amended--
          (1) by striking ``transferred to the credit'' in clause (i) 
        and inserting ``transferred--
                                  ``(I) to another qualified tuition 
                                program for the benefit of the 
                                designated beneficiary, or
                                  ``(II) to the credit'',
          (2) by adding at the end the following new clause:
                          ``(iii) Limitation on certain rollovers.--
                        Clause (i)(I) shall not apply to any amount 
                        transferred with respect to a designated 
                        beneficiary if, at any time during the 1-year 
                        period ending on the day of such transfer, any 
                        other amount was transferred which was not 
                        includible in gross income by reason of clause 
                        (i)(I).'', and
          (3) by inserting ``or programs'' after ``beneficiaries'' in 
        the heading.
  (d) Member of Family Includes First Cousin.--Section 529(e)(2) 
(defining member of family) is amended by striking ``and'' at the end 
of subparagraph (B), by striking the period at the end of subparagraph 
(C) and by inserting ``; and'', and by adding at the end the following 
new subparagraph:
                  ``(D) any first cousin of such beneficiary.''
  (e) Definition of Qualified Higher Education Expenses.--
          (1) In general.--Subparagraph (A) of section 529(e)(3) 
        (relating to definition of qualified higher education expenses) 
        is amended to read as follows:
                  ``(A) In general.--The term `qualified higher 
                education expenses' means--
                          ``(i) tuition and fees required for the 
                        enrollment or attendance of a designated 
                        beneficiary at an eligible educational 
                        institution for courses of instruction of such 
                        beneficiary at such institution, and
                          ``(ii) expenses for books, supplies, and 
                        equipment which are incurred in connection with 
                        such enrollment or attendance, but not to 
                        exceed the allowance for books and supplies 
                        included in the cost of attendance (as defined 
                        in section 472 of the Higher Education Act of 
                        1965 (20 U.S.C. 1087ll), as in effect on the 
                        date of enactment of the Financial Freedom Act 
                        of 1999) as determined by the eligible 
                        educational institution.''.
          (2) Exception for education involving sports, etc..--
        Paragraph (3) of section 529(e) (relating to qualified higher 
        education expenses) is amended by adding at the end the 
        following new subparagraph:
                  ``(C) Exception for education involving sports, 
                etc..--The term `qualified higher education expenses' 
                shall not include expenses with respect to any course 
                or other education involving sports, games, or hobbies 
                unless such course or other education is part of the 
                beneficiary's degree program or is taken to acquire or 
                improve job skills of the beneficiary.''.
  (f) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2000.
          (2) Qualified higher education expenses.--The amendments made 
        by subsection (e) shall apply to amounts paid for education 
        furnished after December 31, 1999.

SEC. 403. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL 
                    HEALTH SERVICE CORPS SCHOLARSHIP PROGRAM, THE F. 
                    EDWARD HEBERT ARMED FORCES HEALTH PROFESSIONS 
                    SCHOLARSHIP AND FINANCIAL ASSISTANCE PROGRAM, AND 
                    CERTAIN OTHER PROGRAMS.

  (a) In General.--Section 117(c) (relating to the exclusion from gross 
income amounts received as a qualified scholarship) is amended--
          (1) by striking ``Subsections (a)'' and inserting the 
        following:
          ``(1) In general.--Except as provided in paragraph (2), 
        subsections (a)'', and
          (2) by adding at the end the following new paragraph:
          ``(2) Exceptions.--Paragraph (1) shall not apply to any 
        amount received by an individual under--
                  ``(A) the National Health Service Corps Scholarship 
                program under section 338A(g)(1)(A) of the Public 
                Health Service Act,
                  ``(B) the Armed Forces Health Professions Scholarship 
                and Financial Assistance program under subchapter I of 
                chapter 105 of title 10, United States Code,
                  ``(C) the National Institutes of Health Undergraduate 
                Scholarship program under section 487D of the Public 
                Health Service Act, or
                  ``(D) any State program determined by the Secretary 
                to have substantially similar objectives as such 
                programs.''
  (b) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by subsection (a) shall apply to amounts 
        received in taxable years beginning after December 31, 1993.
          (2) State programs.--Section 117(c)(2)(D) of the Internal 
        Revenue Code of 1986 (as added by the amendments made by 
        subsection (a)) shall apply to amounts received in taxable 
        years beginning after December 31, 1999.

SEC. 404. 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 in calendar years beginning after December 31, 
1999.

SEC. 405. 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, 1999.

SEC. 406. REPEAL OF 60-MONTH LIMITATION ON DEDUCTION FOR INTEREST ON 
                    EDUCATION LOANS.

  (a) In General.--Section 221 (relating to interest on education 
loans) is amended by striking subsection (d) and by redesignating 
subsections (e), (f), and (g) as subsections (d), (e), and (f), 
respectively.
  (b) Conforming Amendment.--Subsection (e) of section 6050S is amended 
by striking ``section 221(e)(1)'' and inserting ``section 221(d)(1)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to loan interest payments made after December 31, 1999, in taxable 
years ending after such date.

                    TITLE V--HEALTH CARE PROVISIONS

SEC. 501. 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, 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.....................................................        25  
  2002.....................................................        40  
  2003, 2004, 2005, and 2006...............................        50  
  2007.....................................................        75  
  2008 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 50 percent or more of the cost of coverage 
                under such plan (determined under section 4980B) 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 
                subsections (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) 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.
  ``(f) 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.''

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

SEC. 502. LONG-TERM CARE INSURANCE PERMITTED TO BE OFFERED UNDER 
                    CAFETERIA PLANS AND FLEXIBLE SPENDING ARRANGEMENTS.

  (a) Cafeteria Plans.--Subsection (f) of section 125 (defining 
qualified benefits) is amended by inserting before the period at the 
end ``unless such product is a qualified long-term care insurance 
contract (as defined in section 7702B)''.
  (b) Flexible Spending Arrangements.--Section 106 (relating to 
contributions by employer to accident and health plans) is amended by 
striking subsection (c).
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2000.

SEC. 503. EXPANSION OF AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS.

  (a) Repeal of Limitations on Number of Medical Savings Accounts.--
          (1) In general.--Subsections (i) and (j) of section 220 are 
        hereby repealed.
          (2) Conforming amendment.--Paragraph (1) of section 220(c) is 
        amended by striking subparagraph (D).
  (b) All Employers May Offer Medical Savings Accounts.--
          (1) In general.--Subclause (I) of section 220(c)(1)(A)(iii) 
        (defining eligible individual) is amended by striking ``and 
        such employer is a small employer''.
          (2) Conforming amendments.--
                  (A) Paragraph (1) of section 220(c) is amended by 
                striking subparagraph (C).
                  (B) Subsection (c) of section 220 is amended by 
                striking paragraph (4) and by redesignating paragraph 
                (5) as paragraph (4).
  (c) Increase in Amount of Deduction Allowed for Contributions to 
Medical Savings Accounts.--
          (1) In general.--Paragraph (2) of section 220(b) is amended 
        to read as follows:
          ``(2) Monthly limitation.--The monthly limitation for any 
        month is the amount equal to \1/12\ of the annual deductible 
        (as of the first day of such month) of the individual's 
        coverage under the high deductible health plan.''.
          (2) Conforming amendment.--Clause (ii) of section 
        220(d)(1)(A) is amended by striking ``75 percent of''.
  (d) Both Employers and Employees May Contribute to Medical Savings 
Accounts.--Paragraph (5) of section 220(b) is amended to read as 
follows:
          ``(5) Coordination with exclusion for employer 
        contributions.--The limitation which would (but for this 
        paragraph) apply under this subsection to the taxpayer for any 
        taxable year shall be reduced (but not below zero) by the 
        amount which would (but for section 106(b)) be includible in 
        the taxpayer's gross income for such taxable year.''.
  (e) Reduction of Permitted Deductibles Under High Deductible Health 
Plans.--
          (1) In general.--Subparagraph (A) of section 220(c)(2) 
        (defining high deductible health plan) is amended--
                  (A) by striking ``$1,500'' in clause (i) and 
                inserting ``$1,000'', and
                  (B) by striking ``$3,000'' in clause (ii) and 
                inserting ``$2,000''.
          (2) Conforming amendment.--Subsection (g) of section 220 is 
        amended to read as follows:
  ``(g) Cost-of-Living Adjustment.--
          ``(1) In general.--In the case of any taxable year beginning 
        in a calendar year after 1998, each dollar amount in subsection 
        (c)(2) shall be increased by an amount equal to--
                  ``(A) such dollar amount, multiplied by
                  ``(B) the cost-of-living adjustment determined under 
                section 1(f)(3) for the calendar year in which such 
                taxable year begins by substituting `calendar year 
                1997' for `calendar year 1992' in subparagraph (B) 
                thereof.
          ``(2) Special rules.--In the case of the $1,000 amount in 
        subsection (c)(2)(A)(i) and the $2,000 amount in subsection 
        (c)(2)(A)(ii), paragraph (1)(B) shall be applied by 
        substituting `calendar year 1999' for `calendar year 1997'.
          ``(3) Rounding.--If any increase under paragraph (1) or (2) 
        is not a multiple of $50, such increase shall be rounded to the 
        nearest multiple of $50.
  (f) Medical Savings Accounts May Be Offered Under Cafeteria Plans.--
Subsection (f) of section 125 is amended by striking ``106(b),''.
  (g) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2000.

SEC. 504. ADDITIONAL PERSONAL EXEMPTION FOR TAXPAYER CARING FOR ELDERLY 
                    FAMILY MEMBER IN TAXPAYER'S HOME.

  (a) In General.--Section 151 (relating to allowance of deductions for 
personal exemptions) is amended by adding at the end redesignating 
subsection (e) as subsection (f) and by inserting after subsection (d) 
the following new subsection:
  ``(e) Additional Exemption for Certain Elderly Family Members 
Residing With Taxpayer.--
          ``(1) In general.--An exemption of the exemption amount for 
        each qualified family member of the taxpayer.
          ``(2) Qualified family member.--For purposes of this 
        subsection, the term `qualified family member' means, with 
        respect to any taxable year, any individual--
                  ``(A) who is an ancestor of the taxpayer or of the 
                taxpayer's spouse or who is the spouse of any such 
                ancestor,
                  ``(B) who is a member for the entire taxable year of 
                a household maintained by the taxpayer, and
                  ``(C) 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 with long-term care needs 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.
        Such term shall not include any individual otherwise meeting 
        the requirements of the preceding sentence unless within the 
        39\1/2\ month period ending on such due date (or such other 
        period as the Secretary prescribes) a physician (as so defined) 
        has certified that such individual meets such requirements.
          ``(3) Individuals with long-term care needs.--An individual 
        is described in this paragraph if the individual--
                  ``(A) is unable to perform (without substantial 
                assistance from another individual) at least 2 
                activities of daily living (as defined in section 
                7702B(c)(2)(B)) due to a loss of functional capacity, 
                or
                  ``(B) requires substantial supervision to protect 
                such individual from threats to health and safety due 
                to severe cognitive impairment and is unable to 
                perform, without reminding or cuing assistance, at 
                least 1 activity of at least 1 activity of daily living 
                (as so defined) or 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.
          ``(4) 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) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 505. EXPANDED HUMAN CLINICAL TRIALS QUALIFYING FOR ORPHAN DRUG 
                    CREDIT.

  (a) In General.--Subclause (I) of section 45C(b)(2)(A)(ii) is amended 
to read as follows:
                                  ``(I) after the date that the 
                                application is filed for designation 
                                under such section 526, and''.
  (b) Conforming Amendment.--Clause (i) of section 45C(b)(2)(A) is 
amended by inserting ``which is'' before ``being'' and by inserting 
before the comma at the end ``and which is designated under section 526 
of such Act''.
  (c) Effective Date.--The amendments made by this section shall apply 
to amounts paid or incurred after December 31, 1999.

SEC. 506. INCLUSION OF CERTAIN VACCINES AGAINST STREPTOCOCCUS 
                    PNEUMONIAE TO LIST OF TAXABLE VACCINES.

  (a) In General.--Section 4132(a)(1) (defining taxable vaccine) is 
amended by adding at the end the following new subparagraph:
                  ``(L) Any conjugate vaccine against streptococcus 
                pneumoniae.''
  (b) Effective Date.--
          (1) Sales.--The amendment made by this section shall apply to 
        vaccine sales beginning on the day after the date on which the 
        Centers for Disease Control makes a final recommendation for 
        routine administration to children of any conjugate vaccine 
        against streptococcus pneumoniae.
          (2) Deliveries.--For purposes of paragraph (1), in the case 
        of sales on or before the date described in such paragraph for 
        which delivery is made after such date, the delivery date shall 
        be considered the sale date.
  (c) Report.--Not later than December 31, 1999, the Comptroller 
General of the United States shall prepare and submit a report to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate on the operation of the Vaccine 
Injury Compensation Trust Fund and on the adequacy of such Fund to meet 
future claims made under the Vaccine Injury Compensation Program.

SEC. 507. ABOVE-THE-LINE DEDUCTION FOR PRESCRIPTION DRUG INSURANCE 
                    COVERAGE OF MEDICARE BENEFICIARIES IF CERTAIN 
                    MEDICARE AND LOW-INCOME ASSISTANCE PROVISIONS IN 
                    EFFECT.

  (a) In General.--Subsection (a) of section 213 is amended by adding 
at the end the following new sentence: ``The 7.5 percent adjusted gross 
income threshold in the preceding sentence shall not apply to the 
expenses paid during the taxable year for prescription drug insurance 
coverage of a medicare beneficiary who is the taxpayer, the taxpayer's 
spouse, or a dependent (as defined in section 152) if--
          ``(1) the Secretary certifies that, throughout such taxable 
        year, the conditions specified in subsection (e) are met, and
          ``(2) the amount paid for such coverage is either separately 
        stated in the contract or furnished to the policyholder by the 
        insurance company in a separate statement.
Expenses to which the preceding sentence applies shall not be taken 
into account in applying such threshold to other expenses. For purposes 
of this subsection, the term `medicare beneficiary' means an individual 
who is entitled to benefits under part A, B, or C of title XVIII of the 
Social Security Act.''
  (b) Conditions.--Section 213 is amended by redesignating subsection 
(e) as subsection (f) and by inserting after subsection (d) the 
following new subsection:
  ``(e) Conditions for Separate Deduction for Prescription Drug 
Insurance Coverage.--For purposes of subsection (a), the conditions 
specified in this subsection are met if all of the following are in 
effect:
          ``(1) Assistance for prescription drugs for low-income 
        medicare beneficiaries.--
                  ``(A) Low-income assistance to enable the purchase of 
                coverage of prescription drugs as described in 
                paragraph (2) or (3) for medicare beneficiaries with 
                incomes under 135 percent of the applicable Federal 
                poverty level, with such assistance phasing out for 
                beneficiaries with incomes between 135 percent and 150 
                percent of such level.
                  ``(B) The Federal Government provides funding for the 
                costs of such assistance.
          ``(2) Supplemental coverage of prescription drugs.--All 
        policies supplemental to Medicare include coverage for costs of 
        prescription drugs.
          ``(3) Structural medicare reform.--Coverage for outpatient 
        prescription drugs for medicare beneficiaries is provided only 
        through integrated comprehensive health plans which offer 
        current Medicare covered services and maximum limitations on 
        out-of-pocket spending and such comprehensive plans sponsored 
        by the Health Care Financing Administration compete on the same 
        basis as private plans.''
  (c) Deduction for Prescription Drug Insurance Coverage Allowed 
Whether or Not Taxpayer Itemizes Other Deductions.--Subsection (a) of 
section 62 (defining adjusted gross income) is amended by inserting 
after paragraph (18) the following new paragraph:
          ``(19) Prescription drug insurance coverage.--The deduction 
        allowed by section 213(a) to the extent of the expenses 
        described in the second sentence thereof.''
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

                      TITLE VI--ESTATE TAX RELIEF

  Subtitle A--Repeal of Estate, Gift, and Generation-Skipping Taxes; 
                  Repeal of Step Up in Basis At Death

SEC. 601. REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING TAXES.

  (a) In General.--Subtitle B is hereby repealed.
  (b) Effective Date.--The repeal made by subsection (a) shall apply to 
the estates of decedents dying, and gifts and generation-skipping 
transfers made, after December 31, 2008.

SEC. 602. TERMINATION OF STEP UP IN BASIS AT DEATH.

  (a) Termination of Application of Section 1014.--Section 1014 
(relating to basis of property acquired from a decedent) is amended by 
adding at the end the following:
  ``(f) Termination.--In the case of a decedent dying after December 
31, 2008, this section shall not apply to property for which basis is 
provided by section 1022.''
  (b) Conforming Amendment.--Subsection (a) of section 1016 (relating 
to adjustments to basis) is amended by striking ``and'' at the end of 
paragraph (26), by striking the period at the end of paragraph (27) and 
inserting ``; and'', and by adding at the end the following:
          ``(28) to the extent provided in section 1022 (relating to 
        basis for certain property acquired from a decedent dying after 
        December 31, 2008).''

SEC. 603. CARRYOVER BASIS AT DEATH.

  (a) General Rule.--Part II of subchapter O of chapter 1 (relating to 
basis rules of general application) is amended by inserting after 
section 1021 the following:

``SEC. 1022. CARRYOVER BASIS FOR CERTAIN PROPERTY ACQUIRED FROM A 
                    DECEDENT DYING AFTER DECEMBER 31, 2008.

  ``(a) Carryover Basis.--Except as otherwise provided in this section, 
the basis of carryover basis property in the hands of a person 
acquiring such property from a decedent shall be determined under 
section 1015.
  ``(b) Carryover Basis Property Defined.--
          ``(1) In general.--For purposes of this section, the term 
        `carryover basis property' means any property--
                  ``(A) which is acquired from or passed from a 
                decedent who died after December 31, 2008, and
                  ``(B) which is not excluded pursuant to paragraph 
                (2).
        The property taken into account under subparagraph (A) shall be 
        determined under section 1014(b) without regard to subparagraph 
        (A) of the last sentence of paragraph (9) thereof.
          ``(2) Certain property not carryover basis property.--The 
        term `carryover basis property' does not include--
                  ``(A) any item of gross income in respect of a 
                decedent described in section 691,
                  ``(B) property which was acquired from the decedent 
                by the surviving spouse of the decedent, the value of 
                which would have been deductible from the value of the 
                taxable estate of the decedent under section 2056, as 
                in effect on the day before the date of enactment of 
                the Financial Freedom Act of 1999, and
                  ``(C) any includible property of the decedent if the 
                aggregate adjusted fair market value of such property 
                does not exceed $2,000,000.
        For purposes of this paragraph and paragraph (3), the term 
        `adjusted fair market value' means, with respect to any 
        property, fair market value reduced by any indebtedness secured 
        by such property.
          ``(3) Phasein of carryover basis if includible property 
        exceeds $1,300,000.--
                  ``(A) In general.--If the adjusted fair market value 
                of the includible property of the decedent exceeds 
                $1,300,000, but does not exceed $2,000,000, the amount 
                of the increase in the basis of such property which 
                would (but for this paragraph) result under section 
                1014 shall be reduced by the amount which bears the 
                same ratio to such increase as such excess bears to 
                $700,000.
                  ``(B) Allocation of reduction.--The reduction under 
                subparagraph (A) shall be allocated among only the 
                includible property having net appreciation and shall 
                be allocated in proportion to the respective amounts of 
                such net appreciation. For purposes of the preceding 
                sentence, the term `net appreciation' means the excess 
                of the adjusted fair market value over the decedent's 
                adjusted basis immediately before such decedent's 
                death.
          ``(4) Includible property.--
                  ``(A) In general.--For purposes of this subsection, 
                the term `includible property' means property which 
                would be included in the gross estate of the decedent 
                under any of the following provisions as in effect on 
                the day before the date of the enactment of the 
                Financial Freedom Act of 1999:
                          ``(i) Section 2033.
                          ``(ii) Section 2038.
                          ``(iii) Section 2040.
                          ``(iv) Section 2041.
                          ``(v) Section 2042(a)(1).
                  ``(B) Exclusion of property acquired by spouse.--Such 
                term shall not include property described in paragraph 
                (2)(B).
  ``(c) Regulations.--The Secretary shall prescribe such regulations as 
may be necessary to carry out the purposes of this section.''
  (b) Miscellaneous Amendments Related To Carryover Basis.--
          (1) Capital gain treatment for inherited art work or similar 
        property.--
                  (A) In general.--Subparagraph (C) of section 1221(3) 
                (defining capital asset) is amended by inserting 
                ``(other than by reason of section 1022)'' after ``is 
                determined''.
                  (B) Coordination with section 170.--Paragraph (1) of 
                section 170(e) (relating to certain contributions of 
                ordinary income and capital gain property) is amended 
                by adding at the end the following: ``For purposes of 
                this paragraph, the determination of whether property 
                is a capital asset shall be made without regard to the 
                exception contained in section 1221(3)(C) for basis 
                determined under section 1022.''
          (2) Definition of Executor.--Section 7701(a) (relating to 
        definitions) is amended by adding at the end the following:
          ``(47) Executor.--The term `executor' means the executor or 
        administrator of the decedent, or, if there is no executor or 
        administrator appointed, qualified, and acting within the 
        United States, then any person in actual or constructive 
        possession of any property of the decedent.''
          (3) Clerical amendment.--The table of sections for part II of 
        subchapter O of chapter 1 is amended by adding at the end the 
        following new item:

                              ``Sec. 1022. Carryover basis for certain 
                                        property acquired from a 
                                        decedent dying after December 
                                        31, 2008.''

  (c) Effective Date.--The amendments made by this section shall apply 
to estates of decedents dying after December 31, 2008.

  Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal

SEC. 611. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.

  (a) Maximum Rate of Tax Reduced to 50 Percent.--The table contained 
in section 2001(c)(1) is amended by striking the 2 highest brackets and 
inserting the following:

    Over $2,500,000
                                        $1,025,800, plus 50% of the 
                                                excess over 
                                                $2,500,000.''

  (b) Repeal of Phaseout of Graduated Rates.--Subsection (c) of section 
2001 is amended by striking paragraph (2).
  (c) Additional Reductions of Rates of Tax.--Subsection (c) of section 
2001, as amended by subsection (b), is amended by adding at the end the 
following new paragraph:
          ``(2) Phasedown of tax.--In the case of estates of decedents 
        dying, and gifts made, during any calendar year after 2001 and 
        before 2009--
                  ``(A) In general.--Except as provided in subparagraph 
                (C), the tentative tax under this subsection shall be 
                determined by using a table prescribed by the Secretary 
                (in lieu of using the table contained in paragraph (1)) 
                which is the same as such table; except that--
                          ``(i) each of the rates of tax shall be 
                        reduced by the number of percentage points 
                        determined under subparagraph (B), and
                          ``(ii) the amounts setting forth the tax 
                        shall be adjusted to the extent necessary to 
                        reflect the adjustments under clause (i).
                  ``(B) Percentage points of reduction.--

                  
                                                        The number of  
                ``For calendar year:
                                                  percentage points is:
                  2002.....................................         1  
                  2003.....................................         2  
                  2004.....................................         3  
                  2005.....................................         5  
                  2006.....................................         7  
                  2007.....................................         9  
                  2008.....................................       11.  

                  ``(C) Coordination with income tax rates.--The 
                reductions under subparagraph (A)--
                          ``(i) shall not reduce any rate under 
                        paragraph (1) below the lowest rate in section 
                        1(c), and
                          ``(ii) shall not reduce the highest rate 
                        under paragraph (1) below the highest rate in 
                        section 1(c).
                  ``(D) Coordination with credit for state death 
                taxes.--Rules similar to the rules of subparagraph (A) 
                shall apply to the table contained in section 2011(b) 
                except that the Secretary shall prescribe percentage 
                point reductions which maintain the proportionate 
                relationship (as in effect before any reduction under 
                this paragraph) between the credit under section 2011 
                and the tax rates under subsection (c).''
  (d) Effective Dates.--
          (1) Subsections (a) and (b).--The amendments made by 
        subsections (a) and (b) shall apply to estates of decedents 
        dying, and gifts made, after December 31, 2000.
          (2) Subsection (c).--The amendment made by subsection (c) 
        shall apply to estates of decedents dying, and gifts made, 
        after December 31, 2001.

   Subtitle C--Unified Credit Replaced With Unified Exemption Amount

SEC. 621. UNIFIED CREDIT AGAINST ESTATE AND GIFT TAXES REPLACED WITH 
                    UNIFIED EXEMPTION AMOUNT.

  (a) In General.--
          (1) Estate tax.--Part IV of subchapter A of chapter 11 is 
        amended by inserting after section 2051 the following new 
        section:

``SEC. 2052. EXEMPTION.

  ``(a) In general.--For purposes of the tax imposed by section 2001, 
the value of the taxable estate shall be determined by deducting from 
the value of the gross estate an amount equal to the excess (if any) 
of--
          ``(1) the exemption amount for the calendar year in which the 
        decedent died, over
          ``(2) the sum of--
                  ``(A) the aggregate amount allowed as an exemption 
                under section 2521 with respect to gifts made by the 
                decedent after December 31, 2000, and
                  ``(B) the aggregate amount of gifts made by the 
                decedent for which credit was allowed by section 2505 
                (as in effect on the day before the date of the 
                enactment of the Financial Freedom Act of 1999).
Gifts which are includible in the gross estate of the decedent shall 
not be taken into account in determining the amounts under paragraph 
(2).
  ``(b) Exemption Amount.--For purposes of subsection (a), the term 
`exemption amount' means the amount determined in accordance with the 
following table:

        ``In the case of
                                                          The exemption
          calendar year:
                                                             amount is:
                  2001...............................         $675,000 
                  2002 and 2003......................         $700,000 
                  2004...............................         $850,000 
                  2005...............................         $950,000 
                  2006 or thereafter.................     $1,000,000.''

          (2) Gift tax.--Subchapter C of chapter 12 (relating to 
        deductions) is amended by inserting before section 2522 the 
        following new section:

``SEC. 2521. EXEMPTION.

  ``(a) In General.--In computing taxable gifts for any calendar year, 
there shall be allowed as a deduction in the case of a citizen or 
resident of the United States an amount equal to the excess of--
          ``(1) the exemption amount determined under section 2052 for 
        such calendar year, over
          ``(2) the sum of--
                  ``(A) the aggregate amount allowed as an exemption 
                under this section for all preceding calendar years 
                after 2000, and
                  ``(B) the aggregate amount of gifts for which credit 
                was allowed by section 2505 (as in effect on the day 
                before the date of the enactment of the Financial 
                Freedom Act of 1999).''
  (b) Repeal of Unified Credits.--
          (1) Section 2010 (relating to unified credit against estate 
        tax) is hereby repealed.
          (2) Section 2505 (relating to unified credit against gift 
        tax) is hereby repealed.
  (c) Conforming Amendments.--
          (1)(A) Subparagraph (B) of section 2001(b)(1) is amended by 
        inserting before the comma ``reduced by the amount of described 
        in section 2052(a)(2)''.
          (B) Subsection (b) of section 2001 is amended by adding at 
        the end the following new sentence: ``For purposes of paragraph 
        (2), the amount of the tax payable under chapter 12 shall be 
        determined without regard to the credit provided by section 
        2505 (as in effect on the day before the date of the enactment 
        of the Financial Freedom Act of 1999).''
          (2) Subsection (f) of section 2011 is amended by striking ``, 
        reduced by the amount of the unified credit provided by section 
        2010''.
          (3) Subsection (a) of section 2012 is amended by striking 
        ``and the unified credit provided by section 2010''.
          (4) Subsection (b) of section 2013 is amended by inserting 
        before the period at the end of the first sentence ``and 
        increased by the exemption allowed under section 2052 or 
        2106(a)(4) (or the corresponding provisions of prior law) in 
        determining the taxable estate of the transferor for purposes 
        of the estate tax''.
          (5) Subparagraph (A) of section 2013(c)(1) is amended by 
        striking ``2010,''.
          (6) Paragraph (2) of section 2014(b) is amended by striking 
        ``2010,''.
          (7) Clause (ii) of section 2056A(b)(12)(C) is amended to read 
        as follows:
                          ``(ii) to treat any reduction in the tax 
                        imposed by paragraph (1)(A) by reason of the 
                        credit allowable under section 2010 (as in 
                        effect on the day before the date of the 
                        enactment of the Financial Freedom Act of 1999) 
                        or the exemption allowable under section 2052 
                        with respect to the decedent as such a credit 
                        or exemption (as the case may be) allowable to 
                        such surviving spouse for purposes of 
                        determining the amount of the exemption 
                        allowable under section 2521 with respect to 
                        taxable gifts made by the surviving spouse 
                        during the year in which the spouse becomes a 
                        citizen or any subsequent year,''.
          (8) Section 2102 is amended by striking subsection (c).
          (9) Subsection (a) of section 2106 is amended by adding at 
        the end the following new paragraph:
          ``(4) Exemption.--
                  ``(A) In general.--An exemption of $60,000.
                  ``(B) Residents of possessions of the United 
                States.--In the case of a decedent who is considered to 
                be a nonresident not a citizen of the United States 
                under section 2209, the exemption under this paragraph 
                shall be the greater of--
                          ``(i) $60,000, or
                          ``(ii) that proportion of $175,000 which the 
                        value of that part of the decedent's gross 
                        estate which at the time of his death is 
                        situated in the United States bears to the 
                        value of his entire gross estate wherever 
                        situated.
                  ``(C) Special rules.--
                          ``(i) Coordination with treaties.--To the 
                        extent required under any treaty obligation of 
                        the United States, the exemption allowed under 
                        this paragraph shall be equal to the amount 
                        which bears the same ratio to the exemption 
                        amount under section 2052 (for the calendar 
                        year in which the decedent died) as the value 
                        of the part of the decedent's gross estate 
                        which at the time of his death is situated in 
                        the United States bears to the value of his 
                        entire gross estate wherever situated. For 
                        purposes of the preceding sentence, property 
                        shall not be treated as situated in the United 
                        States if such property is exempt from the tax 
                        imposed by this subchapter under any treaty 
                        obligation of the United States.
                          ``(ii) Coordination with gift tax exemption 
                        and unified credit.--If an exemption has been 
                        allowed under section 2521 (or a credit has 
                        been allowed under section 2505 as in effect on 
                        the day before the date of the enactment of the 
                        Financial Freedom Act of 1999) with respect to 
                        any gift made by the decedent, each dollar 
                        amount contained in subparagraph (A) or (B) or 
                        the exemption amount applicable under clause 
                        (i) of this subparagraph (whichever applies) 
                        shall be reduced by the exemption so allowed 
                        under 2521 (or, in the case of such a credit, 
                        by the amount of the gift for which the credit 
                        was so allowed).''
          (10) Subsection (c) of section 2107 is amended--
                  (A) by striking paragraph (1) and by redesignating 
                paragraphs (2) and (3) as paragraphs (1) and (2), 
                respectively, and
                  (B) by striking the second sentence of paragraph (2) 
                (as so redesignated).
          (11) Section 2206 is amended by striking ``the taxable 
        estate'' in the first sentence and inserting ``the sum of the 
        taxable estate and the amount of the exemption allowed under 
        section 2052 or 2106(a)(4) in computing the taxable estate''.
          (12) Section 2207 is amended by striking ``the taxable 
        estate'' in the first sentence and inserting ``the sum of the 
        taxable estate and the amount of the exemption allowed under 
        section 2052 or 2106(a)(4) in computing the taxable estate''.
          (13) Subparagraph (B) of section 2207B(a)(1) is amended to 
        read as follows:
                  ``(B) the sum of the taxable estate and the amount of 
                the exemption allowed under section 2052 or 2106(a)(4) 
                in computing the taxable estate.''
          (14) Subsection (a) of section 2503 is amended by striking 
        ``section 2522'' and inserting ``section 2521''.
          (15) Paragraph (1) of section 6018(a) is amended by striking 
        ``$600,000'' and inserting ``the exemption amount under section 
        2052 for the calendar year which includes the date of death''.
          (16) Subparagraph (A) of section 6601(j)(2) is amended to 
        read as follows:
                  ``(A) the amount of the tax which would be imposed by 
                chapter 11 on an amount of taxable estate equal to the 
                excess of $1,000,000 over the exemption amount 
                allowable under section 2052, or''.
          (17) The table of sections for part II of subchapter A of 
        chapter 11 is amended by striking the item relating to section 
        2010.
          (18) The table of sections for subchapter A of chapter 12 is 
        amended by striking the item relating to section 2505.
  (d) Effective Date.--The amendments made by this section--
          (1) insofar as they relate to the tax imposed by chapter 11 
        of the Internal Revenue Code of 1986, shall apply to estates of 
        decedents dying after December 31, 2000, and
          (2) insofar as they relate to the tax imposed by chapter 12 
        of such Code, shall apply to gifts made after December 31, 
        2000.

     Subtitle D--Modifications of Generation-Skipping Transfer Tax

SEC. 631. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME TRANSFERS TO 
                    TRUSTS; RETROACTIVE ALLOCATIONS.

  (a) In General.--Section 2632 (relating to special rules for 
allocation of GST exemption) is amended by redesignating subsection (c) 
as subsection (e) and by inserting after subsection (b) the following 
new subsections:
  ``(c) Deemed Allocation to Certain Lifetime Transfers to GST 
Trusts.--
          ``(1) In general.--If any individual makes an indirect skip 
        during such individual's lifetime, any unused portion of such 
        individual's GST exemption shall be allocated to the property 
        transferred to the extent necessary to make the inclusion ratio 
        for such property zero. If the amount of the indirect skip 
        exceeds such unused portion, the entire unused portion shall be 
        allocated to the property transferred.
          ``(2) Unused portion.--For purposes of paragraph (1), the 
        unused portion of an individual's GST exemption is that portion 
        of such exemption which has not previously been--
                  ``(A) allocated by such individual,
                  ``(B) treated as allocated under subsection (b) with 
                respect to a direct skip occurring during or before the 
                calendar year in which the indirect skip is made, or
                  ``(C) treated as allocated under paragraph (1) with 
                respect to a prior indirect skip.
          ``(3) Definitions.--
                  ``(A) Indirect skip.--For purposes of this 
                subsection, the term `indirect skip' means any transfer 
                of property (other than a direct skip) subject to the 
                tax imposed by chapter 12 made to a GST trust.
                  ``(B) GST trust.--The term `GST trust' means a trust 
                that could have a generation-skipping transfer with 
                respect to the transferor unless--
                          ``(i) the trust instrument provides that more 
                        than 25 percent of the trust corpus must be 
                        distributed to or may be withdrawn by 1 or more 
                        individuals who are non-skip persons--
                                  ``(I) before the date that the 
                                individual attains age 46,
                                  ``(II) on or before 1 or more dates 
                                specified in the trust instrument that 
                                will occur before the date that such 
                                individual attains age 46, or
                                  ``(III) upon the occurrence of an 
                                event that, in accordance with 
                                regulations prescribed by the 
                                Secretary, may reasonably be expected 
                                to occur before the date that such 
                                individual attains age 46;
                          ``(ii) the trust instrument provides that 
                        more than 25 percent of the trust corpus must 
                        be distributed to or may be withdrawn by 1 or 
                        more individuals who are non-skip persons and 
                        who are living on the date of death of another 
                        person identified in the instrument (by name or 
                        by class) who is more than 10 years older than 
                        such individuals;
                          ``(iii) the trust instrument provides that, 
                        if 1 or more individuals who are non-skip 
                        persons die on or before a date or event 
                        described in clause (i) or (ii), more than 25 
                        percent of the trust corpus either must be 
                        distributed to the estate or estates of 1 or 
                        more of such individuals or is subject to a 
                        general power of appointment exercisable by 1 
                        or more of such individuals;
                          ``(iv) the trust is a trust any portion of 
                        which would be included in the gross estate of 
                        a non-skip person (other than the transferor) 
                        if such person died immediately after the 
                        transfer;
                          ``(v) the trust is a charitable lead annuity 
                        trust (within the meaning of section 
                        2642(e)(3)(A)) or a charitable remainder 
                        annuity trust or a charitable remainder 
                        unitrust (within the meaning of section 
                        664(d)); or
                          ``(vi) the trust is a trust with respect to 
                        which a deduction was allowed under section 
                        2522 for the amount of an interest in the form 
                        of the right to receive annual payments of a 
                        fixed percentage of the net fair market value 
                        of the trust property (determined yearly) and 
                        which is required to pay principal to a non-
                        skip person if such person is alive when the 
                        yearly payments for which the deduction was 
                        allowed terminate.
                For purposes of this subparagraph, the value of 
                transferred property shall not be considered to be 
                includible in the gross estate of a non-skip person or 
                subject to a right of withdrawal by reason of such 
                person holding a right to withdraw so much of such 
                property as does not exceed the amount referred to in 
                section 2503(b) with respect to any transferor, and it 
                shall be assumed that powers of appointment held by 
                non-skip persons will not be exercised.
          ``(4) Automatic allocations to certain gst trusts.--For 
        purposes of this subsection, an indirect skip to which section 
        2642(f) applies shall be deemed to have been made only at the 
        close of the estate tax inclusion period. The fair market value 
        of such transfer shall be the fair market value of the trust 
        property at the close of the estate tax inclusion period.
          ``(5) Applicability and effect.--
                  ``(A) In general.--An individual--
                          ``(i) may elect to have this subsection not 
                        apply to--
                                  ``(I) an indirect skip, or
                                  ``(II) any or all transfers made by 
                                such individual to a particular trust, 
                                and
                          ``(ii) may elect to treat any trust as a GST 
                        trust for purposes of this subsection with 
                        respect to any or all transfers made by such 
                        individual to such trust.
                  ``(B) Elections.--
                          ``(i) Elections with respect to indirect 
                        skips.--An election under subparagraph 
                        (A)(i)(I) shall be deemed to be timely if filed 
                        on a timely filed gift tax return for the 
                        calendar year in which the transfer was made or 
                        deemed to have been made pursuant to paragraph 
                        (4) or on such later date or dates as may be 
                        prescribed by the Secretary.
                          ``(ii) Other elections.--An election under 
                        clause (i)(II) or (ii) of subparagraph (A) may 
                        be made on a timely filed gift tax return for 
                        the calendar year for which the election is to 
                        become effective.
  ``(d) Retroactive Allocations.--
          ``(1) In general.--If--
                  ``(A) a non-skip person has an interest or a future 
                interest in a trust to which any transfer has been 
                made,
                  ``(B) such person--
                          ``(i) is a lineal descendant of a grandparent 
                        of the transferor or of a grandparent of the 
                        transferor's spouse or former spouse, and
                          ``(ii) is assigned to a generation below the 
                        generation assignment of the transferor, and
                  ``(C) such person predeceases the transferor,
        then the transferor may make an allocation of any of such 
        transferor's unused GST exemption to any previous transfer or 
        transfers to the trust on a chronological basis.
          ``(2) Special rules.--If the allocation under paragraph (1) 
        by the transferor is made on a gift tax return filed on or 
        before the date prescribed by section 6075(b) for gifts made 
        within the calendar year within which the non-skip person's 
        death occurred--
                  ``(A) the value of such transfer or transfers for 
                purposes of section 2642(a) shall be determined as if 
                such allocation had been made on a timely filed gift 
                tax return for each calendar year within which each 
                transfer was made,
                  ``(B) such allocation shall be effective immediately 
                before such death, and
                  ``(C) the amount of the transferor's unused GST 
                exemption available to be allocated shall be determined 
                immediately before such death.
          ``(3) Future interest.--For purposes of this subsection, a 
        person has a future interest in a trust if the trust may permit 
        income or corpus to be paid to such person on a date or dates 
        in the future.''.
  (b) Conforming Amendment.--Paragraph (2) of section 2632(b) is 
amended by striking ``with respect to a direct skip'' and inserting 
``or subsection (c)(1)''.
  (c) Effective Dates.--
          (1) Deemed allocation.--Section 2632(c) of the Internal 
        Revenue Code of 1986 (as added by subsection (a)), and the 
        amendment made by subsection (b), shall apply to transfers 
        subject to chapter 11 or 12 made after December 31, 1999, and 
        to estate tax inclusion periods ending after December 31, 1999.
          (2) Retroactive allocations.--Section 2632(d) of the Internal 
        Revenue Code of 1986 (as added by subsection (a)) shall apply 
        to deaths of non-skip persons occurring after the date of the 
        enactment of this Act.

SEC. 632. SEVERING OF TRUSTS.

  (a) In General.--Subsection (a) of section 2642 (relating to 
inclusion ratio) is amended by adding at the end the following new 
paragraph:
          ``(3) Severing of trusts.--
                  ``(A) In general.--If a trust is severed in a 
                qualified severance, the trusts resulting from such 
                severance shall be treated as separate trusts 
                thereafter for purposes of this chapter.
                  ``(B) Qualified severance.--For purposes of 
                subparagraph (A)--
                          ``(i) In general.--The term `qualified 
                        severance' means the division of a single trust 
                        and the creation (by any means available under 
                        the governing instrument or under local law) of 
                        2 or more trusts if--
                                  ``(I) the single trust was divided on 
                                a fractional basis, and
                                  ``(II) the terms of the new trusts, 
                                in the aggregate, provide for the same 
                                succession of interests of 
                                beneficiaries as are provided in the 
                                original trust.
                          ``(ii) Trusts with inclusion ratio greater 
                        than zero.--If a trust has an inclusion ratio 
                        of greater than zero and less than 1, a 
                        severance is a qualified severance only if the 
                        single trust is divided into 2 trusts, one of 
                        which receives a fractional share of the total 
                        value of all trust assets equal to the 
                        applicable fraction of the single trust 
                        immediately before the severance. In such case, 
                        the trust receiving such fractional share shall 
                        have an inclusion ratio of zero and the other 
                        trust shall have an inclusion ratio of 1.
                          ``(iii) Regulations.--The term `qualified 
                        severance' includes any other severance 
                        permitted under regulations prescribed by the 
                        Secretary.
                  ``(C) Timing and manner of severances.--A severance 
                pursuant to this paragraph may be made at any time. The 
                Secretary shall prescribe by forms or regulations the 
                manner in which the qualified severance shall be 
                reported to the Secretary.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to severances after the date of the enactment of this Act.

SEC. 633. MODIFICATION OF CERTAIN VALUATION RULES.

  (a) Gifts for Which Gift Tax Return Filed or Deemed Allocation 
Made.--Paragraph (1) of section 2642(b) (relating to valuation rules, 
etc.) is amended to read as follows:
          ``(1) Gifts for which gift tax return filed or deemed 
        allocation made.--If the allocation of the GST exemption to any 
        transfers of property is made on a gift tax return filed on or 
        before the date prescribed by section 6075(b) for such transfer 
        or is deemed to be made under section 2632 (b)(1) or (c)(1)--
                  ``(A) the value of such property for purposes of 
                subsection (a) shall be its value as finally determined 
                for purposes of chapter 12 (within the meaning of 
                section 2001(f)(2)), or, in the case of an allocation 
                deemed to have been made at the close of an estate tax 
                inclusion period, its value at the time of the close of 
                the estate tax inclusion period, and
                  ``(B) such allocation shall be effective on and after 
                the date of such transfer, or, in the case of an 
                allocation deemed to have been made at the close of an 
                estate tax inclusion period, on and after the close of 
                such estate tax inclusion period.''.
  (b) Transfers at Death.--Subparagraph (A) of section 2642(b)(2) is 
amended to read as follows:
                  ``(A) Transfers at death.--If property is transferred 
                as a result of the death of the transferor, the value 
                of such property for purposes of subsection (a) shall 
                be its value as finally determined for purposes of 
                chapter 11; except that, if the requirements prescribed 
                by the Secretary respecting allocation of post-death 
                changes in value are not met, the value of such 
                property shall be determined as of the time of the 
                distribution concerned.''.
  (c) Effective Date.--The amendments made by this section shall take 
effect as if included in the amendments made by section 1431 of the Tax 
Reform Act of 1986.

SEC. 634. RELIEF PROVISIONS.

  (a) In General.--Section 2642 is amended by adding at the end the 
following new subsection:
  ``(g) Relief Provisions.--
          ``(1) Relief for late elections.--
                  ``(A) In general.--The Secretary shall by regulation 
                prescribe such circumstances and procedures under which 
                extensions of time will be granted to make--
                          ``(i) an allocation of GST exemption 
                        described in paragraph (1) or (2) of subsection 
                        (b), and
                          ``(ii) an election under subsection (b)(3) or 
                        (c)(5) of section 2632.
                Such regulations shall include procedures for 
                requesting comparable relief with respect to transfers 
                made before the date of enactment of this paragraph.
                  ``(B) Basis for determinations.--In determining 
                whether to grant relief under this paragraph, the 
                Secretary shall take into account all relevant 
                circumstances, including evidence of intent contained 
                in the trust instrument or instrument of transfer and 
                such other factors as the Secretary deems relevant. For 
                purposes of determining whether to grant relief under 
                this paragraph, the time for making the allocation (or 
                election) shall be treated as if not expressly 
                prescribed by statute.
          ``(2) Substantial compliance.--An allocation of GST exemption 
        under section 2632 that demonstrates an intent to have the 
        lowest possible inclusion ratio with respect to a transfer or a 
        trust shall be deemed to be an allocation of so much of the 
        transferor's unused GST exemption as produces the lowest 
        possible inclusion ratio. In determining whether there has been 
        substantial compliance, all relevant circumstances shall be 
        taken into account, including evidence of intent contained in 
        the trust instrument or instrument of transfer and such other 
        factors as the Secretary deems relevant.''.
  (b) Effective Dates.--
          (1) Relief for late elections.--Section 2642(g)(1) of the 
        Internal Revenue Code of 1986 (as added by subsection (a)) 
        shall apply to requests pending on, or filed after, the date of 
        the enactment of this Act.
          (2) Substantial compliance.--Section 2642(g)(2) of such Code 
        (as so added) shall take effect on the date of the enactment of 
        this Act and shall apply to allocations made prior to such date 
        for purposes of determining the tax consequences of generation-
        skipping transfers with respect to which the period of time for 
        filing claims for refund has not expired. No negative 
        implication is intended with respect to the availability of 
        relief for late elections or the application of a rule of 
        substantial compliance prior to the enactment of this 
        amendment.

    TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES

           Subtitle A--American Community Renewal Act of 1999

SEC. 701. SHORT TITLE.

  This subtitle may be cited as the ``American Community Renewal Act of 
1999''.

SEC. 702. 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. Family development accounts.
                              ``Part IV.  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 one or more local 
                governments and the State or States in which it is 
                located for designation as a renewal community 
                (hereinafter 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.--The Secretary of Housing and Urban 
                Development may designate not more than 20 nominated 
                areas as renewal communities.
                  ``(B) Minimum designation in rural areas.--Of the 
                areas designated under paragraph (1), at least 4 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.
          ``(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) Priority for empowerment zones and enterprise 
                communities with respect to first half of 
                designations.--With respect to the first 10 
                designations made under this section--
                          ``(i) all shall be chosen from nominated 
                        areas which are empowerment zones or enterprise 
                        communities (and are otherwise eligible for 
                        designation under this section); and
                          ``(ii) 2 shall be areas described in 
                        paragraph (2)(B).
          ``(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 24-month period 
                beginning on the first day of the first month following 
                the month in which the regulations described in 
                subparagraph (A) are prescribed.
                  ``(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 
        the date of the designation and ending on the earliest of--
                  ``(A) December 31, 2007,
                  ``(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).
  ``(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 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 (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 high incidence of crime.--The 
        Secretary of Housing and Urban Development shall take into 
        account, in selecting nominatedareas for designation as renewal 
communities under this section, the extent to which such areas have a 
high incidence of crime.
          ``(5) Consideration of communities identified in gao study.--
        The Secretary of Housing and Urban Development shall take into 
        account, in selecting nominated areas for designation as 
        renewal communities under this section, if the area has census 
        tracts identified in the May 12, 1998, report of the Government 
        Accounting Office regarding the identification of economically 
        distressed areas.
  ``(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 five 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 
                        such 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) State or local income tax benefits for 
                        fees paid for services performed by a 
                        nongovernmental entity which were formerly 
                        performed by a governmental entity.
                          ``(vii) 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 
        otherwise will not enforce within the area, if such area is 
        designated as a renewal community--
                  ``(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; and
                  ``(E) franchises or other restrictions on competition 
                for businesses providing public services, including but 
                not limited to taxicabs, jitneys, cable television, or 
                trash hauling,
        except 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, if there are in effect with 
respect to the same area both--
          ``(1) a designation as a renewal community; and
          ``(2) a designation as an empowerment zone or enterprise 
        community,
both of such designations shall be given full effect with respect to 
such area.
  ``(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) State.--The term `State' includes Puerto Rico, the 
        Virgin Islands of the United States, Guam, American Samoa, the 
        Northern Mariana Islands, and any other possession of the 
        United States.
          ``(3) Local government.--The term `local government' means--
                  ``(A) any county, city, town, township, parish, 
                village, or other general purpose political subdivision 
                of a State;
                  ``(B) any combination of political subdivisions 
                described in subparagraph (A) recognized by the 
                Secretary of Housing and Urban Development; and
                  ``(C) the District of Columbia.
          ``(4) Application of rules relating to census tracts and 
        census data.--The rules of sections 1392(b)(4) and 1393(a)(9) 
        shall apply.

 ``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 recognized on 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, 2000, and before January 1, 
                        2008, 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, 2000, and before January 1, 2008;
                  ``(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, 2000, and before 
                        January 1, 2008;
                          ``(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 (within the meaning of section 
                        1400B(b)(4)(B)(ii)) by the taxpayer before 
                        January 1, 2008; and
                          ``(ii) any land on which such property is 
                        located.
  ``(c) Certain Rules To Apply.--Rules similar to the rules of 
paragraphs (5), (6), and (7) of subsection (b), and subsections (e), 
(f), and (g), of section 1400B shall apply for purposes of this 
section.

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

  ``For purposes of this part, the term `renewal community business' 
means any entity or proprietorship which would be a qualified business 
entity or qualified proprietorship under section 1397B if--
          ``(1) references to renewal communities were substituted for 
        references to empowerment zones in such section; and
          ``(2) `80 percent' were substituted for `50 percent' in 
        subsections (b)(2) and (c)(1) of such section.

                ``PART III--FAMILY DEVELOPMENT ACCOUNTS

                              ``Sec. 1400H. Family development accounts 
                                        for renewal community EITC 
                                        recipients.
                              ``Sec. 1400I. Demonstration program to 
                                        provide matching contributions 
                                        to family development accounts 
                                        in certain renewal communities.
                              ``Sec. 1400J. Designation of earned 
                                        income tax credit payments for 
                                        deposit to family development 
                                        account.

``SEC. 1400H. FAMILY DEVELOPMENT ACCOUNTS FOR RENEWAL COMMUNITY EITC 
                    RECIPIENTS.

  ``(a) Allowance of Deduction.--
          ``(1) In general.--There shall be allowed as a deduction--
                  ``(A) in the case of a qualified individual, the 
                amount paid in cash for the taxable year by such 
                individual to any family development account for such 
                individual's benefit; and
                  ``(B) in the case of any person other than a 
                qualified individual, the amount paid in cash for the 
                taxable year by such person to any family development 
                account for the benefit of a qualified individual but 
                only if the amount so paid is designated for purposes 
                of this section by such individual.
        No deduction shall be allowed under this paragraph for any 
        amount deposited in a family development account under section 
        1400I (relating to demonstration program to provide matching 
        amounts in renewal communities).
          ``(2) Limitation.--
                  ``(A) In general.--The amount allowable as a 
                deduction to any individual for any taxable year by 
                reason of paragraph (1)(A) shall not exceed the lesser 
                of--
                          ``(i) $2,000, or
                          ``(ii) an amount equal to the compensation 
                        includible in the individual's gross income for 
                        such taxable year.
                  ``(B) Persons donating to family development accounts 
                of others.--The amount which may be designated under 
                paragraph (1)(B) by any qualified individual for any 
                taxable year of such individual shall not exceed 
                $1,000.
          ``(3) Special rules for certain married individuals.--Rules 
        similar to rules of section 219(c) shall apply to the 
        limitation in paragraph (2)(A).
          ``(4) Coordination with iras.--No deduction shall be allowed 
        under this section for any taxable year to any person by reason 
        of a payment to an account for the benefit of a qualified 
        individual if any amount is paid for such taxable year into an 
        individual retirement account (including a Roth IRA) for the 
        benefit of such individual.
          ``(5) Rollovers.--No deduction shall be allowed under this 
        section with respect to any rollover contribution.
  ``(b) Tax Treatment of Distributions.--
          ``(1) Inclusion of amounts in gross income.--Except as 
        otherwise provided in this subsection, any amount paid or 
        distributed out of a family development account shall be 
        included in gross income by the payee or distributee, as the 
        case may be.
          ``(2) Exclusion of qualified family development 
        distributions.--Paragraph (1) shall not apply to any qualified 
        family development distribution.
  ``(c) Qualified Family Development Distribution.--For purposes of 
this section--
          ``(1) In general.--The term `qualified family development 
        distribution' means any amount paid or distributed out of a 
        family development account which would otherwise be includible 
        in gross income, to the extent that such payment or 
        distribution is used exclusively to pay qualified family 
        development expenses for the holder of the account or the 
        spouse or dependent (as defined in section 152) of such holder.
          ``(2) Qualified family development expenses.--The term 
        `qualified family development expenses' means any of the 
        following:
                  ``(A) Qualified higher education expenses.
                  ``(B) Qualified first-time homebuyer costs.
                  ``(C) Qualified business capitalization costs.
                  ``(D) Qualified medical expenses.
                  ``(E) Qualified rollovers.
          ``(3) Qualified higher education expenses.--
                  ``(A) In general.--The term `qualified higher 
                education expenses' has the meaning given such term by 
                section 72(t)(7), determined by treating postsecondary 
                vocational educational schools as eligible educational 
                institutions.
                  ``(B) Postsecondary vocational education school.--The 
                term `postsecondary vocational educational school' 
                means an area vocational education school (as defined 
                in subparagraph (C) or (D) of section 521(4) of the 
                Carl D. Perkins Vocational and Applied Technology 
                Education Act (20 U.S.C. 2471(4))) which is in any 
                State (as defined in section 521(33) of such Act), as 
                such sections are in effect on the date of the 
                enactment of this section.
                  ``(C) Coordination with other benefits.--The amount 
                of qualified higher education expenses for any taxable 
                year shall be reduced as provided in section 25A(g)(2).
          ``(4) Qualified first-time homebuyer costs.--The term 
        `qualified first-time homebuyer costs' means qualified 
        acquisition costs (as defined in section 72(t)(8) without 
        regard to subparagraph (B) thereof) with respect to a principal 
        residence (within the meaning of section 121) for a qualified 
        first-time homebuyer (as defined in section 72(t)(8)).
          ``(5) Qualified business capitalization costs.--
                  ``(A) In general.--The term `qualified business 
                capitalization costs' means qualified expenditures for 
                the capitalization of a qualified business pursuant to 
                a qualified plan.
                  ``(B) Qualified expenditures.--The term `qualified 
                expenditures' means expenditures included in a 
                qualified plan, including capital, plant, equipment, 
                working capital, and inventory expenses.
                  ``(C) Qualified business.--The term `qualified 
                business' means any trade or business other than any 
                trade or business--
                          ``(i) which consists of the operation of any 
                        facility described in section 144(c)(6)(B), or
                          ``(ii) which contravenes any law.
                  ``(D) Qualified plan.--The term `qualified plan' 
                means a business plan which meets such requirements as 
                the Secretary may specify.
          ``(6) Qualified medical expenses.--The term `qualified 
        medical expenses' means any amount paid during the taxable 
        year, not compensated for by insurance or otherwise, for 
        medical care (as defined in section 213(d)) of the taxpayer, 
        his spouse, or his dependent (as defined in section 152).
          ``(7) Qualified rollovers.--The term `qualified rollover' 
        means any amount paid from a family development account of a 
        taxpayer into another such account established for the benefit 
        of--
                  ``(A) such taxpayer, or
                  ``(B) any qualified individual who is--
                          ``(i) the spouse of such taxpayer, or
                          ``(ii) any dependent (as defined in section 
                        152) of the taxpayer.
        Rules similar to the rules of section 408(d)(3) shall apply for 
        purposes of this paragraph.
  ``(d) Tax Treatment of Accounts.--
          ``(1) In general.--Any family development account is exempt 
        from taxation under this subtitle unless such account has 
        ceased to be a family development account by reason of 
        paragraph (2). Notwithstanding the preceding sentence, any such 
        account is subject to the taxes imposed by section 511 
        (relating to imposition of tax on unrelated business income of 
        charitable, etc., organizations). Notwithstanding any other 
        provision of this title (including chapters 11 and 12), the 
        basis of any person in such an account is zero.
          ``(2) Loss of exemption in case of prohibited transactions.--
        For purposes of this section, rules similar to the rules of 
        section 408(e) shall apply.
          ``(3) Other rules to apply.--Rules similar to the rules of 
        paragraphs (4), (5), and (6) of section 408(d) shall apply for 
        purposes of this section.
  ``(e) Family Development Account.--For purposes of this title, the 
term `family development account' means a trust created or organized in 
the United States for the exclusive benefit of a qualified individual 
or his beneficiaries, but only if the written governing instrument 
creating the trust meets the following requirements:
          ``(1) Except in the case of a qualified rollover (as defined 
        in subsection (c)(7))--
                  ``(A) no contribution will be accepted unless it is 
                in cash; and
                  ``(B) contributions will not be accepted for the 
                taxable year in excess of $3,000 (determined without 
                regard to any contribution made under section 1400I 
                (relating to demonstration program to provide matching 
                amounts in renewal communities)).
          ``(2) The requirements of paragraphs (2) through (6) of 
        section 408(a) are met.
  ``(f) Qualified Individual.--For purposes of this section, the term 
`qualified individual' means, for any taxable year, an individual--
          ``(1) who is a bona fide resident of a renewal community 
        throughout the taxable year; and
          ``(2) to whom a credit was allowed under section 32 for the 
        preceding taxable year.
  ``(g) Other Definitions and Special Rules.--
          ``(1) Compensation.--The term `compensation' has the meaning 
        given such term by section 219(f)(1).
          ``(2) Married individuals.--The maximum deduction under 
        subsection (a) shall be computed separately for each 
        individual, and this section shall be applied without regard to 
        any community property laws.
          ``(3) Time when contributions deemed made.--For purposes of 
        this section, a taxpayer shall be deemed to have made a 
        contribution to a family development account on the last day of 
        the preceding taxable year if the contribution is made on 
        account of such taxable year and is made not later than the 
        time prescribed by law for filing the return for such taxable 
        year (not including extensions thereof).
          ``(4) Employer payments; custodial accounts.--Rules similar 
        to the rules of sections 219(f)(5) and 408(h) shall apply for 
        purposes of this section.
          ``(5) Reports.--The trustee of a family development account 
        shall make such reports regarding such account to the Secretary 
        and to the individual for whom the account is maintained with 
        respect to contributions (and the years to which they relate), 
        distributions, and such other matters as the Secretary may 
        require under regulations. The reports required by this 
        paragraph--
                  ``(A) shall be filed at such time and in such manner 
                as the Secretary prescribes in such regulations; and
                  ``(B) shall be furnished to individuals--
                          ``(i) not later than January 31 of the 
                        calendar year following the calendar year to 
                        which such reports relate; and
                          ``(ii) in such manner as the Secretary 
                        prescribes in such regulations.
          ``(6) Investment in collectibles treated as distributions.--
        Rules similar to the rules of section 408(m) shall apply for 
        purposes of this section.
  ``(h) Penalty for Distributions Not Used for Qualified Family 
Development Expenses.--
          ``(1) In general.--If any amount is distributed from a family 
        development account and is not used exclusively to pay 
        qualified family development expenses for the holder of the 
        account or the spouse or dependent (as defined in section 152) 
        of such holder, the tax imposed by this chapter for the taxable 
        year of such distribution shall be increased by the sum of--
                  ``(A) 100 percent of the portion of such amount which 
                is includible in gross income and is attributable to 
                amounts contributed under section 1400I (relating to 
                demonstration program to provide matching amounts in 
                renewal communities); and
                  ``(B) 10 percent of the portion of such amount which 
                is includible in gross income and is not described in 
                subparagraph (A).
        For purposes of this subsection, distributions which are 
        includable in gross income shall be treated as attributable to 
        amounts contributed under section 1400I to the extent thereof. 
        For purposes of the preceding sentence, all family development 
        accounts of an individual shall be treated as one account.
          ``(2) Exception for certain distributions.--Paragraph (1) 
        shall not apply to distributions which are--
                  ``(A) made on or after the date on which the account 
                holder attains age 59\1/2\,
                  ``(B) made to a beneficiary (or the estate of the 
                account holder) on or after the death of the account 
                holder, or
                  ``(C) attributable to the account holder's being 
                disabled within the meaning of section 72(m)(7).
  ``(i) Application of Section.--This section shall apply to amounts 
paid to a family development account for any taxable year beginning 
after December 31, 2000, and before January 1, 2008.

``SEC. 1400I. DEMONSTRATION PROGRAM TO PROVIDE MATCHING CONTRIBUTIONS 
                    TO FAMILY DEVELOPMENT ACCOUNTS IN CERTAIN RENEWAL 
                    COMMUNITIES.

  ``(a) Designation.--
          ``(1) Definitions.--For purposes of this section, the term 
        `FDA matching demonstration area' means any renewal community--
                  ``(A) which is nominated under this section by each 
                of the local governments and States which nominated 
                such community for designation as a renewal community 
                under section 1400E(a)(1)(A); and
                  ``(B) which the Secretary of Housing and Urban 
                Development designates as an FDA matching demonstration 
                area 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 a community on an 
                        Indian reservation, the Secretary of the 
                        Interior.
          ``(2) Number of designations.--
                  ``(A) In general.--The Secretary of Housing and Urban 
                Development may designate not more than 5 renewal 
                communities as FDA matching demonstration areas.
                  ``(B) Minimum designation in rural areas.--Of the 
                areas designated under subparagraph (A), at least 2 
                must be areas described in section 1400E(a)(2)(B).
          ``(3) Limitations 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 a renewal 
                        community under paragraph (1)(A) (including 
                        procedures for coordinating such nomination 
                        with the nomination of an area for designation 
                        as a renewal community under section 1400E); 
                        and
                          ``(ii) the manner in which nominated renewal 
                        communities will be evaluated for purposes of 
                        this section.
                  ``(B) Time limitations.--The Secretary of Housing and 
                Urban Development may designate renewal communities as 
                FDA matching demonstration areas only during the 24-
                month period beginning on the first day of the first 
                month following the month in which the regulations 
                described in subparagraph (A) are prescribed.
          ``(4) Designation based on degree of poverty, etc.--The rules 
        of section 1400E(a)(3) shall apply for purposes of designations 
        of FDA matching demonstration areas under this section.
  ``(b) Period for Which Designation Is in Effect.--Any designation of 
a renewal community as an FDA matching demonstration area shall remain 
in effect during the period beginning on the date of such designation 
and ending on the date on which such area ceases to be a renewal 
community.
  ``(c) Matching Contributions to Family Development Accounts.--
          ``(1) In general.--Not less than once each taxable year, the 
        Secretary shall deposit (to the extent provided in 
        appropriation Acts) into a family development account of each 
        qualified individual (as defined in section 1400H(f))--
                  ``(A) who is a resident throughout the taxable year 
                of an FDA matching demonstration area; and
                  ``(B) who requests (in such form and manner as the 
                Secretary prescribes) such deposit for the taxable 
                year,
        an amount equal to the sum of the amounts deposited into all of 
        the family development accounts of such individual during such 
        taxable year (determined without regard to any amount 
        contributed under this section).
          ``(2) Limitations.--
                  ``(A) Annual limit.--The Secretary shall not deposit 
                more than $1000 under paragraph (1) with respect to any 
                individual for any taxable year.
                  ``(B) Aggregate limit.--The Secretary shall not 
                deposit more than $2000 under paragraph (1) with 
                respect to any individual for all taxable years.
          ``(3) Exclusion from income.--Except as provided in section 
        1400H, gross income shall not include any amount deposited into 
        a family development account under paragraph (1).
  ``(d) Notice of Program.--The Secretary shall provide appropriate 
notice to residents of FDA matching demonstration areas of the 
availability of the benefits under this section.
  ``(e) Termination.--No amount may be deposited under this section for 
any taxable year beginning after December 31, 2007.

``SEC. 1400J. DESIGNATION OF EARNED INCOME TAX CREDIT PAYMENTS FOR 
                    DEPOSIT TO FAMILY DEVELOPMENT ACCOUNT.

  ``(a) In General.--With respect to the return of any qualified 
individual (as defined in section 1400H(f)) for the taxable year of the 
tax imposed by this chapter, such individual may designate that a 
specified portion (not less than $1) of any overpayment of tax for such 
taxable year which is attributable to the earned income tax credit 
shall be deposited by the Secretary into a family development account 
of such individual. The Secretary shall so deposit such portion 
designated under this subsection.
  ``(b) Manner and Time of Designation.--A designation under subsection 
(a) may be made with respect to any taxable year--
          ``(1) at the time of filing the return of the tax imposed by 
        this chapter for such taxable year, or
          ``(2) at any other time (after the time of filing the return 
        of the tax imposed by this chapter for such taxable year) 
        specified in regulations prescribed by the Secretary.
Such designation shall be made in such manner as the Secretary 
prescribes by regulations.
  ``(c) Portion Attributable to Earned Income Tax Credit.--For purposes 
of subsection (a), an overpayment for any taxable year shall be treated 
as attributable to the earned income tax credit to the extent that such 
overpayment does not exceed the credit allowed to the taxpayer under 
section 32 for such taxable year.
  ``(d) Overpayments Treated as Refunded.--For purposes of this title, 
any portion of an overpayment of tax designated under subsection (a) 
shall be treated as being refunded to the taxpayer as of the last date 
prescribed for filing the return of tax imposed by this chapter 
(determined without regard to extensions) or, if later, the date the 
return is filed.
  ``(e) Termination.--This section shall not apply to any taxable year 
beginning after December 31, 2007.

                    ``PART IV--ADDITIONAL INCENTIVES

                              ``Sec. 1400K. Commercial revitalization 
                                        deduction.
                              ``Sec. 1400L. Increase in expensing under 
                                        section 179.

``SEC. 1400K. 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.
The deduction provided by this section with respect to such expenditure 
shall be in lieu of any depreciation deduction otherwise allowable on 
account of such expenditure.
  ``(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) such building is located in a renewal community 
                and is placed in service after December 31, 2000;
                  ``(B) a commercial revitalization deduction amount is 
                allocated to the building under subsection (d); and
                  ``(C) depreciation (or amortization in lieu of 
                depreciation) is allowable with respect to the building 
                (without regard to this section).
          ``(2) Qualified revitalization expenditure.--
                  ``(A) In general.--The term `qualified revitalization 
                expenditure' means any amount properly chargeable to 
                capital account--
                          ``(i) for property for which depreciation is 
                        allowable under section 168 (without regard to 
                        this section) and which is--
                                  ``(I) nonresidential real property; 
                                or
                                  ``(II) an addition or improvement to 
                                property described in subclause (I);
                          ``(ii) in connection with the construction of 
                        any qualified revitalization building which was 
                        not previously placed in service or in 
                        connection with the substantial rehabilitation 
                        (within the meaning of section 47(c)(1)(C)) of 
                        a building which was placed in service before 
                        the beginning of such rehabilitation; and
                          ``(iii) for land (including land which is 
                        functionally related to such property and 
                        subordinate thereto).
                  ``(B) Dollar limitation.--The aggregate amount which 
                may be treated as qualified revitalization expenditures 
                with respect to any qualified revitalization building 
                for any taxable year shall not exceed the excess of--
                          ``(i) $10,000,000, reduced by
                          ``(ii) any such expenditures with respect to 
                        the building taken into account by the taxpayer 
                        or any predecessor in determining the amount of 
                        the deduction under this section for all 
                        preceding taxable years.
                  ``(C) Certain expenditures not included.--The term 
                `qualified revitalization expenditure' does not 
                include--
                          ``(i) Acquisition costs.--The costs of 
                        acquiring any building or interest therein and 
                        any land in connection with such building to 
                        the extent that such costs exceed 30 percent of 
                        the qualified revitalization expenditures 
                        determined without regard to this clause.
                          ``(ii) Credits.--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) When Expenditures Taken Into Account.--Qualified revitalization 
expenditures with respect to any qualified revitalization building 
shall be taken into account for the taxable year in which the qualified 
revitalization building is placed in service. For purposes of the 
preceding sentence, a substantial rehabilitation of a building shall be 
treated as a separate building.
  ``(d) Limitation on Aggregate Deductions Allowable With Respect to 
Buildings Located in a State.--
          ``(1) In general.--The amount of the deduction determined 
        under this section for any taxable year with respect to any 
        building shall not exceed the commercial revitalization 
        deduction amount (in the case of an amount determined under 
        subsection (a)(2), the present value of such amount as 
        determined under the rules of section 42(b)(2)(C) by 
        substituting `100 percent' for `72 percent' in clause (ii) 
        thereof) allocated to such building under this subsection by 
        the commercial revitalization agency. Such allocation shall be 
        made at the same time and in the same manner as under 
        paragraphs (1) and (7) of section 42(h).
          ``(2) Commercial revitalization deduction amount for 
        agencies.--
                  ``(A) In general.--The aggregate commercial 
                revitalization deduction amount which a commercial 
                revitalization agency may allocate for any calendar 
                year is the amount of the State commercial 
                revitalization deduction ceiling determined under this 
                paragraph for such calendar year for such agency.
                  ``(B) State commercial revitalization deduction 
                ceiling.--The State commercial revitalization deduction 
                ceiling applicable to any State--
                          ``(i) for each calendar year after 2000 and 
                        before 2008 is $6,000,000 for each renewal 
                        community in the State; and
                          ``(ii) zero for each calendar year 
                        thereafter.
                  ``(C) 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.
  ``(e) Responsibilities of Commercial Revitalization Agencies.--
          ``(1) Plans for allocation.--Notwithstanding any other 
        provision of this section, the commercial revitalization 
        deduction 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) Regulations.--For purposes of this section, the Secretary 
shall, by regulations, provide for the application of rules similar to 
the rules of section 49 and subsections (a) and (b) of section 50.
  ``(g) Termination.--This section shall not apply to any building 
placed in service after December 31, 2007.

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

  ``(a) General Rule.--In the case of a renewal community business (as 
defined in section 1400G), for purposes of section 179--
          ``(1) the limitation under section 179(b)(1) shall be 
        increased by the lesser of--
                  ``(A) $35,000; or
                  ``(B) the cost of section 179 property which is 
                qualified renewal property placed in service during the 
                taxable year; and
          ``(2) the amount taken into account under section 179(b)(2) 
        with respect to any section 179 property which is qualified 
        renewal property shall be 50 percent of the cost thereof.
  ``(b) Recapture.--Rules similar to the rules under section 179(d)(10) 
shall apply with respect to any qualified renewal property which ceases 
to be used in a renewal community by a renewal community business.
  ``(c) 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, 2000, and before January 1, 2008; and
                  ``(B) such property would be qualified zone property 
                (as defined in section 1397C) if references to renewal 
                communities were substituted for references to 
                empowerment zones in section 1397C.
          ``(2) Certain rules to apply.--The rules of subsections 
        (a)(2) and (b) of section 1397C shall apply for purposes of 
        this section.''.

SEC. 703. EXTENSION OF EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS TO 
                    RENEWAL COMMUNITIES.

  (a) Extension.--Paragraph (2) of section 198(c) (defining targeted 
area) is amended by redesignating subparagraph (C) as subparagraph (D) 
and by inserting after subparagraph (B) the following new subparagraph:
                  ``(C) Renewal communities included.--Except as 
                provided in subparagraph (B), such term shall include a 
                renewal community (as defined in section 1400E) with 
                respect to expenditures paid or incurred after December 
                31, 2000.''.
  (b) Extension of Termination Date for Renewal Communities.--
Subsection (h) of section 198 is amended by inserting before the period 
``(December 31, 2007, in the case of a renewal community, as defined in 
section 1400E).''.

SEC. 704. EXTENSION OF WORK OPPORTUNITY TAX CREDIT FOR RENEWAL 
                    COMMUNITIES

  (a) Extension.--Subsection (c) of section 51 (relating to 
termination) is amended by adding at the end the following new 
paragraph:
          ``(5) Extension of credit for renewal communities.--
                  ``(A) In general.--In the case of an individual who 
                begins work for the employer after the date contained 
                in paragraph (4)(B), for purposes of section 38--
                          ``(i) in lieu of applying subsection (a), the 
                        amount of the work opportunity credit 
                        determined under this section for the taxable 
                        year shall be equal to--
                                  ``(I) 15 percent of the qualified 
                                first-year wages for such year; and
                                  ``(II) 30 percent of the qualified 
                                second-year wages for such year;
                          ``(ii) subsection (b)(3) shall be applied by 
                        substituting `$10,000' for `$6,000';
                          ``(iii) paragraph (4)(B) shall be applied by 
                        substituting for the date contained therein the 
                        last day for which the designation under 
                        section 1400E of the renewal community referred 
                        to in subparagraph (B)(i) is in effect; and
                          ``(iv) rules similar to the rules of section 
                        51A(b)(5)(C) shall apply.
                  ``(B) Qualified first- and second-year wages.--For 
                purposes of subparagraph (A)--
                          ``(i) In general.--The term `qualified wages' 
                        means, with respect to each 1-year period 
                        referred to in clause (ii) or (iii), as the 
                        case may be, the wages paid or incurred by the 
                        employer during the taxable year to any 
                        individual but only if--
                                  ``(I) the employer is engaged in a 
                                trade or business in a renewal 
                                community throughout such 1-year 
                                period;
                                  ``(II) the principal place of abode 
                                of such individual is in such renewal 
                                community throughout such 1-year 
                                period; and
                                  ``(III) substantially all of the 
                                services which such individual performs 
                                for the employer during such 1-year 
                                period are performed in such renewal 
                                community.
                          ``(ii) Qualified first-year wages.--The term 
                        `qualified first-year wages' means, with 
                        respect to any individual, qualified wages 
                        attributable to service rendered during the 1-
                        year period beginning with the day the 
                        individual begins work for the employer.
                          ``(iii) Qualified second-year wages.--The 
                        term `qualified second-year wages' means, with 
                        respect to any individual, qualified wages 
                        attributable to service rendered during the 1-
                        year period beginning on the day after the last 
                        day of the 1-year period with respect to such 
                        individual determined under clause (ii).''.
  (b) Congruent Treatment of Renewal Communities and Enterprise Zones 
for Purposes of Youth Residence Requirements.--
          (1) 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''.
          (2) 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''.
          (3) Headings.--Paragraphs (5)(B) and (7)(C) of section 51(d) 
        are each amended by inserting ``or community'' in the heading 
        after ``zone''.
          (4) Effective date.--The amendments made by this subsection 
        shall apply to individuals who begin work for the employer 
        after December 31, 2000.

SEC. 705. CONFORMING AND CLERICAL AMENDMENTS.

  (a) Deduction for Contributions to Family Development Accounts 
Allowable Whether or Not Taxpayer Itemizes.--Subsection (a) of section 
62 (relating to adjusted gross income defined) is amended by inserting 
after paragraph (19) the following new paragraph:
          ``(20) Family development accounts.--The deduction allowed by 
        section 1400H(a)(1).''.
  (b) Tax on Excess Contributions.--
          (1) Tax imposed.--Subsection (a) of section 4973 is amended 
        by striking ``or'' at the end of paragraph (3), adding ``or'' 
        at the end of paragraph (4), and inserting after paragraph (4) 
        the following new paragraph:
          ``(5) a family development account (within the meaning of 
        section 1400H(e)),''.
          (2) Excess contributions.--Section 4973 is amended by adding 
        at the end the following new subsection:
  ``(g) Family Development Accounts.--For purposes of this section, in 
the case of family development accounts, the term `excess 
contributions' means the sum of--
          ``(1) the excess (if any) of--
                  ``(A) the amount contributed for the taxable year to 
                the accounts (other than a qualified rollover, as 
                defined in section 1400H(c)(7), or a contribution under 
                section 1400I), over
                  ``(B) the amount allowable as a deduction under 
                section 1400H for such contributions; and
          ``(2) the amount determined under this subsection for the 
        preceding taxable year reduced by the sum of--
                  ``(A) the distributions out of the accounts for the 
                taxable year which were included in the gross income of 
                the payee under section 1400H(b)(1);
                  ``(B) the distributions out of the accounts for the 
                taxable year to which rules similar to the rules of 
                section 408(d)(5) apply by reason of section 
                1400H(d)(3); and
                  ``(C) the excess (if any) of the maximum amount 
                allowable as a deduction under section 1400H for the 
                taxable year over the amount contributed to the account 
                for the taxable year (other than a contribution under 
                section 1400I).
For purposes of this subsection, any contribution which is distributed 
from the family development account in a distribution to which rules 
similar to the rules of section 408(d)(4) apply by reason of section 
1400H(d)(3) shall be treated as an amount not contributed.''.
  (c) Tax on Prohibited Transactions.--Section 4975 is amended--
          (1) by adding at the end of subsection (c) the following new 
        paragraph:
          ``(6) Special rule for family development accounts.--An 
        individual for whose benefit a family development account is 
        established and any contributor to such account shall be exempt 
        from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if, with respect to such 
        transaction, the account ceases to be a family development 
        account by reason of the application of section 1400H(d)(2) to 
        such account.''; and
          (2) in subsection (e)(1), by striking ``or'' at the end of 
        subparagraph (E), by redesignating subparagraph (F) as 
        subparagraph (G), and by inserting after subparagraph (E) the 
        following new subparagraph:
                  ``(F) a family development account described in 
                section 1400H(e), or''.
  (d) Information Relating to Certain Trusts and Annuity Plans.--
Subsection (c) of section 6047 is amended--
          (1) by inserting ``or section 1400H'' after ``section 219''; 
        and
          (2) by inserting ``, of any family development account 
        described in section 1400H(e),'', after ``section 408(a)''.
  (e) Inspection of Applications for Tax Exemption.--Clause (i) of 
section 6104(a)(1)(B) is amended by inserting ``a family development 
account described in section 1400H(e),'' after ``section 408(a),''.
  (f) Failure To Provide Reports on Family Development Accounts.--
Paragraph (2) of section 6693(a) is amended by striking ``and'' at the 
end of subparagraph (C), by striking the period and inserting ``, and'' 
at the end of subparagraph (D), and by adding at the end the following 
new subparagraph:
                  ``(E) section 1400H(g)(6) (relating to family 
                development accounts).''.
  (g) Conforming Amendments Regarding Commercial Revitalization 
Deduction.--
          (1) Section 172 is amended by redesignating subsection (j) as 
        subsection (k) and by inserting after subsection (i) the 
        following new subsection:
  ``(j) No Carryback of Section 1400k Deduction Before Date of 
Enactment.--No portion of the net operating loss for any taxable year 
which is attributable to any commercial revitalization deduction 
determined under section 1400K may be carried back to a taxable year 
ending before the date of the enactment of section 1400K.''.
          (2) Subparagraph (B) of section 48(a)(2) is amended by 
        inserting ``or commercial revitalization'' after 
        ``rehabilitation'' each place it appears in the text and 
        heading.
          (3) Subparagraph (C) of section 469(i)(3) is amended--
                  (A) by inserting ``or section 1400K'' after ``section 
                42''; and
                  (B) by inserting ``and commercial revitalization 
                deduction'' after ``credit'' in the heading.
  (h) Clerical Amendments.--The table of subchapters for chapter 1 is 
amended by adding at the end the following new item:

                              ``Subchapter X. Renewal Communities.''.

SEC. 706. EVALUATION AND REPORTING REQUIREMENTS.

  Not later than the close of the fourth calendar year after the year 
in which the Secretary of Housing and Urban Development first 
designates an area as a renewal community under section 1400E of the 
Internal Revenue Code of 1986, and at the close of each fourth calendar 
year thereafter, such Secretary shall prepare and submit to the 
Congress a report on the effects of such designations in stimulating 
the creation of new jobs, particularly for disadvantaged workers and 
long-term unemployed individuals, and promoting the revitalization of 
economically distressed areas.

                     Subtitle B--Farming Incentive

SEC. 711. PRODUCTION FLEXIBILITY CONTRACT PAYMENTS.

  Any option to accelerate the receipt of any payment under a 
production flexibility contract which is payable under the Federal 
Agriculture Improvement and Reform Act of 1996 (7 U.S.C. 7200 et seq.), 
as in effect on the date of the enactment of this Act, shall be 
disregarded in determining the taxable year for which such payment is 
properly includible in gross income for purposes of the Internal 
Revenue Code of 1986.

                   Subtitle C--Oil and Gas Incentives

SEC. 721. 5-YEAR NET OPERATING LOSS CARRYBACK FOR LOSSES ATTRIBUTABLE 
                    TO OPERATING MINERAL INTERESTS OF INDEPENDENT OIL 
                    AND GAS PRODUCERS.

  (a) In General.--Paragraph (1) of section 172(b) (relating to years 
to which loss may be carried) is amended by adding at the end the 
following new subparagraph:
                  ``(H) Losses on operating mineral interests of 
                independent oil and gas producers.--In the case of a 
                taxpayer--
                          ``(i) which has an eligible oil and gas loss 
                        (as defined in subsection (j)) for a taxable 
                        year, and
                          ``(ii) which is not an integrated oil company 
                        (as defined in section 291(b)(4)),
                such eligible oil and gas loss shall be a net operating 
                loss carryback to each of the 5 taxable years preceding 
                the taxable year of such loss.''
  (b) Eligible Oil and Gas Loss.--Section 172 is amended by 
redesignating subsection (j) as subsection (k) and by inserting after 
subsection (i) the following new subsection:
  ``(j) Eligible Oil and Gas Loss.--For purposes of this section--
          ``(1) In general.--The term `eligible oil and gas loss' means 
        the lesser of--
                  ``(A) the amount which would be the net operating 
                loss for the taxable year if only income and deductions 
                attributable to operating mineral interests (as defined 
                in section 614(d)) in oil and gas wells are taken into 
                account, or
                  ``(B) the amount of the net operating loss for such 
                taxable year.
          ``(2) Coordination with subsection (b)(2).--For purposes of 
        applying subsection (b)(2), an eligible oil and gas loss for 
        any taxable year shall be treated in a manner similar to the 
        manner in which a specified liability loss is treated.
          ``(3) Election.--Any taxpayer entitled to a 5-year carryback 
        under subsection (b)(1)(H) from any loss year may elect to have 
        the carryback period with respect to such loss year determined 
        without regard to subsection (b)(1)(H).''
  (c) Effective Date.--The amendments made by this section shall apply 
to net operating losses for taxable years beginning after December 31, 
1998.

SEC. 722. DEDUCTION FOR DELAY RENTAL PAYMENTS.

  (a) In General.--Section 263 (relating to capital expenditures) is 
amended by adding after subsection (i) the following new subsection:
  ``(j) Delay Rental Payments for Domestic Oil and Gas Wells.--
          ``(1) In general.--Notwithstanding subsection (a), a taxpayer 
        may elect to treat delay rental payments incurred in connection 
        with the development of oil or gas within the United States (as 
        defined in section 638) as payments which are not chargeable to 
        capital account. Any payments so treated shall be allowed as a 
        deduction in the taxable year in which paid or incurred.
          ``(2) Delay rental payments.--For purposes of paragraph (1), 
        the term `delay rental payment' means an amount paid for the 
        privilege of deferring development of an oil or gas well.''
  (b) Conforming Amendment.--Section 263A(c)(3) is amended by inserting 
``263(j),'' after ``263(i),''.
  (c) Effective Date.--The amendments made by this section shall apply 
to amounts paid or incurred in taxable years beginning after December 
31, 1999.

SEC. 723. ELECTION TO EXPENSE GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

  (a) In General.--Section 263 (relating to capital expenditures) is 
amended by adding after subsection (j) the following new subsection:
  ``(k) Geological and Geophysical Expenditures for Domestic Oil and 
Gas Wells.--Notwithstanding subsection (a), a taxpayer may elect to 
treat geological and geophysical expenses incurred in connection with 
the exploration for, or development of, oil or gas within the United 
States (as defined in section 638) as expenses which are not chargeable 
to capital account. Any expenses so treated shall be allowed as a 
deduction in the taxable year in which paid or incurred.''
  (b) Conforming Amendment.--Section 263A(c)(3) is amended by inserting 
``263(k),'' after ``263(j),''.
  (c) Effective Date.--The amendments made by this section shall apply 
to costs paid or incurred in taxable years beginning after December 31, 
1999.

SEC. 724. TEMPORARY SUSPENSION OF LIMITATION BASED ON 65 PERCENT OF 
                    TAXABLE INCOME.

  (a) In General.--Subsection (d) of section 613A (relating to 
limitation on percentage depletion in case of oil and gas wells) is 
amended by adding at the end the following new paragraph:
          ``(6) Temporary suspension of taxable income limit.--
        Paragraph (1) shall not apply to taxable years beginning after 
        December 31, 1998, and before January 1, 2005, including with 
        respect to amounts carried under the second sentence of 
        paragraph (1) to such taxable years.''
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1998.

SEC. 725. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION 
                    DEDUCTION.

  (a) In General.--Paragraph (4) of section 613A(d) (relating to 
certain refiners excluded) is amended to read as follows:
          ``(4) Certain refiners excluded.--If the taxpayer or a 
        related person engages in the refining of crude oil, subsection 
        (c) shall not apply to the taxpayer for a taxable year if the 
        average daily refinery runs of the taxpayer and the related 
        person for the taxable year exceed 50,000 barrels. For purposes 
        of this paragraph, the average daily refinery runs for any 
        taxable year shall be determined by dividing the aggregate 
        refinery runs for the taxable year by the number of days in the 
        taxable year.''
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

                     Subtitle D--Timber Incentives

SEC. 731. TEMPORARY SUSPENSION OF MAXIMUM AMOUNT OF AMORTIZABLE 
                    REFORESTATION EXPENDITURES.

  (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.--Subsection 
(b) of section 194(b) (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, 1999, 
        and before January 1, 2004.
  (c) 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)''.''.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 1998.

SEC. 732. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO APPLY TO 
                    OUTRIGHT SALES BY LAND OWNER.

  (a) In General.--Subsection (b) of section 631 (relating to disposal 
of timber with a retained economic interest) is amended--
          (1) by inserting ``and Outright Sales of Timber'' after 
        Economic Interest'' in the subsection heading, and
          (2) by adding before the last sentence the following new 
        sentence: ``The requirement in the first sentence of this 
        subsection to retain an economic interest in timber shall not 
        apply to an outright sale of such timber by the owner thereof 
        if such owner owned the land (at the time of such sale) from 
        which the timber is cut.''
  (b) Effective Date.--The amendment made by this section shall apply 
to sales after the date of the enactment of this Act.

                  Subtitle E--Steel Industry Incentive

SEC. 741. MINIMUM TAX RELIEF FOR STEEL INDUSTRY.

  (a) In General.--Subsection (c) of section 53 (as amended by section 
302) is amended by adding at the end the following new paragraph:
          ``(4) Steel companies.--
                  ``(A) In general.--In the case of a corporation 
                engaged in the trade or business of manufacturing steel 
                in the United States for sale to customers, in lieu of 
                applying paragraph (2), the limitation under paragraph 
                (1) for any taxable year beginning after December 31, 
                1998, shall be increased (subject to the rule of the 
                last sentence of paragraph (2)) by 90 percent of the 
                tentative minimum tax.
                  ``(B) Limitation.--The increase in the credit allowed 
                by this section by reason of this paragraph for any 
                taxable year shall not exceed the increase in the 
                credit which would be so allowed if the trade or 
                business of such corporation of manufacturing steel in 
                the United States for sale to customers were a separate 
                taxpayer.
                  ``(C) Regulations.--The Secretary shall prescribe 
                regulations to prevent the abuse of the purposes of 
                this paragraph, including regulations to prevent the 
                benefits of this paragraph from becoming available to 
                any other corporation through any reorganization or 
                other acquisition.''
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1998.

                TITLE VIII--RELIEF FOR SMALL BUSINESSES

SEC. 801. 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, his spouse, and dependents.''
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

 SEC. 802. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.

  (a) In General.--Paragraph (1) of section 179(b) (relating to dollar 
limitation) is amended to read as follows:
          ``(1) Dollar limitation.--The aggregate cost which may be 
        taken into account under subsection (a) for any taxable year 
        shall not exceed $30,000.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 803. REPEAL OF FEDERAL UNEMPLOYMENT SURTAX.

  (a) In General.--Section 3301 (relating to rate of Federal 
unemployment tax) is amended--
          (1) by striking ``2007'' and inserting ``2004'', and
          (2) by striking ``2008'' and inserting ``2005''.
  (b) Effective Date.--The amendment made by this section shall apply 
to calendar years beginning after the date of the enactment of this 
Act.

SEC. 804. RESTORATION OF 80 PERCENT DEDUCTION FOR MEAL EXPENSES.

  (a) In General.--Paragraph (1) of section 274(n) (relating to only 50 
percent of meal and entertainment expenses allowed as deduction) is 
amended by striking ``50 percent'' in the text and inserting ``the 
allowable percentage''.
  (b) Allowable Percentages.--Subsection (n) of section 274 is amended 
by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), 
respectively, and by inserting after paragraph (2) 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, 
                the percentage determined in accordance with the 
                following table:

                ``For taxable years beginning
                                                          The allowable
                  in calendar year--
                                                        percentage is--
                  2000 through 2004........................        50  
                  2005.....................................        55  
                  2006.....................................        60  
                  2007.....................................        65  
                  2008.....................................        70  
                  2009.....................................        75  
                  2010 and thereafter......................     80.''  

  (b) Conforming Amendments.--
          (1) The heading for subsection (n) of section 274 is amended 
        by striking ``50 Percent'' and inserting ``Limited 
        Percentages''.
          (2) Subparagraph (A) of section 274(n)(4), as redesignated by 
        subsection (a), is amended by striking ``50 percent'' and 
        inserting ``the allowable percentage''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 1999.

                   TITLE IX--INTERNATIONAL TAX RELIEF

SEC. 901. INTEREST ALLOCATION RULES.

  (a) Election To Allocate Interest on a Worldwide Basis.--Subsection 
(e) of section 864 (relating to rules for allocating interest, etc.) is 
amended by redesignating paragraphs (6) and (7) as paragraphs (7) and 
(8), respectively, and by inserting after paragraph (5) the following 
new paragraph:
          ``(6) Election to allocate interest on a worldwide basis.--
                  ``(A) In general.--Except as provided in this 
                paragraph, this subsection shall be applied by treating 
                each worldwide affiliated group for which an election 
                under this paragraph is in effect as an affiliated 
                group solely for purposes of allocating and 
                apportioning interest expense of domestic corporations 
                which are members of such group.
                  ``(B) Worldwide affiliated group.--For purposes of 
                this paragraph, the term `worldwide affiliated group' 
                means the group of corporations which consists of--
                          ``(i) all corporations in an affiliated group 
                        (as defined in paragraph (5)), and
                          ``(ii) all foreign corporations (other than a 
                        FSC, as defined in section 922(a)) with respect 
                        to which corporations described in clause (i) 
                        own stock meeting the ownership requirements of 
                        section 957(a) (without regard to stock 
                        considered as owned under section 958(b)).
                  ``(C) Allocation.--
                          ``(i) In general.--For purposes of paragraph 
                        (1), only the applicable percentage of the 
                        interest expense and assets of a foreign 
                        corporation described in subparagraph (B)(ii) 
                        shall be taken into account.
                          ``(ii) Applicable percentage.--For purposes 
                        of this paragraph, the term `applicable 
                        percentage' means, with respect to any foreign 
                        corporation, the percentage equal to the ratio 
                        which the value of the stock in such 
                        corporation taken into account under 
                        subparagraph (B)(ii) bears to the aggregate 
                        value of all stock in such corporation.
                  ``(D) Treatment of foreign interest expense.--
                Interest expense of domestic corporations which are 
                members of an electing worldwide affiliated group which 
                is allocated to foreign source income under this 
                subsection shall be reduced (but not below zero) by the 
                applicable percentage of the interest expense incurred 
                by any foreign corporation in the electing worldwide 
                affiliated group to the extent such interest expense of 
                such foreign corporation would have been allocated and 
                apportioned to foreign source income of such foreign 
                corporation if this subsection were applied to a group 
                consisting of all the foreign corporations in such 
                affiliated group.
                  ``(E) Election.--An election under this paragraph 
                with respect to any worldwide affiliated group may be 
                made only by the common parent of the affiliated group 
                referred to in subparagraph (B)(i) and may be made only 
                for the first taxable year beginning after December 31, 
                2001, in which a worldwide affiliated group exists 
                which includes such affiliated group and at least 1 
                corporation described in subparagraph (B)(ii). Such an 
                election, once made, shall apply to such parent and all 
                other corporations which are included in such worldwide 
                affiliated group for such taxable year and all 
                subsequent years unless revoked with the consent of the 
                Secretary.''.
  (b) Election to Allocate Interest Within Financial Institution Groups 
and Subsidiary Groups.--Section 864 is amended by redesignating 
subsection (f) as subsection (g) and by inserting after subsection (e) 
the following new subsection:
  ``(f) Election To Apply Subsection (e) on Basis of Financial 
Institution Group and Subsidiary Groups.--
          ``(1) In general.--Subsection (e) shall be applied--
                  ``(A) as if the electing financial institution group 
                were a separate affiliated group, and
                  ``(B) for purposes of allocating interest expense 
                with respect to qualified indebtedness of members of an 
                electing subsidiary group, as if each electing 
                subsidiary group were a separate affiliated group.
        Subsection (e) shall apply to any such electing group in the 
        same manner as subsection (e) applies to the pre-election 
        affiliated group of which such electing group is a part.
          ``(2) Electing financial institution group.--For purposes of 
        this subsection--
                  ``(A) In general.--The term `electing financial 
                institution group' means any group of corporations if--
                          ``(i) such group consists only of all of the 
                        financial corporations in the pre-election 
                        affiliated group, and
                          ``(ii) an election under this paragraph is in 
                        effect for such group of corporations.
                  ``(B) Financial corporation.--The term `financial 
                corporation' means any corporation if at least 80 
                percent of its gross income is income described in 
                section 904(d)(2)(C)(ii) and the regulations 
                thereunder. To the extent provided in regulations 
                prescribed by the Secretary, such term includes a 
bankholding company (within the meaning of section 2(a) of the Bank 
Holding Company Act of 1956).
                  ``(C) Effect of certain transactions.--Rules similar 
                to the rules of paragraph (3)(D) shall apply to 
                transactions between any member of the electing 
                financial institution group and any member of the pre-
                election affiliated group (other than a member of the 
                electing financial institution group).
                  ``(D) Election.--An election under this paragraph 
                with respect to any financial institution group may be 
                made only by the common parent of the pre-election 
                affiliated group. Such an election, once made, shall 
                apply only to the taxable year for which made.
          ``(3) Electing subsidiary groups.--
                  ``(A) In general.--The term `electing subsidiary 
                group' means any group of corporations if--
                          ``(i) such group consists only of 
                        corporations in the pre-election affiliated 
                        group,
                          ``(ii) such group includes--
                                  ``(I) a domestic corporation (which 
                                is not the common parent of the pre-
                                election affiliated group or a member 
                                of an electing financial institution 
                                group) which incurs interest expense 
                                with respect to qualified indebtedness, 
                                and
                                  ``(II) every other corporation (other 
                                than a member of an electing financial 
                                institution group) which is in the pre-
                                election affiliated group and which 
                                would be a member of an affiliated 
                                group having such domestic corporation 
                                as the common parent, and
                          ``(iii) an election under this paragraph is 
                        in effect for such group.
                  ``(B) Equalization rule.--All interest expense of a 
                domestic corporation which is a member of a pre-
                election affiliated group (other than subsidiary group 
                interest expense) shall be treated as allocated to 
                foreign source income to the extent such expense does 
                not exceed the excess (if any) of--
                          ``(i) the interest expense of the pre-
                        election affiliated group (including subsidiary 
                        group interest expense) which would (but for 
                        any election under this paragraph) be allocated 
                        to foreign source income, over
                          ``(ii) the subsidiary group interest expense 
                        allocated to foreign source income.
                For purposes of the preceding sentence, the subsidiary 
                group interest expense is the interest expense to which 
                subsection (e) applies separately by reason of 
                paragraph (1)(B).
                  ``(C) Qualified indebtedness.--For purposes of this 
                subsection, the term `qualified indebtedness' means any 
                indebtedness of a domestic corporation--
                          ``(i) which is held by an unrelated person, 
                        and
                          ``(ii) which is not guaranteed (or otherwise 
                        supported) by any corporation which is a member 
                        of the pre-election affiliated group other than 
                        a corporation which is a member of the electing 
                        subsidiary group.
                For purposes of this subparagraph, the term `unrelated 
                person' means any person not bearing a relationship 
                specified in section 267(b) or 707(b)(1) to the 
                corporation.
                  ``(D) Effect of certain transactions on qualified 
                indebtedness.--In the case of a corporation which is a 
                member of an electing subsidiary group, to the extent 
                that such corporation--
                          ``(i) distributes dividends or makes other 
                        distributions with respect to its stock after 
                        the date of the enactment of this paragraph to 
                        any member of the pre-election affiliated group 
                        (other than to a member of the electing 
                        subsidiary group) in excess of the greater of--
                                  ``(I) its average annual dividend 
                                (expressed as a percentage of current 
                                earnings and profits) during the 5-
                                taxable-year period ending with the 
                                taxable year preceding the taxable 
                                year, or
                                  ``(II) 25 percent of its average 
                                annual earnings and profits for such 5 
                                taxable year period, or
                          ``(ii) deals with any person in any manner 
                        not clearly reflecting the income of the 
                        corporation (as determined under principles 
                        similar to the principles of section 482),
                an amount of qualified indebtedness equal to the excess 
                distribution or the understatement or overstatement of 
                income, as the case may be, shall be recharacterized 
                (for the taxable year and subsequent taxable years) for 
                purposes of this subsection as indebtedness which is 
                not qualified indebtedness. If a corporation has not 
                been in existence for 5 taxable years, this 
                subparagraph shall be applied with respect to the 
                period it was in existence.
                  ``(E) Election.--An election under this paragraph 
                with respect to any electing subsidiary group may be 
                made only by the common parent of the pre-election 
                affiliated group. Such an election, once made, shall 
                apply only to the taxable year for which made. No 
                election may be made under this paragraph if the effect 
                of the election would be to have the same member of the 
                pre-election affiliated group included in more than 1 
                electing subsidiary group.
          ``(4) Pre-election affiliated group.--For purposes of this 
        subsection, the term `pre-election affiliated group' means, 
        with respect to a corporation, the affiliated group or electing 
        worldwide affiliated group of which such corporation would (but 
        for an election under this subsection) be a member for purposes 
        of applying subsection (e).
          ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to carry out this subsection 
        and subsection (e), including regulations--
                  ``(A) providing for the direct allocation of interest 
                expense in other circumstances where such allocation 
                would be appropriate to carry out the purposes of this 
                subsection,
                  ``(B) preventing assets or interest expense from 
                being taken into account more than once, and
                  ``(C) dealing with changes in members of any group 
                (through acquisitions or otherwise) treated under this 
                subsection as an affiliated group for purposes of 
                subsection (e).''
  (c) Insurance Companies Included in Affiliated Groups.--Paragraph (5) 
of section 864(e) is amended to read as follows:
          ``(5) Affiliated group.--The term `affiliated group' has the 
        meaning given such term by section 1504 (determined without 
        regard to paragraphs (2) and (4) of section 1504(b)).''.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 902. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED 
                    SECTION 902 CORPORATIONS.

  (a) In General.--Section 904(d)(4) (relating to application of look-
thru rules to dividends from noncontrolled section 902 corporations) is 
amended to read as follows:
          ``(4) Look-thru applies to dividends from noncontrolled 
        section 902 corporations.--
                  ``(A) In general.--For purposes of this subsection, 
                any dividend from a noncontrolled section 902 
                corporation with respect to the taxpayer shall be 
                treated as income in a separate category in proportion 
                to the ratio of--
                          ``(i) the portion of earnings and profits 
                        attributable to income in such category, to
                          ``(ii) the total amount of earnings and 
                        profits.
                  ``(B) Special rules.--For purposes of this 
                paragraph--
                          ``(i) In general.--Rules similar to the rules 
                        of paragraph (3)(F) shall apply; except that 
                        the term `separate category' shall include the 
                        category of income described in paragraph 
                        (1)(I).
                          ``(ii) Earnings and profits.--
                                  ``(I) In general.--The rules of 
                                section 316 shall apply.
                                  ``(II) Regulations.--The Secretary 
                                may prescribe regulations regarding the 
                                treatment of distributions out of 
                                earnings and profits for periods before 
                                the taxpayer's acquisition of the stock 
                                to which the distributions relate.
                          ``(iii) Dividends not allocable to separate 
                        category.--The portion of any dividend from a 
                        noncontrolled section 902 corporation which is 
                        not treated as income in a separate category 
                        under subparagraph (A) shall be treated as a 
                        dividend to which subparagraph (A) does not 
                        apply.
                          ``(iv) Look-thru with respect to 
                        carryforwards of credit.--Rules similar to 
                        subparagraph (A) also shall apply to any 
                        carryforward under subsection (c) from a 
                        taxable year beginning before January 1, 2002, 
                        of tax allocable to a dividend from a 
                        noncontrolled section 902 corporation with 
                        respect to the taxpayer.''
  (b) Conforming Amendments.--
          (1) Subparagraph (E) of section 904(d)(1), as in effect both 
        before and after the amendments made by section 1105 of the 
        Taxpayer Relief Act of 1997, is hereby repealed.
          (2) Section 904(d)(2)(C)(iii), as so in effect, is amended by 
        striking subclause (II) and by redesignating subclause (III) as 
        subclause (II).
          (3) The last sentence of section 904(d)(2)(D), as so in 
        effect, is amended to read as follows: ``Such term does not 
        include any financial services income.''
          (4) Section 904(d)(2)(E) is amended by striking clauses (ii) 
        and (iv) and by redesignating clause (iii) as clause (ii).
          (5) Section 904(d)(3)(F) is amended by striking ``(D), or 
        (E)'' and inserting ``or (D)''.
          (6) Section 864(d)(5)(A)(i) is amended by striking 
        ``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 903. CLARIFICATION OF TREATMENT OF PIPELINE TRANSPORTATION INCOME.

  (a) In General.--Section 954(g)(1) (defining foreign base company oil 
related income) is amended by striking ``or'' at the end of 
subparagraph (A), by striking the period at the end of subparagraph (B) 
and inserting ``, or'', and by inserting after subparagraph (B) the 
following new subparagraph:
                  ``(C) the pipeline transportation of oil or gas 
                within such foreign country.''
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of controlled foreign corporations beginning after 
December 31, 2001, and taxable years of United States shareholders with 
or within which such taxable years of controlled foreign corporations 
end.

SEC. 904. SUBPART F TREATMENT OF INCOME FROM TRANSMISSION OF HIGH 
                    VOLTAGE ELECTRICITY.

  (a) In General.--Paragraph (2) of section 954(e) (relating to foreign 
base company services income) is amended by striking ``or'' at the end 
of subparagraph (A), by striking the period at the end of subparagraph 
(B) and inserting ``, or'', and by inserting after subparagraph (B) the 
following new subparagraph:
                  ``(C) the transmission of high voltage electricity.''
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of controlled foreign corporations beginning after 
December 31, 2001, and taxable years of United States shareholders with 
or within which such taxable years of controlled foreign corporations 
end.

SEC. 905. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.

  (a) General Rule.--Section 904 is amended by redesignating 
subsections (g), (h), (i), (j), and (k) as subsections (h), (i), (j), 
(k), and (l), respectively, and by inserting after subsection (f) the 
following new subsection:
  ``(g) Recharacterization of Overall Domestic Loss.--
          ``(1) General rule.--For purposes of this subpart and section 
        936, in the case of any taxpayer who sustains an overall 
        domestic loss for any taxable year beginning after December 31, 
        2004, that portion of the taxpayer's taxable income from 
        sources within the United States for each succeeding taxable 
        year which is equal to the lesser of--
                  ``(A) the amount of such loss (to the extent not used 
                under this paragraph in prior taxable years), or
                  ``(B) 50 percent of the taxpayer's taxable income 
                from sources within the United States for such 
                succeeding taxable year,
        shall be treated as income from sources without the United 
        States (and not as income from sources within the United 
        States).
          ``(2) Overall domestic loss defined.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `overall domestic loss' 
                means any domestic loss to the extent such loss offsets 
                taxable income from sources without the United States 
                for the taxable year or for any preceding taxable year 
                by reason of a carryback. For purposes of the preceding 
                sentence, the term `domestic loss' means the amount by 
                which the gross income for the taxable year from 
                sources within the United States is exceeded by the sum 
                of the deductions properly apportioned or allocated 
                thereto (determined without regard to any carryback 
                from a subsequent taxable year).
                  ``(B) Taxpayer must have elected foreign tax credit 
                for year of loss.--The term `overall domestic loss' 
                shall not include any loss for any taxable year unless 
                the taxpayer chose the benefits of this subpart for 
                such taxable year.
          ``(3) Characterization of subsequent income.--
                  ``(A) In general.--Any income from sources within the 
                United States that is treated as income from sources 
                without the United States under paragraph (1) shall be 
                allocated among and increase the income categories in 
                proportion to the loss from sources within the United 
                States previously allocated to those income categories.
                  ``(B) Income category.--For purposes of this 
                paragraph, the term `income category' has the meaning 
                given such term by subsection (f)(5)(E)(i).
          ``(4) Coordination with subsection (f).--The Secretary shall 
        prescribe such regulations as may be necessary to coordinate 
        the provisions of this subsection with the provisions of 
        subsection (f).''
  (b) Conforming Amendments.--
          (1) Section 535(d)(2) is amended by striking ``section 
        904(g)(6)'' and inserting ``section 904(h)(6)''.
          (2) Subparagraph (A) of section 936(a)(2) is amended by 
        striking ``section 904(f)'' and inserting ``subsections (f) and 
        (g) of section 904''.
  (c) Effective Date.--The amendments made by this section shall apply 
to losses for taxable years beginning after December 31, 2004.

SEC. 906. TREATMENT OF MILITARY PROPERTY OF FOREIGN SALES CORPORATIONS.

  (a) In General.--Section 923(a) (defining exempt foreign trade 
income) is amended by striking paragraph (5) and by redesignating 
paragraph (6) as paragraph (5).
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 907. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED INVESTMENT 
                    COMPANIES.

  (a) Treatment of Certain Dividends.--
          (1) Nonresident alien individuals.--Section 871 (relating to 
        tax on nonresident alien individuals) is amended by 
        redesignating subsection (k) as subsection (l) and by inserting 
        after subsection (j) the following new subsection:
  ``(k) Exemption for Certain Dividends of Regulated Investment 
Companies.--
          ``(1) Interest-related dividends.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), no tax shall be imposed under paragraph (1)(A) of 
                subsection (a) on any interest-related dividend 
                received from a regulated investment company.
                  ``(B) Exceptions.--Subparagraph (A) shall not apply--
                          ``(i) to any interest-related dividend 
                        received from a regulated investment company by 
                        a person to the extent such dividend is 
                        attributable to interest (other than interest 
                        described in clause (i), (iii), or the last 
                        sentence of subparagraph (E)) received by such 
                        company on indebtedness issued by such person 
                        or by any corporation or partnership with 
                        respect to which such person is a 10-percent 
                        shareholder,
                          ``(ii) to any interest-related dividend with 
                        respect to stock of a regulated investment 
                        company unless the person who would otherwise 
                        be required to deduct and withhold tax from 
                        such dividend under chapter 3 receives a 
                        statement (which meets requirements similar to 
                        the requirements of subsection (h)(5)) that the 
                        beneficial owner of such stock is not a United 
                        States person, and
                          ``(iii) to any interest-related dividend paid 
                        to any person within a foreign country (or any 
                        interest-related dividend payment addressed to, 
                        or for the account of, persons within such 
                        foreign country) during any period described in 
                        subsection (h)(6) with respect to such country.
                Clause (iii) shall not apply to any dividend with 
                respect to any stock the holding period of which begins 
                on or before the date of the publication of the 
                Secretary's determination under subsection (h)(6).
                  ``(C) Interest-related dividend.--For purposes of 
                this paragraph, an interest-related dividend is any 
                dividend (or part thereof) which is designated by the 
                regulated investment company as an interest-related 
                dividend in a written notice mailed to its shareholders 
                not later than 60 days after the close of its taxable 
                year. If the aggregate amount so designated with 
                respect to a taxable year of the company (including 
                amounts so designated with respect to dividends paid 
                after the close of the taxable year described in 
                section 855) is greater than the qualified net interest 
                income of the company for such taxable year, the 
                portion of each distribution which shall be an 
                interest-related dividend shall be only that portion of 
                the amounts so designated which such qualified net 
                interest income bears to the aggregate amount so 
                designated.
                  ``(D) Qualified net interest income.--For purposes of 
                subparagraph (C), the term `qualified net interest 
                income' means the qualified interest income of the 
                regulated investment company reduced by the deductions 
                properly allocable to such income.
                  ``(E) Qualified interest income.--For purposes of 
                subparagraph (D), the term `qualified interest income' 
                means the sum of the following amounts derived by the 
                regulated investment company from sources within the 
                United States:
                          ``(i) Any amount includible in gross income 
                        as original issue discount (within the meaning 
                        of section 1273) on an obligation payable 183 
                        days or less from the date of original issue 
                        (without regard to the period held by the 
                        company).
                          ``(ii) Any interest includible in gross 
                        income (including amounts recognized as 
                        ordinary income in respect of original issue 
                        discount or market discount or acquisition 
                        discount under part V of subchapter P and such 
                        other amounts as regulations may provide) on an 
                        obligation which is in registered form; except 
                        that this clause shall not apply to--
                                  ``(I) any interest on an obligation 
                                issued by a corporation or partnership 
                                if the regulated investment company is 
                                a 10-percent shareholder in such 
                                corporation or partnership, and
                                  ``(II) any interest which is treated 
                                as not being portfolio interest under 
                                the rules of subsection (h)(4).
                          ``(iii) Any interest referred to in 
                        subsection (i)(2)(A) (without regard to the 
                        trade or business of the regulated investment 
                        company).
                          ``(iv) Any interest-related dividend 
                        includable in gross income with respect to 
                        stock of another regulated investment company.
                Such term includes any interest derived by the 
                regulated investment company from sources outside the 
                United States other than interest that is subject to a 
                tax imposed by a foreign jurisdiction if the amount of 
                such tax is reduced (or eliminated) by a treaty with 
                the United States.
                  ``(F) 10-percent shareholder.--For purposes of this 
                paragraph, the term `10-percent shareholder' has the 
                meaning given such term by subsection (h)(3)(B).
          ``(2) Short-term capital gain dividends.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), no tax shall be imposed under paragraph (1)(A) of 
                subsection (a) on any short-term capital gain dividend 
                received from a regulated investment company.
                  ``(B) Exception for aliens taxable under subsection 
                (a)(2).--Subparagraph (A) shall not apply in the case 
                of any nonresident alien individual subject to tax 
                under subsection (a)(2).
                  ``(C) Short-term capital gain dividend.--For purposes 
                of this paragraph, a short-term capital gain dividend 
                is any dividend (or part thereof) which is designated 
                by the regulated investment company as a short-term 
                capital gain dividend in a written notice mailed to its 
                shareholders not later than 60 days after the close of 
                its taxable year. If the aggregate amount so designated 
                with respect to a taxable year of the company 
                (including amounts so designated with respect to 
                dividends paid after the close of the taxable year 
                described in section 855) is greater than the qualified 
                short-term gain of the company for such taxable year, 
                the portion of each distribution which shall be a 
                short-term capital gain dividend shall be only that 
                portion of the amounts so designated which such 
                qualified short-term gain bears to the aggregate amount 
                so designated.
                  ``(D) Qualified short-term gain.--For purposes of 
                subparagraph (C), the term `qualified short-term gain' 
                means the excess of the net short-term capital gain of 
                the regulated investment company for the taxable year 
                over the net long-term capital loss (if any) of such 
                company for such taxable year. For purposes of this 
                subparagraph--
                          ``(i) the net short-term capital gain of the 
                        regulated investment company shall be computed 
                        by treating any short-term capital gain 
                        dividend includible in gross income with 
                        respect to stock of another regulated 
                        investment company as a short-term capital 
                        gain, and
                          ``(ii) the excess of the net short-term 
                        capital gain for a taxable year over the net 
                        long-term capital loss for a taxable year (to 
                        which an election under section 4982(e)(4) does 
                        not apply) shall be determined without regard 
                        to any net capital loss or net short-term 
                        capital loss attributable to transactions after 
                        October 31 of such year, and any such net 
                        capital loss or net short-term capital loss 
                        shall be treated as arising on the 1st day of 
                        the next taxable year.
                To the extent provided in regulations, clause (ii) 
                shall apply also for purposes of computing the taxable 
                income of the regulated investment company.''
          (2) Foreign corporations.--Section 881 (relating to tax on 
        income of foreign corporations not connected with United States 
        business) is amended by redesignating subsection (e) as 
        subsection (f) and by inserting after subsection (d) the 
        following new subsection:
  ``(e) Tax Not To Apply to Certain Dividends of Regulated Investment 
Companies.--
          ``(1) Interest-related dividends.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), no tax shall be imposed under paragraph (1) of 
                subsection (a) on any interest-related dividend (as 
                defined in section 871(k)(1)) received from a regulated 
                investment company.
                  ``(B) Exception.--Subparagraph (A) shall not apply--
                          ``(i) to any dividend referred to in section 
                        871(k)(1)(B), and
                          ``(ii) to any interest-related dividend 
                        received by a controlled foreign corporation 
                        (within the meaning of section 957(a)) to the 
                        extent such dividend is attributable to 
                        interest received by the regulated investment 
                        company from a person who is a related person 
                        (within the meaning of section 864(d)(4)) with 
                        respect to such controlled foreign corporation.
                  ``(C) Treatment of dividends received by controlled 
                foreign corporations.--The rules of subsection 
                (c)(5)(A) shall apply to any interest-related dividend 
                received by a controlled foreign corporation (within 
                the meaning of section 957(a)) to the extent such 
                dividend is attributable to interest received by the 
                regulated investment company which is described in 
                clause (ii) of section 871(k)(1)(E) (and not described 
                in clause (i), (iii), or the last sentence of such 
                section).
          ``(2) Short-term capital gain dividends.--No tax shall be 
        imposed under paragraph (1) of subsection (a) on any short-term 
        capital gain dividend (as defined in section 871(k)(2)) 
        received from a regulated investment company.''
          (3) Withholding taxes.--
                  (A) Section 1441(c) (relating to exceptions) is 
                amended by adding at the end the following new 
                paragraph:
          ``(12) Certain dividends received from regulated investment 
        companies.--
                  ``(A) In general.--No tax shall be required to be 
                deducted and withheld under subsection (a) from any 
                amount exempt from the tax imposed by section 
                871(a)(1)(A) by reason of section 871(k).
                  ``(B) Special rule.--For purposes of subparagraph 
                (A), clause (i) of section 871(k)(1)(B) shall not apply 
                to any dividend unless the regulated investment company 
                knows that such dividend is a dividend referred to in 
                such clause. A similar rule shall apply with respect to 
                the exception contained in section 871(k)(2)(B).''
                  (B) Section 1442(a) (relating to withholding of tax 
                on foreign corporations) is amended--
                          (i) by striking ``and the reference in 
                        section 1441(c)(10)'' and inserting ``the 
                        reference in section 1441(c)(10)'', and
                          (ii) by inserting before the period at the 
                        end the following: ``, and the references in 
                        section 1441(c)(12) to sections 871(a) and 
                        871(k) shall be treated as referring to 
                        sections 881(a) and 881(e) (except that for 
                        purposes of applying subparagraph (A) of 
                        section 1441(c)(12), as so modified, clause 
                        (ii) of section 881(e)(1)(B) shall not apply to 
                        any dividend unless the regulated investment 
                        company knows that such dividend is a dividend 
                        referred to in such clause)''.
  (b) Estate Tax Treatment of Interest in Certain Regulated Investment 
Companies.--Section 2105 (relating to property without the United 
States for estate tax purposes) is amended by adding at the end the 
following new subsection:
  ``(d) Stock in a RIC.--
          ``(1) In general.--For purposes of this subchapter, stock in 
        a regulated investment company (as defined in section 851) 
        owned by a nonresident not a citizen of the United States shall 
        not be deemed property within the United States in the 
        proportion that, at the end of the quarter of such investment 
        company's taxable year immediately preceding a decedent's date 
        of death (or at such other time as the Secretary may designate 
        in regulations), the assets of the investment company that were 
        qualifying assets with respect to the decedent bore to the 
        total assets of the investment company.
          ``(2) Qualifying assets.--For purposes of this subsection, 
        qualifying assets with respect to a decedent are assets that, 
        if owned directly by the decedent, would have been--
                  ``(A) amounts, deposits, or debt obligations 
                described in subsection (b) of this section,
                  ``(B) debt obligations described in the last sentence 
                of section 2104(c), or
                  ``(C) other property not within the United States.''
  (c) Treatment of Regulated Investment Companies Under Section 897.--
          (1) Paragraph (1) of section 897(h) is amended by striking 
        ``REIT'' each place it appears and inserting ``qualified 
        investment entity''.
          (2) Paragraphs (2) and (3) of section 897(h) are amended to 
        read as follows:
          ``(2) Sale of stock in domestically controlled entity not 
        taxed.--The term `United States real property interest' does 
        not include any interest in a domestically controlled qualified 
        investment entity.
          ``(3) Distributions by domestically controlled qualified 
        investment entities.--In the case of a domestically controlled 
        qualified investment entity, rules similar to the rules of 
        subsection (d) shall apply to the foreign ownership percentage 
        of any gain.''
          (3) Subparagraphs (A) and (B) of section 897(h)(4) are 
        amended to read as follows:
                  ``(A) Qualified investment entity.--The term 
                `qualified investment entity' means any real estate 
                investment trust and any regulated investment company.
                  ``(B) Domestically controlled.--The term 
                `domestically controlled qualified investment entity' 
                means any qualified investment entity in which at all 
                times during the testing period less than 50 percent in 
                value of the stock was held directly or indirectly by 
                foreign persons.''
          (4) Subparagraphs (C) and (D) of section 897(h)(4) are each 
        amended by striking ``REIT'' and inserting ``qualified 
        investment entity''.
          (5) The subsection heading for subsection (h) of section 897 
        is amended by striking ``REITS'' and inserting ``Certain 
        Investment Entities''.
  (d) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        dividends with respect to taxable years of regulated investment 
        companies beginning after December 31, 2004.
          (2) Estate tax treatment.--The amendment made by subsection 
        (b) shall apply to estates of decedents dying after December 
        31, 2004.
          (3) Certain other provisions.--The amendments made by 
        subsection (c) (other than paragraph (1) thereof) shall take 
        effect on January 1, 2005.

SEC. 908. REPEAL OF SPECIAL RULES FOR APPLYING FOREIGN TAX CREDIT IN 
                    CASE OF FOREIGN OIL AND GAS INCOME.

  (a) In General.--Section 907 (relating to special rules in case of 
foreign oil and gas income) is repealed.
  (b) Conforming Amendments.--
          (1) Each of the following provisions are amended by striking 
        ``907,'':
                  (A) Section 245(a)(10).
                  (B) Section 865(h)(1)(B).
                  (C) Section 904(d)(1).
                  (D) Section 904(g)(10)(A).
          (2) Section 904(f)(5)(E)(iii) is amended by inserting ``, as 
        in effect before its repeal by the Financial Freedom Act of 
        1999'' after ``section 907(c)(4)(B)''.
          (3) Section 954(g)(1) is amended by inserting ``, as in 
        effect before its repeal by the Financial Freedom Act of 1999'' 
        after ``907(c)''.
          (4) Section 6501(i) is amended--
                  (A) by striking ``, or under section 907(f) (relating 
                to carryback and carryover of disallowed oil and gas 
                extraction taxes)'', and
                  (B) by striking ``or 907(f)''.
          (5) The table of sections for subpart A of part III of 
        subchapter N of chapter 1 is amended by striking the item 
        relating to section 907.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2004.

SEC. 909. STUDY OF PROPER TREATMENT OF EUROPEAN UNION UNDER SAME 
                    COUNTRY EXCEPTIONS.

  (a) Study.--The Secretary of the Treasury or the Secretary's delegate 
shall conduct a study on the feasibility of treating all countries 
included in the European Union as 1 country for purposes of applying 
the same country exceptions under subpart F of part III of subchapter N 
of chapter 1 of the Internal Revenue Code of 1986.
  (b) Report.--Not later than 6 months after the date of the enactment 
of this Act, the Secretary of the Treasury shall report to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate the results of the study conducted 
under subsection (a), including recommendations (if any) for 
legislation.

SEC. 910. APPLICATION OF DENIAL OF FOREIGN TAX CREDIT WITH RESPECT TO 
                    CERTAIN FOREIGN COUNTRIES.

  (a) In General.--Clause (ii) of section 901(j)(2)(B) (relating to 
denial of foreign tax credit, etc., with respect to certain foreign 
countries) is amended by inserting before the period ``or, if earlier, 
ending on the date that the President determines that the application 
of this subsection to such foreign country is no longer in the national 
interests of the United States''.
  (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 911. ADVANCE PRICING AGREEMENTS TREATED AS CONFIDENTIAL TAXPAYER 
                    INFORMATION.

  (a) In General.--
          (1) Treatment as return information.--Paragraph (2) of 
        section 6103(b) (defining return information) is amended by 
        striking ``and'' at the end of subparagraph (A), by inserting 
        ``and'' at the end of subparagraph (B), and by inserting after 
        subparagraph (B) the following new subparagraph:
                  ``(C) any advance pricing agreement entered into by a 
                taxpayer and the Secretary and any background 
                information related to such agreement or any 
                application for an advance pricing agreement,''.
          (2) Exception from public inspection as written 
        determination.--Paragraph (1) of section 6110(b) (defining 
        written determination) is amended by adding at the end the 
        following new sentence: ``Such term shall not include any 
        advance pricing agreement entered into by a taxpayer and the 
        Secretary and any background information related to such 
        agreement or any application for an advance pricing 
        agreement.''.
          (3) Effective date.--The amendments made by this subsection 
        shall take effect on the date of the enactment of this Act.
  (b) Annual Report Regarding Advance Pricing Agreements.--
          (1) In general.--Not later than 90 days after the end of each 
        calendar year, the Secretary of the Treasury shall prepare and 
        publish a report regarding advance pricing agreements.
          (2) Contents of report.--The report shall include the 
        following for the calendar year to which such report relates:
                  (A) Information about the structure, composition, and 
                operation of the advance pricing agreement program 
                office.
                  (B) A copy of each model advance pricing agreement.
                  (C) The number of--
                          (i) applications filed during such calendar 
                        year for advanced pricing agreements;
                          (ii) advance pricing agreements executed 
                        cumulatively to date and during such calendar 
                        year;
                          (iii) renewals of advanced pricing agreements 
                        issued;
                          (iv) pending requests for advance pricing 
                        agreements;
                          (v) pending renewals of advance pricing 
                        agreements;
                          (vi) for each of the items in clauses (ii) 
                        through (v), the number that are unilateral, 
                        bilateral, and multilateral, respectively;
                          (vii) advance pricing agreements revoked or 
                        canceled, and the number of withdrawals from 
                        the advance pricing agreement program; and
                          (viii) advanced pricing agreements finalized 
                        or renewed by industry.
                  (D) General descriptions of--
                          (i) the nature of the relationships between 
                        the related organizations, trades, or 
                        businesses covered by advance pricing 
                        agreements;
                          (ii) the covered transactions and the 
                        business functions performed and risks assumed 
                        by such organizations, trades, or businesses;
                          (iii) the related organizations, trades, or 
                        businesses whose prices or results are tested 
                        to determine compliance with transfer pricing 
                        methodologies prescribed in advanced pricing 
                        agreements;
                          (iv) methodologies used to evaluate tested 
                        parties and transactions and the circumstances 
                        leading to the use of those methodologies;
                          (v) critical assumptions made and sources of 
                        comparables used;
                          (vi) comparable selection criteria and the 
                        rationale used in determining such criteria;
                          (vii) the nature of adjustments to 
                        comparables or tested parties;
                          (viii) the nature of any ranges agreed to, 
                        including information regarding when no range 
                        was used and why, when interquartile ranges 
                        were used, and when there was a statistical 
                        narrowing of the comparables;
                          (ix) adjustment mechanisms provided to 
                        rectify results that fall outside of the agreed 
                        upon advance pricing agreement range;
                          (x) the various term lengths for advance 
                        pricing agreements, including rollback years, 
                        and the number of advance pricing agreements 
                        with each such term length;
                          (xi) the nature of documentation required; 
                        and
                          (xii) approaches for sharing of currency or 
                        other risks.
                  (E) Statistics regarding the amount of time taken to 
                complete new and renewal advance pricing agreements.
          (3) Confidentiality.--The reports required by this subsection 
        shall be treated as authorized by the Internal Revenue Code of 
        1986 for purposes of section 6103 of such Code, but the reports 
        shall not include information--
                  (A) which would not be permitted to be disclosed 
                under section 6110(c) of such Code if such report were 
                a written determination as defined in section 6110 of 
                such Code, or
                  (B) which can be associated with, or otherwise 
                identify, directly or indirectly, a particular 
                taxpayer.
          (4) First report.--The report for calendar year 1999 shall 
        include prior calendar years after 1990.
  (c) User Fee.--Section 7527, as added by title XV of this Act, is 
amended by redesignating subsection (c) as subsection (d) and by 
inserting after subsection (b) the following new subsection:
  ``(c) Advance Pricing Agreements.--
          ``(1) In general.--In addition to any fee otherwise imposed 
        under this section, the fee imposed for requests for advance 
        pricing agreements shall be increased by $500.
          ``(2) Reduced fee for small businesses.--The Secretary shall 
        provide an appropriate reduction in the amount imposed by 
        reason of paragraph (1) for requests for advance pricing 
        agreements for small businesses.''
  (d) Regulations.--The Secretary of the Treasury or the Secretary's 
delegate shall prescribe such regulations as may be necessary or 
appropriate to carry out the purposes of section 6103(b)(2)(C), and the 
last sentence of section 6110(b)(1), of the Internal Revenue Code of 
1986, as added by this section.

SEC. 912. INCREASE IN DOLLAR LIMITATION ON SECTION 911 EXCLUSION.

  (a) General Rule.--The table contained in clause (i) of section 
911(b)(2)(D) is amended to read as follows:

``For calendar year--                         The exclusion amount is--
    2000..........................................             $76,000 
    2001..........................................              78,000 
    2002..........................................              80,000 
    2003..........................................              83,000 
    2004..........................................              86,000 
    2005..........................................              89,000 
    2006..........................................              92,000 
    2007 and thereafter...........................            95,000.''

  (b) Conforming Amendment.--Clause (ii) of section 911(b)(2)(D) is 
amended by striking ``$80,000'' and inserting ``$95,000''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 1999.

        TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS

SEC. 1001. EXEMPTION FROM INCOME TAX FOR STATE-CREATED ORGANIZATIONS 
                    PROVIDING PROPERTY AND CASUALTY INSURANCE FOR 
                    PROPERTY FOR WHICH SUCH COVERAGE IS OTHERWISE 
                    UNAVAILABLE.

  (a) In General.--Subsection (c) of section 501 (relating to exemption 
from tax on corporations, certain trusts, etc.) is amended by adding at 
the end the following new paragraph:
          ``(28)(A) Any association created before January 1, 1999, by 
        State law and organized and operated exclusively to provide 
        property and casualty insurance coverage for property located 
        within the State for which the State has determined that 
        coverage in the authorized insurance market is limited or 
        unavailable at reasonable rates, if--
                  ``(i) no part of the net earnings of which inures to 
                the benefit of any private shareholder or individual,
                  ``(ii) except as provided in clause (v), no part of 
                the assets of which may be used for, or diverted to, 
                any purpose other than--
                          ``(I) to satisfy, in whole or in part, the 
                        liability of the association for, or with 
                        respect to, claims made on policies written by 
                        the association,
                          ``(II) to invest in investments authorized by 
                        applicable law,
                          ``(III) to pay reasonable and necessary 
                        administration expenses in connection with the 
                        establishment and operation of the association 
                        and the processing of claims against the 
                        association, or
                          ``(IV) to make remittances pursuant to State 
                        law to be used by the State to provide for the 
                        payment of claims on policies written by the 
                        association, purchase reinsurance covering 
                        losses under such policies, or to support 
                        governmental programs to prepare for or 
                        mitigate the effects of natural catastrophic 
                        events,
                  ``(iii) the State law governing the association 
                permits the association to levy assessments on 
                insurance companies authorized to sell property and 
                casualty insurance in the State, or on property and 
                casualty insurance policyholders with insurable 
                interests in property located in the State to fund 
                deficits of the association, including the creation of 
                reserves,
                  ``(iv) the plan of operation of the association is 
                subject to approval by the chief executive officer or 
                other official of the State, by the State legislature, 
                or both, and
                  ``(v) the assets of the association revert upon 
                dissolution to the State, the State's designee, or an 
                entity designated by the State law governing the 
                association, or State law does not permit the 
                dissolution of the association.
          ``(B)(i) An entity described in clause (ii) shall be 
        disregarded as a separate entity and treated as part of the 
        association described in subparagraph (A) from which it 
        receives remittances described in clause (ii) if an election is 
        made within 30 days after the date that such association is 
        determined to be exempt from tax.
          ``(ii) An entity is described in this clause if it is an 
        entity or fund created before January 1, 1999, pursuant to 
        State law and organized and operated exclusively to receive, 
        hold, and invest remittances from an association described in 
        subparagraph (A) and exempt from tax under subsection (a), to 
        make disbursements to pay claims on insurance contracts issued 
        by such association, and to make disbursements to support 
        governmental programs to prepare for or mitigate the effects of 
        natural catastrophic events.''
  (b) Unrelated Business Taxable Income.--Subsection (a) of section 512 
(relating to unrelated business taxable income) is amended by adding at 
the end the following new paragraph:
          ``(6) Special rule applicable to organizations described in 
        section 501(c)(28).--In the case of an organization described 
        in section 501(c)(28), the term `unrelated business taxable 
        income' means taxable income for a taxable year computed 
        without the application of section 501(c)(28) if at the end of 
        the immediately preceding taxable year the organization's net 
        equity exceeded 15 percent of the total coverage in force under 
        insurance contracts issued by the organization and outstanding 
        at the end of such preceding year.''
  (c) Transitional Rule.--No income or gain shall be recognized by an 
association as a result of a change in status to that of an association 
described by section 501(c)(28) of the Internal Revenue Code of 1986, 
as amended by subsection (a).
  (d) Effective Date.--The amendment made by subsection (a) shall apply 
to taxable years beginning after December 31, 1999.

SEC. 1002. 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 tofinance 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, 2000.

SEC. 1003. CHARITABLE SPLIT-DOLLAR LIFE INSURANCE, ANNUITY, AND 
                    ENDOWMENT CONTRACTS.

  (a) In General.--Subsection (f) of section 170 (relating to 
disallowance of deduction in certain cases and special rules) is 
amended by adding at the end the following new paragraph:
          ``(10) Split-dollar life insurance, annuity, and endowment 
        contracts.--
                  ``(A) In general.--Nothing in this section or in 
                section 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), 
                or 2522 shall be construed to allow a deduction, and no 
                deduction shall be allowed, for any transfer to or for 
                the use of an organization described in subsection (c) 
                if in connection with such transfer--
                          ``(i) the organization directly or indirectly 
                        pays, or has previously paid, any premium on 
                        any personal benefit contract with respect to 
                        the transferor, or
                          ``(ii) there is an understanding or 
                        expectation that any person will directly or 
                        indirectly pay any premium on any personal 
                        benefit contract with respect to the 
                        transferor.
                  ``(B) Personal benefit contract.--For purposes of 
                subparagraph (A), the term `personal benefit contract' 
                means, with respect to the transferor, any life 
                insurance, annuity, or endowment contract if any direct 
                or indirect beneficiary under such contract is the 
                transferor, any member of the transferor's family, or 
                any other person (other than an organization described 
                in subsection (c)) designated by the transferor.
                  ``(C) Application to charitable remainder trusts.--In 
                the case of a transfer to a trust referred to in 
                subparagraph (E), references in subparagraphs (A) and 
                (F) to an organization described in subsection (c) 
                shall be treated as a reference to such trust.
                  ``(D) Exception for certain annuity contracts.--If, 
                in connection with a transfer to or for the use of an 
                organization described in subsection (c), such 
                organization incurs an obligation to pay a charitable 
                gift annuity (as defined in section 501(m)) and such 
                organization purchases any annuity contract to fund 
                such obligation, persons receiving payments under the 
                charitable gift annuity shall not be treated for 
                purposes of subparagraph (B) as indirect beneficiaries 
                under such contract if--
                          ``(i) such organization possesses all of the 
                        incidents of ownership under such contract,
                          ``(ii) such organization is entitled to all 
                        the payments under such contract, and
                          ``(iii) the timing and amount of payments 
                        under such contract are substantially the same 
                        as the timing and amount of payments to each 
                        such person under such obligation (as such 
                        obligation is in effect at the time of such 
                        transfer).
                  ``(E) Exception for certain contracts held by 
                charitable remainder trusts.--A person shall not be 
                treated for purposes of subparagraph (B) as an indirect 
                beneficiary under any life insurance, annuity, or 
                endowment contract held by a charitable remainder 
                annuity trust or a charitable remainder unitrust (as 
                defined in section 664(d)) solely by reason of being 
                entitled to any payment referred to in paragraph (1)(A) 
                or (2)(A) of section 664(d) if--
                          ``(i) such trust possesses all of the 
                        incidents of ownership under such contract, and
                          ``(ii) such trust is entitled to all the 
                        payments under such contract.
                  ``(F) Excise tax on premiums paid.--
                          ``(i) In general.--There is hereby imposed on 
                        any organization described in subsection (c) an 
                        excise tax equal to the premiums paid by such 
                        organization on any life insurance, annuity, or 
                        endowment contract if the payment of premiums 
                        on such contract is in connection with a 
                        transfer for which a deduction is not allowable 
                        under subparagraph (A), determined without 
                        regard to when such transfer is made.
                          ``(ii) Payments by other persons.--For 
                        purposes of clause (i), payments made by any 
                        other person pursuant to an understanding or 
                        expectation referred to in subparagraph (A) 
                        shall be treated as made by the organization.
                          ``(iii) Reporting.--Any organization on which 
                        tax is imposed by clause (i) with respect to 
                        any premium shall file an annual return which 
                        includes--
                                  ``(I) the amount of such premiums 
                                paid during the year and the name and 
                                TIN of each beneficiary under the 
                                contract to which the premium relates, 
                                and
                                  ``(II) such other information as the 
                                Secretary may require.
                        The penalties applicable to returns required 
                        under section 6033 shall apply to returns 
                        required under this clause. Returns required 
                        under this clause shall be furnished at such 
                        time and in such manner as the Secretary shall 
                        by forms or regulations require.
                          ``(iv) Certain rules to apply.--The tax 
                        imposed by this subparagraph shall be treated 
                        as imposed by chapter 42 for purposes of this 
                        title other than subchapter B of chapter 42.
                  ``(G) Special rule where state requires specification 
                of charitable gift annuitant in contract.--In the case 
                of an obligation to pay a charitable gift annuity 
                referred to in subparagraph (D) which is entered into 
                under the laws of a State which requires, in order for 
                the charitable gift annuity to be exempt from insurance 
                regulation by such State, that each beneficiary under 
                the charitable gift annuity be named as a beneficiary 
                under an annuity contract issued by an insurance 
                company authorized to transact business in such State, 
                the requirements of clauses (i) and (ii) of 
                subparagraph (D) shall be treated as met if--
                          ``(i) such State law requirement was in 
                        effect on February 8, 1999,
                          ``(ii) each such beneficiary under the 
                        charitable gift annuity is a bona fide resident 
                        of such State at the time the obligation to pay 
                        a charitable gift annuity is entered into, and
                          ``(iii) the only persons entitled to payments 
                        under such contract are persons entitled to 
                        payments as beneficiaries under such obligation 
                        on the date such obligation is entered into.
                  ``(H) Member of family.--For purposes of this 
                paragraph, an individual's family consists of the 
                individual's grandparents, the grandparents of such 
                individual's spouse, the lineal descendants of such 
                grandparents, and any spouse of such a lineal 
                descendant.
                  ``(I) Regulations.--The Secretary shall prescribe 
                such regulations as may be necessary or appropriate to 
                carry out the purposes of this paragraph, including 
                regulations to prevent the avoidance of such 
                purposes.''
  (b) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        section, the amendment made by this section shall apply to 
        transfers made after February 8, 1999.
          (2) Excise tax.--Except as provided in paragraph (3) of this 
        subsection, section 170(f)(10)(F) of the Internal Revenue Code 
        of 1986 (as added by this section) shall apply to premiums paid 
        after the date of the enactment of this Act.
          (3) Reporting.--Clause (iii) of such section 170(f)(10)(F) 
        shall apply to premiums paid after February 8, 1999 (determined 
        as if the tax imposed by such section applies to premiums paid 
        after such date).

SEC. 1004. EXEMPTION PROCEDURE FROM TAXES ON SELF-DEALING.

  (a) In General.--Subsection (d) of section 4941 (relating to taxes on 
self-dealing) is amended by adding at the end the following new 
paragraph:
          ``(3) Special exemption.--The Secretary shall establish an 
        exemption procedure for purposes of this subsection. Pursuant 
        to such procedure, the Secretary may grant a conditional or 
        unconditional exemption of any disqualified person or 
        transaction or class of disqualified persons or transactions, 
        from all or part of the restrictions imposed by paragraph (1). 
        The Secretary may not grant an exemption under this paragraph 
        unless he finds that such exemption is--
                  ``(A) administratively feasible,
                  ``(B) in the interests of the private foundation, and
                  ``(C) protective of the rights of the private 
                foundation.
        Before granting an exemption under this paragraph, the 
        Secretary shall require adequate notice to be given to 
        interested persons and shall publish notice in the Federal 
        Register of the pendency of such exemption and shall afford 
        interested persons an opportunity to present views.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to transactions occurring after the date of the enactment of this Act.

SEC. 1005. EXPANSION OF DECLARATORY JUDGMENT REMEDY TO TAX-EXEMPT 
                    ORGANIZATIONS.

  (a) In General.--Subsection (a) of section 7428 (relating to creation 
of remedy) is amended--
          (1) in subparagraph (B) by inserting after ``509(a))'' the 
        following: ``or as a private operating foundation (as defined 
        in section 4942(j)(3))'', and
          (2) by amending subparagraph (C) to read as follows:
                  ``(C) with respect to the initial qualification or 
                continuing qualification of an organization as an 
                organization described in section 501(c) (other than 
                paragraph (3)) which is exempt from tax under section 
                501(a), or''.
  (b) Court Jurisdiction.--Subsection (a) of section 7428 is amended in 
the material following paragraph (2) by striking ``United States Tax 
Court, the United States Claims Court, or the district court of the 
United States for the District of Columbia'' and inserting the 
following: ``United States Tax Court (in the case of any such 
determination or failure) or the United States Claims Court or the 
district court of the United States for the District of Columbia (in 
the case of a determination or failure with respect to an issue 
referred to in subparagraph (A) or (B) of paragraph (1)),''.
  (c) Effective Date.--The amendments made by this section shall apply 
to pleadings filed with respect to determinations (or requests for 
determinations) made after the date of the enactment of this Act.

SEC. 1006. MODIFICATIONS TO SECTION 512(B)(13).

  (a) In General.--Paragraph (13) of section 512(b) is amended by 
redesignating subparagraph (E) as subparagraph (F) and by inserting 
after subparagraph (D) the following new paragraph:
                  ``(E) Paragraph to apply only to excess payments.--
                          ``(i) In general.--Subparagraph (A) shall 
                        apply only to the portion of a specified 
                        payment received by the controlling 
                        organization that exceeds the amount which 
                        would have been paid if such payment met the 
                        requirements prescribed under section 482.
                          ``(ii) Addition to tax for valuation 
                        misstatements.--The tax imposed by this chapter 
                        on the controlling organization shall be 
                        increased by an amount equal to 20 percent of 
                        such excess.''
  (b) Effective Date.--
          (1) In general.--The amendment made by this section shall 
        apply to payments received or accrued after December 31, 1999.
          (2) Payments subject to binding contract transition rule.--If 
        the amendments made by section 1041 of the Taxpayer Relief Act 
        of 1997 do not apply to any amount received or accrued after 
        the date of the enactment of this Act under any contract 
        described in subsection (b)(2) of such section, such amendments 
        also shall not apply to amounts received or accrued under such 
        contract before January 1, 2000.

                    TITLE XI--REAL ESTATE PROVISIONS

    Subtitle A--Provisions Relating to Real Estate Investment Trusts

   PART I--TREATMENT OF INCOME AND SERVICES PROVIDED BY TAXABLE REIT 
                              SUBSIDIARIES

SEC. 1101. MODIFICATIONS TO ASSET DIVERSIFICATION TEST.

  (a) In General.--Subparagraph (B) of section 856(c)(4) is amended to 
read as follows:
                  ``(B)(i) not more than 25 percent of the value of its 
                total assets is represented by securities (other than 
                those includible under subparagraph (A)), and
                  ``(ii) except with respect to a taxable REIT 
                subsidiary and securities includible under subparagraph 
                (A)--
                          ``(I) not more than 5 percent of the value of 
                        its total assets is represented by securities 
                        of any 1 issuer,
                          ``(II) the trust does not hold securities 
                        possessing more than 10 percent of the total 
                        voting power of the outstanding securities of 
                        any 1 issuer, and
                          ``(III) the trust does not hold securities 
                        having a value of more than 10 percent of the 
                        total value of the outstanding securities of 
                        any 1 issuer.''
  (b) Exception for Straight Debt Securities.--Subsection (c) of 
section 856 is amended by adding at the end the following new 
paragraph:
          ``(7) Straight debt safe harbor in applying paragraph (4).--
        Securities of an issuer which are straight debt (as defined in 
        section 1361(c)(5) without regard to subparagraph (B)(iii) 
        thereof) shall not be taken into account in applying paragraph 
        (4)(B)(ii)(III) if--
                  ``(A) the only securities of such issuer which are 
                held by the trust or a taxable REIT subsidiary of the 
                trust are straight debt (as so defined), or
                  ``(B) the issuer is a partnership and the trust holds 
                at least a 20 percent profits interest in the 
                partnership.''

SEC. 1102. TREATMENT OF INCOME AND SERVICES PROVIDED BY TAXABLE REIT 
                    SUBSIDIARIES.

  (a) Income From Taxable REIT Subsidiaries Not Treated as 
Impermissible Tenant Service Income.--Clause (i) of section 
856(d)(7)(C) (relating to exceptions to impermissible tenant service 
income) is amended by inserting ``or through a taxable REIT subsidiary 
of such trust'' after ``income''.
  (b) Certain Income From Taxable REIT Subsidiaries Not Excluded From 
Rents From Real Property.--
          (1) In general.--Subsection (d) of section 856 (relating to 
        rents from real property defined) is amended by adding at the 
        end the following new paragraphs:
          ``(8) Special rule for taxable reit subsidiaries.--For 
        purposes of this subsection, amounts paid to a real estate 
        investment trust by a taxable REIT subsidiary of such trust 
        shall not be excluded from rents from real property by reason 
        of paragraph (2)(B) if the requirements of subparagraph (A) or 
        (B) are met.
                  ``(A) Limited rental exception.--The requirements of 
                this subparagraph are met with respect to any property 
                if at least 90 percent of the leased space of the 
                property is rented to persons other than taxable REIT 
                subsidiaries of such trust and other than persons 
                described in section 856(d)(2)(B). The preceding 
                sentence shall apply only to the extent that the 
                amounts paid to the trust as rents from real property 
                (as defined in paragraph (1) without regard to 
                paragraph (2)(B)) from such property are substantially 
                comparable to such rents made by the other tenants of 
                the trust's property for comparable space.
                  ``(B) Exception for certain lodging facilities.--The 
                requirements of this subparagraph are met with respect 
                to an interest in real property which is a qualified 
                lodging facility leased by the trust to a taxable REIT 
                subsidiary of the trust if the property is operated on 
                behalf of such subsidiary by a person who is an 
                eligible independent contractor.
          ``(9) Eligible independent contractor.--For purposes of 
        paragraph (8)(B)--
                  ``(A) In general.--The term `eligible independent 
                contractor' means, with respect to any qualified 
                lodging facility, any independent contractor if, at the 
                time such contractor enters into a management agreement 
                or other similar service contract with the taxable REIT 
                subsidiary to operate the facility, such contractor (or 
                any related person) is actively engaged in the trade or 
                business of operating qualified lodging facilities for 
                any person who is not a related person with respect to 
                the real estate investment trust or the taxable REIT 
                subsidiary.
                  ``(B) Special rules.--Solely for purposes of this 
                paragraph and paragraph (8)(B), a person shall not fail 
                to be treated as an independent contractor with respect 
                to any qualified lodging facility by reason of any of 
                the following:
                          ``(i) The taxable REIT subsidiary bears the 
                        expenses for the operation of the facility 
                        pursuant to the management agreement or other 
                        similar service contract.
                          ``(ii) The taxable REIT subsidiary receives 
                        the revenues from the operation of such 
                        facility, net of expenses for such operation 
                        and fees payable to the operator pursuant to 
                        such agreement or contract.
                          ``(iii) The real estate investment trust 
                        receives income from such person with respect 
                        to another property that is attributable to a 
                        lease of such other property to such person 
                        that was in effect as on the later of--
                                  ``(I) January 1, 1999, or
                                  ``(II) the earliest date that any 
                                taxable REIT subsidiary of such trust 
                                entered into a management agreement or 
                                other similar service contract with 
                                such person with respect to such 
                                qualified lodging facility.
                  ``(C) Renewals, etc., of existing leases.--For 
                purposes of subparagraph (B)(iii)--
                          ``(i) a lease shall be treated as in effect 
                        on January 1, 1999, without regard to its 
                        renewal after such date, so long as such 
                        renewal is pursuant to the terms of such lease 
                        as in effect on whichever of the dates under 
                        subparagraph (B)(iii) is the latest, and
                          ``(ii) a lease of a property entered into 
                        after whichever of the dates under subparagraph 
                        (B)(iii) is the latest shall be treated as in 
                        effect on such date if--
                                  ``(I) on such date, a lease of such 
                                property from the trust was in effect, 
                                and
                                  ``(II) under the terms of the new 
                                lease, such trust receives a 
                                substantially similar or lesser benefit 
                                in comparison to the lease referred to 
                                in subclause (I).
                  ``(D) Qualified lodging facility.--For purposes of 
                this paragraph--
                          ``(i) In general.--The term `qualified 
                        lodging facility' means any lodging facility 
                        unless wagering activities are conducted at or 
                        in connection with such facility by any person 
                        who is engaged in the business of accepting 
                        wagers and who is legally authorized to engage 
                        in such business at or in connection with such 
                        facility.
                          ``(ii) Lodging facility.--The term `lodging 
                        facility' means a hotel, motel, or other 
                        establishment more than one-half of the 
                        dwelling units in which are used on a transient 
                        basis.
                          ``(iii) Customary amenities and facilities.--
                        The term `lodging facility' includes customary 
                        amenities and facilities operated as part of, 
                        or associated with, the lodging facility so 
                        long as such amenities and facilities are 
                        customary for other properties of a comparable 
                        size and class owned by other owners unrelated 
                        to such real estate investment trust.
                  ``(E) Operate includes manage.--References in this 
                paragraph to operating a property shall be treated as 
                including a reference to managing the property.
                  ``(F) Related person.--Persons shall be treated as 
                related to each other if such persons are treated as a 
                single employer under subsection (a) or (b) of section 
                52.''.
          (2) Conforming amendment.--Subparagraph (B) of section 
        856(d)(2) is amended by inserting ``except as provided in 
        paragraph (8),'' after ``(B)''.

SEC. 1103. TAXABLE REIT SUBSIDIARY.

  (a) In General.--Section 856 is amended by adding at the end the 
following new subsection:
  ``(l) Taxable REIT Subsidiary.--For purposes of this part--
          ``(1) In general.--The term `taxable REIT subsidiary' means, 
        with respect to a real estate investment trust, a corporation 
        (other than a real estate investment trust) if--
                  ``(A) such trust directly or indirectly owns stock in 
                such corporation, and
                  ``(B) such trust and such corporation jointly elect 
                that such corporation shall be treated as a taxable 
                REIT subsidiary of such trust for purposes of this 
                part.
        Such an election, once made, shall be irrevocable unless both 
        such trust and corporation consent to its revocation. Such 
        election, and any revocation thereof, may be made without the 
        consent of the Secretary.
          ``(2) 35 percent ownership in another taxable reit 
        subsidiary.--The term `taxable REIT subsidiary' includes, with 
        respect to any real estate investment trust, any corporation 
        (other than a real estate investment trust) with respect to 
        which a taxable REIT subsidiary of such trust owns directly or 
        indirectly--
                  ``(A) securities possessing more than 35 percent of 
                the total voting power of the outstanding securities of 
                such corporation, or
                  ``(B) securities having a value of more than 35 
                percent of the total value of the outstanding 
                securities of such corporation.
        The preceding sentence shall not apply to a qualified REIT 
        subsidiary (as defined in subsection (i)(2)). The rule of 
        section 856(c)(7) shall apply for purposes of subparagraph (B).
          ``(3) Exceptions.--The term `taxable REIT subsidiary' shall 
        not include--
                  ``(A) any corporation which directly or indirectly 
                operates or manages a lodging facility or a health care 
                facility, and
                  ``(B) any corporation which directly or indirectly 
                provides to any other person (under a franchise, 
                license, or otherwise) rights to any brand name under 
                which any lodging facility or health care facility is 
                operated.
        Subparagraph (B) shall not apply to rights provided to an 
        eligible independent contractor to operate or manage a lodging 
        facility if such rights are held by such corporation as a 
        franchisee, licensee, or in a similar capacity and such lodging 
        facility is either owned by such corporation or is leased to 
        such corporation from the real estate investment trust.
          ``(4) Definitions.--For purposes of paragraph (3)--
                  ``(A) Lodging facility.--The term `lodging facility' 
                has the meaning given to such term by paragraph 
                (9)(D)(ii).
                  ``(B) Health care facility.--The term `health care 
                facility' has the meaning given to such term by 
                subsection (e)(6)(D)(ii).''.
  (b) Conforming Amendment.--Paragraph (2) of section 856(i) is amended 
by adding at the end the following new sentence: ``Such term shall not 
include a taxable REIT subsidiary.''

SEC. 1104. LIMITATION ON EARNINGS STRIPPING.

  Paragraph (3) of section 163(j) (relating to limitation on deduction 
for interest on certain indebtedness) is amended by striking ``and'' at 
the end of subparagraph (A), by striking the period at the end of 
subparagraph (B) and inserting ``, and'', and by adding at the end the 
following new subparagraph:
                  ``(C) any interest paid or accrued (directly or 
                indirectly) by a taxable REIT subsidiary (as defined in 
                section 856(l)) of a real estate investment trust to 
                such trust.''.

SEC. 1105. 100 PERCENT TAX ON IMPROPERLY ALLOCATED AMOUNTS.

  (a) In General.--Subsection (b) of section 857 (relating to method of 
taxation of real estate investment trusts and holders of shares or 
certificates of beneficial interest) is amended by redesignating 
paragraphs (7) and (8) as paragraphs (8) and (9), respectively, and by 
inserting after paragraph (6) the following new paragraph:
          ``(7) Income from redetermined rents, redetermined 
        deductions, and excess interest.--
                  ``(A) Imposition of tax.--There is hereby imposed for 
                each taxable year of the real estate investment trust a 
                tax equal to 100 percent of redetermined rents, 
                redetermined deductions, and excess interest.
                  ``(B) Redetermined rents.--
                          ``(i) In general.--The term `redetermined 
                        rents' means rents from real property (as 
                        defined in subsection 856(d)) the amount of 
                        which would (but for subparagraph (E)) be 
                        reduced on distribution, apportionment, or 
                        allocation under section 482 to clearly reflect 
                        income as a result of services furnished or 
                        rendered by a taxable REIT subsidiary of the 
                        real estate investment trust to a tenant of 
                        such trust.
                          ``(ii) Exception for certain services.--
                        Clause (i) shall not apply to amounts received 
                        directly or indirectly by a real estate 
                        investment trust for services described in 
                        paragraph (1)(B) or (7)(C)(i) of section 
                        856(d).
                          ``(iii) Exception for de minimis amounts.--
                        Clause (i) shall not apply to amounts described 
                        in section 856(d)(7)(A) with respect to a 
                        property to the extent such amounts do not 
                        exceed the one percent threshold described in 
                        section 856(d)(7)(B) with respect to such 
                        property.
                          ``(iv) Exception for comparably priced 
                        services.--Clause (i) shall not apply to any 
                        service rendered by a taxable REIT subsidiary 
                        of a real estate investment trust to a tenant 
                        of such trust if--
                                  ``(I) such subsidiary renders a 
                                significant amount of similar services 
                                to persons other than such trust and 
                                tenants of such trustwho are unrelated 
(within the meaning of section 856(d)(8)(F)) to such subsidiary, trust, 
and tenants, but
                                  ``(II) only to the extent the charge 
                                for such service so rendered is 
                                substantially comparable to the charge 
                                for the similar services rendered to 
                                persons referred to in subclause (I).
                          ``(v) Exception for certain separately 
                        charged services.--Clause (i) shall not apply 
                        to any service rendered by a taxable REIT 
                        subsidiary of a real estate investment trust to 
                        a tenant of such trust if--
                                  ``(I) the rents paid to the trust by 
                                tenants (leasing at least 25 percent of 
                                the net leasable space in the trust's 
                                property) who are not receiving such 
                                service from such subsidiary are 
                                substantially comparable to the rents 
                                paid by tenants leasing comparable 
                                space who are receiving such service 
                                from such subsidiary, and
                                  ``(II) the charge for such service 
                                from such subsidiary is separately 
                                stated.
                          ``(vi) Exception for certain services based 
                        on subsidiary's income from the services.--
                        Clause (i) shall not apply to any service 
                        rendered by a taxable REIT subsidiary of a real 
                        estate investment trust to a tenant of such 
                        trust if the gross income of such subsidiary 
                        from such service is not less than 150 percent 
                        of such subsidiary's direct cost in furnishing 
                        or rendering the service.
                          ``(vii) Exceptions granted by secretary.--The 
                        Secretary may waive the tax otherwise imposed 
                        by subparagraph (A) if the trust establishes to 
                        the satisfaction of the Secretary that rents 
                        charged to tenants were established on an arms' 
                        length basis even though a taxable REIT 
                        subsidiary of the trust provided services to 
                        such tenants.
                  ``(C) Redetermined deductions.--The term 
                `redetermined deductions' means deductions (other than 
                redetermined rents) of a taxable REIT subsidiary of a 
                real estate investment trust if the amount of such 
                deductions would (but for subparagraph (E)) be 
                increased on distribution, apportionment, or allocation 
                under section 482 to clearly reflect income as between 
                such subsidiary and such trust.
                  ``(D) Excess interest.--The term `excess interest' 
                means any deductions for interest payments by a taxable 
                REIT subsidiary of a real estate investment trust to 
                such trust to the extent that the interest payments are 
                in excess of a rate that is commercially reasonable.
                  ``(E) Coordination with section 482.--The imposition 
                of tax under subparagraph (A) shall be in lieu of any 
                distribution, apportionment, or allocation under 
                section 482.
                  ``(F) Regulatory authority.--The Secretary shall 
                prescribe such regulations as may be necessary or 
                appropriate to carry out the purposes of this 
                paragraph. Until the Secretary prescribes such 
                regulations, real estate investment trusts and their 
                taxable REIT subsidiaries may base their allocations on 
                any reasonable method.''.
  (b) Amount Subject to Tax Not Required To Be Distributed.--
Subparagraph (E) of section 857(b)(2) (relating to real estate 
investment trust taxable income) is amended by striking ``paragraph 
(5)'' and inserting ``paragraphs (5) and (7)''.

SEC. 1106. EFFECTIVE DATE.

  (a) In General.--The amendments made by this part shall apply to 
taxable years beginning after December 31, 2000.
  (b) Transitional Rules Related to Section 1101.--
          (1) Existing arrangements.--
                  (A) In general.--Except as otherwise provided in this 
                paragraph, the amendment made by section 1101 shall not 
                apply to a real estate investment trust with respect 
                to--
                          (i) securities of a corporation held directly 
                        or indirectly by such trust on July 12, 1999,
                          (ii) securities of a corporation held by an 
                        entity on July 12, 1999, if such trust acquires 
                        control of such entity pursuant to a written 
                        binding contract in effect on such date and at 
                        all times thereafter before such acquisition,
                          (iii) securities received by such trust (or a 
                        successor) in exchange for, or with respect to, 
                        securities described in clause (i) or (ii) in a 
                        transaction in which gain or loss is not 
                        recognized, and
                          (iv) securities acquired directly or 
                        indirectly by such trust as part of a 
                        reorganization (as defined in section 368(a)(1) 
                        of the Internal Revenue Code of 1986) with 
                        respect to such trust if such securities are 
                        described in clause (i), (ii), or (iii) with 
                        respect to any other real estate investment 
                        trust.
                  (B) New trade or business or substantial new 
                assets.--Subparagraph (A) shall cease to apply to 
                securities of a corporation as of the first day after 
                July 12, 1999, on which such corporation engages in a 
                substantial new line of business, or acquires any 
                substantial asset, other than--
                          (i) pursuant to a binding contract in effect 
                        on such date and at all times thereafter before 
                        the acquisition of such asset,
                          (ii) in a transaction in which gain or loss 
                        is not recognized by reason of section 1031 or 
                        1033 of the Internal Revenue Code of 1986, or
                          (iii) in a reorganization (as so defined) 
                        with another corporation the securities of 
                        which are described in paragraph (1)(A) of this 
                        subsection.
          (2) Tax-free conversion.--If--
                  (A) at the time of an election for a corporation to 
                become a taxable REIT subsidiary, the amendment made by 
                section 1101 does not apply to such corporation by 
                reason of paragraph (1), and
                  (B) such election first takes effect before January 
                1, 2004,
        such election shall be treated as a reorganization qualifying 
        under section 368(a)(1)(A) of such Code.

                       PART II--HEALTH CARE REITS

SEC. 1111. HEALTH CARE REITS.

  (a) Special Foreclosure Rule for Health Care Properties.--Subsection 
(e) of section 856 (relating to special rules for foreclosure property) 
is amended by adding at the end the following new paragraph:
          ``(6) Special rule for qualified health care properties.--For 
        purposes of this subsection--
                  ``(A) Acquisition at expiration of lease.--The term 
                `foreclosure property' shall include any qualified 
                health care property acquired by a real estate 
                investment trust as the result of the termination of a 
                lease of such property (other than a termination by 
                reason of a default, or the imminence of a default, on 
                the lease).
                  ``(B) Grace period.--In the case of a qualified 
                health care property which is foreclosure property 
                solely by reason of subparagraph (A), in lieu of 
                applying paragraphs (2) and (3)--
                          ``(i) the qualified health care property 
                        shall cease to be foreclosure property as of 
                        the close of the second taxable year after the 
                        taxable year in which such trust acquired such 
                        property, and
                          ``(ii) if the real estate investment trust 
                        establishes to the satisfaction of the 
                        Secretary that an extension of the grace period 
                        in clause (i) is necessary to the orderly 
                        leasing or liquidation of the trust's interest 
                        in such qualified health care property, the 
                        Secretary may grant 1 or more extensions of the 
                        grace period for such qualified health care 
                        property.
                Any such extension shall not extend the grace period 
                beyond the close of the 6th year after the taxable year 
                in which such trust acquired such qualified health care 
                property.
                  ``(C) Income from independent contractors.--For 
                purposes of applying paragraph (4)(C) with respect to 
                qualified health care property which is foreclosure 
                property by reason of subparagraph (A) or paragraph 
                (1), income derived or received by the trust from an 
                independent contractor shall be disregarded to the 
                extent such income is attributable to--
                          ``(i) any lease of property in effect on the 
                        date the real estate investment trust acquired 
                        the qualified health care property (without 
                        regard to its renewal after such date so long 
                        as such renewal is pursuant to the terms of 
                        such lease as in effect on such date), or
                          ``(ii) any lease of property entered into 
                        after such date if--
                                  ``(I) on such date, a lease of such 
                                property from the trust was in effect, 
                                and
                                  ``(II) under the terms of the new 
                                lease, such trust receives a 
                                substantially similar or lesser benefit 
                                in comparison to the lease referred to 
                                in subclause (I).
                  ``(D) Qualified health care property.--
                          ``(i) In general.--The term `qualified health 
                        care property' means any real property 
                        (including interests therein), and any personal 
                        property incident to such real property, 
                        which--
                                  ``(I) is a health care facility, or
                                  ``(II) is necessary or incidental to 
                                the use of a health care facility.
                          ``(ii) Health care facility.--For purposes of 
                        clause (i), the term `health care facility' 
                        means a hospital, nursing facility, assisted 
                        living facility, congregate care facility, 
                        qualified continuing care facility (as defined 
                        in section 7872(g)(4)), or other licensed 
                        facility which extends medical or nursing or 
                        ancillary services to patients and which, 
                        immediately before the termination, expiration, 
                        default, or breach of the lease of or mortgage 
                        secured by such facility, was operated by a 
                        provider of such services which was eligible 
                        for participation in the medicare program under 
                        title XVIII of the Social Security Act with 
                        respect to such facility.''
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2000.

      PART III--CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES

SEC. 1121. CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES.

  (a) Distribution Requirement.--Clauses (i) and (ii) of section 
857(a)(1)(A) (relating to requirements applicable to real estate 
investment trusts) are each amended by striking ``95 percent (90 
percent for taxable years beginning before January 1, 1980)'' and 
inserting ``90 percent''.
  (b) Imposition of Tax.--Clause (i) of section 857(b)(5)(A) (relating 
to imposition of tax in case of failure to meet certain requirements) 
is amended by striking ``95 percent (90 percent in the case of taxable 
years beginning before January 1, 1980)'' and inserting ``90 percent''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2000.

 PART IV--CLARIFICATION OF EXCEPTION FROM IMPERMISSIBLE TENANT SERVICE 
                                 INCOME

SEC. 1131. CLARIFICATION OF EXCEPTION FOR INDEPENDENT OPERATORS.

  (a) In General.--Paragraph (3) of section 856(d) (relating to 
independent contractor defined) is amended by adding at the end the 
following flush sentence:
        ``In the event that any class of stock of either the real 
        estate investment trust or such person is regularly traded on 
        an established securities market, only persons who own, 
        directly or indirectly, more than 5 percent of such class of 
        stock shall be taken into account as owning any of the stock of 
        such class for purposes of applying the 35 percent limitation 
        set forth in subparagraph (B) (but all of the outstanding stock 
        of such class shall be considered outstanding in order to 
        compute the denominator for purpose of determining the 
        applicable percentage of ownership).''
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2000.

           PART V--MODIFICATION OF EARNINGS AND PROFITS RULES

SEC. 1141. MODIFICATION OF EARNINGS AND PROFITS RULES.

  (a) Rules for Determining Whether Regulated Investment Company Has 
Earnings and Profits From Non-RIC Year.--Subsection (c) of section 852 
is amended by adding at the end the following new paragraph:
          ``(3) Distributions to meet requirements of subsection 
        (a)(2)(B).--Any distribution which is made in order to comply 
        with the requirements of subsection (a)(2)(B)--
                  ``(A) shall be treated for purposes of this 
                subsection and subsection (a)(2)(B) as made from the 
                earliest earnings and profits accumulated in any 
                taxable year to which the provisions of this part did 
                not apply rather than the most recently accumulated 
                earnings and profits, and
                  ``(B) to the extent treated under subparagraph (A) as 
                made from accumulated earnings and profits, shall not 
                be treated as a distribution for purposes of subsection 
                (b)(2)(D) and section 855.''.
  (b) Clarification of Application of REIT Spillover Dividend Rules to 
Distributions To Meet Qualification Requirement.--Subparagraph (B) of 
section 857(d)(3) is amended by inserting before the period ``and 
section 858''.
  (c) Application of Deficiency Dividend Procedures.--Paragraph (1) of 
section 852(e) is amended by adding at the end the following new 
sentence: ``If the determination under subparagraph (A) is solely as a 
result of the failure to meet the requirements of subsection (a)(2), 
the preceding sentence shall also apply for purposes of applying 
subsection (a)(2) to the non-RIC year.''
  (d) Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2000.

          PART VI--STUDY RELATING TO TAXABLE REIT SUBSIDIARIES

SEC. 1151. STUDY RELATING TO TAXABLE REIT SUBSIDIARIES.

  The Commissioner of the Internal Revenue shall conduct a study to 
determine how many taxable REIT subsidiaries are in existence and the 
aggregate amount of taxes paid by such subsidiaries. The Secretary 
shall submit a report to the Congress describing the results of such 
study.

     Subtitle B--Modification of At-Risk Rules for Publicly Traded 
                            Nonrecourse Debt

SEC. 1161. TREATMENT UNDER AT-RISK RULES OF PUBLICLY TRADED NONRECOURSE 
                    DEBT.

  (a) In General.--Subparagraph (A) of section 465(b)(6) (relating to 
qualified nonrecourse financing treated as amount at risk) is amended 
by striking ``share of'' and all that follows and inserting ``share 
of--
                          ``(i) any qualified nonrecourse financing 
                        which is secured by real property used in such 
                        activity, and
                          ``(ii) any other financing which--
                                  ``(I) would (but for subparagraph 
                                (B)(ii)) be qualified nonrecourse 
                                financing,
                                  ``(II) is qualified publicly traded 
                                debt, and
                                  ``(III) is not borrowed by the 
                                taxpayer from a person described in 
                                subclause (I), (II), or (III) of 
                                section 49(a)(1)(D)(iv).''
  (b) Qualified Publicly Traded Debt.--Paragraph (6) of section 465(b) 
is amended by adding at the end the following new subparagraph:
                  ``(F) Qualified publicly traded debt.--For purposes 
                of subparagraph (A), the term `qualified publicly 
                traded debt' means any debt instrument which is readily 
                tradable on an established securities market. Such term 
                shall not include any debt instrument which has a yield 
                to maturity which equals or exceeds the limitation in 
                section 163(i)(1)(B).''
  (c) Effective Date.--The amendments made by this section shall apply 
to debt instruments issued after December 31, 1999.

     Subtitle C--Treatment of Construction Allowances and Certain 
                 Contributions to Capital of Retailers

SEC. 1171. EXCLUSION FROM GROSS INCOME OF QUALIFIED LESSEE CONSTRUCTION 
                    ALLOWANCES NOT LIMITED FOR CERTAIN RETAILERS TO 
                    SHORT-TERM LEASES.

  (a) In General.--Subsection (a) section 110 (relating to qualified 
lessee construction allowances for short-term leases) is amended by 
adding at the end the following new sentence: ``Paragraph (1) shall not 
apply if the lessee is a qualified retail business (as defined by 
section 118(d)(3) without regard to the proximity requirement in 
subparagraph (A) thereof).''.
  (b) Effective Date.--The amendment made by this section shall apply 
to leases entered into after December 31, 1999.

SEC. 1172. EXCLUSION FROM GROSS INCOME FOR CERTAIN CONTRIBUTIONS TO THE 
                    CAPITAL OF CERTAIN RETAILERS.

  (a) In General.--Section 118 (relating to contributions to the 
capital of a corporation) is amended by redesignating subsections (d) 
and (e) as subsections (e) and (f), respectively, and by inserting 
after subsection (c) the following new subsection:
  ``(d) Safe Harbor for Contributions to Certain Retailers.--
          ``(1) General rule.--For purposes of this section, the term 
        `contribution to the capital of the taxpayer' includes any 
        amount of money or other property received by the taxpayer if--
                  ``(A) the taxpayer has entered into an agreement to 
                operate (or cause to be operated) a qualified retail 
                business at a particular location for a period of at 
                least 15 years,
                  ``(B)(i) immediately after the receipt of such money 
                or other property, the taxpayer owns the land and the 
                structure to be used by the taxpayer in carrying on a 
                qualified retail business at such location, or
                  ``(ii) the taxpayer uses such amount to acquire 
                ownership of at least such land and structure,
                  ``(C) such amount meets the requirements of the 
                expenditure rule of paragraph (2), and
                  ``(D) the contributor of such amount does not hold a 
                beneficial interest in any property located on the 
                premises of such qualified retail business other than 
                de minimis amounts of property associated with the 
                operation of property adjacent to such premises.
          ``(2) Expenditure rule.--An amount meets the requirements of 
        this paragraph if--
                  ``(A) an amount equal to such amount is expended for 
                the acquisition of land or for acquisition or 
                construction of other property described in section 
                1231(b)--
                          ``(i) which was the purpose motivating the 
                        contribution, and
                          ``(ii) which is used predominantly in a 
                        qualified retail business at the location 
                        referred to in paragraph (1)(A),
                  ``(B) the expenditure referred to in subparagraph (A) 
                occurs before the end of the second taxable year after 
                the year in which such amount was received, and
                  ``(C) accurate records are kept of the amounts 
                contributed and expenditures made on the basis of the 
                project for which the contribution was made and on the 
                basis of the year of the contribution expenditure.
          ``(3) Definition of qualified retail business.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), the term `qualified retail business' means a trade 
                or business of selling tangible personal property to 
                the general public if the premises on which such trade 
                or business is conducted is in close proximity to 
                property that the contributor of the amount referred to 
                in paragraph (1) is developing or operating for profit 
                (or, in the case of a contributor which is a 
                governmental entity, is attempting to revitalize).
                  ``(B) Services.--A trade or business shall not fail 
                to be treated as a qualified retail business by reason 
                of sales of services if such sales are incident to the 
                sale of tangible personal property or if the services 
                are de minimis in amount.
          ``(4) Special rules.--
                  ``(A) Leases.--For purposes of paragraph (1)(B)(i), 
                property shall be treated as owned by the taxpayer if 
                the taxpayer is the lessee of such property under a 
                lease having a term of at least 30 years and on which 
                only nominal rent is required.
                  ``(B) Controlled groups.--For purposes of this 
                subsection, all persons treated as a single employer 
                under subsection (a) or (b) of section 52 shall be 
                treated as 1 person.
          ``(5) Disallowance of deductions and credits; adjusted 
        basis.--Notwithstanding any other provision of this subtitle, 
        no deduction or credit shall be allowed for, or by reason of, 
        any amount received by the taxpayer which constitutes a 
        contribution to capital to which this subsection applies. The 
        adjusted basis of any property acquired with the contributions 
        to which this subsection applies shall be reduced by the amount 
        of the contributions to which this subsection applies.
          ``(6) Regulations.--The Secretary shall prescribe such 
        regulations are appropriate to prevent the abuse of the 
        purposes of the subsection, including regulations which 
        allocate income and deductions (or adjust the amount excludable 
        under this subsection) in cases in which--
                  ``(A) payments in excess of fair market value are 
                paid to the contributor by the taxpayer, or
                  ``(B) the contributor and the taxpayer are related 
                parties.''
  (b) Conforming Amendment.--Subsection (e) of section 118 (as 
redesignated by subsection (a)) is amended by adding at the end the 
following flush sentence:
``Rules similar to the rules of the preceding sentence shall apply to 
any amount treated as a contribution to the capital of the taxpayer 
under subsection (d).''
  (c) Effective Date.--The amendments made by this section shall apply 
to amounts received after December 31, 1999.

               TITLE XII--PROVISIONS RELATING TO PENSIONS

                     Subtitle A--Expanding Coverage

SEC. 1201. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

  (a) Defined Benefit Plans.--
          (1) Dollar limit.--
                  (A) Subparagraph (A) of section 415(b)(1) (relating 
                to limitation for defined benefit plans) is amended by 
                striking ``$90,000'' and inserting ``$160,000''.
          (B) Subparagraphs (C) and (D) of section 415(b)(2) are each 
        amended by striking ``$90,000'' each place it appears in the 
        headings and the text and inserting ``$160,000''.
          (C) Paragraph (7) of section 415(b) (relating to benefits 
        under certain collectively bargained plans) is amended by 
        striking ``the greater of $68,212 or one-half the amount 
        otherwise applicable for such year under paragraph (1)(A) for 
        `$90,000' '' and inserting ``one-half the amount otherwise 
        applicable for such year under paragraph (1)(A) for `$160,000' 
        ''.
          (2) Limit reduced when benefit begins before age 62.--
        Subparagraph (C) of section 415(b)(2) is amended by striking 
        ``the social security retirement age'' each place it appears in 
        the heading and text and inserting ``age 62''.
          (3) Limit increased when benefit begins after age 65.--
        Subparagraph (D) of section 415(b)(2) is amended by striking 
        ``the social security retirement age'' each place it appears in 
        the heading and text and inserting ``age 65''.
          (4) Cost-of-living adjustments.--Subsection (d) of section 
        415 (related to cost-of-living adjustments) is amended--
                  (A) in paragraph (1)(A) by striking ``$90,000'' 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 amendment.--Section 415(b)(2) is amended by 
        striking subparagraph (F).
  (b) Defined Contribution Plans.--
          (1) Dollar limit.--Subparagraph (A) of section 415(c)(1) 
        (relating to limitation for defined contribution plans) is 
        amended by striking ``$30,000'' and inserting ``$40,000''.
          (2) Cost-of-living adjustments.--Subsection (d) of section 
        415 (related to cost-of-living adjustments) is amended--
                  (A) in paragraph (1)(C) by striking ``$30,000'' 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''.
  (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:

                ``Taxable year:
                                              Applicable dollar amount:
                  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:

                ``Taxable year:
                                              Applicable dollar amount:
                  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 specified in 
                the table in subparagraph (A) at the same time and in 
                the same manner as under section 415(d), except that 
                the base period shall be the calendar quarter beginning 
                July 1, 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:

                  ``Year:
                                              Applicable dollar amount:
                          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) Clause (I) of section 401(k)(11)(B)(i) is amended 
                by striking ``$6,000'' and inserting ``the amount in 
                effect under section 408(p)(2)(A)(ii)''.
                  (B) Section 401(k)(11) is amended by striking 
                subparagraph (E).
  (g) Rounding Rule Relating to Defined Benefit Plans and Defined 
Contribution Plans.--Paragraph (4) of section 415(d) is amended to read 
as follows:
          ``(4) Rounding.--
                  ``(A) $160,000 amount.--Any increase under 
                subparagraph (A) of paragraph (1) which is not a 
                multiple of $5,000 shall be rounded to the next lowest 
                multiple of $5,000.
                  ``(B) $40,000 amount.--Any increase under 
                subparagraph (C) of paragraph (1) which is not a 
                multiple of $1,000 shall be rounded to the next lowest 
                multiple of $1,000.''.
  (h) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to years beginning after December 31, 2000.
          (2) Collective bargaining agreements.--In the case of a plan 
        maintained pursuant to 1 or more collective bargaining 
        agreements between employee representatives and 1 or more 
        employers ratified by the date of enactment of this Act, the 
        amendments made by this section shall not apply to 
        contributions or benefits pursuant to any such agreement for 
        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 enactment), or
                          (ii) January 1, 2001, or
                  (B) January 1, 2005.

SEC. 1202. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE 
                    PROPRIETORS.

  (a) In General.--Subparagraph (B) of section 4975(f)(6) (relating to 
exemptions not to apply to certain transactions) is amended by adding 
at the end the following new clause:
                          ``(iii) Loan exception.--For purposes of 
                        subparagraph (A)(i), the term `owner-employee' 
                        shall only include a person described in 
                        subclause (II) or (III) of clause (i).''
  (b) Effective Date.--The amendment made by this section shall apply 
to loans made after December 31, 2000.

SEC. 1203. MODIFICATION OF TOP-HEAVY RULES.

  (a) Simplification of Definition of Key Employee.--
          (1) In general.--Section 416(i)(1)(A) (defining key employee) 
        is amended--
                  (A) by striking ``or any of the 4 preceding plan 
                years'' in the matter preceding clause (i),
                  (B) by striking clause (i) and inserting the 
                following:
                          ``(i) an officer of the employer having an 
                        annual compensation greater than $150,000,'',
                  (C) by striking clause (ii) and redesignating clauses 
                (iii) and (iv) as clauses (ii) and (iii), respectively, 
                and
                  (D) by striking the second sentence in the matter 
                following clause (iii), as redesignated by subparagraph 
                (C).
          (2) Conforming amendment.--Section 416(i)(1)(B)(iii) is 
        amended by striking ``and subparagraph (A)(ii)''.
  (b) Matching Contributions Taken Into Account for Minimum 
Contribution Requirements.--Section 416(c)(2)(A) (relating to defined 
contribution plans) is amended by adding at the end the following: 
``Employer matching contributions (as defined in section 401(m)(4)(A)) 
shall be taken into account for purposes of this subparagraph.''.
  (c) Distributions During Last Year Before Determination Date Taken 
Into Account.--
          (1) In general.--Paragraph (3) of section 416(g) is amended 
        to read as follows:
          ``(3) Distributions during last year before determination 
        date taken into account.--
                  ``(A) In general.--For purposes of determining--
                          ``(i) the present value of the cumulative 
                        accrued benefit for any employee, or
                          ``(ii) the amount of the account of any 
                        employee,
                such present value or amount shall be increased by the 
                aggregate distributions made with respect to such 
                employee under the plan during the 1-year period ending 
                on the determination date. The preceding sentence shall 
                also apply to distributions under a terminated plan 
                which if it had not been terminated would have been 
                required to be included in an aggregation group.
                  ``(B) 5-year period in case of in-service 
                distribution.--In the case of any distribution made for 
                a reason other than separation from service, death, or 
                disability, subparagraph (A) shall be applied by 
                substituting `5-year period' for `1-year period'.''.
          (2) Benefits not taken into account.--Subparagraph (E) of 
        section 416(g)(4) is amended--
                  (A) by striking ``last 5 years'' in the heading and 
                inserting ``last year before determination date'', and
                  (B) by striking ``5-year period'' and inserting ``1-
                year period''.
  (d) Definition of Top-Heavy Plans.--Paragraph (4) of section 416(g) 
(relating to other special rules for top-heavy plans) is amended by 
adding at the end the following new subparagraph:
                  ``(H) Cash or deferred arrangements using alternative 
                methods of meeting nondiscrimination requirements.--The 
                term `top-heavy plan' shall not include a plan which 
                consists solely of--
                          ``(i) a cash or deferred arrangement which 
                        meets the requirements of section 401(k)(12), 
                        and
                          ``(ii) matching contributions with respect to 
                        which the requirements of section 401(m)(11) 
                        are met.
                If, but for this subparagraph, a plan would be treated 
                as a top-heavy plan because it is a member of an 
                aggregation group which is a top-heavy group, 
                contributions under the plan may be taken into account 
                in determining whether any other plan in the group 
                meets the requirements of subsection (c)(2).''
  (e) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined benefit 
plans) is amended--
                  (A) in clause (i), by striking ``clause (ii)'' and 
                inserting ``clause (ii) or (iii)'', and
                  (B) by adding at the end the following:
                          ``(iii) Exception for frozen plan.--For 
                        purposes of determining an employee's years of 
                        service with the employer, any service with the 
                        employer shall be disregarded to the extent 
                        that such service occurs during a plan year 
                        when the plan benefits (within the meaning of 
                        section 410(b)) no employee or former 
                        employee.''.
  (f) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 1204. 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. 1205. 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) had not established or maintained 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 2 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. 1206. 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 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)) is amended--
          (1) in subparagraph (E)(i) by striking ``The'' 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 2 or more contributing sponsors, the employees of all 
contributing sponsors and their controlled groups shall be aggregated 
for purposes of determining whether 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. 1207. 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 1201(e), 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. 1208. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING 
                    PENSION PLANS.

  (a) Elimination of Certain User Fees.--The Secretary of the Treasury 
or the Secretary's delegate shall not require payment of user fees 
under the program established under section 7527 of the Internal 
Revenue Code of 1986 for requests to the Internal Revenue Service for 
determination letters with respect to the qualified status of a pension 
benefit plan maintained solely by one or more eligible employers or any 
trust which is part of the plan. The preceding sentence shall not apply 
to any request made by the sponsor of any prototype or similar plan 
which the sponsor intends to market to participating employers.
  (b) Pension Benefit Plan.--For purposes of this section, the term 
``pension benefit plan'' means a pension, profit-sharing, stock bonus, 
annuity, or employee stock ownership plan.
  (c) Eligible Employer.--For purposes of this section, the term 
``eligible employer'' has the same meaning given such term in section 
408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986. The 
determination of whether an employer is an eligible employer under this 
section shall be made as of the date of the request described in 
subsection (a).
  (d) Effective Date.--The provisions of this section shall apply with 
respect to requests made after December 31, 2000.

SEC. 1209. DEDUCTION LIMITS.

  (a) 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).''.
  (b) Conforming Amendment.--Subparagraph (B) of section 404(a)(3) is 
amended by striking the last sentence thereof.
  (c) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 1210. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX 
                    CONTRIBUTIONS.

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

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

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

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

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

SEC. 1211. INCREASE IN MINIMUM DEFINED BENEFIT LIMIT UNDER SECTION 415.

  (a) In General.--Paragraph (4) of section 415(b) (relating to total 
annual benefits not in excess of $10,000) is amended to read as 
follows:
          ``(4) Total annual benefits not in excess of $40,000.--
        Notwithstanding the preceding provisions of this subsection, 
        the benefits payable with respect to a participant under any 
        defined benefit plan shall be deemed not to exceed the 
        limitation of this subsection if the retirement benefits 
        payable with respect to such participant under such plan and 
        under all other defined benefit plans of the employer do not 
        exceed $40,000 for the plan year or any prior plan year. The 
        preceding sentence shall be applied by substituting for 
        `$40,000'--
                  ``(A) $20,000 if the plan year begins during 2001, 
                and
                  ``(B) $30,000 if the plan year begins during 2002.''
  (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2000.

                Subtitle B--Enhancing Fairness for Women

SEC. 1221. ADDITIONAL SALARY REDUCTION CATCH-UP CONTRIBUTIONS.

  (a) Limitation on Exclusion for Elective Deferrals.--
          (1) In general.--Subsection (g) of section 402 (as amended by 
        section 1201(d)) is further amended by adding at the end the 
        following:
          ``(9) Catch-up contributions for those approaching 
        retirement.--
                  ``(A) In general.--In the case of an individual who 
                is at least age 50 as of the end of any taxable year, 
                the limitation of paragraph (1) for such year, after 
                the application of paragraph (7), shall be increased by 
                the applicable catch-up amount.
                  ``(B) Applicable catch-up amount.--For purposes of 
                subparagraph (A), the applicable catch-up amount shall 
                be the amount determined in accordance with the 
                following table:

                ``Taxable year:
                                            Applicable catch-up amount:
                  2001.....................................     $1,000 
                  2002.....................................     $2,000 
                  2003.....................................     $3,000 
                  2004.....................................     $4,000 
                  2005 or thereafter.......................  $5,000.''.

          (2) Cost-of-living adjustments.--Paragraph (4) of section 
        402(g) (relating to cost-of-living adjustment), as amended by 
        section 1201(d), is further amended by inserting ``and the 
        $5,000 dollar amount in paragraph (9)'' after ``paragraph 
        (1)(B)''.
  (b) Simple Retirement Accounts.--Paragraph (2) of section 408(p) 
(relating to qualified salary reduction arrangement) is amended by 
inserting at the end of the following new subparagraph:
                  ``(F) Catch-up contributions for those approaching 
                retirement.--In the case of an individual who is at 
                least age 50 as of the end of any taxable year, the 
                limitation of subparagraph (A)(ii) for such year shall 
                be increased by the applicable catch-up amount. For 
                purposes of the preceding sentence, the applicable 
                catch-up amount is the amount in effect under section 
                402(g)(9) for such taxable year.''.
  (c) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--Subsection (e) of section 457 (relating to 
other definitions and special rules) is amended by adding after 
paragraph (16) the following new paragraph:
          ``(17) Catch-up amounts.--In the case of an individual who is 
        at least age 50 as of the end of any taxable year, the 
        limitation of subsection (b)(2)(A) for such year shall be 
        increased by the applicable catch-up amount (as in effect under 
        section 402(g)(9) for such taxable year), except that this 
        paragraph shall not apply to any taxable year to which 
        subsection (b)(3) applies.''.
  (d) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 1222. 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 5th 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 on December 
                31, 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 amended 
                by section 1201(d)) is amended by inserting before the 
                period at the end the following: ``(as in effect on the 
                date of the enactment of the Financial Freedom Act of 
                1999)''.
          (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.
  (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. 1223. 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 or more..........................     100.''.

  (b) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to plan years 
        beginning after December 31, 2000.
          (2) Collective bargaining agreements.--In the case of a plan 
        maintained pursuant to 1 or more collective bargaining 
        agreements between employee representatives and 1 or more 
        employers ratified by the date of the enactment of this Act, 
        the amendments made by this section shall not apply to 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 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. 1224. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES.

  (a) Simplification and Finalization of Minimum Distribution 
Requirements.--
          (1) In general.--The Secretary of the Treasury shall--
                  (A) simplify and finalize the regulations relating to 
                minimum distribution requirements under sections 
                401(a)(9), 408(a)(6) and (b)(3), 403(b)(10), and 
                457(d)(2) of the Internal Revenue Code of 1986, and
                  (B) modify such regulations to--
                          (i) reflect current life expectancy, and
                          (ii) revise the required distribution methods 
                        so that, under reasonable assumptions, the 
                        amount of the required minimum distribution 
                        does not decrease over a participant's life 
                        expectancy.
          (2) Fresh start.--Notwithstanding subparagraph (D) of section 
        401(a)(9) of such Code, during the first year that regulations 
        are in effect under this subsection, required distributions for 
        future years may be redetermined to reflect changes under such 
        regulations. Such redetermination shall include the opportunity 
        to choose a new designated beneficiary and to elect a new 
        method of calculating life expectancy.
          (3) Effective date for regulations.--Regulations referred to 
        in paragraph (1) shall be effective for years beginning after 
        December 31, 2000, and shall apply in such years without regard 
        to whether an individual had previously begun receiving minimum 
        distributions.
  (b) Repeal of Rule Where Distributions Had Begun Before Death 
Occurs.--
          (1) In general.--Subparagraph (B) of section 401(a)(9) is 
        amended by striking clause (i) and redesignating clauses (ii), 
        (iii), and (iv) as clauses (i), (ii), and (iii), respectively.
          (2) Conforming changes.--
                  (A) Clause (i) of section 401(a)(9)(B) (as so 
                redesignated) is amended--
                          (i) by striking ``for other cases'' in the 
                        heading, and
                          (ii) by striking ``the distribution of the 
                        employee's interest has begun in accordance 
                        with subparagraph (A)(ii)'' and inserting ``his 
                        entire interest has been distributed to him,''.
                  (B) Clause (ii) of section 401(a)(9)(B) (as so 
                redesignated) is amended by striking ``clause (ii)'' 
                and inserting ``clause (i)''.
                  (C) Clause (iii) of section 401(a)(9)(B) (as so 
                redesignated) is amended--
                          (i) by striking ``clause (iii)(I)'' and 
                        inserting ``clause (ii)(I)'',
                          (ii) in subclause (I) by striking ``clause 
                        (iii)(III)'' and inserting ``clause 
                        (ii)(III)'',
                          (iii) in subclause (I) by striking ``the date 
                        on which the employee would have attained the 
                        age 70\1/2\,'' and inserting ``April 1 of the 
                        calendar year following the calendar year in 
                        which the spouse attains 70\1/2\,'', and
                          (iv) in subclause (II) by striking ``the 
                        distributions to such spouse begin,'' and 
                        inserting ``his entire interest has been 
                        distributed to him,''.
          (3) Effective date.--The amendments made by this subsection 
        shall apply to years beginning after December 31, 2000.
  (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. 1225. 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.

          Subtitle C--Increasing Portability for Participants

SEC. 1231. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

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

SEC. 1232. 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' has the meaning given such term by 
                clauses (iii), (iv), (v), and (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. 1233. 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, 2000.

SEC. 1234. 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) 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. 1235. TREATMENT OF FORMS OF DISTRIBUTION.

  (a) Plan Transfers.--
          (1) In general.--Paragraph (6) of section 411(d) (relating to 
        accrued benefit not to be decreased by amendment) is amended by 
        adding at the end the following:
                  ``(D) Plan transfers.--
                          ``(i) A defined contribution plan (in this 
                        subparagraph referred to as the `transferee 
                        plan') shall not be treated as failing to meet 
                        the requirements of this subsection merely 
                        because the transferee plan does not provide 
                        some or all of the forms of distribution 
                        previously available under another defined 
                        contribution plan (in this subparagraph 
                        referred to as the `transferor plan') to the 
                        extent that--
                                  ``(I) the forms of distribution 
                                previously available under the 
                                transferor plan applied to the account 
                                of a participant or beneficiary under 
                                the transferor plan that was 
                                transferred from the transferor plan to 
                                the transferee plan pursuant to a 
                                direct transfer rather than pursuant to 
                                a distribution from the transferor 
                                plan;
                                  ``(II) the terms of both the 
                                transferor plan and the transferee plan 
                                authorize the transfer described in 
                                subclause (I);
                                  ``(III) the transfer described in 
                                subclause (I) was made pursuant to a 
                                voluntary election by the participant 
                                or beneficiary whose account was 
                                transferred to the transferee plan;
                                  ``(IV) the election described in 
                                subclause (III) was made after the 
                                participant or beneficiary received a 
                                notice describing the consequences of 
                                making the election;
                                  ``(V) if the transferor plan provides 
                                for an annuity as the normal form of 
                                distribution under the plan in 
                                accordance with section 417, the 
                                transfer is made with the consent of 
                                the participant's spouse (if any), and 
                                such consent meets requirements similar 
                                to the requirements imposed by section 
                                417(a)(2); and
                                  ``(VI) the transferee plan allows the 
                                participant or beneficiary described in 
                                subclause (III) to receive any 
                                distribution to which the participant 
                                or beneficiary is entitled under the 
                                transferee plan in the form of a single 
                                sum distribution.
                          ``(ii) Clause (i) shall apply to plan mergers 
                        and other transactions having the effect of a 
                        direct transfer, including consolidations of 
                        benefits attributable to different employers 
                        within a multiple employer plan.
                  ``(E) Elimination of form of distribution.--Except to 
                the extent provided in regulations, a defined 
                contribution plan shall not be treated as failing to 
                meet the requirements of this section merely because of 
                the elimination of a form of distribution previously 
                available thereunder. This subparagraph shall not apply 
                to the elimination of a form of distribution with 
                respect to any participant unless--
                          ``(i) a single sum payment is available to 
                        such participant at the same time or times as 
                        the form of distribution being eliminated; and
                          ``(ii) such single sum payment is based on 
                        the same or greater portion of the 
                        participant's account as the form of 
                        distribution being eliminated.''.
          (2) Effective date.--The amendment made by this subsection 
        shall apply to years beginning after December 31, 2000.
  (b) Regulations.--
          (1) In general.--The last sentence of paragraph (6)(B) of 
        section 411(d) (relating to accrued benefit not to be decreased 
        by amendment) is amended to read as follows: ``The Secretary 
        may by regulations provide that this subparagraph shall not 
        apply to any plan amendment that does not adversely affect the 
        rights of participants in a material manner.''.
          (2) Secretary directed.--Not later than December 31, 2001, 
        the Secretary of the Treasury is directed to issue final 
        regulations under section 411(d)(6) of the Internal Revenue 
        Code of 1986. Such regulations shall apply to plan years 
        beginning after December 31, 2001, or such earlier date as is 
        specified by the Secretary of the Treasury.

SEC. 1236. 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. 1237. 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.--
          (1) Subsection (e) of section 457 is amended by adding after 
        paragraph (17) the following new paragraph:
          ``(18) 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.''.
          (2) Section 457(b)(2) is amended by striking ``(other than 
        rollover amounts)'' and inserting ``(other than rollover 
        amounts and amounts received in a transfer referred to in 
        subsection (e)(16))''.
  (c) Effective Date.--The amendments made by this section shall apply 
to trustee-to-trustee transfers after December 31, 2000.

SEC. 1238. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT 
                    AMOUNTS.

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

SEC. 1239. 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 amendment.--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)--''.
  (c) Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2000.

       Subtitle D--Strengthening Pension Security and Enforcement

SEC. 1241. REPEAL OF 150 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.

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

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

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

SEC. 1242. 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 1 plan, but 
                        only employees of such member or employer shall 
                        be taken into account.
                          ``(iv) Plans established and maintain 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 1 or more defined 
        contribution plans which are not deductible when contributed 
        solely because of section 404(a)(7) as does not exceed the 
        greater of--
                  ``(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. 1243. 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:
  ``(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. 1244. 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 amendments made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 1245. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT 
                    PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT 
                    ACCRUALS.

  (a) In General.--Chapter 43 of subtitle D (relating to qualified 
pension, etc., plans) is amended by adding at the end the following new 
section:

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

  ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any applicable pension plan to meet the requirements of 
subsection (e) with respect to any applicable individual.
  ``(b) Amount of Tax.--
          ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any applicable 
        individual shall be $100 for each day in the noncompliance 
        period with respect to such failure.
          ``(2) Noncompliance period.--For purposes of this section, 
        the term `noncompliance period' means, with respect to any 
        failure, the period beginning on the date the failure first 
        occurs and ending on the date the failure is corrected.
  ``(c) Limitations on Amount of Tax.--
          ``(1) Overall limitation for unintentional failures.--In the 
        case of failures that are due to reasonable cause and not to 
        willful neglect, the tax imposed by subsection (a) for failures 
        during the taxable year of the employer (or, in the case of a 
        multiemployer plan, the taxable year of the trust forming part 
        of the plan) shall not exceed $500,000. For purposes of the 
        preceding sentence, all multiemployer plans of which the same 
        trust forms a part shall be treated as 1 plan. For purposes of 
        this paragraph, if not all persons who are treated as a single 
        employer for purposes of this section have the same taxable 
        year, the taxable years taken into account shall be determined 
        under principles similar to the principles of section 1561.
          ``(2) Waiver by secretary.--In the case of a failure which is 
        due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive relative to the failure involved.
  ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
          ``(1) In the case of a plan other than a multiemployer plan, 
        the employer.
          ``(2) In the case of a multiemployer plan, the plan.
  ``(e) Notice Requirements for Plans Significantly Reducing Benefit 
Accruals.--
          ``(1) In general.--If an applicable pension plan is amended 
        to provide for a significant reduction in the rate of future 
        benefit accrual, the plan administrator shall provide written 
        notice to each applicable individual (and to each employee 
        organization representing applicable individuals).
          ``(2) Notice.--The notice required by paragraph (1) shall be 
        written in a manner calculated to be understood by the average 
        plan participant and shall provide sufficient information (as 
        determined in accordance with regulations prescribed by the 
        Secretary) to allow applicable individuals to understand the 
        effect of the plan amendment.
          ``(3) Timing of notice.--Except as provided in regulations, 
        the notice required by paragraph (1) shall be provided within a 
        reasonable time before the effective date of the plan 
        amendment.
          ``(4) Designees.--Any notice under paragraph (1) may be 
        provided to a person designated, in writing, by the person to 
        which it would otherwise be provided.
          ``(5) Notice before adoption of amendment.--A plan shall not 
        be treated as failing to meet the requirements of paragraph (1) 
        merely because notice is provided before the adoption of the 
        plan amendment if no material modification of the amendment 
        occurs before the amendment is adopted.
  ``(f) Applicable Individual; Applicable Pension Plan.--For purposes 
of this section--
          ``(1) Applicable individual.--The term `applicable 
        individual' means, with respect to any plan amendment--
                  ``(A) any participant in the plan, and
                  ``(B) any beneficiary who is an alternate payee 
                (within the meaning of section 414(p)(8)) under an 
                applicable qualified domestic relations order (within 
                the meaning of section 414(p)(1)(A)),
        who may reasonably be expected to be affected by such plan 
        amendment.
          ``(2) Applicable pension plan.--The term `applicable pension 
        plan' means--
                  ``(A) any defined benefit plan, or
                  ``(B) an individual account plan which is subject to 
                the funding standards of section 412,
        which had 100 or more participants who had accrued a benefit, 
        or with respect to whom contributions were made, under the plan 
        (whether or not vested) as of the last day of the plan year 
        preceding the plan year in which the plan amendment becomes 
        effective.''
  (b) Clerical Amendment.--The table of sections for chapter 43 of 
subtitle D is amended by adding at the end the following new item:

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

  (c) Effective Dates.--
          (1) In general.--The amendments made by this section shall 
        apply to plan amendments taking effect on or after the date of 
        the enactment of this Act.
          (2) Transition.--Until such time as the Secretary of the 
        Treasury issues regulations under sections 4980F(e)(2) and (3) 
        of the Internal Revenue Code of 1986 (as added by the amendment 
        made by subsection (a)), a plan shall be treated as meeting the 
        requirements of such section if it makes a good faith effort to 
        comply with such requirements.
          (3) Special rule.--The period for providing any notice 
        required by the amendments made by this section shall not end 
        before the date which is 3 months after the date of the 
        enactment of this Act.

                Subtitle E--Reducing Regulatory Burdens

SEC. 1251. 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. 1252. MODIFICATION OF TIMING OF PLAN VALUATIONS.

  (a) In General.--Section 412(c)(9) (relating to annual valuation) is 
amended--
          (1) by striking ``For purposes'' and inserting the following:
                  ``(A) In general.--For purposes'', and
          (2) by adding at the end the following:
                  ``(B) Election to use prior year valuation.--
                          ``(i) In general.--Except as provided in 
                        clause (ii), if, for any plan year--
                                  ``(I) an election is in effect under 
                                this subparagraph with respect to a 
                                plan, and
                                  ``(II) the assets of the plan are not 
                                less than 125 percent of the plan's 
                                current liability (as defined in 
                                paragraph (7)(B)), determined as of the 
                                valuation date for the preceding plan 
                                year,
                        then this section shall be applied using the 
                        information available as of such valuation 
                        date.
                          ``(ii) Exceptions.--
                                  ``(I) Actual valuation every 3 
                                years.--Clause (i) shall not apply for 
                                more than 2 consecutive plan years and 
                                valuation shall be under subparagraph 
                                (A) with respect to any plan year to 
                                which clause (i) does not apply by 
                                reason of this clause.
                                  ``(II) Regulations.--Subclause (I) 
                                shall not apply to the extent that more 
                                frequent valuations are required under 
                                the regulations under subparagraph (A).
                          ``(iii) Adjustments.--Information under 
                        clause (i) shall, in accordance with 
                        regulations, be actuarially adjusted to reflect 
                        significant differences in participants.
                          ``(iv) Election.--An election under this 
                        subparagraph, once made, shall be irrevocable 
                        without the consent of the Secretary.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2000.

SEC. 1253. FLEXIBILITY AND NONDISCRIMINATION AND LINE OF BUSINESS 
                    RULES.

  The Secretary of the Treasury shall, on or before December 31, 2000, 
modify the existing regulations issued under section 401(a)(4) and 
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 nondiscrimination 
and 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. 1254. 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:
          ``(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:
  ``(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 the date of enactment of this Act.

SEC. 1255. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND 
                    DEDUCTION.

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

SEC. 1256. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

  (a) Expansion of Period.--
          (1) In general.--Subparagraph (A) of section 417(a)(6) is 
        amended by striking ``90-day'' and inserting ``180-day''.
          (2) Modification of regulations.--The Secretary of the 
        Treasury shall modify the regulations under sections 402(f), 
        411(a)(11), and 417 of the Internal Revenue Code of 1986 to 
        substitute ``180 days'' for ``90 days'' each place it appears 
        in Treasury Regulations sections 1.402(f)-1, 1.411(a)-11(c), 
        and 1.417(e)-1(b).
          (3) Effective date.--The amendments made by paragraph (1) and 
        the modifications required by paragraph (2) 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.

SEC. 1257. 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. 1258. 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) pursuant to a salary reduction agreement may be treated 
as excludable with respect to a plan under section 401(k), or section 
401(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 section 401(k) plan or 
        section 401(m) plan.
  (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. 1259. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT 
                    ADVICE.

  (a) In General.--Subsection (a) of section 132 (relating to exclusion 
from gross income) is amended by striking ``or'' at the end of 
paragraph (5), by striking the period at the end of paragraph (6) and 
inserting ``, or'', and by adding at the end the following new 
paragraph:
          ``(7) qualified retirement planning services.''.
  (b) Qualified Retirement Planning Services Defined.--Section 132 is 
amended by redesignating subsection (m) as subsection (n) and by 
inserting after subsection (l) the following:
  ``(m) Qualified Retirement Planning Services.--
          ``(1) In general.--For purposes of this section, the term 
        `qualified retirement planning services' means any retirement 
        planning service provided to an employee and his spouse by an 
        employer maintaining a retirement 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 pension plan.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2000.

SEC. 1260. PROVISIONS RELATING TO PLAN AMENDMENTS.

  (a) In General.--If this section applies to any plan or contract 
amendment--
          (1) such plan or contract shall be treated as being operated 
        in accordance with the terms of the plan during the period 
        described in subsection (b)(2)(A), and
          (2) such plan shall not fail to meet the requirements of 
        section 411(d)(6) of the Internal Revenue Code of 1986 by 
        reason of such amendment.
  (b) Amendments to Which Section Applies.--
          (1) In general.--This section shall apply to any amendment to 
        any plan or annuity contract which is made--
                  (A) pursuant to any amendment made by this title, or 
                pursuant to any regulation issued under this title, and
                  (B) on or before the last day of the first plan year 
                beginning on or after January 1, 2003.
        In the case of a government 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.

SEC. 1261. MODEL PLANS FOR SMALL BUSINESSES.

  (a) In General.--Not later than December 31, 2000, the Secretary of 
the Treasury is directed to issue at least one model defined 
contribution plan and at least one model defined benefit plan that fit 
the needs of small businesses and that shall be treated as meeting the 
requirements of section 401(a) of the Internal Revenue Code of 1986 
with respect to the form of the plan. To the extent that the 
requirements of section 401(a) of such Code are modified after the 
issuance of such plans, the Secretary of the Treasury shall, in a 
timely manner, issue model amendments that, if adopted in a timely 
manner by an employer that has a model plan in effect, shall cause such 
model plan to be treated as meeting the requirements of section 401(a) 
of such Code, as modified, with respect to the form of the plan.
  (b) Prototype Plan Alternative.--The Secretary of the Treasury may 
satisfy the requirements of subsection (a) through the enhancement and 
simplification of the Secretary's programs for prototype plans in such 
a manner as to achieve the purposes of subsection (a).

SEC. 1262. SIMPLIFIED ANNUAL FILING REQUIREMENT FOR PLANS WITH FEWER 
                    THAN 25 EMPLOYEES.

  (a) In General.--In the case of a retirement plan which covers less 
than 25 employees on the 1st day of the plan year and meets the 
requirements described in subsection (b), the Secretary of the Treasury 
shall provide for the filing of a simplified annual return that is 
substantially similar to the annual return required to be filed by a 
one-participant retirement plan.
  (b) Requirements.--A plan meets the requirements of this subsection 
if it--
          (1) 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,
          (2) 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
          (3) does not cover a business that leases employees.

SEC. 1263. 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.

                  TITLE XIII--MISCELLANEOUS PROVISIONS

         Subtitle A--Provisions Primarily Affecting Individuals

SEC. 1301. EXCLUSION FOR FOSTER CARE PAYMENTS TO APPLY TO PAYMENTS BY 
                    QUALIFIED PLACEMENT AGENCIES.

  (a) In General.--The matter preceding subparagraph (B) of section 
131(b)(1) (defining qualified foster care payment) is amended to read 
as follows:
          ``(1) In general.--The term `qualified foster care payment' 
        means any payment made pursuant to a foster care program of a 
        State or political subdivision thereof--
                  ``(A) which is paid by--
                          ``(i) a State or political subdivision 
                        thereof, or
                          ``(ii) a qualified foster care placement 
                        agency, and''.
  (b) Qualified Foster Individuals To Include Individuals Placed by 
Qualified Placement Agencies.--Subparagraph (B) of section 131(b)(2) 
(defining qualified foster individual) is amended to read as follows:
                  ``(B) a qualified foster care placement agency.''
  (c) Qualified Foster Care Placement Agency Defined.--Subsection (b) 
of section 131 is amended by redesignating paragraph (3) as paragraph 
(4) and by inserting after paragraph (2) the following new paragraph:
          ``(3) Qualified foster care placement agency.--The term 
        `qualified foster care placement agency' means any placement 
        agency which is licensed or certified by--
                  ``(A) a State or political subdivision thereof, or
                  ``(B) an entity designated by a State or political 
                subdivision thereof,
        for the foster care program of such State or political 
        subdivision to make foster care payments to providers of foster 
        care.''
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 1302. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS EXCLUDED 
                    FROM GROSS INCOME.

  (A) In General.--Part III of subchapter B of chapter 1 is amended by 
inserting after section 138 the following new section:

``SEC. 138A. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS.

  ``(a) In General.--Gross income of an individual does not include 
amounts received, from an organization described in section 170(c), as 
reimbursement of operating expenses with respect to use of a passenger 
automobile for the benefit of such organization. The preceding sentence 
shall apply only to the extent that such reimbursement would be 
deductible under section 274(d) (determined by applying the standard 
business mileage rate established pursuant to section 274(d)) if the 
organization were not so described and such individual were an employee 
of such organization.
  ``(b) No Double Benefit.--Subsection (a) shall not apply with respect 
to any expenses if the individual claims a deduction or credit for such 
expenses under any other provision of this title.
  ``(c) Exemption From Reporting Requirements.--Section 6041 shall not 
apply with respect to reimbursements excluded from income under 
subsection (a).''
  (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 is amended by inserting after the item 
relating to section 138 the following new items:

                              ``Sec. 138A. Reimbursement for use of 
                                        passenger automobile for 
                                        charity.''

  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 1303. W-2 TO INCLUDE EMPLOYER SOCIAL SECURITY TAXES.

  (a) In General.--Subsection (a) of section 6051 (relating to receipts 
for employees) is amended by striking ``and'' at the end of paragraph 
(10), by striking the period at the end of paragraph (11) and inserting 
a comma, and by inserting after paragraph (11) the following new 
paragraphs:
          ``(12) the amount of tax imposed by section 3111(a), and
          ``(13) the amount of tax imposed by section 3111(b).''
  (b) Effective Date.--The amendment made by this section shall apply 
with respect to remuneration paid after December 31, 1999.

SEC. 1304. CONSISTENT TREATMENT OF SURVIVOR BENEFITS FOR PUBLIC SAFETY 
                    OFFICERS KILLED IN THE LINE OF DUTY.

  Subsection (b) of section 1528 of the Taxpayer Relief Act of 1997 
(Public Law 105-34) is amended by striking the period and inserting `, 
and to amounts received in taxable years beginning after December 31, 
1999, with respect to individuals dying on or before December 31, 
1996.''

         Subtitle B--Provisions Primarily Affecting Businesses

SEC. 1311. DISTRIBUTIONS FROM PUBLICLY TRADED PARTNERSHIPS TREATED AS 
                    QUALIFYING INCOME OF REGULATED INVESTMENT 
                    COMPANIES.

  (a) In General.--Paragraph (2) of section 851(b) (defining regulated 
investment company) is amended by inserting ``income derived from an 
interest in a publicly traded partnership (as defined in section 
7704(b)),'' after ``dividends, interest,''.
  (b) Source Flow-Through Rule Not To Apply.--The last sentence of 
section 851(b) is amended by inserting ``(other than a publicly traded 
partnership (as defined in section 7704(b)))'' after ``derived from a 
partnership''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2000.

SEC. 1312. SPECIAL PASSIVE ACTIVITY RULE FOR PUBLICLY TRADED 
                    PARTNERSHIPS TO APPLY TO REGULATED INVESTMENT 
                    COMPANIES.

  (a) In General.--Subsection (k) of section 469 (relating to separate 
application of section in case of publicly traded partnerships) is 
amended by adding at the end the following new paragraph:
          ``(4) Application to regulated investment companies.--For 
        purposes of this section, a regulated investment company (as 
        defined in section 851) holding an interest in a publicly 
        traded partnership shall be treated as a taxpayer described in 
        subsection (a)(2) with respect to items attributable to such 
        interest.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2000.

SEC. 1313. LARGE ELECTRIC TRUCKS, VANS, AND BUSES ELIGIBLE FOR 
                    DEDUCTION FOR CLEAN-FUEL VEHICLES IN LIEU OF 
                    CREDIT.

  (a) In General.--Paragraph (1) of section 30(c) (relating to credit 
for qualified electric vehicles) is amended by adding at the end the 
following new flush sentence:
        ``Such term shall not include any vehicle described in 
        subclause (I) or (II) of section 179A(b)(1)(A)(iii).''
  (b) Effective Date.--The amendment made by this section shall apply 
to property placed in service after December 31, 1999.

SEC. 1314. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR DECOMMISSIONING 
                    COSTS.

  (a) Repeal of Limitation on Deposits Into Fund Based on Cost of 
Service.--Subsection (b) of section 468A is amended to read as follows:
  ``(b) Limitation on Amounts Paid Into Fund.--The amount which a 
taxpayer may pay into the Fund for any taxable year shall not exceed 
the ruling amount applicable to such taxable year.''
  (b) Clarification of Treatment of Fund Transfers.--Subsection (e) of 
section 468A is amended by adding at the end the following new 
paragraph:
          ``(8) Treatment of fund transfers.--If, in connection with 
        the transfer of the taxpayer's interest in a nuclear 
        powerplant, the taxpayer transfers the Fund with respect to 
        such powerplant to the transferee of such interest and the 
        transferee elects to continue the application of this section 
        to such Fund--
                  ``(A) the transfer of such Fund shall not cause such 
                Fund to be disqualified from the application of this 
                section, and
                  ``(B) no amount shall be treated as distributed from 
                such Fund, or be includible in gross income, by reason 
                of such transfer.''
  (c) Transfers of Balances in Nonqualified Funds.--Section 468A 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) Transfers of Balances in Nonqualified Funds Into Qualified 
Funds.--
          ``(1) In general.--Notwithstanding subsection (b), any 
        taxpayer maintaining a Fund to which this section applies with 
        respect to a nuclear powerplant may transfer into such Fund 
        amounts held in any nonqualified fund of such taxpayer with 
        respect to such powerplant.
          ``(2) Maximum amount permitted to be transferred.--The amount 
        permitted to be transferred under paragraph (1) shall not 
        exceed the balance in the nonqualified fund as of December 31, 
        1998.
          ``(3) Deduction for amounts transferred.--
                  ``(A) In general.--The deduction allowed by 
                subsection (a) for any transfer permitted by this 
                subsection shall be allowed ratably over the remaining 
                estimated useful life (within the meaning of subsection 
                (d)(2)(A)) of the nuclear powerplant, beginning with 
                the later of the taxable year during which the transfer 
                is made or the taxpayer's first taxable year beginning 
                after December 31, 2001.
                  ``(B) Denial of deduction for previously deducted 
                amounts.--No deduction shall be allowed for any 
                transfer under this subsection of an amount for which a 
                deduction was allowed when such amount was paid into 
                the nonqualified fund. For purposes of the preceding 
                sentence, a ratable portion of each transfer shall be 
                treated as being from previously deducted amounts to 
                the extent thereof.
                  ``(C) Transfers of qualified funds.--If--
                          ``(i) any transfer permitted by this 
                        subsection is made to any Fund to which this 
                        section applies, and
                          ``(ii) such Fund is transferred thereafter,
                any deduction under this subsection for taxable years 
                ending after the date that such Fund is transferred 
                shall be allowed to the transferee and not to the 
                transferor. The preceding sentence shall not apply if 
                the transferor is an organization exempt from tax 
                imposed by this chapter.
          ``(4) New ruling amount required.--Paragraph (1) shall not 
        apply to any transfer unless the taxpayer requests from the 
        Secretary a new schedule of ruling amounts in connection with 
        such transfer.
          ``(5) Nonqualified fund.--For purposes of this subsection, 
        the term `nonqualified fund' means, with respect to any nuclear 
        powerplant, any fund in which amounts are irrevocably set aside 
        pursuant to the requirements of any State or Federal agency 
        exclusively for the purpose of funding the decommissioning of 
        such powerplant.
          ``(6) No basis in qualified funds.--Notwithstanding any other 
        provision of law, the basis of any Fund to which this section 
        applies shall not be increased by reason of any transfer 
        permitted by this subsection.''
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 1315. CONSOLIDATION OF LIFE INSURANCE COMPANIES WITH OTHER 
                    CORPORATIONS.

  (a) In General.--Section 1504(b) (defining includible corporation) is 
amended by striking paragraph (2).
  (b) Conforming Amendments.--
          (1) Subsection (c) of section 1503 is amended by striking 
        paragraph (2) (relating to losses of recent nonlife 
        affiliates).
          (2) Section 1504 is amended by striking subsection (c) and by 
        redesignating subsections (d), (e), and (f) as subsections (c), 
        (d), and (e), respectively.
          (3) Section 1503(c)(1) (relating to special rule for 
        application of certain losses against income of insurance 
        companies taxed under section 801) is amended by striking ``an 
        election under section 1504(c)(2) is in effect for the taxable 
        year and''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2004.
  (d) No Carryback Before January 1, 2005.--To the extent that a 
consolidated net operating loss is allowed or increased by reason of 
the amendments made by this section, such loss may not be carried back 
to a taxable year beginning before January 1, 2005.
  (e) Nontermination of Group.--No affiliated group shall terminate 
solely as a result of the amendments made by this section.
  (f) Waiver of 5-Year Waiting Period.--Under regulations prescribed by 
the Secretary of the Treasury or his delegate, an automatic waiver from 
the 5-year waiting period for reconsolidation provided in section 
1504(a)(3) of such Code shall be granted to any corporation which was 
previously an includible corporation but was subsequently deemed a 
nonincludible corporation as a result of becoming a subsidiary of a 
corporation which was not an includible corporation solely by operation 
of section 1504(c)(2) of such Code (as in effect on the day before the 
date of enactment of this Act).

            Subtitle C--Provisions Relating to Excise Taxes

SEC. 1321. CONSOLIDATION OF HAZARDOUS SUBSTANCE SUPERFUND AND LEAKING 
                    UNDERGROUND STORAGE TANK TRUST FUND.

  (a) In General.--Subchapter A of chapter 98 (relating to trust fund 
code) is amended by striking sections 9507 and 9508 and inserting the 
following new section:

``SEC. 9507. ENVIRONMENTAL REMEDIATION TRUST FUND.

  ``(a) Creation of Trust Fund.--There is established in the Treasury 
of the United States a trust fund to be known as the `Environmental 
Remediation Trust Fund' consisting of such amounts as may be--
          ``(1) appropriated to the Environmental Remediation Trust 
        Fund as provided in this section,
          ``(2) appropriated to the Environmental Remediation Trust 
        Fund pursuant to section 517(b) of the Superfund Revenue Act of 
        1986, or
          ``(3) credited to the Environmental Remediation Trust Fund as 
        provided in section 9602(b).
  ``(b) Transfers to Environmental Remediation Trust Fund.--
          ``(1) In general.--There are hereby appropriated to the 
        Environmental Remediation Trust Fund amounts equivalent to--
                  ``(A) the taxes received in the Treasury under--
                          ``(i) section 59A, 4611, 4661, or 4671 
                        (relating to environmental taxes),
                          ``(ii) section 4041(d) (relating to 
                        additional taxes on motor fuels),
                          ``(iii) section 4081 (relating to tax on 
                        gasoline, diesel fuel, and kerosene) to the 
                        extent attributable to the Environmental 
                        Remediation Trust Fund financing rate under 
                        such section,
                          ``(iv) section 4091 (relating to tax on 
                        aviation fuel) to the extent attributable to 
                        the Environmental Remediation Trust Fund 
                        financing rate under such section, and
                          ``(v) section 4042 (relating to tax on fuel 
                        used in commercial transportation on inland 
                        waterways) to the extent attributable to the 
                        Environmental Remediation Trust Fund financing 
                        rate under such section,
                  ``(B) amounts recovered on behalf of the 
                Environmental Remediation Trust Fund under the 
                Comprehensive Environmental Response, Compensation, and 
                Liability Act of 1980 (hereinafter in this section 
                referred to as `CERCLA'),
                  ``(C) all moneys recovered or collected under section 
                311(b)(6)(B) of the Clean Water Act,
                  ``(D) penalties assessed under title I of CERCLA,
                  ``(E) punitive damages under section 107(c)(3) of 
                CERCLA, and
                  ``(F) amounts received in the Treasury and collected 
                under section 9003(h)(6) of the Solid Waste Disposal 
                Act.
          ``(2) Limitation on transfers.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), no amount may be appropriated or credited to the 
                Environmental Remediation Trust Fund on and after the 
                date of any expenditure from any such Trust Fund which 
                is not permitted by this section. The determination of 
                whether an expenditure is so permitted shall be made 
                without regard to--
                          ``(i) any provision of law which is not 
                        contained or referenced in this title or in a 
                        revenue Act, and
                          ``(ii) whether such provision of law is a 
                        subsequently enacted provision or directly or 
                        indirectly seeks to waive the application of 
                        this paragraph.
                  ``(B) Exception for prior obligations.--Subparagraph 
                (A) shall not apply to any expenditure to liquidate any 
                contract entered into (or for any amount otherwise 
                obligated) in accordance with the provisions of this 
                section.''
  ``(c) Expenditures From Environmental Remediation Trust Fund.--
          ``(1) In general.--Amounts in the Environmental Remediation 
        Trust Fund shall be available, as provided in appropriation 
        Acts, only for purposes of making expenditures--
                  ``(A) to carry out the purposes of--
                          ``(i) paragraphs (1), (2), (5), and (6) of 
                        section 111(a) of CERCLA as in effect on July 
                        12, 1999,
                          ``(ii) section 111(c) of CERCLA (as so in 
                        effect), other than paragraphs (1) and (2) 
                        thereof, and
                          ``(iii) section 111(m) of CERCLA (as so in 
                        effect), or
                  ``(B) to carry out section 9003(h) of the Solid Waste 
                Disposal Act as in effect on July 12, 1999.
          ``(2) Exception for certain transfers, etc., of hazardous 
        substances.--No amount in the Environmental Remediation Trust 
        Fund or derived from the Environmental Remediation Trust Fund 
        shall be available or used for the transfer or disposal of 
        hazardous waste carried out pursuant to a cooperative agreement 
        between the Administrator of the Environmental Protection 
        Agency and a State if the following conditions apply--
                  ``(A) the transfer or disposal, if made on December 
                13, 1985, would not comply with a State or local 
                requirement,
                  ``(B) the transfer is to a facility for which a final 
                permit under section 3005(a) of the Solid Waste 
                Disposal Act was issued after January 1, 1983, and 
                before November 1, 1984, and
                  ``(C) the transfer is from a facility identified as 
                the McColl Site in Fullerton, California.
          ``(3) Transfers from trust fund for certain repayments and 
        credits.--
                  ``(A) In general.--The Secretary shall pay from time 
                to time from the Environmental Remediation Trust Fund 
                into the general fund of the Treasury amounts 
                equivalent to--
                          ``(i) amounts paid under--
                                  ``(I) section 6420 (relating to 
                                amounts paid in respect of gasoline 
                                used on farms),
                                  ``(II) section 6421 (relating to 
                                amounts paid in respect of gasoline 
                                used for certain nonhighway purposes or 
                                by local transit systems), and
                                  ``(III) section 6427 (relating to 
                                fuels not used for taxable purposes), 
                                and
                          ``(ii) credits allowed under section 34,
                with respect to the taxes imposed by section 4041(d) or 
                by sections 4081 and 4091 (to the extent attributable 
                to the Leaking Underground Storage Tank Trust Fund 
                financing rate or the Environmental Remediation Trust 
                Fund financing rate under such sections).
                  ``(B) Transfers based on estimates.--Transfers under 
                subparagraph (A) shall be made on the basis of 
                estimates by the Secretary, and proper adjustments 
                shall be made in amounts subsequently transferred to 
                the extent prior estimates were in excess of or less 
                than the amounts required to be transferred.
  ``(d) Liability of United States Limited to Amount in Trust Fund.--
          ``(1) General rule.--Any claim filed against the 
        Environmental Remediation Trust Fund may be paid only out of 
        the Environmental Remediation Trust Fund.
          ``(2) Coordination with other provisions.--Nothing in CERCLA 
        or the Superfund Amendments and Reauthorization Act of 1986 (or 
        in any amendment made by either of such Acts) shall authorize 
        the payment by the United States Government of any amount with 
        respect to any such claim out of any source other than the 
        Environmental Remediation Trust Fund.
          ``(3) Order in which unpaid claims are to be paid.--If at any 
        time the Environmental Remediation Trust Fund has insufficient 
        funds to pay all of the claims payable out of the Environmental 
        Remediation Trust Fund at such time, such claims shall, to the 
        extent permitted under paragraph (1), be paid in full in the 
        order in which they were finally determined.''
  (b) Conforming Amendments.--
          (1) Subsections (c) and (d) of section 4611 are each amended 
        by striking ``Hazardous Substance Superfund'' each place it 
        appears and inserting ``Environmental Remediation Trust Fund''.
          (2) Subsection (c) of section 4661 is amended by striking 
        ``Hazardous Substance Superfund'' and inserting ``Environmental 
        Remediation Trust Fund''.
          (3) Sections 4041(d), 4042(b), 4081(a)(2)(B), 4081(d)(3), 
        4091(b), 4092(b), 6421(f), and 6427(l) are each amended by 
        striking ``Leaking Underground Storage Tank'' each place it 
        appears (other than the headings) and inserting ``Environmental 
        Remediation''.
          (4) The heading for subsection (d) of section 4041 is amended 
        by striking ``Leaking Underground Storage Tank'' and inserting 
        ``Environmental Remediation''.
          (5) The headings for subsections (a)(2)(B) and (d)(3) of 
        section 4081 and section 4091(b)(2) are each amended by 
        striking ``Leaking underground storage tank'' and inserting 
        ``Environmental remediation''.
  (c) Effective Date.--The amendments made by this section shall take 
effect on October 1, 1999.
  (d) Environmental Remediation Trust Fund Treated as Continuation of 
Old Trust Funds.--The Environmental Remediation Trust Fund established 
by the amendments made by this section shall be treated for all 
purposes of law as a continuation of both the Hazardous Substance 
Superfund and the Leaking Underground Storage Tank Trust Fund. Any 
reference in any law to the Hazardous

Substance Superfund or the Leaking Underground Storage Tank Trust Fund 
shall be deemed to include (wherever appropriate) a reference to the 
Environmental Remediation Trust Fund established by such amendments.

SEC. 1322. REPEAL OF CERTAIN MOTOR FUEL EXCISE TAXES ON FUEL USED BY 
                    RAILROADS AND ON INLAND WATERWAY TRANSPORTATION.

  (a) Repeal of Leaking Underground Storage Tank Trust Fund Taxes on 
Fuel Used in Trains.--
          (1) In general.--Paragraph (1) of section 4041(d) is amended 
        by adding at the end the following new sentence: ``The 
        preceding sentence shall not apply to any sale for use, or use, 
        of fuel in a diesel-powered train.''
          (2) Conforming amendments.--
                  (A) Paragraph (3) of section 6421(f) is amended by 
                striking ``with respect to--'' and all that follows 
                through ``so much of'' and inserting ``with respect to 
                so much of''.
                  (B) Paragraph (3) of section 6427(l) is amended by 
                striking ``with respect to--'' and all that follows 
                through ``so much of'' and inserting ``with respect to 
                so much of''.
  (b) Repeal of 4.3-Cent Motor Fuel Excise Taxes on Railroads and 
Inland Waterway Transportation Which Remain in General Fund.--
          (1) Taxes on trains.--
                  (A) 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''.
                  (B) Conforming amendments.--
                          (i) Subparagraph (C) of section 4041(a)(1) is 
                        amended by striking clause (ii) and by 
                        redesignating clause (iii) as clause (ii).
                          (ii) Subparagraph (C) of section 4041(b)(1) 
                        is amended by striking all that follows 
                        ``section 6421(e)(2)'' and inserting a period.
                          (iii) Paragraph (3) of section 4083(a) is 
                        amended by striking ``or a diesel-powered 
                        train''.
                          (iv) Section 6421(f) is amended by striking 
                        paragraph (3).
                          (v) Section 6427(l) is amended by striking 
                        paragraph (3).
          (2) Fuel used on inland waterways.--
                  (A) 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).
                  (B) Conforming amendment.--Paragraph (2) of section 
                4042(b) is amended by striking subparagraph (C).
  (c) Effective Date.--The amendments made by this subsection shall 
take effect on October 1, 1999 (October 1, 2003, in the case of the 
amendments made by subsection (b)), but shall not take effect if 
section 1321 does not take effect.

SEC. 1323. REPEAL OF EXCISE TAX ON FISHING TACKLE BOXES.

  (a) In General.--Paragraph (6) of section 4162(a) (defining sport 
fishing equipment) is amended by striking subparagraph (C) and by 
redesignating subparagraphs (D) through (J) as subparagraphs (C) 
through (I), respectively.
  (b) Effective Date.--The amendment made by this section shall apply 
to articles sold by the manufacturer, producer, or importer more than 
30 days after the date of the enactment of this Act.

SEC. 1324. CLARIFICATION OF EXCISE TAX IMPOSED ON ARROW COMPONENTS.

  (a) In General.--Paragraph (2) of section 4161(b) (relating to bows 
and arrows, etc.) is amended to read as follows:
          ``(2) Arrows.--
                  ``(A) In general.--There is hereby imposed on the 
                sale by the manufacturer, producer, or importer of any 
                shaft, point, article used to attach a point to a 
                shaft, nock, or vane of a type used in the manufacture 
                of any arrow which after its assembly--
                          ``(i) measures 18 inches overall or more in 
                        length, or
                          ``(ii) measures less than 18 inches overall 
                        in length but is suitable for use with a bow 
                        described in paragraph (1)(A),
                a tax equal to 12.4 percent of the price for which so 
                sold.
                  ``(B) Reduced rate on certain hunting points.--
                Subparagraph (A) shall be applied by substituting `11 
                percent' for `12.4 percent' in the case of a point 
                which is designed primarily for use in hunting fish or 
                large animals.''
  (b) Effective Date.--The amendment made by this section shall apply 
to articles sold by the manufacturer, producer, or importer after the 
close of the first calendar month ending more than 30 days after the 
date of the enactment of this Act.

         Subtitle D--Improvements in Low-Income Housing Credit

SEC. 1331. INCREASE IN STATE CEILING ON LOW-INCOME HOUSING CREDIT.

  (a) Increase in State Ceiling.--Clause (i) of section 42(h)(3)(C) 
(relating to State housing credit ceiling) is amended by striking 
``$1.25'' and inserting ``the applicable amount under subparagraph 
(H)''.
  (b) Applicable Amount; 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 subparagraphs:
                  ``(H) Initial Amount of State Ceiling.--For purposes 
                of subparagraph (C)(i), the applicable amount shall be 
                determined under the following table:

                ``For calendar year
                                               The applicable amount is
                  2000.....................................     $1.35  
                  2001.....................................      1.45  
                  2002.....................................      1.55  
                  2003.....................................      1.65  
                  2004 and thereafter......................     1.75.  

                  ``(I) Cost-of-living adjustment.--
                          ``(i) In general.--In the case of a calendar 
                        year after 2004 the $1.75 amount in 
                        subparagraph (H) shall be increased by an 
                        amount equal to--
                                  ``(I) such dollar amount, multiplied 
                                by
                                  ``(II) the cost-of-living adjustment 
                                determined under section 1(f)(3) for 
                                such calendar year by substituting 
                                `calendar year 2003' for `calendar year 
                                1992' in subparagraph (B) thereof.
                          ``(ii) Rounding.--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) Effective Date.--The amendments made by this section shall apply 
to calendar years after 1999.

SEC. 1332. 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. 1333. 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. 1334. MODIFICATIONS TO RULES RELATING TO BASIS OF BUILDING WHICH 
                    IS ELIGIBLE FOR CREDIT.

  (a) HOME Assistance Not To Disqualify Building for Additional Credit 
Available to Buildings in High Cost Areas.--Clause (i) of section 
42(i)(2)(E) (relating to buildings receiving HOME assistance) is 
amended by striking the last sentence.
  (b) 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 20 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 1 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)).''.

SEC. 1335. 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. 1336. 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. 1337. EFFECTIVE DATE.

  Except as otherwise provided in this subtitle, the amendments made by 
this subtitle 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--Entrepreneurial Equity Capital Formation

 PART I--TAX-FREE CONVERSIONS OF SPECIALIZED SMALL BUSINESS INVESTMENT 
                   COMPANIES INTO PASS-THRU ENTITIES

SEC. 1341. MODIFICATIONS TO PROVISIONS RELATING TO REGULATED INVESTMENT 
                    COMPANIES.

  (a) In General.--Section 851 (relating to definition of regulated 
investment company) is amended by adding at the end the following new 
subsection:
  ``(i) Special Rules for Specialized Small Business Investment 
Companies.--
          ``(1) In general.--For purposes of determining whether a 
        specialized small business investment company is a regulated 
        investment company for purposes of this subchapter--
                  ``(A) income derived from an investment as a limited 
                partner in a partnership shall be treated as qualifying 
                income under subsection (b)(2) if--
                          ``(i) the company does not participate in the 
                        active management of the normal business 
                        operations of the partnership, and
                          ``(ii) the company's investment in such 
                        partnership is an investment permitted for 
                        specialized small business investment companies 
                        under the Small Business Investment Act of 
                        1958, and
                  ``(B) the requirements of subsection (b)(3) shall be 
                treated as met if, at the close of each quarter of the 
                taxable year, at least 50 percent of the value of its 
                total assets is represented by--
                          ``(i) assets described in subsection 
                        (b)(3)(A)(i), and
                          ``(ii) other investments permitted to be made 
                        by a specialized small business investment 
                        company under the Small Business Investment Act 
                        of 1958.
          ``(2) Coordination of distribution requirements with sbic 
        requirements.--A specialized small business investment company 
        shall be treated as meeting the requirements of section 
        852(a)(1) if the deduction for dividends paid during the 
        taxable year (as defined in section 561, but without regard to 
        capital gain dividends) equals or exceeds the lesser of the 
        amount required under section 852(a)(1) or 100 percent of the 
        maximum amount that the company would be permitted to 
        distribute during such year under the Small Business Investment 
        Act of 1958.
          ``(3) Specialized small business investment company.--For 
        purposes of this subsection, the term `specialized small 
        business investment company' has the meaning given to such term 
        by section 1044(c)(3).
          ``(4) References to 1958 act.--For purposes of this 
        subsection, references to the Small Business Investment Act of 
        1958 shall be treated as references to such Act as in effect on 
        May 13, 1993.''
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of enactment of this Act.

SEC. 1342. TAX-FREE REORGANIZATION OF SPECIALIZED SMALL BUSINESS 
                    INVESTMENT COMPANY AS A PARTNERSHIP.

  (a) In General.--If, within 180 days after the date of the enactment 
of this Act, a corporation which is a specialized small business 
investment company transfers substantially all of its assets to a 
partnership (including its license to operate as a specialized small 
business investment company) solely in exchange for partnership 
interests in such partnership, no gain or loss shall be recognized to 
the corporation on such a transfer if--
          (1) immediately after such exchange, such corporation holds 
        partnership interests in such partnership having a value equal 
        to at least 80 percent of the total value of all partnership 
        interests in such partnership, and
          (2) before the 90th day after such exchange, such corporation 
        transfers all partnership interests held by the corporation in 
        such partnership, and all remaining assets of the corporation, 
        to its shareholders in the complete liquidation of such 
        corporation.
  (b) Nonrecognition of Gain or Loss to Corporation on Distribution of 
Partnership Interests.--In the case of any distribution of a 
partnership interest acquired by the liquidating corporation in an 
exchange to which subsection (a) applies--
          (1) no gain or loss shall be recognized to the liquidating 
        corporation by reason of such distribution, and
          (2) such distribution shall not be treated as a sale or 
        exchange for purposes of section 708(b)(1)(B) of the Internal 
        Revenue Code of 1986.
  (c) Gain Recognized by Shareholders on Receipt of Property Other Than 
Partnership Interests.--
          (1) In general.--No gain or loss shall be recognized to a 
        shareholder of a corporation on the transfer of such 
        shareholder's stock in such corporation to such corporation 
        solely in exchange for a partnership interest in the 
        partnership referred to in subsection (a)(1).
          (2) Receipt of property.--If paragraph (1) would apply to an 
        exchange but for the fact that there is received, in addition 
        to the partnership interests permitted to be received under 
        paragraph (1), other property or money, then--
                  (A) gain (if any) to such recipient shall be 
                recognized, but not in excess of--
                          (i) the amount of money received, plus
                          (ii) the fair market value of such other 
                        property received, and
                  (B) no loss to such recipient shall be recognized.
  (d) Basis.--The basis of property received in any exchange to which 
this section applies shall be determined in accordance with rules 
similar to the rules of section 358 of the Internal Revenue Code of 
1986.
  (e) Additional Requirements.--This section shall not apply to any 
specialized small business investment company unless--
          (1) such company elects to be subject to tax on its built-in 
        gains computed in a manner similar to that provided in section 
        1374 of such Code (without regard to any recognition period (as 
        defined in subsection (d)(7) thereof)), and
          (2) such company distributes all of its accumulated earnings 
        and profits (in distributions to which section 301 of such Code 
        applies) before its liquidation under this section.
If, after making an election under paragraph (1), a company ceases to 
be a specialized small business investment company, such company shall 
be treated as having disposed of all of its assets for purposes of 
applying paragraph (1).
  (f) Specialized Small Business Investment Company.--For purposes of 
this section, the term ``specialized small business investment 
company'' has the meaning given to such term by section 1044(c)(3) of 
such Code.

  PART II--ADDITIONAL INCENTIVES RELATED TO INVESTING IN SPECIALIZED 
                  SMALL BUSINESS INVESTMENT COMPANIES

SEC. 1346. EXPANSION OF NONRECOGNITION TREATMENT FOR SECURITIES GAIN 
                    ROLLED OVER INTO SPECIALIZED SMALL BUSINESS 
                    INVESTMENT COMPANIES.

  (a) Extension of Rollover Period.--Paragraph (1) of section 1044(a) 
(relating to nonrecognition of gain) is amended by striking ``60-day 
period'' and inserting ``180-day period''.
  (b) Increase of Maximum Exclusion.--
          (1) In general.--Paragraphs (1) and (2) of section 1044(b) 
        (relating to limitations) are amended to read as follows:
          ``(1) Limitation on individuals.--In the case of an 
        individual, the amount of gain which may be excluded under 
        subsection (a) for any taxable year shall not exceed--
                  ``(A) $750,000, reduced by
                  ``(B) the amount of gain excluded under subsection 
                (a) for all preceding taxable years.
          ``(2) Limitation on C corporations.--In the case of a C 
        corporation, the amount of gain which may be excluded under 
        subsection (a) for any taxable year shall not exceed--
                  ``(A) $2,000,000, reduced by
                  ``(B) the amount of gain excluded under subsection 
                (a) for all preceding taxable years.''
          (2) Conforming amendment.--Subparagraph (A) of section 
        1044(b)(3) (relating to special rules for married individuals) 
        is amended to read as follows:
                  ``(A) Separate returns.--In the case of a separate 
                return by a married individual, paragraph (1) shall be 
                applied by substituting `$375,000' for `$750,000'.''
  (c) Extension to Preferred Stock.--Paragraph (1) of section 1044(a) 
is amended by striking ``common''.
  (d) Effective Date.--The amendments made by this section shall apply 
to sales occurring after the date of the enactment of this Act.

SEC. 1347. MODIFICATIONS TO EXCLUSION FOR GAIN FROM QUALIFIED SMALL 
                    BUSINESS STOCK.

  (a) In General.--Section 1202 (relating to 50-percent exclusion for 
gain from certain small business stock) is amended by redesignating 
subsection (k) as subsection (l) and by inserting after subsection (j) 
the following new subsection:
  ``(k) Special Rules for Specialized Small Business Investment 
Companies.--
          ``(1) Increase in exclusion.--In the case of--
                  ``(A) the sale or exchange of stock in a specialized 
                small business investment company, and
                  ``(B) any amount treated under subsection (g) as gain 
                described in subsection (a) by reason of the sale or 
                exchange of stock in a specialized small business 
                investment company,
        subsection (a) shall be applied by substituting `60 percent' 
        for `50 percent'.
          ``(2) Waiver of active business requirement.--Notwithstanding 
        any provision of subsection (e), a corporation shall be treated 
        as meeting the active business requirements of such subsection 
        for any period during which such corporation qualifies as a 
        specialized small business investment company.
          ``(3) Specialized small business investment company.--For 
        purposes of this section, the term `specialized small business 
        investment company' means any eligible corporation (as defined 
        in subsection (e)(4)) which is licensed to operate under 
        section 301(d) of the Small Business Investment Act of 1958 (as 
        in effect on May 13, 1993).''
  (b) Conforming Amendment.--Section 1202(c)(2) is amended to read as 
follows:
          ``(2) Active business requirement, etc.--Stock in a 
        corporation shall not be treated as qualified small business 
        stock unless, during substantially all of the taxpayer's 
        holding period for such stock, such corporation meets the 
        active business requirements of subsection (e) and such 
        corporation is a C corporation.''
  (c) Effective Date.--The amendments made by this section shall apply 
to sales and exchanges occurring after the date of the enactment of 
this Act.

                      Subtitle F--Other Provisions

SEC. 1351. INCREASE IN VOLUME CAP ON PRIVATE ACTIVITY BONDS.

  (a) In General.--Subsection (d) of section 146 (relating to volume 
cap) is amended by striking paragraph (2), by redesignating paragraphs 
(3) and (4) as paragraphs (2) and (3), respectively, and by striking 
paragraph (1) and inserting the following new paragraph:
          ``(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 multiplied by the State 
                population, or
                  ``(B) $225,000,000.
        Subparagraph (B) shall not apply to any possession of the 
        United States.''.
  (b) Conforming Amendment.--Sections 25(f)(3) and 42(h)(3)(E)(iii) are 
each amended by striking ``section 146(d)(3)(C)'' and inserting 
``section 146(d)(2)(C)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to calendar years after 1999.

SEC. 1352. TAX TREATMENT OF ALASKA NATIVE SETTLEMENT TRUSTS.

  (a) In General.--Subpart A of part I of subchapter J of chapter 1 
(relating to general rules for taxation of trusts and estates) is 
amended by adding at the end the following new section:

``SEC. 646. ELECTING ALASKA NATIVE SETTLEMENT TRUSTS.

  ``(a) In General.--Except as otherwise provided in this section, the 
provisions of this subchapter and section 1(e) shall apply to all 
Settlement Trusts.
  ``(b) Beneficiaries of Electing Trust Not Taxed on Contributions.--
          ``(1) In general.--In the case of a Settlement Trust for 
        which an election under paragraph (2) is in effect for any 
        taxable year, no amount shall be includible in the gross income 
        of a beneficiary of the Settlement Trust by reason of a 
        contribution to the Settlement Trust made during such taxable 
        year.
          ``(2) One-time election.--
                  ``(A) In general.--A Settlement Trust may elect to 
                have the provisions of this section apply to the trust 
                and its beneficiaries.
                  ``(B) Time and method of election.--An election under 
                subparagraph (A) shall be made--
                          ``(i) before the due date (including 
                        extensions) for filing the Settlement Trust's 
                        return of tax for the 1st taxable year of the 
                        Settlement Trust ending after December 31, 
                        1999, and
                          ``(ii) by attaching to such return of tax a 
                        statement specifically providing for such 
                        election.
                  ``(C) Period election in effect.--Except as provided 
                in paragraph (3), an election under subparagraph (A)--
                          ``(i) shall apply to the 1st taxable year 
                        described in subparagraph (B)(i) and all 
                        subsequent taxable years, and
                          ``(ii) may not be revoked once it is made.
  ``(c) Special Rules Where Transfer Restrictions Modified.--
          ``(1) Transfer of beneficial interests.--If, at any time, a 
        beneficial interest in a Settlement Trust may be disposed of to 
        a person in a manner which would not be permitted by section 
        7(h) of the Alaska Native Claims Settlement Act (43 U.S.C. 
        1606(h)) if the interest were Settlement Common Stock--
                  ``(A) no election may be made under subsection (b)(2) 
                with respect to such trust, and
                  ``(B) if such an election is in effect as of such 
                time, such election shall cease to apply for purposes 
                of subsection (b)(1) as of the 1st day of the taxable 
                year following the taxable year in which such 
                disposition is first permitted.
          ``(2) Stock in corporation.--If--
                  ``(A) the Settlement Common Stock in any Native 
                Corporation which transferred assets to a Settlement 
                Trust making an election under subsection (b)(2) may be 
                disposed of to a person in a manner not permitted by 
                section 7(h) of the Alaska Native Claims Settlement Act 
                (43 U.S.C. 1606(h)), and
                  ``(B) at any time after such disposition of stock is 
                first permitted, such corporation transfers assets to 
                such trust,
        subparagraph (B) of paragraph (1) shall be applied to such 
        trust on and after the date of the transfer in the same manner 
        as if the trust permitted dispositions of beneficial interests 
        in the trust in a manner not permitted by such section 7(h).
  ``(c) Tax Treatment of Distributions to Beneficiaries.--
          ``(1) In general.--In the case of a Settlement Trust for 
        which an election under subsection (b)(2) is in effect for any 
        taxable year, any distribution to a beneficiary shall be 
        included in gross income of the beneficiary as ordinary income 
        to the extent such distribution reduces the earnings and 
        profits of any Native Corporation making a contribution to such 
        Trust.
          ``(2) Earnings and profits.--The earnings and profits of any 
        Native Corporation making a contribution to a Settlement Trust 
        shall not be reduced on account thereof at the time of such 
        contribution, but such earnings and profits shall be reduced 
        (up to the amount of such contribution) as distributions are 
        thereafter made by the Settlement Trust which exceed the sum 
        of--
                  ``(A) such Trust's total undistributed net income for 
                all prior years during which an election under 
                subsection (b)(2) is in effect, and
                  ``(B) such Trust's distributable net income.
  ``(d) Definitions.--For purposes of this section--
          ``(1) Native corporation.--The term `Native Corporation' has 
        the meaning given such term by section 3(m) of the Alaska 
        Native Claims Settlement Act (43 U.S.C. 1602(m)).
          ``(2) Settlement trust.--The term `Settlement Trust' means a 
        trust which constitutes a Settlement Trust under section 39 of 
        the Alaska Native Claims Settlement Act (43 U.S.C. 1629e).''
  (b) Withholding on Distributions by Electing ANCSA Settlement 
Trusts.--Section 3402 is amended by adding at the end the following new 
subsection:
  ``(t) Tax Withholding on Distributions by Electing ANCSA Settlement 
Trusts.--
          ``(1) In general.--Any Settlement Trust (as defined in 
        section 646(d)) for which an election under section 646(b)(2) 
        is in effect (in this subsection referred to as an `electing 
        trust') and which makes a payment to any beneficiary which is 
        includable in gross income under section 646(c) shall deduct 
        and withhold from such payment a tax in an amount equal to such 
        payment's proportionate share of the annualized tax.
          ``(2) Exception.--The tax imposed by paragraph (1) shall not 
        apply to any payment to the extent that such payment, when 
        annualized, does not exceed an amount equal to the amount in 
        effect under section 6012(a)(1)(A)(i) for taxable years 
        beginning in the calendar year in which the payment is made.
          ``(3) Annualized tax.--For purposes of paragraph (1), the 
        term `annualized tax' means, with respect to any payment, the 
        amount of tax which would be imposed by section 1(c) 
        (determined without regard to any rate of tax in excess of 31 
        percent) on an amount of taxable income equal to the excess 
        of--
                  ``(A) the annualized amount of such payment, over
                  ``(B) the amount determined under paragraph (2).
          ``(4) Annualization.--For purposes of this subsection, 
        amounts shall be annualized in the manner prescribed by the 
        Secretary.
          ``(5) Alternate withholding procedures.--At the election of 
        an electing trust, the tax imposed by this subsection on any 
        payment made by such trust shall be determined in accordance 
        with such tables or computational procedures as may be 
        specified in regulations prescribed by the Secretary (in lieu 
        of in accordance with paragraphs (2) and (3)).
          ``(6) Coordination with other sections.--For purposes of this 
        chapter and so much of subtitle F as relates to this chapter, 
        payments which are subject to withholding under this subsection 
        shall be treated as if they were wages paid by an employer to 
        an employee.''
  (c) Reporting.--Section 6041 is amended by adding at the end the 
following new subsection:
  ``(f) Application to Alaska Native Settlement Trusts.--In the case of 
any distribution from a Settlement Trust (as defined in section 646(d)) 
to a beneficiary which is includable in gross income under section 
646(c), this section shall apply, except that--
          ``(1) this section shall apply to such distribution without 
        regard to the amount thereof,
          ``(2) the Settlement Trust shall include on any return or 
        statement required by this section information as to the 
        character of such distribution (if applicable) and the amount 
        of tax imposed by chapter 1 which has been deducted and 
        withheld from such distribution, and
          ``(3) the filing of any return or statement required by this 
        section shall satisfy any requirement to file any other form or 
        schedule under this title with respect to distributive share 
        information (including any form or schedule to be included with 
        the trust's tax return).''
  (d) Clerical Amendment.--The table of sections for subpart A of part 
I of subchapter J of chapter 1 is amended by adding at the end the 
following new item:

``Sec. 646. Electing Alaska Native Settlement Trusts.''

  (e) Effective Date.--The amendments made by this section shall apply 
to taxable years of Settlement Trusts ending after December 31, 1999, 
and to contributions to such trusts after such date.

SEC. 1353. 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 enactment 
under section 6405 of the Internal Revenue Code of 1986.

SEC. 1354. CLARIFICATION OF DEPRECIATION STUDY.

  Paragraph (1) of section 2022 of the Tax and Trade Relief Extension 
Act of 1998 (Public Law 105-277; 112 Stat. 2681-903) is amended by 
inserting after ``1986,'' the following: ``including such periods and 
methods applicable to section 1250 property used in connection with a 
franchise (within the meaning of section 1253) and owned by the 
franchisee,''.

                    Subtitle G--Tax Court Provisions

SEC. 1361. TAX COURT FILING FEE IN ALL CASES COMMENCED BY FILING 
                    PETITION.

  (a) In General.--Section 7451 (relating to fee for filing a Tax Court 
petition) is amended by striking all that follows ``petition'' and 
inserting a period.
  (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 1362. EXPANDED USE OF TAX COURT PRACTICE FEE.

  Subsection (b) of section 7475 (relating to use of fees) is amended 
by inserting before the period at the end ``and to provide services to 
pro se taxpayers''.

SEC. 1363. CONFIRMATION OF AUTHORITY OF TAX COURT TO APPLY DOCTRINE OF 
                    EQUITABLE RECOUPMENT.

  (a) Confirmation of Authority of Tax Court To Apply Doctrine of 
Equitable Recoupment.--Subsection (b) of section 6214 (relating to 
jurisdiction over other years and quarters) is amended by adding at the 
end the following new sentence: ``Notwithstanding the preceding 
sentence, the Tax Court may apply the doctrine of equitable recoupment 
to the same extent that it is available in civil tax cases before the 
district courts of the United States and the United States Court of 
Federal Claims.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to any action or proceeding in the Tax Court with respect to which a 
decision has not become final (as determined under section 7481 of the 
Internal Revenue Code of 1986) as of the date of the enactment of this 
Act.

 Subtitle H--Tax-Free Transfer of Bottled Distilled Spirits to Bonded 
                                Dealers

SEC. 1371. TAX-FREE TRANSFER OF BOTTLED DISTILLED SPIRITS FROM 
                    DISTILLED SPIRITS PLANT TO BONDED DEALER.

  (a) Domestic Bottled Distilled Spirits.--
          (1) In general.--The last sentence of section 5212 is amended 
        by inserting before the period ``and shall not apply to bottled 
        distilled spirits transferred from a distilled spirits plant 
        (other than a bonded dealer) to a bonded dealer if the 
        proprietor of such plant notifies (in such form and manner as 
        the Secretary prescribes by regulations) such bonded dealer of 
        the amount of tax determined on the distilled spirits so 
        transferred''.
          (2) Transfer of liability contingent on furnishing of certain 
        information.--Paragraph (2) of section 5005(c) is amended by 
        adding at the end the following new sentence: ``In the case of 
        a transfer of bottled distilled spirits from a distilled 
        spirits plant to a bonded dealer, the preceding provisions of 
        this subsection shall apply only to the extent of the amount 
        specified by the proprietor of such plant in accordance with 
        the last sentence of section 5212.''
  (b) Comparable Treatment for Imported Bottled Distilled Spirits.--
Subsection (a) of section 5232 is amended to read as follows:
  ``(a) Transfer to Distilled Spirits Plant Without Payment of Tax.--
          ``(1) In general.--Distilled spirits imported or brought into 
        the United States in bulk containers may, under such 
        regulations as the Secretary shall prescribe, be withdrawn from 
        customs custody and transferred in such bulk containers or by 
        pipeline to the bonded premises of a distilled spirits plant 
        without payment of the internal revenue tax imposed on such 
        distilled spirits by section 5001.
          ``(2) Imported bottled distilled spirits.--The restriction 
        under paragraph (1) to transfers in bulk or by pipeline shall 
        not apply to bottled distilled spirits transferred from customs 
        custody to a bonded dealer if the proprietor of the customs 
        bonded warehouse notifies (in such form and manner as the 
        Secretary prescribes by regulations) such bonded dealer of the 
        amount of tax determined on the distilled spirits so 
        transferred.
          ``(3) Transfer of liability.--The person operating the bonded 
        premises of the distilled spirits plant to which such spirits 
        are transferred shall become liable for the tax on distilled 
        spirits withdrawn from customs custody under this section upon 
        release of the spirits from customs custody, and the importer, 
        or the person bringing such distilled spirits into the United 
        States, shall thereupon be relieved of his liability for such 
        tax. In the case of a transfer of bottled distilled spirits 
        from a customs bonded warehouse to a bonded dealer, the pre-

        ceding sentence shall apply only to the extent of the amount 
        specified by the proprietor of such warehouse in accordance 
        with paragraph (2).''
  (c) Penalty for False or Erroneous Information to Bonded Dealers.--
          (1) In general.--Section 5684 is amended by redesignating 
        subsections (b) and (c) as subsections (c) and (d), 
        respectively, and inserting after subsection (a) the following 
        new subsection:
  ``(b) False or Erroneous Information to Bonded Dealers.--Any 
distilled spirits plant or importer which furnishes false or erroneous 
information to a bonded dealer relating to the amount of tax determined 
on a product, as required under sections 5212 and 5232, shall, in 
addition to any other penalty imposed by this title, be liable for a 
penalty equal to the greater of $1,000 or 5 times the amount of 
additional tax due on the product.''
          (2) Conforming amendment.--Subsection (c) of section 5684, as 
        redesignated by paragraph (1), is amended by striking 
        ``subsection (a)'' and inserting ``subsections (a) and (b)''.

SEC. 1372. ESTABLISHMENT OF DISTILLED SPIRITS PLANT.

  Section 5171 is amended--
          (1) by striking from subsection (a) ``or processor'' and 
        inserting ``processor, or bonded dealer'', and
          (2) by striking from subsection (b) ``or both.'' and 
        inserting ``as a bonded dealer, or as any combination 
        thereof.''

SEC. 1373. DISTILLED SPIRITS PLANTS.

  Section 5178(a) is amended by adding at the end the following new 
paragraph:
          ``(5) Bonded dealer operations.--Any person establishing a 
        distilled spirits plant to conduct operations as a bonded 
        dealer may, as described in the application for registration--
                  ``(A) store distilled spirits in any approved 
                container on the bonded premises of such plant, and
                  ``(B) under such regulations as the Secretary shall 
                prescribe, store taxpaid distilled spirits, beer and 
                wine and such other beverages and items (products) not 
                subject to tax or regulation under this title on such 
                bonded premises.''

SEC. 1374. BONDED DEALERS.

  (a) In General.--Subpart A of part I of subchapter A of chapter 51 
(relating to distilled spirits) is amended by adding at the end the 
following new section:

``SEC. 5011. ELECTION TO BE TREATED AS BONDED DEALER.

  ``(a) Election.--
          ``(1) In general.--Any wholesale dealer, or any control State 
        entity, may elect to be treated as a bonded dealer if such 
        wholesale dealer or entity sells bottled distilled spirits 
        exclusively to 1 or more of the following: wholesale dealers in 
        liquor, independent retail dealers, or other bonded dealers.
          ``(2) Election by certain entities not permitted.--
                  ``(A) Retail dealers.--Except in the case of a 
                control State entity, the election under paragraph (1) 
                may not be made by a retail dealer in liquor.
                  ``(B) Small dealers.--The election under paragraph 
                (1) may not be made by any person who is part of a 
                group treated as a single taxpayer under section 
                5061(e)(3) if the gross receipts of such group from the 
                sale of distilled spirits during the 12-month period 
                prior to making such election is less than $10,000,000.
          ``(3) Control state entities permitted to sell to related 
        retail dealers.--In the case of a control State entity, 
        paragraph (1) shall be applied by substituting `retail dealers' 
        for `independent retail dealers'.
  ``(b) Independent Retail Dealer.--For purposes of subsection (a), the 
term `independent retail dealer' means, with respect to a bonded 
dealer, any retail dealer if--
          ``(1) the bonded dealer does not have a greater than 10 
        percent ownership interest in, or control of, the retail 
        dealer,
          ``(2) the retail dealer does not have a greater than 10 
        percent ownership interest in, or control of, the bonded 
        dealer, and
          ``(3) no person has a greater than 10 percent ownership 
        interest in, or control of, both the bonded and retail dealer.
For purposes of this subsection, rules similar to the rules of section 
318 shall apply.
  ``(c) Inventory Owned at Time of Election.--Any bottled distilled 
spirits in the inventory of any person electing under this section to 
be treated as a bonded dealer shall not be subject to additional 
Federal excise tax on such spirits as a result of the election being in 
effect to the extent that the bonded dealer establishes that the 
Federal excise tax previously has been determined and paid at the time 
the election becomes effective.
  ``(d) Revocation of Election.--The election made under this section 
may be revoked by the bonded dealer at any time, but once revoked shall 
not be made again without the consent of the Secretary. When the 
election is revoked, the bonded dealer shall immediately withdraw the 
distilled spirits on determination of tax in accordance with a tax 
payment procedure established by the Secretary.
  ``(e) Approval of Application.--Any application under section 5171(c) 
submitted by a person electing to be treated as a bonded dealer shall 
be subject to the same conditions as an application for a basic permit 
under section 204(a)(2) of title 27 of the United States Code (the 
Federal Alcohol Administration Act) and shall be accorded notice and 
hearing as described in section 204(b) of such title 27.
  ``(f) Additional Tax.--
          ``(1) In general.--In addition to any other tax imposed by 
        this chapter, there is hereby imposed on each bonded dealer a 
        tax for each semimonthly period under section 5061(d) for which 
        an election under this section is in effect for such dealer.
          ``(2) Amount of tax.--The tax imposed by this subsection for 
        any semimonthly period shall be equal to 1.5 percent of the 
        liability for tax under sections 5001 and 7652 of such dealer 
        for such semimonthly period.
          ``(3) Payment of tax.--The tax imposed by this subsection 
        shall be paid with the return of tax for such semimonthly 
        period.
          ``(4) Taxpayers not paying on semimonthly basis.--If the 
        taxes referred to in paragraph (2) are not paid on the basis of 
        semimonthly periods, this subsection shall be applied by 
        substituting the time such taxes are required to be paid for 
        such periods.
          ``(5) Termination.--The tax imposed by this subsection shall 
        not apply to any semimonthly period ending after December 31, 
        2010.''
  (b) Conforming Amendments.--
          (1) Section 5002(a) is amended by adding the end the 
        following new paragraphs:
          ``(16) Bonded dealer.--The term `bonded dealer' means any 
        person who has elected under section 5011 to be treated as a 
        bonded dealer.
          ``(17) Control state entity.--The term `control State entity' 
        means a State or a political subdivision of a State in which 
        only the State or a political subdivision thereof is allowed 
        under applicable law to perform distilled spirit operations, or 
        any instrumentality of such a State or political subdivision.''
          (2) The table of sections of subpart A of part I of 
        subchapter A of chapter 51 and the table of contents of 
        subtitle E are each amended by adding at the appropriate 
        places:

                              ``Sec. 5011. Election to be treated as 
                                        bonded dealer.''

SEC. 1375. TIME FOR COLLECTING TAX ON DISTILLED SPIRITS.

  (a) In General.--Section 5061(d) is amended by adding at the end the 
following new paragraph:
          ``(6) Advanced payment of distilled spirits tax by bonded 
        dealers.--Notwithstanding the preceding provisions of this 
        subsection, in the case of any tax imposed by section 5001, 
        5011(f), or 7652 with respect to a bonded dealer who has an 
        election under section 5011 in effect on September 20 of any 
        year, any payment which would, but for this paragraph, be due 
        in October or November of that year, shall be made on such 
        September 20. No penalty or interest shall be imposed for the 
        period after such September 20 and before the due date for such 
        payment (determined without regard to this paragraph) to the 
        extent that the tax due exceeds the payment which would have 
        been due in such October and November had the election under 
        section 5011 been in effect.''
  (b) Payment by Electronic Fund Transfer.--Section 5061(e)(1) is 
amended by inserting ``and any bonded dealer,'' after 
``respectively,''.

SEC. 1376. EXEMPTION FROM OCCUPATIONAL TAX NOT APPLICABLE.

  Section 5113(a) is amended by adding at the end the following new 
sentence: ``The exemption under this subsection shall not apply to a 
proprietor of a distilled spirits plant whose premises are used for 
operations of a bonded dealer.''

SEC. 1377. TECHNICAL, CONFORMING, AND CLERICAL AMENDMENTS.

  (a) Technical and Conforming Amendments.--
          (1) Section 5003(3) is amended by striking ``certain''.
          (2) Subsection (a) of section 5214 is amended by inserting 
        ``(other than a bonded dealer)'' after ``distilled spirits 
        plant''.
          (3) Section 5362(b)(5) is amended by adding at the end the 
        following new sentence: ``This term shall not apply to premises 
        used for operations as a bonded dealer.''.
          (4) Section 5551(a) is amended by inserting ``bonded 
        dealer,'' after ``processor,'' each place it appears.
          (5) Section 5601(a) (2), (3), (4), (5), and (b) are amended 
        by inserting ``, bonded dealer'' before ``or processor'' each 
        place it appears.
          (6) Section 5602 is amended--
                  (A) by inserting ``, warehouseman, processor, or 
                bonded dealer'' after ``distiller'', and
                  (B) by inserting ``or possessed'' after 
                ``distilled''.
          (7) Sections 5180 and 5681 are repealed.
  (b) Clerical Amendments.--
          (1) The table of sections for subchapter B of chapter 51 is 
        amended by striking the item relating to section 5180.
          (2) The table of sections for part IV of subchapter J of 
        chapter 51 is amended by striking the item relating to section 
        5681.

SEC. 1378. COOPERATIVE AGREEMENTS.

  (a) Study.--The Secretary of the Treasury shall study and report to 
Congress concerning possible administrative efficiencies which could 
inure to the benefit of the Federal Government of cooperative 
agreements with States regarding the collection of distilled spirits 
excise taxes. Such study shall include, but not be limited to, possible 
benefits of the standardization of forms and collection procedures and 
shall be submitted 1 year after the date of the enactment of this Act.
  (b) Cooperative Agreement.--The Secretary of the Treasury is 
authorized to enter into such cooperative agreements with States which 
the Secretary deems will increase the efficient collection of distilled 
spirits excise taxes.

SEC. 1379. EFFECTIVE DATE.

  (a) In General.--Except as otherwise provided in this section, the 
amendments made by this subtitle shall take effect at the beginning of 
the first calendar quarter that begins after one hundred and twenty 
days following enactment.
  (b) Authority To Establish Distilled Spirits Plant.--
          (1) In general.--The amendments made by section 1372 of this 
        Act shall take effect on the date of enactment of this Act.
          (2) Deemed qualification in certain cases.--Each wholesale 
        dealer--
                  (A) who is required to file an application for 
                registration under section 5171(c) of the Internal 
                Revenue Code of 1986,
                  (B) whose operations are required to be covered by a 
                basic permit under the Federal Alcohol Administration 
                Act (27 U.S.C. 203 and 204) and who has received such a 
                basic permit as an importer, wholesaler, or both, and
                  (C) has obtained a bond required under this 
                subchapter,
        shall be treated as having such application approved as of the 
        first day of the first calendar quarter that begins at least 9 
        months after the application is filed until such time as the 
        Secretary or the Secretary's delegate takes final action on 
        such application.
          (3) Control state entities.--In the case of a control State 
        entity, paragraph (2) shall be applied without regard to 
        subparagraph (B) thereof.
  (c) Equitable Treatment of Bonded Dealers Using LIFO Inventory.--The 
Secretary of the Treasury or the Secretary's delegate shall provide 
such rules as may be necessary to assure that taxpayers using the last-
in first-out method of inventory valuation do not suffer a recapture of 
their LIFO reserve by reason of making the election under section 5011 
of such Code or by reason of operating a bonded wine cellar as 
permitted by section 5351 of such Code.

SEC. 1380. STUDY.

  Not later than June 1, 2002, the Secretary of the Treasury or the 
Secretary's delegate shall prepare and submit to the Congress a 
report--
          (1) on the extent to which (if any) there has been a decrease 
        in compliance with the provisions of chapter 51 of the Internal 
        Revenue Code of 1986 by reason of the amendments made by this 
        subtitle, and
          (2) on any particular compliance issues in applying the 
        credit allowable by section 5010 of such Code under the 
        amendments made by this subtitle.

              TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS

SEC. 1401. RESEARCH CREDIT.

  (a) Extension.--
          (1) In general.--Paragraph (1) of section 41(h) (relating to 
        termination) is amended--
                  (A) by striking ``June 30, 1999'' and inserting 
                ``June 30, 2004'', and
                  (B) by striking the material following subparagraph 
                (B).
          (2) Technical amendment.--Subparagraph (D) of section 
        45C(b)(1) is amended by striking ``June 30, 1999'' and 
        inserting ``June 30, 2004''.
          (3) Effective date.--The amendments made by this subsection 
        shall apply to amounts paid or incurred after June 30, 1999.
  (b) Increase in Percentages Under Alternative Incremental Credit.--
          (1) In general.--Subparagraph (A) of section 41(c)(4) is 
        amended--
                  (A) by striking ``1.65 percent'' and inserting ``2.65 
                percent'',
                  (B) by striking ``2.2 percent'' and inserting ``3.2 
                percent'', and
                  (C) by striking ``2.75 percent'' and inserting ``3.75 
                percent''.
          (2) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after June 30, 1999.

SEC. 1402. SUBPART F EXEMPTION FOR ACTIVE FINANCING INCOME.

  (a) In General.--Sections 953(e)(10) and 954(h)(9) are each amended--
          (1) by striking ``the first taxable year'' and inserting 
        ``taxable years'', and
          (2) by striking ``January 1, 2000'' and inserting ``January 
        1, 2005''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 1403. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR MARGINAL 
                    PRODUCTION.

  (a) In General.--Subparagraph (H) of section 613A(c)(6) is amended by 
striking ``January 1, 2000'' and inserting ``January 1, 2005''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 1404. WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK CREDIT.

  (a) Temporary Extension.--Sections 51(c)(4)(B) and 51A(f) (relating 
to termination) are each amended by striking ``June 30, 1999'' and 
inserting ``December 31, 2001''.
  (b) Clarification of First Year of Employment.--Paragraph (2) of 
section 51(i) is amended by striking ``during which he was not a member 
of a targeted group''.
  (c) Electronic Filing of Certification.--Not later than July 1, 2001, 
the Secretary of the Treasury or the Secretary's delegate shall provide 
an electronic format by which employers may submit requests to 
designated local agencies (as defined in section 51(d)(11) of the 
Internal Revenue Code of 1986) for certifications that individuals are 
members of targeted groups for purposes of section 51 of such Code.
  (d) Effective Date.--The amendments made by this section shall apply 
to individuals who begin work for the employer after June 30, 1999.

                       TITLE XV--REVENUE OFFSETS

SEC. 1501. RETURNS RELATING TO CANCELLATIONS OF INDEBTEDNESS BY 
                    ORGANIZATIONS LENDING MONEY.

  (a) In General.--Paragraph (2) of section 6050P(c) (relating to 
definitions and special rules) is amended by striking ``and'' at the 
end of subparagraph (B), by striking the period at the end of 
subparagraph (C) and inserting ``, and'', and by inserting after 
subparagraph (C) the following new subparagraph:
                  ``(D) any organization a significant trade or 
                business of which is the lending of money.''
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to discharges of indebtedness after December 31, 1999.

SEC. 1502. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

  (a) In General.--Chapter 77 (relating to miscellaneous provisions) is 
amended by adding at the end the following new section:

``SEC. 7527. INTERNAL REVENUE SERVICE USER FEES.

  ``(a) General Rule.--The Secretary shall establish a program 
requiring the payment of user fees for--
          ``(1) requests to the Internal Revenue Service for ruling 
        letters, opinion letters, and determination letters, and
          ``(2) other similar requests.
  ``(b) Program Criteria.--
          ``(1) In general.--The fees charged under the program 
        required by subsection (a)--
                  ``(A) shall vary according to categories (or 
                subcategories) established by the Secretary,
                  ``(B) shall be determined after taking into account 
                the average time for (and difficulty of) complying with 
                requests in each category (and subcategory), and
                  ``(C) shall be payable in advance.
          ``(2) Exemptions, etc.--The Secretary shall provide for such 
        exemptions (and reduced fees) under such program as the 
        Secretary determines to be appropriate.
          ``(3) Average fee requirement.--The average fee charged under 
        the program required by subsection (a) shall not be less than 
        the amount determined under the following table:

``Category                                                  Average Fee
    Employee plan ruling and opinion..............                $250 
    Exempt organization ruling....................                $350 
    Employee plan determination...................                $300 
    Exempt organization determination.............                $275 
    Chief counsel ruling..........................                $200.

  ``(c) Termination.--No fee shall be imposed under this section with 
respect to requests made after September 30, 2009.''
  (b) Conforming Amendments.--
          (1) The table of sections for chapter 77 is amended by adding 
        at the end the following new item:

                              ``Sec. 7527. Internal Revenue Service 
                                        user fees.''

          (2) Section 10511 of the Revenue Act of 1987 is repealed.
  (c) Effective Date.--The amendments made by this section shall apply 
to requests made after the date of the enactment of this Act.

SEC. 1503. LIMITATIONS ON WELFARE BENEFIT FUNDS OF 10 OR MORE EMPLOYER 
                    PLANS.

  (a) Benefits to Which Exception Applies.--Section 419A(f)(6)(A) 
(relating to exception for 10 or more employer plans) is amended to 
read as follows:
                  ``(A) In general.--This subpart shall not apply to a 
                welfare benefit fund which is part of a 10 or more 
                employer plan if the only benefits provided through the 
                fund are 1 or more of the following:
                          ``(i) Medical benefits.
                          ``(ii) Disability benefits.
                          ``(iii) Group term life insurance benefits 
                        which do not provide for any cash surrender 
                        value or other money that can be paid, 
                        assigned, borrowed, or pledged for collateral 
                        for a loan.
                The preceding sentence shall not apply to any plan 
                which maintains experience-rating arrangements with 
                respect to individual employers.''
  (b) Limitation on Use of Amounts for Other Purposes.--Section 4976(b) 
(defining disqualified benefit) is amended by adding at the end the 
following new paragraph:
          ``(5) Special rule for 10 or more employer plans exempted 
        from prefunding limits.--For purposes of paragraph (1)(C), if--
                  ``(A) subpart D of part I of subchapter D of chapter 
                1 does not apply by reason of section 419A(f)(6) to 
                contributions to provide 1 or more welfarebenefits 
through a welfare benefit fund under a 10 or more employer plan, and
                  ``(B) any portion of the welfare benefit fund 
                attributable to such contributions is used for a 
                purpose other than that for which the contributions 
                were made,
        then such portion shall be treated as reverting to the benefit 
        of the employers maintaining the fund.''
  (c) Effective Date.--The amendments made by this section shall apply 
to contributions paid or accrued after June 9, 1999, in taxable years 
ending after such date.

SEC. 1504. INCREASE IN ELECTIVE WITHHOLDING RATE FOR NONPERIODIC 
                    DISTRIBUTIONS FROM DEFERRED COMPENSATION PLANS.

  (a) In General.--Section 3405(b)(1) (relating to withholding) is 
amended by striking `10 percent' and inserting `15 percent'.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to distributions after December 31, 1999.

SEC. 1505. CONTROLLED ENTITIES INELIGIBLE FOR REIT STATUS.

  (a) In General.--Subsection (a) of section 856 (relating to 
definition of real estate investment trust) is amended by striking 
``and'' at the end of paragraph (6), by redesignating paragraph (7) as 
paragraph (8), and by inserting after paragraph (6) the following new 
paragraph:
          ``(7) which is not a controlled entity (as defined in 
        subsection (l)); and''.
  (b) Controlled Entity.--Section 856 is amended by adding at the end 
the following new subsection:
  ``(l) Controlled Entity.--
          ``(1) In general.--For purposes of subsection (a)(7), an 
        entity is a controlled entity if, at any time during the 
        taxable year, one person (other than a qualified entity)--
                  ``(A) in the case of a corporation, owns stock--
                          ``(i) possessing at least 50 percent of the 
                        total voting power of the stock of such 
                        corporation, or
                          ``(ii) having a value equal to at least 50 
                        percent of the total value of the stock of such 
                        corporation, or
                  ``(B) in the case of a trust, owns beneficial 
                interests in the trust which would meet the 
                requirements of subparagraph (A) if such interests were 
                stock.
          ``(2) Qualified entity.--For purposes of paragraph (1), the 
        term `qualified entity' means--
                  ``(A) any real estate investment trust, and
                  ``(B) any partnership in which one real estate 
                investment trust owns at least 50 percent of the 
                capital and profits interests in the partnership.
          ``(3) Attribution rules.--For purposes of this paragraphs (1) 
        and (2)--
                  ``(A) In general.--Rules similar to the rules of 
                subsections (d)(5) and (h)(3) shall apply.
                  ``(B) Stapled entities.--A group of entities which 
                are stapled entities (as defined in section 269B(c)(2)) 
                shall be treated as 1 person.
          ``(4) Exception for certain new reits.--
                  ``(A) In general.--The term `controlled entity' shall 
                not include an incubator REIT.
                  ``(B) Incubator reit.--A corporation shall be treated 
                as an incubator REIT for any taxable year during the 
                eligibility period if it meets all the following 
                requirements for such year:
                          ``(i) The corporation elects to be treated as 
                        an incubator REIT.
                          ``(ii) The corporation has only voting common 
                        stock outstanding.
                          ``(iii) Not more than 50 percent of the 
                        corporation's real estate assets consist of 
                        mortgages.
                          ``(iv) From not later than the beginning of 
                        the last half of the second taxable year, at 
                        least 10 percent of the corporation's capital 
                        is provided by lenders or equity investors who 
                        are unrelated to the corporation's largest 
                        shareholder.
                          ``(v) The directors of the corporation adopt 
                        a resolution setting forth an intent to engage 
                        in a going public transaction.
                No election may be made with respect to any REIT if an 
                election under this subsection was in effect for any 
                predecessor of such REIT.
                  ``(C) Eligibility period.--The eligibility period 
                (for which an incubator REIT election can be made) 
                begins with the REIT's second taxable year and ends at 
                the close of the REIT's third taxable year, but, 
                subject to the following rules, it may be extended for 
                an additional 2 taxable years if the REIT so elects:
                          ``(i) A REIT cannot elect to extend the 
                        eligibility period unless it agrees that, if it 
                        does not engage in a going public transaction 
                        by the end of the extended eligibility period, 
                        it shall pay Federal income taxes for the 2 
                        years of the extended eligibility period as if 
                        it had not made an incubator REIT election and 
                        had ceased to qualify as a REIT for those 2 
                        taxable years.
                          ``(ii) In the event the corporation ceases to 
                        be treated as a REIT by operation of clause 
                        (i), the corporation shall file any appropriate 
                        amended returns reflecting the change in status 
                        within 3 months of the close of the extended 
                        eligibility period. Interest would be payable 
                        but, unless there was a finding under 
                        subparagraph (D), no substantial underpayment 
                        penalties shall be imposed. The corporation 
                        shall, at the same time, also notify its 
                        shareholders and any other persons whose tax 
                        position is, or may reasonably be expected to 
                        be, affected by the change in status so they 
                        also may file any appropriate amended returns 
                        to conform their tax treatment consistent with 
                        the corporation's loss of REIT status. The 
                        Secretary shall provide appropriate regulations 
                        setting forth transferee liability and other 
                        provisions to ensure collection of tax and the 
                        proper administration of this provision.
                          ``(iii) Clause (i) and (ii) shall not apply 
                        if the corporation allows its incubator REIT 
                        status to lapse at the end of the initial 2-
                        year eligibility period without engaging in a 
                        going public transaction, provided the 
                        corporation satisfies the requirements of the 
                        closely-held test commencing with its fourth 
                        taxable year. In such a case, the corporation's 
                        directors may still be liable for the penalties 
                        described in subparagraph (D) during the 
                        eligibility period.
                  ``(D) Special penalties.--If the Secretary determines 
                that an incubator REIT election was filed for a 
                principal purpose other than as part of a reasonable 
                plan to undertake a going public transaction, an excise 
                tax of $20,000 would be imposed on each of the 
                corporation's directors for each taxable year for which 
                an election was in effect.
                  ``(E) Going public transaction.--For purposes of this 
                paragraph, a going public transaction means--
                          ``(i) a public offering of shares of the 
                        stock of the incubator REIT;
                          ``(ii) a transaction, or series of 
                        transactions, that results in the stock of the 
                        incubator REIT being regularly traded on an 
                        established securities market and that results 
                        in at least 50 percent of such stock being held 
                        by shareholders who are unrelated to persons 
                        who held such stock before it began to be so 
                        regularly traded; or
                          ``(iii) any transaction resulting in 
                        ownership of the REIT by 200 or more persons 
                        (excluding the largest single shareholder) who 
                        in the aggregate own at least 50 percent of the 
                        stock of the REIT.
                For the purposes of this subparagraph, the rules of 
                paragraph (3) shall apply in determining the ownership 
                of stock.
                  ``(F) Definitions.--The term `established securities 
                market' shall have the meaning set forth in the 
                regulations under section 897.''
  (c) Conforming Amendment.--Paragraph (2) of section 856(h) is amended 
by striking ``and (6)'' each place it appears and inserting ``, (6), 
and (7)''.
  (d) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to taxable years ending after July 12, 1999.
          (2) Exception for existing controlled entities.--The 
        amendments made by this section shall not apply to any entity 
        which is a controlled entity (as defined in section 856(l) of 
        the Internal Revenue Code of 1986, as added by this section) as 
        of July 12, 1999, which is a real estate investment trust for 
        the taxable year which includes such date, and which has 
        significant business assets or activities as of such date.

SEC. 1506. TREATMENT OF GAIN FROM CONSTRUCTIVE OWNERSHIP TRANSACTIONS.

  (a) In General.--Part IV of subchapter P of chapter 1 (relating to 
special rules for determining capital gains and losses) is amended by 
inserting after section 1259 the following new section:

``SEC. 1260. GAINS FROM CONSTRUCTIVE OWNERSHIP TRANSACTIONS.

  ``(a) In General.--If the taxpayer has gain from a constructive 
ownership transaction with respect to any financial asset and such gain 
would (without regard to this section) be treated as a long-term 
capital gain--
          ``(1) such gain shall be treated as ordinary income to the 
        extent that such gain exceeds the net underlying long-term 
        capital gain, and
          ``(2) to the extent such gain is treated as a long-term 
        capital gain after the application of paragraph (1), the 
        determination of the capital gain rate (or rates) applicable to 
        such gain under section 1(h) shall be determined on the basis 
        of the respective rate (or rates) that would have been 
        applicable to the net underlying long-term capital gain.
  ``(b) Interest Charge on Deferral of Gain Recognition.--
          ``(1) In general.--If any gain is treated as ordinary income 
        for any taxable year by reason of subsection (a)(1), the tax 
        imposed by this chapter for such taxable year shall be 
        increased by the amount of interest determined under paragraph 
        (2) with respect to each prior taxable year during any portion 
        of which the constructive ownership transaction was open. Any 
        amount payable under this paragraph shall be taken into account 
        in computing the amount of any deduction allowable to the 
        taxpayer for interest paid or accrued during such taxable year.
          ``(2) Amount of interest.--The amount of interest determined 
        under this paragraph with respect to a prior taxable year is 
        the amount of interest which would have been imposed under 
        section 6601 on the underpayment of tax for such year which 
        would have resulted if the gain (which is treated as ordinary 
        income by reason of subsection (a)(1)) had been included in 
        gross income in the taxable years in which it accrued 
        (determined by treating the income as accruing at a constant 
        rate equal to the applicable Federal rate as in effect on the 
        day the transaction closed). The period during which such 
        interest shall accrue shall end on the due date (without 
        extensions) for the return of tax imposed by this chapter for 
        the taxable year in which such transaction closed.
          ``(3) Applicable federal rate.--For purposes of paragraph 
        (2), the applicable Federal rate is the applicable Federal rate 
        determined under 1274(d) (compounded semiannually) which would 
        apply to a debt instrument with a term equal to the period the 
        transaction was open.
          ``(4) No credits against increase in tax.--Any increase in 
        tax under paragraph (1) shall not be treated as tax imposed by 
        this chapter for purposes of determining--
                  ``(A) the amount of any credit allowable under this 
                chapter, or
                  ``(B) the amount of the tax imposed by section 55.
  ``(c) Financial Asset.--For purposes of this section--
          ``(1) In general.--The term `financial asset' means--
                  ``(A) any equity interest in any pass-thru entity, 
                and
                  ``(B) to the extent provided in regulations--
                          ``(i) any debt instrument, and
                          ``(ii) any stock in a corporation which is 
                        not a pass-thru entity.
          ``(2) Pass-thru entity.--For purposes of paragraph (1), the 
        term `pass-thru entity' means--
                  ``(A) a regulated investment company,
                  ``(B) a real estate investment trust,
                  ``(C) an S corporation,
                  ``(D) a partnership,
                  ``(E) a trust,
                  ``(F) a common trust fund,
                  ``(G) a passive foreign investment company (as 
                defined in section 1297),
                  ``(H) a foreign personal holding company, and
                  ``(I) a foreign investment company (as defined in 
                section 1246(b)).
  ``(d) Constructive Ownership Transaction.--For purposes of this 
section--
          ``(1) In general.--The taxpayer shall be treated as having 
        entered into a constructive ownership transaction with respect 
        to any financial asset if the taxpayer--
                  ``(A) holds a long position under a notional 
                principal contract with respect to the financial asset,
                  ``(B) enters into a forward or futures contract to 
                acquire the financial asset,
                  ``(C) is the holder of a call option, and is the 
                grantor of a put option, with respect to the financial 
                asset and such options have substantially equal strike 
                prices and substantially contemporaneous maturity 
                dates, or
                  ``(D) to the extent provided in regulations 
                prescribed by the Secretary, enters into 1 or more 
                other transactions (or acquires 1 or more positions) 
                that have substantially the same effect as a 
                transaction described in any of the preceding 
                subparagraphs.
          ``(2) Exception for positions which are marked to market.--
        This section shall not apply to any constructive ownership 
        transaction if all of the positions which are part of such 
        transaction are marked to market under any provision of this 
        title or the regulations thereunder.
          ``(3) Long position under notional principal contract.--A 
        person shall be treated as holding a long position under a 
        notional principal contract with respect to any financial asset 
        if such person--
                  ``(A) has the right to be paid (or receive credit 
                for) all or substantially all of the investment yield 
                (including appreciation) on such financial asset for a 
                specified period, and
                  ``(B) is obligated to reimburse (or provide credit 
                for) all or substantially all of any decline in the 
                value of such financial asset.
          ``(4) Forward contract.--The term `forward contract' means 
        any contract to acquire in the future (or provide or receive 
        credit for the future value of) any financial asset.
  ``(e) Net Underlying Long-Term Capital Gain.--For purposes of this 
section, in the case of any constructive ownership transaction with 
respect to any financial asset, the term `net underlying long-term 
capital gain' means the aggregate net capital gain that the taxpayer 
would have had if--
          ``(1) the financial asset had been acquired for fair market 
        value on the date such transaction was opened and sold for fair 
        market value on the date such transaction was closed, and
          ``(2) only gains and losses that would have resulted from the 
        deemed ownership under paragraph (1) were taken into account.
The amount of the net underlying long-term capital gain with respect to 
any financial asset shall be treated as zero unless the amount thereof 
is established by clear and convincing evidence.
  ``(f) Special Rule Where Taxpayer Takes Delivery.--Except as provided 
in regulations prescribed by the Secretary, if a constructive ownership 
transaction is closed by reason of taking delivery, this section shall 
be applied as if the taxpayer had sold all the contracts, options, or 
other positions which are part of such transaction for fair market 
value on the closing date. The amount of gain recognized under the 
preceding sentence shall not exceed the amount of gain treated as 
ordinary income under subsection (a). Proper adjustments shall be made 
in the amount of any gain or loss subsequently realized for gain 
recognized and treated as ordinary income under this subsection.
  ``(g) Regulations.--The Secretary shall prescribe such regulations as 
may be necessary or appropriate to carry out the purposes of this 
section, including regulations--
          ``(1) to permit taxpayers to mark to market constructive 
        ownership transactions in lieu of applying this section, and
          ``(2) to exclude certain forward contracts which do not 
        convey substantially all of the economic return with respect to 
        a financial asset.''
  (b) Clerical Amendment.--The table of sections for part IV of 
subchapter P of chapter 1 is amended by adding at the end the following 
new item:

                              ``Sec. 1260. Gains from constructive 
                                        ownership transactions.''.

  (c) Effective Date.--The amendments made by this section shall apply 
to transactions entered into after July 11, 1999.

SEC. 1507. TRANSFER OF EXCESS DEFINED BENEFIT PLAN ASSETS FOR RETIREE 
                    HEALTH BENEFITS.

  (a) Extension.--Paragraph (5) of section 420(b) (relating to 
expiration) is amended by striking ``in any taxable year beginning 
after December 31, 2000'' and inserting ``made after September 30, 
2009''.
  (b) Application of Minimum Cost Requirements.--
          (1) In general.--Paragraph (3) of section 420(c) is amended 
        to read as follows:
          ``(3) Minimum cost requirements.--
                  ``(A) In general.--The requirements of this paragraph 
                are met if each group health plan or arrangement under 
                which applicable health benefits are provided provides 
                that the applicable employer cost for each taxable year 
                during the cost maintenance period shall not be less 
                than the higher of the applicable employer costs for 
                each of the 2 taxable years immediately preceding the 
                taxable year of the qualified transfer.
                  ``(B) Applicable employer cost.--For purposes of this 
                paragraph, the term `applicable employer cost' means, 
                with respect to any taxable year, the amount determined 
                by dividing--
                          ``(i) the qualified current retiree health 
                        liabilities of the employer for such taxable 
                        year determined--
                                  ``(I) without regard to any reduction 
                                under subsection (e)(1)(B), and
                                  ``(II) in the case of a taxable year 
                                in which there was no qualified 
                                transfer, in the same manner as if 
                                there had been such a transfer at the 
                                end of the taxable year, by
                          ``(ii) the number of individuals to whom 
                        coverage for applicable health benefits was 
                        provided during such taxable year.
                  ``(C) Election to compute cost separately.--An 
                employer may elect to have this paragraph applied 
                separately with respect to individuals eligible for 
                benefits under title XVIII of the Social Security Act 
                at any time during the taxable year and with respect to 
                individuals not so eligible.
                  ``(D) Cost maintenance period.--For purposes of this 
                paragraph, the term `cost maintenance period' means the 
                period of 5 taxable years beginning with the taxable 
                year in which the qualified transfer occurs. If a 
                taxable year is in 2 or more overlapping cost 
                maintenance periods, this paragraph shall be applied by 
                taking into account the highest applicable employer 
                cost required to be provided under subparagraph (A) for 
                such taxable year.''
          (2) Conforming amendments.--
                  (A) Clause (iii) of section 420(b)(1)(C) is amended 
                by striking ``benefits'' and inserting ``cost''.
                  (B) Subparagraph (D) of section 420(e)(1) is amended 
                by striking ``and shall not be subject to the minimum 
                benefit requirements of subsection (c)(3)'' and 
                inserting ``or in calculating applicable employer cost 
                under subsection (c)(3)(B)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to qualified transfers occurring after the date of the enactment of 
this Act.

SEC. 1508. MODIFICATION OF INSTALLMENT METHOD AND REPEAL OF INSTALLMENT 
                    METHOD FOR ACCRUAL METHOD TAXPAYERS.

  (a) Repeal of Installment Method for Accrual Basis Taxpayers.--
          (1) In general.--Subsection (a) of section 453 (relating to 
        installment method) is amended to read as follows:
  ``(a) Use of Installment Method.--
          ``(1) In general.--Except as otherwise provided in this 
        section, income from an installment sale shall be taken into 
        account for purposes of this title under the installment 
        method.
          ``(2) Accrual method taxpayer.--The installment method shall 
        not apply to income from an installment sale if such income 
        would be reported under an accrual method of accounting without 
        regard to this section. The preceding sentence shall not apply 
        to a disposition described in subparagraph (A) or (B) of 
        subsection (l)(2).''
          (2) Conforming amendments.--Sections 453(d)(1), 453(i)(1), 
        and 453(k) are each amended by striking ``(a)'' each place it 
        appears and inserting ``(a)(1)''.
  (b) Modification of Pledge Rules.--Paragraph (4) of section 453A(d) 
(relating to pledges, etc., of installment obligations) is amended by 
adding at the end the following: ``A payment shall be treated as 
directly secured by an interest in an installment obligation to the 
extent an arrangement allows the taxpayer to satisfy all or a portion 
of the indebtedness with the installment obligation.''
  (c) Effective Date.--The amendments made by this section shall apply 
to sales or other dispositions occurring on or after the date of the 
enactment of this Act.

SEC. 1509. LIMITATION ON USE OF NONACCRUAL EXPERIENCE METHOD OF 
                    ACCOUNTING.

  (a) In General.--Section 448(d)(5) (relating to special rule for 
services) is amended--
          (1) by inserting ``in fields described in paragraph (2)(A)'' 
        after ``services by such person'', and
          (2) by inserting ``certain personal'' before ``services'' in 
        the heading.
  (b) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to taxable years ending after the date of the enactment 
        of this Act.
          (2) 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 its first taxable year 
        ending after the date of the enactment of this Act--
                  (A) such change shall be treated as initiated by the 
                taxpayer,
                  (B) such change shall be treated as made with the 
                consent of the Secretary of the Treasury, and
                  (C) the net amount of the adjustments required to be 
                taken into account by the taxpayer under section 481 of 
                the Internal Revenue Code of 1986 shall be taken into 
                account over a period (not greater than 4 taxable 
                years) beginning with such first taxable year.

SEC. 1510. EXCLUSION OF LIKE-KIND EXCHANGE PROPERTY FROM NONRECOGNITION 
                    TREATMENT ON THE SALE OF A PRINCIPAL RESIDENCE.

  (a) In General.--Subsection (d) of section 121 (relating to the 
exclusion of gain from the sale of a principal residence) is amended by 
adding at the end the following new paragraph:
          ``(9) Like-kind exchanges.--Subsection (a) shall not apply to 
        any sale or exchange of a residence if such residence was 
        acquired by the taxpayer during the 5-year period ending on the 
        date of such sale or exchange in an exchange in which any 
        amount of gain was not recognized under section 1031.''
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to any sale or exchange of a principal residence after the date of the 
enactment of this Act.

                    TITLE XVI--TECHNICAL CORRECTIONS

SEC. 1601. 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) Amendments Related to Section 4003 of the Act.--
          (1) 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),''.
          (2) Subparagraph (A) of section 9510(c)(1) is amended by 
        striking ``August 5, 1997'' and inserting ``October 21, 1998''.
  (c) Vaccine Tax and Trust Fund.--Sections 1503 and 1504 of the 
Vaccine Injury Compensation Program Modification Act (and the 
amendments made by such sections) are hereby repealed.
  (d) 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. 1602. AMENDMENTS RELATED TO INTERNAL REVENUE SERVICE RESTRUCTURING 
                    AND REFORM ACT OF 1998.

  (a) Amendment Related to 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''.
  (b) 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''.
  (c) Effective Date.--The amendments made by this section 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. 1603. AMENDMENTS RELATED TO TAXPAYER RELIEF ACT OF 1997.

  (a) 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''.
  (b) 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)''.
  (c) 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''.
  (d) 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. 1604. OTHER TECHNICAL CORRECTIONS.

  (a) 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.
  (b) Reference to Certain State Plans.--
          (1) Subparagraph (B) of section 51(d)(2) is amended--
                  (A) by striking ``plan approved'' and inserting 
                ``program funded'', and
                  (B) by striking ``(relating to assistance for needy 
                families with minor children)''.
          (2) The amendment made by paragraph (1) shall take effect as 
        if included in the amendments made by section 1201 of the Small 
        Business Job Protection Act of 1996.
  (c) Amount of IRA Contribution of Lesser Earning Spouse.--
          (1) 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''.
          (2) The amendment made by paragraph (1) shall take effect as 
        if included in section 1427 of the Small Business Job 
        Protection Act of 1996.
  (d) 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.
  (e) Lump-Sum Distributions.--
          (1) 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).''
          (2) The amendment made by paragraph (1) shall take effect as 
        if included in section 1401 of the Small Business Job 
        Protection Act of 1996.
  (f) 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.

SEC. 1605. CLERICAL CHANGES.

          (1) Subsection (f) of section 67 is amended by striking ``the 
        last sentence'' and inserting ``the second sentence''.
          (2) 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.--
        ''.
          (3) The heading for subparagraph (B) of section 529(e)(3) is 
        amended by striking ``under guaranteed plans''.
          (4)(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''.
          (5) 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)''.
          (6) 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''.

  Amend the title so as to read:

      A bill to provide for reconciliation pursuant to sections 
105 and 211 of the concurrent resolution on the budget for 
fiscal year 2000.''.

                            I. INTRODUCTION


                         A. Purpose and Summary


                                Purpose

    The revenue reconciliation provisions included in the 
Committee bill (``Financial Freedom Act of 1999'') (the 
``bill'') provide: (1) 10-percent across-the-board reduction in 
individual income tax rates, marriage penalty tax relief, and 
repeal of the individual minimum tax (Title I); (2) reduced 
taxes on savings and investment income (Title II); (3) 
reduction in the corporate capital gains tax rate and repeal of 
the corporate minimum tax (Title III); (4) education savings 
incentives (Title IV); (5) health care tax relief (Title V); 
(6) phased-in repeal of estate, gift, and generation-skipping 
taxes (Title VI); (7) tax relief for distressed communities and 
industries (Title VII); (8) tax relief for small businesses 
(Title VIII); (9) international tax relief (Title IX); (10) 
modifications relating to tax-exempt organizations (Title X); 
(11) real estate tax relief (Title XI); (12) pension reforms 
(Title XII); (13) certain miscellaneous revenue provisions 
(Title XIII); (14) extension of tax provisions expiring in 1999 
(Title XIV); (15) certain revenue offsets (Title XV); and (16) 
technical corrections to recent tax legislation (Title XVI).
    The bill provides net tax reductions of $200 billion over 
fiscal years 1999-2004, and $864 billion over fiscal years 
1999-2009. This will provide needed tax relief for individuals, 
families, small businesses, distressed industries and others, 
and will give American taxpayers more freedom to improve their 
financial condition and to help the economy continue to invest 
and grow into the 21st century.

                          SUMMARY OF THE BILL

I. Broad-based tax relief provisions

            A. Reduction in individual income tax rates
    The bill reduces both the regular and the alternative 
minimum income tax rates by ten percent over a ten year period. 
The reductions occur in four proportional steps for taxable 
years beginning in 2001, 2005, 2008, and 2009. The tax rates 
are rounded up annually to the nearest one-tenth of a percent.
            B. Marriage penalty relief provisions
    Standard Deduction Tax Relief.--The bill provides for a 
phased-in increase of the standard deduction for married 
couples filing jointly, so that it will be twice the standard 
deduction for a single person. The phase-in occurs ratably for 
the taxable years 2001 through 2003. The standard deduction for 
married persons filing separately increases similarly to equal 
the standard deduction for single persons.
    Adjust Student Loan Interest Deduction Income Limits.--The 
bill increases the income levels at which married taxpayers 
filing jointly qualify for student loan interest deduction. In 
taxable years beginning after December 31, 1999, the student 
loan interest deduction for married taxpayers filing jointly is 
phased out ratably for modified adjusted gross incomes of 
$80,000 to $110,000, instead of the present-law phase-out range 
of $60,000 to $75,000 for joint returns.
    Increase Income Limit for Roth IRA Conversions.--The bill 
increases the adjusted gross income limit on Roth IRA 
conversions from $100,000 to $160,000 for married couples 
filing jointly. The provision is effective for taxable years 
beginning after December 31, 1999.
            C. Repeal individual alternative minimum tax
    The bill allows an individual to offset the entire regular 
tax liability, without regard to the minimum tax, for taxable 
years beginning after December 31, 1998. Further, the bill 
imposes only 80 percent of the full AMT liability for taxable 
years after December 31, 2002. That percentage is reduced by 20 
percentage points for each of the next three taxable years, and 
the tax is fully repealed for taxable years beginning after 
December 31, 2006. Finally, an individual taxpayer is allowed 
to use the AMT credit to offset 90 percent of his or her 
regular tax liability for taxable years beginning after 
December 31, 2006.

II. Savings and investment tax relief provisions

    Partial Exclusion for Interest and Dividends.--The bill 
excludes from income of individuals combined amounts of taxable 
interest and dividends (other than capital gain dividends from 
RICs and REITs, dividends from farmers' cooperative 
associations, and dividends received from an employee stock 
ownership plan). The maximum exclusion is $100 for taxable 
years beginning after December 31, 2000 ($200 for married 
couples filing jointly), and $200 for taxable years beginning 
after December 31, 2002 ($400 for married couples filing 
jointly).
    Reduce Individual Capital Gains Rates.--The bill reduces 
the 10- and 20-percent rates on the adjusted net capital gain 
to 7.5- and 15-percent, respectively. The 25-percent rate on 
unrecaptured section 1250 gain is reduced to 20 percent. These 
lower rates apply to both the regular tax and the alternative 
minimum tax. The bill repeals the special rates on gain from 
property held more than five years. The provision applies to 
taxable years ending after June 30, 1999, for property sold or 
exchanged after June 30, 1999.
    Apply Capital Gain Rates to Capital Gains Earned by 
Designated Settlement Funds.--Present law imposes a tax rate of 
39.6 percent on designated settlement funds. For taxable years 
beginning after December 31, 1999, the bill taxes the net 
capital gain of such funds in the same manner as in the case of 
an individual.
    Exclusion of Gain on the Sale of a Principal Residence by a 
Member of the Uniformed Service or the Foreign Service of the 
United States or Certain Other Individuals Relocated Outside of 
the United States.--Present law contains a five year test 
period to determine whether the seller of a principal residence 
qualifies for exclusion of gain. The bill suspends the five 
year period for times of compelled service 50 miles away from 
home, or in government housing, by members of uniformed service 
or foreign service. The bill also suspends for up to five 
years, the five-year test period for an individual relocated 
for a period of more than 90 days outside of the United States 
by the individual's (or spouse's) employer. This provision does 
not apply to self-employed individuals. The provisions are 
effective for sales or exchanges of residences after the dates 
of enactment.
    Clarify the Tax Treatment of Income and Losses on 
Derivatives.--The bill adds three categories to the list of 
assets gain or loss on which is treated as ordinary under 
section 1221. The new categories are: commodities derivatives 
held by commodities derivatives dealers, hedging transactions, 
and supplies of a type regularly consumed by the taxpayer in 
the ordinary course of the taxpayer's trade or business. With 
respect to hedging transactions, the bill replaces the present-
law risk reduction standard with a risk management standard. 
The provision is effective for transactions entered into on or 
after the date of enactment.
    Treatment of Loss on Stock of Subsidiary.--For taxable 
years beginning after December 31, 1999, the bill excludes 
active lending or insurance income from the types of income 
that disqualify section 165(g)(3) ordinary loss treatment on 
the sale of worthless stock.

III. Business investment and job creation

    Alternative Tax for Corporate Capital Gains.--The bill 
creates an alternative maximum tax for the net capital gain of 
a corporation for taxable years beginning after December 31, 
1999. The alternative tax would be 34.1 percent for taxable 
years beginning in 2000, 33.9 percent in 2001, 32.7 percent in 
2002, 31.7 percent in 2003, 30.8 percent in 2004, 29.8 percent 
in 2005, 29.2 percent in 2006, 28.0 percent in 2007, 27.4 
percent in 2008, 26.2 percent in 2009, and 25 percent 
applicable for all taxable years after 2009.
    Repeal Corporate Alternative Minimum Tax.--For taxable 
years beginning after December 31, 2002, the limitation on the 
amount of AMT credits allowable to a corporation increases by 
20 percent of the corporation's tentative minimum tax. This 
percentage rises to 40-, 60-, and 80-percent, respectively, for 
2004, 2005, and 2006. The AMT credit cannot exceed an amount 
equal to the sum of the regular tax and minimum tax less the 
other nonrefundable credits. For taxable years beginning after 
December 31, 2006, the bill repeals the AMT, and a corporation 
would then be allowed to use the AMT credit to offset 90 
percent of its regular tax liability.
    Repeal of Limitation of Foreign Tax Credit under 
Alternative Minimum Tax.--The bill repeals the 90-percent 
limitation on the utilization of the AMT foreign tax credit for 
taxable years beginning after December 31, 2001.

IV. Education tax relief provisions

    Expand Education Savings Accounts.--The bill changes the 
name of education IRAs to ``Education Savings Accounts,'' and 
increases their annual contribution limit from $500 to $2,000 
per beneficiary. The bill expands the definition of qualified 
education expenses to include qualified elementary and 
secondary expenses, including certain homeschooling expenses. 
Further, the bill allows contributions to be made on behalf of 
special needs beneficiaries after they reach age 18. The bill 
also allows: (1) contributions for a taxable year to be made 
until April 15th of the following year, (2) coordination of 
distributions from education savings accounts with the HOPE and 
Lifetime Learning Credit, and (3) contributions by 
corporations. The provision generally is effective for taxable 
years beginning after December 31, 2000.
    Allow Tax-Free Distributions from State and Private 
Education Programs.--The bill expands the definition of 
``qualified state tuition program'' to include certain prepaid 
tuition programs established and maintained by one or more 
eligible educational institutions (which may be private 
institutions). The bill also allows a taxpayer to claim a HOPE 
credit or Lifetime Learning credit for a taxable year and to 
exclude from gross income amounts distributed (both the 
principal and the earnings portions) from a qualified tuition 
program on behalf of the same student as long as the 
distribution is not used for the same expenses for which a 
credit was claimed. The bill permits one tax-free rollover in 
each 1-year period for the benefit of the same beneficiary. The 
provision permitting the establishment of qualified tuition 
programs maintained by one or more private educational 
institutions is effective for taxable years beginning after 
December 31, 2000. The exclusion from gross income for certain 
distributions from qualified State tuition programs under 
section 529 is effective for distributions made in taxable 
years beginning after December 31, 2000, and is extended to 
private prepaid tuition programs in taxable years beginning 
after December 31, 2003. The remaining provisions modifying 
qualifying tuition plans generally are effective for 
distributions made after December 31, 2000.
    Eliminate Tax on Awards Under National Health Service Corps 
Scholarship Program, F. Edward Hebert Armed Forces Health 
Professions Scholarship and Financial Assistance Program, 
National Institutes of Health Undergraduate Scholarship Program 
and Certain State-sponsored Scholarship Programs.--The bill 
provides that amounts received by an individual under the NHSC 
Scholarship Program, the Armed Forces Scholarship Program, the 
NIH Scholarship Program, or any State-sponsored health 
scholarship program determined by the Secretary of the Treasury 
to have substantially similar objectives to these programs are 
eligible for tax-free treatment as qualified scholarships under 
section 117, without regard to any service obligation by the 
recipient. The bill is effective for education awards received 
under the NHSC Scholarship Program, the Armed Forces 
Scholarship Program, and the NIH Scholarship Program after 
December 31, 1993. The bill is effective for education awards 
received under any State-sponsored health scholarship program 
designated by the Secretary of the Treasury after December 31, 
1999.
    Liberalize Tax-Exempt Arbitrage Rebate Exceptions for 
Public School Construction Bonds.--The present-law 24-month 
expenditure exception to the arbitrage rebate requirement is 
liberalized for certain public school bonds. Under the bill, no 
rebate is required with respect to earnings on available 
construction proceeds of public school bonds if the proceeds 
are spent within 48 months after the bonds were issued and the 
certain intermediate spending levels are satisfied. The 
additional amount of governmental bonds for public schools that 
small governmental units may issue without being subject to the 
arbitrage rebate requirement is increased from $5 million to 
$10 million. The liberalized expenditure exception for public 
school construction bonds is effective for bonds issued after 
December 31, 1999. The increase in the small governmental unit 
arbitrage rebate exception is effective for calendar years 
beginning after December 31, 1999.
    Eliminate 60-month Limit on Student Loan Interest 
Deduction.--Present law allows student loan interest deductions 
only for the first 60 months of mandatory payments. The bill 
eliminates the 60 month limit and eliminates the requirement 
that a payment have been mandatory to qualify for the 
deduction. The provision is effective for interest paid after 
December 31, 1999.

V. Health care tax relief provisions

    Above-the-Line Deduction for Health Insurance Expenses.--
The bill allows an above-the-line deduction for a percentage of 
health insurance expenses. The amounts of the deduction are: 25 
percent in 2001, 40 percent in 2002, 50 percent in 2003 through 
2006, 75 percent in 2007, and 100 percent in 2008 and 
thereafter. The deduction is not available for any month in 
which the employee is covered by 50-percent employer 
subsidized, tax-free health insurance. The provision is 
effective for taxable years beginning after December 31, 2000.
    Provisions Relating to Long-Term Care Insurance.--The bill 
allows an above-the-line deduction for a percentage of 
qualified long-term care insurance expenses. The deductible 
percentage is the same as under the above-the-line deduction 
for health insurance expenses.
    Extend Availability of Medical Savings Accounts.--The bill: 
expands availability of Medical Savings Accounts (MSAs) to all 
employees covered under a high deductible health insurance plan 
of their employers, eliminates the cap on the number of 
taxpayers that can benefit annually from MSA contributions, 
decreases the lower dollar threshold of a high deductible 
health insurance plan, increases the amount of annual 
contributions that could be made to a MSA to 100-percent of the 
deductible, allows both employees and employers to make 
contributions to an MSA, and allows MSAs to be offered as part 
of a cafeteria plan.
    Additional Personal Exemption for Caretakers.--The bill 
provides taxpayers who maintain a household including one or 
more qualified persons with an additional personal exemption 
for each qualified person. A qualified person is a parent or 
ancestor of the taxpayer or the taxpayer's spouse. The 
provision is effective for taxable years beginning after 
December 31, 1999.
    Expand Human Clinical Trials Expenses Qualifying for the 
Orphan Drug Tax Credit.--Present law allows a 50-percent credit 
for human clinical testing expenses after a drug is certified 
as being a potential treatment for a rare disorder. The bill 
allows the credit for human testing expenses incurred after the 
taxpayer applies for orphan drug status. The provision is 
effective for taxable years beginning after December 31, 1999.
    Add Certain Vaccines Against Streptococcus Pneumoniae to 
the List of Taxable Vaccines.--The bill adds conjugate 
streptococcus pneumoniae vaccines to the list of taxable 
vaccines subject to the 75 cent tax to fund the Federal Vaccine 
Injury Compensation Trust Fund. The provision is effective for 
vaccines purchased the day after the Centers for Disease 
Control makes a final recommendation for routine administration 
of conjugate streptococcus vaccines to children. No floor 
stocks tax is to be collected for amounts held for sale on that 
date.
    Above-the-Line Deduction for Prescription Drug Insurance 
Coverage of Medicare Beneficiaries if Certain Medicare and Low-
Income Assistance Provisions in Effect.--The bill provides an 
above-the-line deduction for Medicare beneficiaries for 
prescription drug insurance. The deduction takes effect when 
(a) the Federal Government provides assistance for prescription 
drug coverage for low-income Medicare beneficiaries, (b) all 
policies supplemental to Medicare provide coverage for costs of 
prescription drugs, and (c) coverage for outpatient 
prescription drugs for Medicare beneficiaries is provided only 
through integrated comprehensive health plans which offer 
current Medicare covered services and minimum limitations on 
out-of-pocket spending and such comprehensive plans sponsored 
by the Health Care Financing Administration compete on the same 
basis as private plans. The provision is effective for taxable 
years beginning after the date of enactment.

VI. Death tax relief provisions

    Phase in Repeal of Estate, Gift, and Generation-Skipping 
Taxes.--The bill repeals the estate, gift, and generation-
skipping transfer (GST) taxes beginning in 2009, after which a 
carryover basis regime is to be phased in for large transfers 
of assets from large estates to individuals other than a 
decedent's surviving spouse. Beginning in 2001, the unified 
transfer tax credit is replaced with a comparable unified 
exemption amount, and the top estate and gift tax rates above 
50 percent and the 5-percent phase out surtax are repealed. 
Beginning in 2002 and through 2004, each of the rates of tax 
are reduced by 1 percentage point, and in 2005 and through 
2008, each of the rates of tax are reduced by 2 percentage 
points. The top estate, gift, and GST tax rates is to be no 
higher than the highest future individual income tax rate, and 
the lower estate and gift tax rates are not to be reduced below 
the lowest individual income tax rate.
    Modify Generation-Skipping Tax Rules.--The bill deems there 
to have been GST tax exemption allocated to transfers made 
during life that are ``indirect skips,'' which are transfers to 
GST trusts that are not direct skips. This provision applies to 
transfers subject to estate or gift tax made after December 31, 
1999, and to estate tax inclusion periods ending after December 
31, 1999. The bill also allows the retroactive allocation of 
GST exemption when there is an unnatural order of death. This 
rule applies to deaths of non-skip persons occurring after the 
date of enactment. The bill also allows a trust holding 
property with an inclusion ratio greater than zero to be 
severed at any time in a ``qualified severance.'' The severance 
provisions are effective for severances of trusts occurring 
after the date of enactment. In addition, the valuation rules 
are modified such that, for timely and automatic allocations of 
GST tax exemption, the value of the property for purposes of 
determining the inclusion ratio is its finally determined gift 
tax value or estate tax value depending on the circumstances of 
the transfer. The bill also authorizes and directs the Treasury 
Secretary to grant extensions of time to make the election to 
allocate GST tax exemption and to grant exceptions to the time 
requirement. Finally, the bill provides that substantial 
compliance with the statutory and regulatory requirements for 
allocating GST tax exemption suffice to establish that GST tax 
exemption was allocated to a particular transfer or trust.

VII. Distressed communities and industries provisions

    Renewal Community Provisions.--The bill authorizes the 
Secretary of HUD to designate up to 20 renewal communities that 
will receive tax benefits for a seven year period beginning 
January 1, 2001, and ending December 31, 2007. The tax benefits 
include: a zero percent capital gains tax rate on the sale of 
qualified community assets held for more than five years; 
family development accounts for qualified higher educational 
expenses, qualified first-time homebuyer costs, qualified 
business capitalization costs, and qualified medical expenses; 
commercial revitalization deductions for qualified 
revitalization buildings located in a renewal community; 
$35,000 in additional section 179 expensing; expensing of 
environmental remediation costs (for brownfields); and an 
extension of the work opportunity tax credit to qualified 
individuals who live in a renewal community.
    Provide that Federal Production Payments to Farmers are 
Taxable in the Year Received.--The bill modifies the 
constructive receipt rule for purposes of payments made by the 
Secretary of Agriculture pursuant to The Agriculture Market 
Transition Act. The existence of any option to accelerate any 
payment pursuant to the Act is disregarded and the payment is 
not included in gross income until received. The provision is 
effective on the date of enactment.
    Allow Net Operating Losses from Oil and Gas Properties to 
be Carried Back for up to Five Years.--The bill provides a 
special five year carryback period for certain eligible oil and 
gas losses. The carryforward period remains twenty years. The 
bill applies to net operating losses arising in taxable years 
beginning after December 31, 1998.
    Deduction for Delay Rental Payments.--The bill allows delay 
rental payments to be deducted currently. The provision applies 
to delay rental payments incurred in taxable years beginning 
after December 31, 2000.
    Election to Expense Geological and Geophysical 
Expenditures.--The bill allows geological and geophysical costs 
incurred in connection with oil and gas exploration in the 
United States to be deducted currently. The provision is 
effective for G&G; costs incurred in taxable years beginning 
after December 31, 2000.
    Temporary Suspension of Limitation Based on 65 Percent of 
Taxable Income.--The bill suspends the limit on percentage 
depletion deductions to no more than 65 percent of the 
taxpayer's overall taxable income for taxable years beginning 
after December 31, 1998, and before January 1, 2005.
    Determination of Small Refiner Exception to Oil Depletion 
Deduction.--The bill changes the refiner limitation on claiming 
inde-

pendent producer status from a limit based on actual daily 
production to a limit based on average daily production for the 
taxable year: the average daily refinery run for the taxable 
year may not exceed 50,000 barrels. The provision is effective 
for taxable years beginning after December 31, 1999.
    Increase the Maximum Dollar Amount of Reforestation 
Expenditures Eligible for Amortization and Credit.--The bill 
increases the amount of reforestation expenditures eligible for 
7-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 2000 through 2003, there is no limit on the 
amount eligible for 7-year amortization. The provision is 
effective for expenditures paid or incurred in taxable years 
beginning after December 31, 1998.
    Capital Gains Treatment Under Section 631(b) to Apply to 
Outright Sales by Landowners.--The bill provides that the 
requirement that a taxpayer retain an economic interest in 
timber in order to treat gains on sales prior to the time the 
timber is cut as capital gains does not apply in the case of a 
sale of timber by the owner of the land from which the timber 
is cut. The provision is effective for sales of timber after 
the date of enactment.
    Minimum Tax Relief for the Steel Industry.--The bill allows 
minimum tax credits to offset 90 percent of tentative minimum 
tax in the case of a steel company, in addition to any excess 
of regular tax over tentative minimum tax. The provision is 
effective for taxable years beginning after December 31, 1998.

VIII. Small business relief provisions

    Accelerate 100-Percent Self-Employed Health Insurance 
Deduction.--The bill increases the deduction for self-employed 
health insurance to 100-percent for taxable years beginning 
after December 31, 1999.
    Increase Section 179 Expensing.--The bill increases the 
maximum section 179 deduction from the present-law $19,000 per 
year, up to $30,000 per year for taxable years beginning after 
December 31, 1999.
    Repeal of Temporary Federal Unemployment Surtax.--The bill 
repeals the temporary Federal Unemployment Tax Act after 
December 31, 2004.
    Restore 80-Percent Meals Deduction.--For taxable years 
beginning after December 31, 2004, the bill increases the 
business meals deduction from the present-law 50-percent, by 
five percentage points per taxable year, up to an 80-percent 
deduction for taxable years beginning after December 31, 2009.

IX. International tax relief provisions

    Allocate Interest Expense on a Worldwide Basis.--The bill 
modifies the present-law interest expense allocation rules 
(which generally apply for purposes of computing the foreign 
tax credit limitations) by providing a one-time election under 
which the taxable income of domestic members of an affiliated 
group from foreign sources generally would be determined by 
allocating and apportioning interest expense of the worldwide 
affiliated group on a worldwide-group basis. The election 
provides taxpayers with the

option either to apply fungibility principles on a worldwide 
basis or to continue to apply present law. For purposes of the 
new elective rules based on worldwide fungibility, the 
worldwide affiliated group includes any foreign corporations in 
which more than 50 percent of the total vote or value is owned 
(directly or indirectly) by U.S. members of the affiliated 
group. A pro rata portion of such foreign corporation's 
interest expense and assets is treated as attributable to the 
affiliated group and taken into account for purposes of 
determining the allocation and apportionment of interest 
expense. In addition, regardless of whether a taxpayer elects 
to continue to be governed by the present-law allocation rules 
or to apply the new worldwide fungibility principle, the bill 
provides two annual elections that are exceptions to the 
general ``one-taxpayer'' rule: (1) the subsidiary group 
election under which U.S. members with debt that is not 
supported by other members of the affiliated group could elect 
to treat themselves and their subsidiaries as a separate group; 
and (2) a financial institution group election under which all 
members that are predominantly engaged in a financial services 
business could elect to be treated as a separate group. The 
provision is effective for taxable years beginning after 
December 31, 2001.
    Look-Through Rules to Apply to Dividends from Noncontrolled 
Section 902 Corporations.--For taxable years beginning after 
December 31, 2001, the bill applies the look-through approach 
to all dividends paid by a 10/50 company for foreign tax credit 
limitation purposes. The bill provides a transition rule under 
which pre-effective date foreign tax credits associated with a 
10/50 company separate limitation category can be carried 
forward into post-effective date years.
    Subpart F Treatment of Pipeline Transportation Income and 
Income from Transmission of High Voltage Electricity.--The bill 
exempts income derived from the transmission of high voltage 
electricity from the definition of foreign base company 
services income. Further, the bill provides that foreign base 
company oil related income does not include income from the 
pipeline transportation of oil or gas within a foreign country. 
The provision is effective for taxable years of foreign 
corporations beginning after December 31, 2001, and taxable 
years of U.S. shareholders with or within which such taxable 
years of foreign corporations end.
    Recharacterization of Overall Domestic Loss.--The bill 
applies a resourcing rule to U.S.-source income where the 
taxpayer has suffered a reduction in the amount of its foreign 
tax credit limitation due to a prior overall domestic loss. The 
bill applies to losses incurred in taxable years beginning 
after December 31, 2004.
    Treatment of Military Property of Foreign Sales 
Corporations.--The bill repeals the special Foreign Sales 
Corporation (FSC) limitation relating to the export of military 
property, thus providing exports of military property through a 
FSC with the same treatment currently provided exports of non-
military property. The provision is effective for taxable years 
beginning after December 31, 2001.
    Modify Treatment of RIC Dividends Paid to Foreign 
Persons.--Under the bill, a regulated investment company (RIC) 
that earns certain interest income or short-term capital gains 
which are not subject to U.S. tax if earned by a foreign person 
directly may designate a dividend it pays as derived from such 
income. Under the provision, a foreign person who is a 
shareholder in the RIC generally treats such dividends as 
exempt from gross-basis U.S. tax, just as if the foreign person 
had realized the interest or short-term capital gains directly. 
In addition, the estate of a foreign decedent is exempt from 
U.S. estate tax on a transfer of stock in the RIC in the 
proportion that the assets held by the RIC are debt 
obligations, deposits, or other property that would generally 
be treated as situated outside the United States if held 
directly by the estate. The provision generally is effective 
for taxable years beginning after December 31, 2004.
    Repeal of Special Rules for Applying Foreign Tax Credit in 
Case of Foreign Oil and Gas Income.--The bill repeals the 
special rules of section 907, such that taxes attributable to 
foreign oil and gas extraction income are no longer subject to 
a special limitation, and the rules with respect to 
discriminatory taxes on foreign oil related income no longer 
apply. The provision is effective for taxable years beginning 
after December 31, 2004.
    Study of Proper Treatment of European Union under Subpart F 
Same Country Exceptions.--The bill directs the Secretary of the 
Treasury to conduct a study of the feasibility of treating all 
countries included in the European Union as one country for 
purposes of applying same country exceptions under subpart F. 
The bill requires the study to be completed no later than six 
months after the date of enactment.
    Provide Waiver from Denial of Foreign Tax Credits.--The 
bill provides that section 901(j) (relating to denial of 
foreign tax credits, etc.) no longer applies with respect to a 
foreign country if the President determines that the 
application of section 901(j) to such foreign country is not in 
the national interests of the United States. The provision is 
effective as of the date of enactment.
    Prohibit Disclosure of APAs and APA Background Files.--The 
bill provides that Advance Pricing Agreements (APAs) and 
related background information are confidential return 
information not subject to the public inspection requirements 
of section 6110. The bill also requires the Treasury Department 
to prepare an extensive annual report regarding APAs. The 
provision is effective on the date of enactment.
    Increase Dollar Limitation on Section 911 Exclusion.--The 
bill increases the maximum exclusion for foreign earned income 
in annual increments of $3,000 per year beginning in 2003, 
until the exclusion amount is $95,000. Beginning in 2008, the 
maximum exclusion amount of $95,000 is indexed for inflation.

X. Tax-exempt organization provisions

    Provide Tax Exemption for Organizations Created by a State 
to Provide Property and Casualty Insurance Coverage for 
Property for which Such Coverage is Otherwise Unavailable.--The 
bill provides tax-exempt status for associations created before 
January 1, 1999, by State law, and organized and operated 
exclusively to provide property and casualty insurance for 
property located within the State if coverage is limited or 
unavailable at reasonable rates, provided requirements are met. 
The provision is effective for taxable years beginning after 
December 31, 1999.
    Conform Provisions Relating to Arbitrage Treatment to 
Reflect Proposed State Constitutional Amendments.--The present 
law tax exemption for two State universities depends on 
relevant State law not changing terms in effect as of October 
9, 1969. The bill allows the exemption to continue in light of 
proposed amendments to the State Constitution. The bill applies 
to bonds issued after the effective date of the State 
constitutional amendments.
    Denial of Charitable Contribution Deduction for Transfers 
Associated with Split-Dollar Insurance Arrangements.--The bill 
restates present law to provide that no charitable contribution 
deduction is allowed for a transfer to or for the use of a 
charitable organization, if in connection with the transfer the 
organization directly or indirectly pays, or has previously 
paid, any premium on any personal benefit contract with respect 
to the transferor, or there is an understanding or expectation 
that any person will directly or indirectly pay any premium on 
any personal benefit contract with respect to the transferor. 
The bill also imposes on the charitable organization an excise 
tax in the amount of the premiums paid. The provision applies 
generally to transfers, or premiums paid, after February 8, 
1999.
    Authorize Secretary of Treasury to Grant Waivers from 
Section 4941 Prohibitions.--The bill requires that the 
Secretary of the Treasury establish an exemption procedure 
pursuant to which the Secretary could grant a conditional or 
unconditional exemption from the self-dealing prohibition of 
section 4941. The provision is effective for transactions 
occurring after the date of enactment.
    Extend Declaratory Judgment Procedures to Non-501(c)(3) 
Tax-exempt Organizations.--The bill extends declaratory 
judgment procedures similar to those currently available only 
to charities under section 7428 to other section 501(c) 
determinations. The provision is effective for pleadings with 
respect to determinations made after the date of enactment.
    Modify Section 512(b)(13).--The bill provides that certain 
payments made by a controlled entity to a tax-exempt 
organization count as unrelated business income only to the 
extent they exceed the amount of the payment that would have 
been made if the payment had been determined in accordance with 
the principles of section 482. The provision applies to 
payments received or accrued in taxable years beginning after 
December 31, 1999.

XI. Real estate relief provisions

    Proposals Relating to REITs.--Under the bill, a Real Estate 
Investment Trust (REIT) generally can not own more than ten 
percent of the total value of securities of a single issuer (to 
supplement the voting power limitation under present law), but 
does not apply for securities held directly or indirectly by 
such REIT on July 12, 1999. An exception to the limitations on 
ownership applies in the case of a wholly owned ``taxable REIT 
subsidiary'' that meets certain requirements. The bill also 
permits a REIT to own and operate a health care facility for at 
least two years, and treat it as permitted ``foreclosure'' 
property, if the facility is acquired by the termination or 
expiration of a lease of the property. The provisions generally 
are effective for taxable years beginning after December 31, 
2000.
    Modify At-Risk Rules for Publicly Traded Nonrecourse 
Debt.--The bill modifies the rules relating to qualified 
nonrecourse financing to provide that, in the case of an 
activity of holding real property, a taxpayer is considered at 
risk with respect to the taxpayer's share of certain financing 
that is not borrowed from a person that is regularly engaged in 
the business of lending money, and that is not secured by real 
property used in the activity, if the financing is qualified 
publicly traded debt. The financing may not be borrowed from a 
related person. The bill is effective for debt instruments 
issued after December 31, 1999.
    Qualified Lessee Construction Allowances Not Limited to 
Short-Term Leases for Certain Retailers.--The bill eliminates 
the section 110 requirement that a lease be for a term of 15 
years or less in the case of payment (or rent reduction) to a 
``qualified retail business.'' Payments by a lessor to such 
businesses for the purpose of constructing or improving long-
term real property are not included in the income of the lessee 
regardless of the term of the lease, provided the payments are 
used for such purpose. A qualified retail business is defined 
as a trade or business of selling tangible personal property to 
the general public. The bill applies to leases entered into 
after December 31, 1999. No inference is intended as to the 
treatment of amounts that are not affected by the bill.
    Exclusion From Gross Income For Certain Contributions to 
the Capital of Certain Retailers.--The bill establishes a safe 
harbor allowing certain inducements received by retailers in 
exchange for the retailer's agreement to operate a qualified 
retail business at particular location for a period of at least 
15 years to be treated as nontaxable contributions to capital. 
The provision is effective for contributions received after 
December 31, 1999.

XII. Pension reform provisions

            A. Expanding coverage
    Increase contribution and benefit limits.--Effective in 
2001, the bill: increases the $30,000 annual contribution limit 
for defined contribution plans to $40,000 (indexed in $1,000 
increments), increases the $130,000 annual benefit limit under 
a defined benefit plan to $160,000, lowers the early retirement 
age to 62 and the normal retirement age to 65 for purposes of 
applying the limit, and increases the limit on compensation 
that may be taken into account under a plan to $200,000 
(indexed in $5,000 increments). Beginning in 2001, the bill 
increases the dollar limit on annual elective deferrals under 
section 401(k) plans, section 403(b) annuities and salary 
reduction SEPs in $1,000 annual increments until the limits 
reach $15,000 in 2005, with indexing thereafter. Beginning in 
2001, the bill increases the maximum annual elective deferrals 
that can be made to a SIMPLE plan in $1,000 annual increments 
until the limit reaches $10,000 in 2004, with indexing 
thereafter. The bill increases the limit on deferrals under a 
section 457 plan to $11,000 in 2001, and increases in $1,000 
annual increments until the limit reaches $15,000 in 2005, with 
indexing thereafter.
    Plan loans for subchapter S shareholders, partners, and 
sole proprietors.--The bill generally eliminates the special 
present-law rules relating to plan loans made to an owner-
employee. Thus, the general statutory exemption applies to such 
transactions. Present law applies with respect to IRAs. The 
provision is effective with respect to transactions entered 
into after December 31, 2000.
    Modification of top-heavy rules.--The bill 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 provided 
can be taken into account in satisfying the minimum 
contribution requirements applicable to top-heavy plans. The 
bill simplifies the definition of key employee and the 
determination of top-heavy status. The provision is effective 
for years beginning after December 31, 2000.
    Elective deferrals not taken into account for purposes of 
deduction limits.--Under the bill, elective deferral 
contributions are not subject to the qualified plan deduction 
limits, and the application of a deduction limitation to any 
other employer contribution to qualified retirement plan does 
not take into account elective deferral contributions. The 
provision is effective for years beginning after December 31, 
2000.
    Reduce PBGC premiums for small and new plans.--Under the 
bill, for the first five plan years of a new single-employer 
plan of an employer with 100 or fewer employees, the flat-rate 
Pension Benefit Guaranty Corporation (PBGC) premium is $5 per 
plan participant. The bill provides that the variable PBGC 
premium is phased in for ``new defined benefit plans'' over a 
six-year period starting with the plan's first plan year. The 
bill also provides that, in the case of any plan (not just a 
new plan) of an employer with 25 or fewer employees, the 
variable-rate premium is no more than $5 multiplied by the 
number of plan participants. The provisions relating to new 
plans are effective for plans established after December 31, 
2000. The provision reducing the PBGC variable premium for 
small plans is effective for years beginning after December 31, 
2000.
    Repeal of coordination requirements for deferred 
compensation plans of State and local governments and tax-
exempt organizations.--For years beginning after December 31, 
2000, the bill repeals the rules coordinating the section 457 
dollar limit with contributions under other types of plans.
    Eliminate IRS user fees for determination letter requests 
regarding small employer plans.--Under the bill, an employer 
with no more than 100 employees is not required to pay a user 
fee for any determination letter with respect to the qualified 
status of a retirement plan that the employer maintains. The 
bill is effective for determination letter requests made after 
December 31, 2000.
    Definition of compensation for purposes of deduction 
limits.--For purposes of the qualified plan deduction limit the 
compensation otherwise paid or accrued during the employer's 
taxable year to the beneficiaries under the plan includes 
elective deferrals under a section 401(k) plan or a section 
403(b) annuity, and elective contributions under a section 457 
plan. The provision is effective for years beginning after 
December 31, 2000.
    Option to treat elective deferrals as after-tax 
contributions.--A section 401(k) plan or a section 403(b) 
annuity is permitted to have all or a portion of the 
participant's elective deferrals under the plan treated as 
designated plus contributions (i.e., 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, distribution 
restrictions, and nondiscrimination requirements. 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 made after the end of 
a specified nonexclusion period 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. 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. 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 provision is effective for taxable years 
beginning after December 31, 2000.
    Increase minimum benefit under defined benefit plans.--
Beginning in 2001, the minimum annual benefit permitted under a 
defined benefit plan increases in $10,000 annual increments 
until the minimum benefit amount reaches $40,000 in 2003. The 
$40,000 amount is not indexed. In addition, a participant is 
entitled to the minimum benefit even if the participant had 
participated in a defined contribution plan of the employer. 
The provision is effective for years beginning after December 
31, 2000.
            B. Enhancing fairness for women
    Additional salary reduction catch-up contributions.--The 
bill provides that the otherwise applicable dollar limit on 
elective deferrals under a section 401(k) plan, a section 
403(b) annuity, a SIMPLE, or deferrals under a section 457 plan 
increase for individuals who have attained at least age 50 
during the year. The otherwise applicable dollar limit would be 
increased by $1,000 in each year beginning in 2001 until the 
amount of the increase is $5,000 in 2005. Thereafter, the 
$5,000 limit is indexed for inflation in $500 increments. The 
provision is effective for taxable years beginning after 
December 31, 2000.
    Equitable treatment for contributions of employees to 
defined contribution plans.--The bill increases the 25 percent 
of compensation limitation on annual additions under a defined 
contribution plan to 100 percent of compensation. The bill 
conforms the limits on contributions to tax-sheltered annuities 
to the limits applicable to qualified plans. The bill increases 
the 33\1/3\ percent of compensation limitation on deferrals 
under a section 457 plan to 100 percent of compensation. The 
provision is effective for years beginning after December 31, 
2000.
    Faster vesting of employer matching contributions.--The 
bill applies faster vesting schedules to employer matching 
contributions. Under the bill, employer matching contributions 
have to vest at least as rapidly as under one of the following 
two alternative minimum vesting schedules. A plan satisfies the 
first schedule if a participant acquires a nonforfeitable right 
to 100 percent of employer matching contributions upon the 
completion of 3 years of service. A plan satisfies the second 
schedule if a participant has a nonforfeitable right to 20 
percent of employer matching contributions for each year of 
service beginning with the participant's second year of service 
and ending with 100 percent after 6 years of service. The 
provision is effective for years beginning after December 31, 
2000.
    Simplify and update the minimum distribution rules.--The 
bill applies the present-law rules applicable if the 
participant dies before distribution of minimum benefits has 
begun to all post-death distributions. The bill reduces the 
excise tax on failures to satisfy the minimum distribution 
rules to 10 percent of the amount that was required to be 
distributed but was not distributed. The Treasury is directed 
to update, simplify, and finalize the regulations relating to 
the minimum distribution rules. The bill repeals the special 
minimum distribution rules applicable to section 457 plans. The 
provision is effective for years beginning after December 31, 
2000.
    Clarification of tax treatment of division of section 457 
plan benefits upon divorce.--The bill applies the taxation 
rules for qualified plan distributions pursuant to a QDRO to 
distributions made pursuant to a domestic relations order from 
a section 457 plan. The provision is effective for transfers, 
distributions, and payments made after December 31, 2000.
            C. Increasing portability for participants
    Rollovers of retirement plan and IRA distributions.--The 
bill provides that eligible rollover distributions from 
qualified retirement plans, section 403(b) annuities, IRAs and 
governmental section 457 plans generally can be rolled over to 
any of such plans or arrangements. The direct rollover and 
withholding rules are extended to distributions from a section 
457 plan. The bill provides that employee after-tax 
contributions can be rolled over into another qualified plan or 
a traditional IRA. In the case of a rollover from a qualified 
plan to another qualified plan, the rollover can be 
accomplished only through a direct rollover. The bill provides 
that surviving spouses can roll over distributions to a 
qualified plan, section 403(b) annuity, or governmental section 
457 plan in which the spouse participates. The provision is 
effective for distributions made after December 31, 2000.
    Waiver of 60-day rule.--The bill provides that the 
Secretary may waive the 60-day rollover period if the failure 
to waive such requirement is against equity or good conscience, 
including cases of casualty, disaster, or other events beyond 
the reasonable control of the individual subject to such 
requirement. The provision applies to distributions made after 
December 31, 2000.
    Treatment of forms of distribution.--A defined contribution 
plan to which benefits are transferred is not treated as 
reducing a participant's or beneficiary's accrued benefit even 
though it does not provide all of the forms of distribution 
previously available under the transferor plan if (1) the plan 
receives from another defined contribution plan a direct 
transfer of the participant's or beneficiary's benefit accrued 
under the transferor plan, or the plan results from a merger or 
other transaction that has the effect of a direct transfer, (2) 
the terms of both the transferor plan and the transferee plan 
authorize the transfer, (3) the transfer occurs pursuant to a 
voluntary election by the participant or beneficiary that is 
made after the participant or beneficiary received a notice 
describing the consequences of making the election, (4) if the 
transferor plan provides for an annuity as the normal form of 
distribution in accordance with the joint and survivor annuity 
rules, the participant's spouse (if any) consents to the 
transfer, and (5) the transferee plan allows the participant or 
beneficiary to receive distribution of his or her benefit under 
the transferee plan in the form of a single sum distribution. 
In addition, except to the extent provided by the Secretary of 
the Treasury in regulations, a defined contribution plan is not 
treated as reducing a participant's accrued benefit if (1) a 
plan amendment eliminates a form of distribution, (2) a single 
sum distribution is available to the participant at the same 
time or times as the form of distribution eliminated by the 
amendment, and (3) the single sum distribution is based on the 
same or greater portion of the participant's accrued benefit as 
the eliminated form of distribution. The provision is effective 
for years beginning after December 31, 2000.
    Rationalization of restrictions on distributions.--The bill 
modifies the distribution restrictions applicable to section 
401(k) plans, section 403(b) annuities, and section 457 plans 
to provide that distribution may occur upon severance from 
employment rather than separation from service. The provision 
is effective for distributions made after December 31, 2000.
    Purchase of service credit under governmental pension 
plans.--Under the bill, a participant in a State or local 
governmental plan is not required to include in gross income a 
direct trustee-to-trustee transfer to the governmental plan 
from a section 403(b) plan or a section 457 plan if the 
transferred amount is used (1) to purchase permissive service 
credits under the plan, or (2) to repay contributions and 
earnings with respect to an amount previously refunded under a 
forfeiture of service credit under the plan (or another plan 
maintained by a State or local government employer within the 
same State). The provision is effective for transfers made 
after December 31, 2000.
    Employers may disregard rollovers for purposes of cash-out 
rules.--Under the bill, a plan is permitted to provide that the 
present value of a participant's nonforfeitable accrued benefit 
is determined without regard to the portion of such benefit 
that is attributable to rollover contributions, and any 
earnings allocable thereto, for purposes of the cash-out rules. 
The provision is effective for distributions made after 
December 31, 2000.
    Employers may disregard rollovers for purposes of cash-out 
rules.--A plan is permitted to provide that the present value 
of a participant's nonforfeitable accrued benefit is determined 
without regard to the portion of such benefit that is 
attributable to rollover contributions (and any earnings 
allocable thereto). The provision is effective for 
distributions after December 31, 2000.
            D. Strengthening pension security and enforcement
    Phase in repeal of 150 percent of current liability full 
funding limit; deduction for contributions to fund termination 
liability.--The bill gradually increases and then repeals the 
current liability full funding limit. The current liability 
full funding limit is 160 percent of current liability for plan 
years beginning in 2001, 165 percent for plan years beginning 
in 2002, and 170 percent for plan years beginning in 2003. The 
current liability full funding limit is repealed for plan years 
beginning in 2004 and thereafter. Under the bill, the special 
rule allowing a deduction for unfunded current liability 
generally is extended to all defined benefit pension plans 
covered by the PBGC. The provision is effective for years 
beginning after December 31, 2000.
    Extension of PBGC missing participants program.--The bill 
extends the PBGC missing participant program to multi-employer 
plans and defined contribution plans. The bill is effective for 
distributions from terminating plans that occur after the PBGC 
adopts final regulations implementing the provision.
    Excise tax relief for sound pension funding.--Under the 
bill, in determining the amount of nondeductible contributions, 
the employer can elect not to take into account contributions 
to a defined benefit pension plan in excess of the current 
liability full funding limit. The provision is effective for 
years beginning after December 31, 2000.
    Notice of significant reduction in plan benefit accruals.--
The bill requires the plan administrator of a defined benefit 
pension plan with more than 100 participants to provide a 
written notice concerning a plan amendment that provides for a 
significant reduction in the rate of future benefit accrual. 
The plan administrator is required to provide this notice to 
each affected participant, each affected alternate payee, and 
each employee organization representing affected participants. 
Except to the extent provided by Treasury regulations, the plan 
administrator is required to provide the notice within a 
reasonable time before the effective date of the plan 
amendment. The bill imposes on a plan administrator that fails 
to comply with the notice requirement an excise tax equal to 
$100 per day per omitted participant and alternate payee. The 
total excise tax imposed during a taxable year of the employer 
can not exceed $500,000. In the case of a failure that is due 
to reasonable cause and not to willful neglect, the Secretary 
of the Treasury is authorized to waive the excise tax to the 
extent that the payment of the tax is excessive relative to the 
failure involved. The bill is effective for plan amendments 
adopted on or after the date of enactment.

E. Reducing regulatory burdens

    Repeal of the multiple use test.--The bill repeals the 
multiple use test, effective for years beginning after December 
31, 2000.
    Modification of timing of plan valuations.--The bill allows 
an employer to elect to use the prior year's plan valuation in 
the case of a defined benefit plan with assets of at least 125 
percent of current liability. In any event, a plan valuation is 
required once every three years. The provision is effective for 
plan years beginning after December 31, 2000.
    Flexibility in nondiscrimination and line of business 
rules.--The Secretary of the Treasury is directed to modify, on 
or before December 31, 2000, the existing regulations issued 
under section 401(a)(4) and section 414(r) in order to expand 
(to the extent that the Secretary may determine to be 
appropriate) the ability of a plan to demonstrate compliance 
with the nondiscrimination and 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. The provision is effective on the date of 
enactment.
    Rules for substantial owner benefits in terminated plans.--
The bill increases the PBGC guarantee for certain substantial 
owners. The bill is effective for plan terminations with 
respect to which notices of intent to terminate are provided, 
or for which proceedings for termination are instituted by the 
PBGC after December 31, 2000.
    ESOP dividends may be reinvested without loss of dividend 
deduction.--In addition to the deductions permitted under 
present law for dividends paid with respect to employer 
securities that are held by an ESOP, an employer is entitled to 
deduct dividends that, at the election of plan participants or 
their beneficiaries, are paid to the plan and reinvested in 
qualifying employer securities. The provision is effective for 
taxable years beginning after December 31, 2000.
    Notice and consent period regarding distributions.--Under 
the bill, a qualified retirement plan is required to provide 
the applicable distribution notice no less than 30 days and no 
more than six months before the date distribution commences. 
The Secretary of the Treasury is directed to modify the 
applicable regulations to reflect the extension of the notice 
period to six months and 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. The provision is effective for years beginning after 
December 31, 2000.
    Repeal transition rule relating to certain highly 
compensated employees.--The bill repeals the special definition 
of highly compensated employee under the Tax Reform Act of 
1986. Thus, the present-law definition applies. The provision 
is effective for plan years beginning after December 31, 2000.
    Employees of tax-exempt entities.--The bill directs the 
Treasury Department to revise its regulations under section 
401(b) to provide that if certain requirements are satisfied, 
employees of a tax-exempt charitable organization who are 
eligible to make salary reduction contributions under a section 
403(b) annuity may be treated as excludable employees for 
purposes of testing a section 401(k) plan, or a section 401(m) 
plan that is provided under the same general arrangement as the 
section 401(k) plan of the employer. The revised regulations 
are to be effective for years beginning after December 31, 
1996.
    Treatment of employer-provided retirement advice.--The bill 
provides that qualified retirement planning services provided 
to an employee and his or her spouse or dependents are 
excludable from income and wages. The provision is effective 
with respect to taxable years beginning after December 31, 
2000.
    Provisions relating to plan amendments.--Any amendments to 
a plan or annuity contract required to be made by the bill are 
not required to be made before the last day of the first plan 
year beginning on or after January 1, 2003. In the case of a 
governmental plan, the date for amendments is extended to the 
first plan year beginning on or after January 1, 2004. The 
provision is effective on the date of enactment.
    Model plans for small businesses.--The Secretary of the 
Treasury is directed to issue, not later than December 31, 
2000, at least one model defined contribution plan document and 
at least one model defined benefit plan document that fit the 
needs of small businesses and that would be treated as meeting 
the requirements of section 401(a) with respect to the form of 
the plan. The provision is effective on the date of enactment.
    Reporting simplification.--The Secretary of the Treasury is 
directed to provide for the filing of a simplified annual 
return substantially similar to the Form 5500-EZ by a plan that 
meets certain requirements. The provision is effective on the 
date of enactment.
    Improvement to employer plans compliance resolution 
system.--The Secretary of the Treasury is directed to continue 
to update and improve EPCRS, giving special attention to (1) 
increasing the awareness and knowledge of small employers 
concerning the availability and use of EPCRS, (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 APRSC for significant compliance failures, (4) 
expanding the availability to correct insignificant compliance 
failures under APRSC 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. The provision is effective on the date of enactment.

XIII. Miscellaneous provisions

    Expand the Exclusion from Income for Certain Foster Care 
Payments.--The bill makes two principal modifications to the 
exclusion. First, the bill expands the list of persons eligible 
to make qualified foster care payments. Therefore, the 
exclusion applies to qualified payments made pursuant to a 
foster care program of a State or local government which are 
paid by either: (1) a State or political subdivision of a 
State; or (2) a qualified foster care placement agency, whether 
taxable or tax-exempt. Second, the bill expands the list of 
persons eligible to place foster care individuals. 
Specifically, the bill allows placements by either: (1) a State 
or a political subdivision of a State; or (2) a qualified 
foster care placement agency. The bill allows State and local 
governments to employ both tax-exempt and taxable entities to 
administer their foster care programs more efficiently; 
however, it does not extend the exclusion to payments outside 
such foster care programs (e.g., payments to a foster care 
provider from friends or relatives of foster care individual in 
its care). The provision is effective for taxable years 
beginning after December 31, 1999.
    Provide Exclusion for Mileage Reimbursements by Charitable 
Organizations.--Under the bill, reimbursement for the costs of 
using an automobile in connection with providing donated 
services from an entity or organization described in section 
170(c) is excludable from the gross income of the volunteer, 
provided that (1) reimbursement does not exceed the rate 
prescribed for business use, and (2) applicable recordkeeping 
requirements are satisfied. The provision is effective for 
taxable years beginning after December 31, 1999.
    Expand Employer Reporting on Annual Wage and Tax 
Statements.--The bill requires the Form W-2 to include a 
statement of social security and medicare taxes paid by the 
employer on behalf of each employee. The bill is effective with 
respect to Form W-2s provided for calendar years beginning 
after December 31, 1999.
    Consistent Treatment of Survivor Benefits for Public Safety 
Officers Killed in the Line of Duty.--The bill extends the 
present-law treatment of survivor annuities with respect to 
public safety officers killed in the line of duty to payments 
received in taxable years beginning after December 31, 1999, 
with respect to individuals dying on or before December 31, 
1996.
    Distributions from Publicly Traded Partnerships Treated as 
Qualifying Income of Regulated Investment Companies.--The bill 
provides that permitted income of a RIC includesincome derived 
from an interest in a publicly traded partnership, effective for 
taxable years beginning after December 31, 2000.
    Equalize the Tax Treatment of ``Clean Fuel'' Vehicles and 
Oversized Vehicles--The bill provides that an electric truck or 
van with a gross vehicle weight rating greater than 13 tons or 
an electric bus which has seating capacity of at least 20 
adults is a qualified clean fuel vehicle for which the taxpayer 
may expense up to $50,000 of cost and that such vehicles are 
not eligible for the electric vehicle credit. The provision is 
effective for vehicles placed in service after December 31, 
1999.
    Nuclear Decommissioning.--The bill repeals the cost of 
service requirement for deductible contributions to nuclear 
decommissioning funds. Thus, taxpayers, including unregulated 
taxpayers, are allowed a deduction for amounts contributed to a 
qualified nuclear decommissioning fund. As under current law, 
however, the maximum contribution and deduction for a taxable 
year can not exceed the IRS ruling amount for that year. The 
bill also clarifies the Federal income tax treatment of the 
transfer of qualified nuclear decommissioning funds. No gain or 
loss is recognized to the transferor or the transferee as a 
result of the transfer of a qualified fund in connection with 
the transfer of the power plant with respect to which the fund 
was established. In such cases, the transferee is considered to 
``step into the shoes'' of the transferor with respect to the 
qualified nuclear decommissioning fund. The provision is 
effective for taxable years beginning after December 31, 1999.
    Permit Consolidation of Life Insurance and Nonlife 
Companies.--The bill repeals the two present-law 5-year 
limitation rules under the election to treat life insurance 
companies as a member of an affiliated group, and also the rule 
that a life insurance corporation is not an includible 
corporation unless the common parent makes an election to treat 
life insurance companies as includible corporations. The 
provision is effective for taxable years beginning after 
December 31, 2004.
    Consolidate Code Provisions Governing the Hazardous 
Substance Superfund and the Leaking Underground Storage Tank 
Trust Fund.--The Code provisions governing the Superfund and 
the LUST Trust Fund are consolidated into a single 
Environmental Remediation Trust Fund (the ``Trust Fund''). 
Amounts in the consolidated Trust Fund are available for 
expenditure, as provided in appropriations Acts, for the 
combined purposes of the two present-law Trust Funds, as of 
July 12, 1999. No future interest accrues on the unobligated 
balances of the Environmental Trust Fund. The provision is 
effective on October 1, 1999.
    Repeal Certain Excise Taxes on Rail Diesel Fuel and Inland 
Waterway Barge Fuels.--The 0.1-cent-per-gallon LUST tax on 
diesel fuel used in trains is repealed. In addition, the 4.3-
cents-per-gallon General Fund excise tax rates on diesel fuel 
used in trains and fuels used in barges operating on the 
designated inland waterways system is repealed. The repeal of 
the 0.1-cent-per-gallon LUST tax on diesel fuel used in trains 
is effective on October 1, 1999. The repeal of the 4.3-cents-
per-gallon excise taxes on train diesel and inland waterway 
barge fuels is effective after September 30, 2003. Repeal of 
these taxes is contingent upon inclusion in the legislation of 
a separate section of the bill that would consolidate the Code 
provisions governing the Hazardous Substance Superfund and the 
Leaking Underground Storage Tank Trust Fund into an 
Environmental Remediation Trust Fund.
    Repeal Excise Tax on Fishing Tackle Boxes.--The excise tax 
on fishing tackle boxes is repealed. The provision is effective 
beginning 30 days after the date of enactment.
    Clarification of Excise Tax Imposed on Arrow Components.--
The bill conforms the tax to current manufacturing design 
practice.
    Improvements in Low-Income Housing Credit.--The bill 
increases the credit cap and makes other changes. The provision 
generally is effective for calendar years beginning after 
December 31, 2000. The increase and indexing of the credit cap 
is effective for calendar years after December 31, 1999.
    Entrepreneurial Equity Capital Formation.--The bill 
increases the 50-percent exclusion for gain on the sale of 
qualifying SSBIC stock to 60 percent and makes certain 
modifications to the present-law rollover of gain on the 
proceeds from the sale of publicly traded securities when such 
proceeds are used to acquire qualifying SSBIC stock.
    Accelerate Scheduled Increase in State Volume Limits on 
Tax-Exempt Private Activity Bonds.--The bill increases the 
present-law annual State private activity bond volume limits to 
$75 per resident of each State or $225 million (if greater). 
The volume limit increases are effective for bonds issued after 
December 31, 1999.
    Tax Treatment of Alaska Native Settlement Trusts.--An 
Alaska Native Corporation may establish a Trust under section 
39 of the Alaska Native Claims Settlement Act and if the Trust 
makes an election for its first taxable year after the date of 
enactment, no amount is includible in the gross income of a 
beneficiary of such Trust by reason of a contribution to the 
Trust. The provision is effective for taxable years of 
Settlement Trusts, and contributions to such Trusts, after 
December 31, 1999.
    Increase Joint Committee on Taxation Refund Review 
Threshold to $2 Million.--The bill increases the threshold 
above which refunds must be submitted to the Joint Committee on 
Taxation for review from $1,000,000 to $2,000,000. The 
provision is effective on the date of enactment.
    Tax Court Proposals.--Section 7451 is amended to provide 
that the Tax Court is authorized to charge a filing fee of up 
to $60 in all cases commenced by the filing of a petition. The 
bill further provides that Tax Court fees imposed on 
practitioners also are available to provide services to pro se 
taxpayers. These provisions are effective on the date of 
enactment. Section 6214(b) is amended to provide that the Tax 
Court may apply the principle of equitable recoupment to the 
same extent that it may be applied in Federal civil tax cases 
by the district courts and Court of Federal Claims. This 
provision is effective for any action or proceeding in the Tax 
Court with respect to which a decision has not become final as 
of the date of enactment.

XIV. Extension of expiring provisions

    Extension of Research and Experimentation Credit and 
Increase in the Rates for the Alternative Incremental Research 
Credit.--The research tax credit is extended for five years--
i.e., generally, for the period July 1, 1999 through June 30, 
2004. In addition, the credit rate applicable under the 
alternative incremental credit is increased by one percentage 
point per step, that is, from 1.65 percent to 2.65 percent when 
a taxpayer's current-year research expenses exceed a base 
amount of 1 percent but do not exceed a base amount of 1.5 
percent; from 2.2 percent to 3.2 percent when a taxpayer's 
current-year research expenses exceed a base amount of 1.5 
percent but do not exceed a base amount of 2 percent; and from 
2.75 percent to 3.75 percent when a taxpayer's current-year 
research expenses exceed a base amount of 2 percent. Extension 
of the research credit is effective for qualified research 
expenditures paid or incurred during the period July 1, 1999, 
through June 30, 2004. The increase in the credit rate under 
the alternative incremental credit is effective for taxable 
years beginning after June 30, 1999.
    Extend Exceptions under Subpart F for Active Financing 
Income.--The bill extends for five years the present-law 
temporary exceptions from subpart F foreign personal holding 
company income, foreign base company services income, and 
insurance income for certain income that is derived in the 
active conduct of a banking, financing, or similar business, or 
in the conduct of an insurance business. The provision is 
effective for taxable years of a foreign corporation beginning 
after December 31, 1999, and before January 1, 2005, and for 
taxable years of U.S. shareholders with or within which such 
taxable years of such foreign corporation end.
    Extend Suspension of Income Limitation on Percentage 
Depletion From Marginal Oil and Gas Wells.--The bill extends 
the present-law rule suspending the 100-percent-of-net-income 
limitation with respect to oil and gas production from marginal 
wells to include taxable years beginning after December 31, 
1999, and before January 1, 2005. The provision is effective on 
the date of enactment.
    Extend the Work Opportunity Tax Credit.--The bill extends 
the WOTC for two years (through June 30, 2001). The bill also 
includes a direction to the Secretary of the Treasury to 
expedite procedures to allow taxpayers to satisfy their WOTC 
filing requirements (e.g., Form 8850) by electronic means. 
Generally, 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, and before July 1, 
2001.
    Extend the Welfare-To-Work Tax Credit.--The bill extends 
the welfare-to-work credit for two years, so that the credit is 
available for eligible individuals who begin work for an 
employer before July 1, 2001. The provision is effective for 
wages paid or incurred to a qualified individual who begins 
work for an employer on or after July 1, 1999, and before July 
1, 2001.

XV. Revenue offset provisions

    Expand Reporting of Cancellation of Indebtedness Income.--
The bill requires that information reporting on discharges of 
indebtedness also be done by any organization a significant 
trade or business of which is the lending of money, such as 
finance companies and credit card companies (whether or not 
affiliated with financial institutions). The bill is effective 
with respect to discharges of indebtedness after December 31, 
1999.
    Extension of IRS User Fees.--The bill extends the statutory 
authorization for these user fees through September 30, 2009. 
The bill also moves the statutory authorization for these fees 
into the Internal Revenue Code. The provision is effective on 
the date of enactment.
    Impose Limitation on Prefunding of Certain Employee 
Benefits.--Under the bill, the present-law exception to the 
deduction limit for 10-or-more employer plans is limited to 
plans that provide only medical benefits, disability benefits 
and group-term life insurance benefits which do not provide for 
any cash surrender value or other money that can be paid, 
assigned, borrowed or pledged for collateral for a loan. In 
addition, if any portion of a welfare benefit fund attributable 
to contributions that are deductible pursuant to the 10-or-more 
employer exception (and earnings thereon) is used for a purpose 
other than that for which the contributions were made 
(including cash payments to employees upon termination of the 
fund), such portion is treated as reverting to the benefit of 
the employers maintaining the fund and would be subject toan 
excise tax. The provision is effective with respect to contributions 
paid or accrued on or after June 9, 1999, in taxable years ending after 
such date.
    Increase Elective Withholding Rate for Nonperiodic 
Distributions from Deferred Compensation Plans.--Under the 
bill, the elective withholding rate for nonperiodic 
distributions from deferred compensation arrangements is 
increased from 10 percent to 15 percent. The provision is 
effective for distributions made after December 31, 1999.
    Modify Treatment of Closely-Held REITs.--The bill imposes 
as an additional requirement for REIT qualification that, 
except for the first taxable year for which an entity elects to 
be a REIT, no one person (e.g., no one corporation) can own 
stock of a REIT possessing 50 percent or more of the combined 
voting power of all classes of voting stock or 50 percent or 
more of the total value of shares of all classes of stock of 
the REIT. The provision is effective for entities electing REIT 
status for taxable years ending after July 12, 1999. Any entity 
that elects REIT status for a taxable year ending on or before 
July 12, 1999 and which has significant business assets or 
activities as of such date is not subject to the provision.
    Limit Conversion of Character of Income from Constructive 
Ownership Transactions.--The bill limits the amount of long-
term capital gain a taxpayer can recognize from certain 
derivative contracts transactions with respect to certain 
financial assets. The amount of long-term capital gain is 
limited to the amount of such gain the taxpayer would have had 
if the taxpayer held the financial asset directly during the 
term of the derivative contract. Any gain in excess of this 
amount is treated as ordinary income. An interest charge is 
imposed on the amount of gain that is treated as ordinary 
income. This provision applies to transactions entered into on 
or after July 12, 1999.
    Impose Limitation on Prefunding of Certain Employee 
Benefits.--The present-law provision permitting qualified 
transfers of excess defined benefit pension plan assets to 
provide retiree health benefits under a section 401(h) account 
is extended through September 30, 2009. In addition, the 
present-law minimum benefit requirement is replaced by the 
minimum cost requirement that applied to qualified transfers 
before December 9, 1994, to section 401(h) accounts. The bill 
generally is effective with respect to qualified transfers of 
excess defined benefit pension plan assets to section 401(h) 
accounts after December 31, 2000, and before October 1, 2009. 
The modification of the minimum benefit requirement is 
effective with respect to transfers after the date of 
enactment.
    Modify Installment Method and Prohibit its Use by Accrual 
Method Taxpayers.--The bill generally prohibits the use of the 
installment method of accounting for dispositions of property 
that otherwise would be reported for Federal income tax 
purposes using an accrual method of accounting. The bill does 
not change present law regarding the availability of the 
installment method for dispositions of property used or 
produced in the trade or business of farming. The bill also 
does not change present law regarding the availability of the 
installment method for dispositions of timeshares or 
residential lots if the taxpayer elects to pay interest under 
section 453(l). The bill does not change the ability of a cash 
method taxpayer to use the installment method. The bill does 
not change the ability of this individual to use the 
installment method in reporting the gain on the sale of the 
stock. The bill also modifies the pledge rule to provide that 
entering into any arrangement that gives the taxpayer the right 
to satisfy an obligation with an installment note is treated in 
the same manner as the direct pledge of the installment note. 
Under the bill, the taxpayer also is required to treat the 
proceeds of a loan as payment on the installment note to the 
extent the taxpayer had the right to ``put'' or repay the loan 
by transferring the installment note to the taxpayer's 
creditor. Other arrangements that have a similar effect would 
be treated in the same manner. The proposed modification of the 
pledge rule applies only to installment sales where the pledge 
rule of present law applies. Accordingly, the bill does not 
apply to installment method sales made by a dealer in 
timeshares and residential lots where the taxpayer elects to 
pay interest under section 453(l)(2)(B), to sales of property 
used or produced in the trade or business of farming, or to 
dispositions where the sales price does not exceed $150,000, 
since such sales are not subject to the pledge rule under 
present law. The provision prohibiting the use of the 
installment method of accounting for dispositions of property 
that would otherwise be reported for Federal income tax 
purposes using an accrual method of accounting is effective for 
installment sales entered into on or after the date of 
enactment. The provision modifying the pledge rules is 
effective for arrangements entered into on or after the date of 
enactment.
    Exclusion of Like-Kind Exchange Property from 
Nonrecognition Treatment on the Sale of a Principal 
Residence.--The bill denies the principal residence exclusion 
for gain on the sale or exchange of a principal residence if 
such principal residence was acquired in a like-kind exchange 
in which any gain was not recognized within the prior five 
years. The provision is effective for sales or exchanges of 
principal residences after the date of enactment.

XVI. Tax technical corrections

    The bill adopts technical corrections to recent tax 
legislation.

                 B. Background and Need for Legislation

    Under the Fiscal Year 2000 Budget Resolution (H. Con. Res. 
68), as updated to reflect the July 1, 1999 Congressional 
Budget Office revision in budget surplus projections, the 
Committee on Ways and Means was instructed to report revenue 
reconciliation provisions for a net $200 billion of tax 
reductions for fiscal years 1999-2004, and a net $864 billion 
of tax reductions for fiscal years 1999-2009.
    The revenue reconciliation provisions approved by the 
Committee reflect the need for tax relief for individuals, 
families, and small businesses, tax incentives for education 
savings, tax incentives for distressed communities and 
industries, health care tax incentives, international tax 
relief, real estate tax relief, pension reforms, certain 
miscellaneous provisions, extensions of certain expiring tax 
provisions, certain revenue offsets, and necessary tax 
technical corrections.

                         C. Legislative History


                            Committee action

    H.R. 2488 (the ``Financial Freedom Act of 1999'') was 
introduced by Chairman Archer on July 13, 1999. The Committee 
on Ways and Means marked up the bill on July 13 and 14, 1999, 
and approved the provisions, as amended, on July 14, 1999, by a 
roll call vote of 23 yeas and 13 nays, with a quorum present.

                           Committee hearings

    The following Committee and Subcommittee hearings related 
to provisions in the bill have been held during the 106th 
Congress.

Full Committee hearings

    Tax-related hearings were held by the full Committee as 
follows:
          Outlook for the state of the U.S. economy (January 
        20, 1999).
          President's fiscal year 2000 budget (February 4, 
        1999).
          Revenue provisions in President's fiscal year 2000 
        budget (March 10, 1999).
          Reducing the tax burden: Enhancing retirement and 
        health security (June 16, 1999).
          Reducing the tax burden: Providing tax relief to 
        strengthen the family and sustain a strong economy 
        (June 23, 1999).
          Impact of U.S. tax rules on international 
        competitiveness (June 30, 1999).

Subcommittee hearings

    The Oversight Subcommittee held tax-related hearings as 
follows:
          Incentives for domestic oil and gas production and 
        status of the industry (February 25, 1999).
          Tax treatment of structured settlements (March 18, 
        1999).
          Pension issues (March 23, 1999).
          Impact of complexity in the tax Code on individual 
        taxpayers and small businesses (May 25, 1999).
          Current U.S. international tax regime (June 22, 
        1999).
          Work opportunity tax credit (July 1, 1999).

                      II. EXPLANATION OF THE BILL


                    TITLE I. BROAD-BASED TAX RELIEF


              A. Reduction in Individual Income Tax Rates


         (sec. 101 of the bill and secs. 1 and 55 of the Code)


                              Present Law

Income tax rate structure

    To determine regular income tax liability, a taxpayer 
generally must apply the tax rate schedules (or the tax tables) 
to his or her taxable income. The rate schedules are broken 
into several ranges of income, known as income brackets, and 
the marginal tax rate increases as a taxpayer's income 
increases. The income bracket amounts are indexed for 
inflation. Separate rate schedules apply based on an 
individual's filing status. In order to limit multiple uses of 
a graduated rate schedule within a family, the net unearned 
income of a child under age 14 is taxed as if it were the 
parent's income. For 1999, the individual regular income tax 
rate schedules are shown below.

         TABLE 1.--FEDERAL INDIVIDUAL INCOME TAX RATES FOR 1999
------------------------------------------------------------------------
           If taxable income is:               Then income tax equals:
------------------------------------------------------------------------
                           Single individuals
$0-25,750.................................  15 percent of taxable
                                             income.
$25,750-$62,450...........................  $3,862.50, plus 28% of the
                                             amount over $25,750.
$62,450-$130,250..........................  $14,138.50 plus 31% of the
                                             amount over $62,450.
$130,250-$283,150.........................  $35,156.50 plus 36% of the
                                             amount over $130,250.
Over $283,150.............................  $90,200.50 plus 39.6% of the
                                             amount over $283,150.

                           Heads of households

$0-$34,550................................  15 percent of taxable
                                             income.
$34,550-$89,150...........................  $5,182.50 plus 28% of the
                                             amount over $34,550.
$89,150-$144,400..........................  $20,470.50 plus 31% of the
                                             amount over $89,150.
$144,400-$283,150.........................  $37,598 plus 36% of the
                                             amount over $144,400.
Over $283,150.............................  $87,548 plus 39.6% of the
                                             amount over $283,150.

                Married individuals filing joint returns

$0-$43,050................................  15 percent of taxable
                                             income.
$43,050-$104,050..........................  $6,457.50 plus 28% of the
                                             amount over $43,050.
$104,050-$158,550.........................  $23,537.50 plus 31% of the
                                             amount over $104,050.
$158,550-$283,150.........................  $40,432.50 plus 36% of the
                                             amount over $158,550.
Over $283,150.............................  $85,288.50 plus 39.6% of the
                                             amount over $283,150.
------------------------------------------------------------------------

Individual alternative minimum tax (``AMT'') rate structure

    Present law imposes the individual AMT on an individual to 
the extent the taxpayer's minimum tax liability exceeds his or 
her regular tax liability. The AMT is imposed upon individuals 
at rates of (1) 26 percent on the first $175,000 of alternative 
minimum taxable income (``AMTI'') in excess of a phased-out 
exemption amount and (2) 28 percent on the amount in excess of 
$175,000. AMTI is the taxpayer's taxable income increased by 
certain preference items and adjusted by determining the tax 
treatment of certain items in a manner that negates the 
deferral of income resulting from the regular tax treatment of 
those items. The exemption amounts are $45,000 in the case of 
married individuals filing a joint return and surviving 
spouses; $33,750 in the case of other unmarried individuals; 
and $22,500 in the case of married individuals filing a 
separate return. These exemption amounts are phased-out by an 
amount equal to 25 percent of the amount by which the 
individual's AMTI exceeds a threshold amount. The threshold 
amounts are $150,000 in the case of married individuals filing 
a joint return and surviving spouses; $112,500 in the case of 
other unmarried individuals; and $75,000 in the case of married 
individuals filing a separate return, estates, and trusts. The 
exemption amounts, the threshold phase-out amounts, and the 
$175,000 break-point amount are not indexed for inflation. The 
lower capital gains rates applicable to the regular tax also 
apply for purposes of the AMT.

                           Reasons for Change

    The Committee believes that the growing budget surplus 
belongs to the American people and that it should be returned 
to them. Also, the Committee believes that the American people 
deserve relief from the excessive and growing tax burden 
imposed by the tax system. It believes that these rate 
reductions will provide equitable across-the-board relief to 
all taxpayers.

                        Explanation of Provision

Individual regular tax rates

    The bill reduces the regular income tax rates by 10 percent 
over a 10-year period (2000-2009). Specifically, each rate is 
reduced by 2.5 percent for taxable years beginning in 2001-
2004, 5 percent in 2005-2007, 7.5 percent in 2008, and 10 
percent in 2009 and thereafter. The tax rates will be rounded 
up annually to the nearest one-tenth of a percent. The 
following table shows the regular tax rate structure under the 
bill.

                 Individual Regular Tax Rates 1999-2000

                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                                                   2009 and
            1999-2000                  2001-2004           2005-2007             2008             thereafter
----------------------------------------------------------------------------------------------------------------
15..............................               14.7                14.3                13.9                13.5
28..............................               27.3                26.6                25.9                25.2
31..............................               30.3                29.5                28.7                27.9
36..............................               35.1                34.2                33.3                32.4
39.6............................               38.7                37.7                36.7                35.7
----------------------------------------------------------------------------------------------------------------

    This rate reduction does not apply to the capital gains tax 
rates. However, a separate provision (described in Part Title 
II.B., below) will reduce individual capital gains rates.

Individual AMT

    The bill reduces the individual AMT tax rates by a total of 
2.5 percent for taxable years beginning in 2001-2004, 5 percent 
in 2005-2007, 7.5 percent in 2008, and 10 percent in 2009 and 
thereafter. The rates will be rounded up annually to the 
nearest one-tenth of a percent, like the regular income tax 
rates. The following table shows the AMT rate structure under 
the bill including the provision in Title II.C., below, to 
repeal the individual AMT.

                          Individual AMT Rates

                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                                                   2008 and
                      1999-2000                            2001-2004           2005-2007          thereafter
----------------------------------------------------------------------------------------------------------------
26..................................................               25.4                24.7                 0.0
28..................................................               27.3                26.6                 0.0
----------------------------------------------------------------------------------------------------------------

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2000.

                 B. Marriage Penalty Relief Provisions


1. Standard deduction tax relief (sec. 111 of the bill and sec. 63 of 
        the Code)

                              Present Law

Marriage penalty

    A married couple generally is treated as one tax unit that 
must pay tax on the unit's total taxable income. Although 
married couples may elect to file separate returns, the rate 
schedules and provisions are structured so that filing separate 
returns usually results in a higher tax than filing a joint 
return. Other rate schedules apply to single persons and to 
single heads of households.
    A ``marriage penalty'' exists when the sum of the tax 
liabilities of two unmarried individuals filing their own tax 
returns (either single or head of household returns) is less 
than their tax liability under a joint return (if the two 
individuals were to marry). A ``marriage bonus'' exists when 
the sum of the tax liabilities of the individuals is greater 
than their combined tax liability under a joint return.
    While the size of any marriage penalty or bonus under 
present law depends upon the individuals' incomes, number of 
dependents, and itemized deductions, as a general rule married 
couples whose incomes are split more evenly than 70-30 suffer a 
marriage penalty. Married couples whose incomes are largely 
attributable to one spouse generally receive a marriage bonus.
    Under present law, the size of the standard deduction and 
the tax bracket breakpoints follow certain customary ratios 
across filing statuses. The standard deduction and tax bracket 
breakpoints for single filers are roughly 60 percent of those 
for joint filers.1 With these ratios, unmarried 
individuals have standard deductions whose sum exceeds the 
standard deduction they would receive as a married couple 
filing a joint return. Thus, their taxable income as joint 
filers may exceed the sum of their taxable incomes as unmarried 
individuals.
---------------------------------------------------------------------------
    \1\ This is not true for the 39.6-percent rate. The beginning point 
of this rate bracket is the same for all taxpayers regardless of filing 
status.
---------------------------------------------------------------------------

Basic standard deduction

    Taxpayers who do not itemize deductions may choose the 
basic standard deduction (and additional standard deductions, 
if applicable), which is subtracted (along with the deduction 
for personal exemptions) from adjusted gross income (``AGI'') 
in arriving at taxable income. The size of the basic standard 
deduction varies according to filing status and is indexed for 
inflation. For 1999, the size of the basic standard deduction 
is as follows:

                                                          Basic standard
        Filing status                             deduction 2
Married, joint return.........................................    $7,200
Head of household return......................................     6,250
Single return.................................................     4,300
Married, separate return......................................     3,600

    For 1999, the basic standard deduction for joint returns is 
1.674 times the basic standard deduction for single returns. 
---------------------------------------------------------------------------
    \2\ Joint Committee on Taxation staff projections.
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee is concerned about the inequity of the 
marriage penalty created by the present-law income tax. The 
Committee believes that relief from the marriage penalty is 
needed because the marriage penalty may undermine respect for 
the family and may discourage family formation. Any attempt to 
address the marriage penalty involves the balancing of several 
competing principles, including equal tax treatment of married 
couples with equal incomes and the determination of equitable 
relative tax burdens of single individuals and married couples 
with equal incomes. The Committee believes that an increase in 
the standard deduction for married couples filing a joint 
return is a responsible first step towards removing the 
marriage penalty. It provides tax relief in 2003 to 
approximately 24 million joint returns, including more than 6 
million returns filed by senior citizens.3 
Approximately 3 million returns which currently itemize their 
deductions will realize the simplification benefits of using 
the basic standard deduction.4
---------------------------------------------------------------------------
    \3\ Joint Committee on Taxation staff projections of the number of 
tax returns affected.
    \4\ Joint Committee on Taxation staff projections of the number of 
tax returns affected.
---------------------------------------------------------------------------

                        Explanation of Provision

    The bill increases the basic standard deduction for a 
married couple filing a joint return to twice the basic 
standard deduction for an unmarried individual in each taxable 
year. This increase is phased-in over three years beginning in 
2001 by increasing the standard deduction for a married couple 
filing a joint return to 1.778 times the standard deduction for 
an unmarried individual in 2001 and to 1.889 times such amount 
in 2002. Therefore, the provision is fully effective, (i.e., 
the basic standard deduction for a married couple will be twice 
the basic standard deduction for an unmarried individual) for 
taxable years beginning after December 31, 2002. Also, the 
basic standard deduction for a married taxpayer filing 
separately will be increased so that it will continue to equal 
one-half of the basic standard deduction for a married couple 
filing jointly. The basic standard deduction for a head of 
household will be unchanged.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2000.

2. Adjust student loan interest deduction income limits (sec. 112 of 
        the bill and sec. 221 of the Code)

                              Present Law

    Certain individuals who have paid interest on qualified 
education loans may claim an above-the-line deduction for such 
interest expenses, subject to a maximum annual deduction limit 
(sec. 221). The deduction is allowed only with respect to 
interest paid on a qualified education loan during the first 60 
months in which interest payments are required. Required 
payments of interest generally do not include nonmandatory 
payments, such as interest payments made during a period of 
loan forbearance. Months during which interest payments are not 
required because the qualified education loan is in deferral or 
forbearance do not count against the 60-month period. No 
deduction is allowed to an individual if that individual is 
claimed as a dependent on another taxpayer's return for the 
taxable year.
    A qualified education loan generally is defined as any 
indebtedness incurred solely to pay for certain costs of 
attendance (including room and board) of a student (who may be 
the taxpayer, the taxpayer's spouse, or any dependent of the 
taxpayer as of the time the indebtedness was incurred) who is 
enrolled in a degree program on at least a half-time basis at 
(1) an accredited post-secondary educational institution 
defined by reference to section 481 of the Higher Education Act 
of 1965, or (2) an institution conducting an internship or 
residency program leading to a degree or certificate from an 
institution of higher education, a hospital, or a health care 
facility conducting postgraduate training.
    The maximum allowable deduction per taxpayer return is 
$1,500 in 1999, $2,000 in 2000, and $2,500 in 2001 and 
thereafter.5 The deduction is phased out ratably for 
individual taxpayers with modified adjusted gross income of 
$40,000-$55,000 and $60,000-$75,000 for joint returns. The 
income ranges will be indexed for inflation after 2002.
---------------------------------------------------------------------------
    \5\ The maximum allowable deduction for 1998 was $1,000.
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee is concerned about the inequity of the 
marriage penalty resulting from the phase-out provisions of the 
student loan interest deduction. The Committee believes that 
relief from the marriage penalty is appropriate for individuals 
with education loan obligations in order to assist in removing 
tax considerations from decisions regarding marriage.

                        Explanation of Provision

    The bill increases the beginning point of the income 
phaseout for the student loan interest deduction for taxpayers 
filing joint returns to twice the beginning point of the income 
phaseouts applicable to single taxpayers and doubles the 
phaseout range for joint filers. Thus, beginning in 2000, the 
deduction is phased out ratably for taxpayers filing joint 
returns with modified adjusted gross income of $80,000 to 
$110,000.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1999.

3. Increase income limit for Roth IRA conversions (sec. 113 of the bill 
        and sec. 408A of the Code)

                              Present Law

    Individuals with adjusted gross income below certain levels 
may make nondeductible contributions to a Roth IRA. The maximum 
annual contribution that an individual may make to a Roth IRA 
is the lesser of $2,000 or the individual's compensation for 
the year. This contribution limit is reduced to the extent an 
individual makes contributions to any other IRA for the same 
taxable year. With respect to married individuals, 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 
Roth IRA contribution is phased out for single individuals with 
AGI between $95,000 and $110,000, and for married individuals 
filing joint returns with AGI between $150,000 and $160,000.
    A taxpayer with AGI of $100,000 or less generally may 
convert a deductible or nondeductible IRA into a Roth IRA, 
unless the taxpayer is a married individual filing a separate 
return. The value of the IRA that is converted is includible in 
income as if the taxpayer made a withdrawal, except that the 
10-percent early withdrawal tax does not apply.

                           Reasons for Change

    The present-law income limits for conversions to Roth IRAs 
create a marriage penalty, because the same income limit 
applies to single filers and married couples filing a joint 
return. The Committee believes it appropriate to reduce this 
marriage penalty by increasing the income limit for married 
filers to the upper end of the Roth IRA contribution phase-out 
range for married couples filing joint returns.

                        Explanation of Provision

    The bill increases for married individuals filing joint 
return the present-law $100,000 AGI limitation on conversion of 
a deductible or nondeductible IRA into a Roth IRA. The 
increased AGI limitation matches the upper end of the Roth IRA 
contribution phase-out range for married individuals filing 
joint returns. Therefore, married individuals filing joint 
returns with AGI not exceeding $160,000 are permitted to 
convert a deductible or nondeductible IRA into a Roth IRA.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1999.

              C. Repeal Individual Alternative Minimum Tax


             (sec. 121 of the bill and sec. 55 of the Code)


                              Present Law

In general

    Present law imposes a minimum tax (``AMT'') on an 
individual to the extent the taxpayer's minimum tax liability 
exceeds his or her regular tax liability. The AMT is imposed on 
individuals at rates of (1) 26 percent on the first $175,000 of 
alternative minimum taxable income (``AMTI'') in excess of a 
phased-out exemption amount and (2) 28 percent on the remaining 
AMTI. The exemptions amounts are $45,000 in the case of married 
individuals filing a joint return and surviving spouses; 
$33,750 in the case of other unmarried individuals; and $22,500 
in the case of married individuals filing a separate return. 
These exemption amounts are phased-out by an amount equal to 25 
percent of the amount that the individual's AMTI exceeds a 
threshold amount. These threshold amounts are $150,000 in the 
case of married individuals filing a joint return and surviving 
spouses; $112,500 in the case of other unmarried individuals; 
and $75,000 in the case of married individuals filing a 
separate return, estates, and trusts. The exemption amounts, 
the threshold phase-out amounts, and the $175,000 break-point 
amount are not indexed for inflation. The lower capital gains 
rates applicable to the regular tax apply for purposes of the 
AMT.
    AMTI is the taxpayer's taxable income increased by certain 
preference items and adjusted by determining the tax treatment 
of certain items in a manner that negates the deferral of 
income resulting from the regular tax treatment of those items.

Preference items in computing AMTI

    The minimum tax preference items are:
    (1) The excess of the deduction for percentage depletion 
over the adjusted basis of the property at the end of the 
taxable year. This preference does not apply to percentage 
depletion allowed with respect to oil and gas properties.
    (2) The amount by which excess intangible drilling costs 
arising in the taxable year exceed 65 percent of the net income 
from oil, gas, and geothermal properties. This preference does 
not apply to an independent producer to the extent the 
preference would not reduce the producer's AMTI by more than 40 
percent.
    (3) Tax-exempt interest income on private activity bonds 
(other than qualified 501(c)(3) bonds) issued after August 7, 
1986.
    (4) Accelerated depreciation or amortization on certain 
property placed in service before January 1, 1987.
    (5) Forty-two percent of the amount excluded from income 
under section 1202 (relating to gains on the sale of certain 
small business stock).
    In addition, losses from any tax shelter, farm, or passive 
activities are denied.6
---------------------------------------------------------------------------
    \6\ Given the passage of section 469 by the Tax Reform Act of 1986 
(relating to the deductibility of losses from passive activities), 
these provisions are largely ``deadwood.''
---------------------------------------------------------------------------

Adjustments in computing AMTI

    The adjustments that individuals must make in computing 
AMTI are:
    (1) Depreciation on property placed in service after 1986 
and before January 1, 1999, must be computed by using the 
generally longer class lives prescribed by the alternative 
depreciation system of section 168(g) and either (a) the 
straight-line method in the case of property subject to the 
straight-line method under the regular tax or (b) the 150-
percent declining balance method in the case of other property. 
Depreciation on property placed in service after December 31, 
1998, is computed by using the regular tax recovery periods and 
the AMT methods described in the previous sentence.
    (2) Mining exploration and development costs must be 
capitalized and amortized over a 10-year period.
    (3) Taxable income from a long-term contract (other than a 
home construction contract) must be computed using the 
percentage of completion method of accounting.
    (4) The amortization deduction allowed for pollution 
control facilities placed in service before January 1, 1999 
(generally determined using 60-month amortization for a portion 
of the cost of the facility under the regular tax), must be 
calculated under the alternative depreciation system 
(generally, using longer class lives and the straight-line 
method). The amortization deduction allowed for pollution 
control facilities placed in service after December 31, 1998, 
is calculated using the regular tax recovery periods and the 
straight-line method.
    (5) Miscellaneous itemized deductions are not allowed.
    (6) Itemized deductions for State, local, and foreign real 
property taxes, State and local personal property taxes, and 
State, local, and foreign income, war profits, and excess 
profits taxes are not allowed.
    (7) Medical expenses are allowed only to the extent they 
exceed 10 percent of the taxpayer's adjusted gross income 
(AGI).
    (8) Standard deductions and personal exemptions are not 
allowed.
    (9) The amount allowable as a deduction for circulation 
expenditures must be capitalized and amortized over a 3-year 
period.
    (10) The amount allowable as a deduction for research and 
experimental expenditures must be capitalized and amortized 
over a 10-year period.7
---------------------------------------------------------------------------
    \7\ No adjustment is required if the taxpayer materially 
participates in the activity that relates to the research and 
experimental expenditures.
---------------------------------------------------------------------------
    (11) The regular tax rules relating to incentive stock 
options do not apply.

Other rules

    The combination of the taxpayer's net operating loss 
carryover and foreign tax credits cannot reduce the taxpayer's 
AMT liability by more than 90 percent of the amount determined 
without these items.
    The various nonrefundable credits allowed under the regular 
tax generally are allowed only to the extent that the 
individual's regular tax exceeds the tentative minimum tax. The 
earned income credit and the child credit of those taxpayers 
with three or more qualified children are refundable credits 
and may offset the taxpayer's tentative minimum tax. However, a 
taxpayer must reduce these refundable credits by the amount the 
taxpayer's tentative minimum tax exceeds his or her regular tax 
liability.8
---------------------------------------------------------------------------
    \8\ For 1998 only, the nonrefundable personal credits were not 
limited by the tentative minimum tax, and the refundable child credit 
was not reduced by the minimum tax.
---------------------------------------------------------------------------
    If an individual is subject to AMT in any year, the amount 
of tax exceeding the taxpayer's regular tax liability is 
allowed as a credit (the ``AMT credit'') in any subsequent 
taxable year to the extent the taxpayer's regular tax liability 
exceeds his or her tentative minimum tax in such subsequent 
year. For individuals, the AMT credit is allowed only to the 
extent the taxpayer's AMT liability is a result of adjustments 
that are timing in nature. Most individual AMT adjustments 
relate to itemized deductions and personal exemptions and are 
not timing in nature.

                           Reasons for Change

    The Committee is concerned that the individual AMT is a 
source of great complexity for an increasing number of 
individual taxpayers. Therefore the bill repeals the individual 
AMT.

                        Explanation of Provision

    The bill allows an individual to offset the entire regular 
tax liability (without regard to the minimum tax) by the 
personal nonrefundable credits. The bill also repeals the 
provision reducing the refundable child credit by the AMT.
    The bill phase-outs the individual AMT. For taxable years 
beginning in 2003, only 80 percent of the full AMT liability 
will be imposed. That percentage will be reduced to 70 percent 
in 2004, 60 percent in 2005, 50 percent in 2006 and 2007, and 
the AMT will be fully repealed for taxable years beginning 
after 2007.
    An individual will be allowed to use the AMT credit to 
offset 90 percent of its regular tax liability (determined 
after the application of the other nonrefundable credits).
    The repeal of the individual AMT will eliminate the 
present-law marriage penalty in the individual AMT.

                            Effective Dates

    The provisions relating to the personal credits are 
effective for taxable years beginning after December 31, 1998. 
The phase-out of the AMT will be effective for taxable years 
beginning after December 31, 2002. The repeal of the AMT and 
the provision relating to the use of AMT credits apply to 
taxable years beginning after December 31, 2007.

         TITLE II. SAVINGS AND INVESTMENT TAX RELIEF PROVISIONS


            A. Partial Exclusion for Interest and Dividends


          (sec. 201 of the bill and new sec. 116 of the Code)


                              Present Law

    The Code states that, except as otherwise provided, ``gross 
income means all income from whatever source derived'' (sec. 
61). Because there is no exclusion for interest and dividends, 
interest and dividends received by individuals are includible 
in gross income and subject to tax.

                           Reasons for Change

    The Committee believes that an exclusion from income for 
interest and dividends will provide an incentive for saving and 
will simplify the tax returns of a number of individuals. 
Approximately 65 million tax returns for 2003 will reflect tax 
savings as a result of this provision; out of that number, 
approximately 30 million tax returns will reflect a total 
exclusion from tax for all interest and dividends 
received.9
---------------------------------------------------------------------------
    \9\ Joint Committee on Taxation staff projections.
---------------------------------------------------------------------------

                        Explanation of Provision

    The bill gives individual taxpayers an exclusion from 
income of interest and dividends (other than capital gain 
dividends from RICs and REITs, dividends from farmers' 
cooperative associations, and dividends received from an 
employee stock ownership plan), received during a taxable 
year.10 The maximum exclusion from income is $100 of 
combined interest and dividends ($200 for married couples 
filing a joint return) for taxable years beginning after 
December 31, 2000. The maximum exclusion is $200 of combined 
interest and dividends ($400 for married couples filing a joint 
return) for taxable years beginning after December 31, 2002. 
The amount of the combined interest and dividends excluded 
under this proposal is in addition to the amount of any 
interest or dividend which is exempt from tax under any other 
provision (e.g., interest on certain State and local bonds 
which is exempt from tax under section 103 of the Code).
---------------------------------------------------------------------------
    \10\ From 1954 until 1986, the Code (sec. 116) contained an 
exclusion from income (in varying amounts) for dividends. For 1981 
only, that provision was also extended to interest; this proposal is 
generally parallel to that provision. The exclusion for dividends was 
repealed by the Tax Reform Act of 1986.
---------------------------------------------------------------------------
    In determining eligibility for the earned income credit 
(``EIC''), any interest or dividends excluded from gross income 
under this provision are included in modified adjusted gross 
income for purposes of phase-out rules of the EIC and 
disqualified income for purposes of the EIC disqualified income 
test. Similarly, any interest or dividends excluded from gross 
income under this provision are included in modified adjusted 
gross income for purposes of the taxation of certain Social 
Security benefits.
    The fact that dividends may be excluded from income 
pursuant to this provision does not affect the computation of 
the foreign tax credit.
    The exclusion under this provision is in addition to, and 
is applied after, the exclusion for educational savings bond 
interest (sec. 135). In applying those provisions of the Code 
(such as secs. 86, 219, 221, and 469) that determine modified 
adjusted gross income without regard to section 135, it is 
intended that the exclusion under this provision be computed 
without regard to the exclusion under section 135.
    In addition, the Committee encourages the IRS to simplify 
the process of completing tax forms to the greatest extent 
practicable, including, for example, considering raising the 
administratively-established dollar thresholds for completing 
Schedule B or for being able to use the Form 1040EZ.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2000.

                B. Reduce Individual Capital Gains Rates


         (sec. 202 of the bill and secs. 1 and 55 of the Code)


                              Present Law

    In general, gain or loss reflected in the value of an asset 
is not recognized for income tax purposes until a taxpayer 
disposes of the asset. On the sale or exchange of capital 
assets, any gain generally is included in income, and the net 
capital gain of an individual is taxed at maximum rates lower 
than the rates applicable to ordinary income. Net capital gain 
is the excess of the net long-term capital gain for the taxable 
year over the net short-term capital loss for the year. Gain or 
loss is treated as long-term if the asset is held for more than 
one year.
    A capital asset generally means any property except (1) 
inventory, stock in trade, or property held primarily for sale 
to customers in the ordinary course of the taxpayer's trade or 
business, (2) depreciable or real property used in the 
taxpayer's trade or business, (3) specified literary or 
artistic property, (4) business accounts or notes receivable, 
or (5) certain U.S. publications. In addition, the net gain 
from the disposition of certain property used in the taxpayer's 
trade or business is treated as long-term capital gain. Gain 
from the disposition of depreciable personal property is not 
treated as capital gain to the extent of all previous 
depreciation allowances. Gain from the disposition of 
depreciable real property is generally not treated as capital 
gain to the extent of the depreciation allowances in excess of 
the allowances that would have been available under the 
straight-line method of depreciation.
    The maximum rate of tax on the adjusted net capital gain of 
an individual is 20 percent. In addition, any adjusted net 
capital gain which otherwise would be taxed at the lowest 
individual rate (currently 15 percent) is taxed at a 10-percent 
rate. These rates apply for purposes of both the regular tax 
and the alternative minimum tax.
    The ``adjusted net capital gain'' of an individual is the 
net capital gain reduced (but not below zero) by the sum of the 
28-percent rate gain and the unrecaptured section 1250 gain. 
The net capital gain is reduced by the amount of gain which the 
individual treats as investment income for purposes of 
determining the investment interest limitation under section 
163(d).
    The term ``28-percent rate gain'' means the amount of net 
gain attributable to long-term capital gains and losses from 
the sale or exchange of collectibles (as defined in section 
408(m) without regard to paragraph (3) thereof) (``collectibles 
gain and loss''), an amount of gain equal to the amount of gain 
excluded from gross income under section 1202, relating to 
certain small business stock (``section 1202 
gain''),11 the net short-term capital loss for the 
taxable year, and any long-term capital loss carryover to the 
taxable year.
---------------------------------------------------------------------------
    \11\ This results in a maximum effective regular tax rate on 
qualified gain from small business stock of 14 percent.
---------------------------------------------------------------------------
    ``Unrecaptured section 1250 gain'' means any long-term 
capital gain from the sale or exchange of section 1250 property 
(i.e., depreciable real estate) held more than one year to the 
extent of the gain that would have been treated as ordinary 
income if section 1250 applied to all depreciation, rather than 
only to a portion of the depreciation, reduced by the net loss 
(if any) attributable to the items taken into account in 
computing 28-percent rate gain. The amount of unrecaptured 
section 1250 gain (before the reduction for the net loss) 
attributable to the disposition of property to which section 
1231 applies shall not exceed the net section 1231 gain for the 
year.
    The unrecaptured section 1250 gain is taxed at a maximum 
rate of 25 percent, and the 28-percent rate gain is taxed at a 
maximum rate of 28 percent.
    For taxable years beginning after December 31, 2000, any 
gain from the sale or exchange of property held more than five 
years which would otherwise be taxed at the 10-percent rate 
will instead be taxed at an 8-percent rate. Any gain from the 
sale or exchange of property held more than five years and the 
holding period for which begins after December 31, 2000, which 
would otherwise be taxed at a 20-percent rate will be taxed at 
an 18-percent rate. A taxpayer holding a capital asset or 
property used in the trade or business on January 1, 2001, may 
elect to treat the asset as having been sold in a taxable 
transaction on that date for an amount equal to its fair market 
value, and having been reacquired for an amount equal to such 
value.

                           Reasons for Change

    The Committee believes it is important that tax policy be 
conducive to economic growth. Economic growth cannot occur 
without savings, investment, and the willingness of individuals 
to take risks. The greater the pool of savings, the greater the 
monies available for business investment. It is through such 
investment that the United States' economy can increase output 
and productivity. It is through increases in productivity that 
workers earn higher real wages. Hence, a greater saving rate is 
necessary for all Americans to benefit from a higher standard 
of living.
    The Committee believes that, by reducing the effective tax 
rates on capital gains, American households will respond by 
increasing savings. The Committee believes it is important to 
encourage risk-taking and believes a reduction in the taxation 
of capital gains will have that effect. The Committee also 
believes that a reduction in the taxation of capital gains will 
improve the efficiency of the markets, because the taxation of 
capital gains upon realization encourages investors who have 
accrued past gains to keep their monies ``locked in'' to such 
investments even when better investment opportunities present 
themselves. A reduction in the taxation of capital gains should 
reduce this ``lock in'' effect.

                        Explanation of Provision

    The bill reduces the 10- and 20-percent rates on the 
adjusted net capital gain to 7.5 and 15 percent, respectively. 
The 25-percent rate on unrecaptured section 1250 gain is 
reduced to 20 percent. These lower rates apply to both the 
regular tax and the alternative minimum tax.12
---------------------------------------------------------------------------
    \12\ The provision does not change the regular tax rate for gain 
from collectibles and small business stock. The provision reduces the 
maximum effective AMT rate on small business stock to slightly below 15 
percent (depending on the amount of individual rate cut for the taxable 
year).
---------------------------------------------------------------------------
    The provision repeals the 8- and 18-percent rates on 
certain gain from property held more than 5 years.

                             Effective Date

    The provision applies to taxable years ending on or after 
July 1, 1999.
    For taxable years which include July 1, 1999, the lower 
rates apply to amounts properly taken into account for the 
portion of the year on or after that date. This generally has 
the effect of applying the lower rates to capital assets sold 
or exchanged (and installment payments received) on or after 
July 1, 1999. In the case of gain taken into account by a pass-
through entity, the date taken into account by the entity is 
the appropriate date for applying this rule.

   C. Apply Capital Gain Rates to Capital Gains Earned by Designated 
                            Settlement Funds


            (sec. 203 of the bill and sec. 468B of the Code)


                              Present Law

    Under present law, designated settlement funds are taxed at 
the highest rate of tax imposed on individuals, currently 39.6 
percent, on their entire taxable income (sec. 468B).

                           Reasons for Change

    The Committee believes that the net capital gain of a 
designated settlement fund should be taxed at the same rates as 
the net capital gain of an individual.

                        Explanation of Provision

    Under the bill, the net capital gain of a designated 
settlement fund will be taxed in the same manner as in the case 
of an individual, i.e., the lower rates applicable to net 
capital gain set forth in section 1(h), as amended by the bill, 
will apply.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1999.

 D. Exclusion of Gain on the Sale of a Principal Residence by a Member 
of the Uniformed Service or the Foreign Service of the United States or 
    Certain Other Individuals Relocated Outside of the United States


            (sec. 204 of the bill and sec. 121 of the Code)


                              Present Law

    Under present law, an individual taxpayer may exclude up to 
$250,000 ($500,000 if married filing a joint return) of gain 
realized on the sale or exchange of a principal residence. To 
be eligible for the exclusion, the taxpayer must have owned and 
used the residence as a principal residence for at least two of 
the five years prior to the sale or exchange. A taxpayer who 
fails to meet these requirements by reason of a change of place 
of employment, health, or, to the extent provided under 
regulations, unforeseen circumstances is able to exclude an 
amount equal to the fraction of the $250,000 ($500,000 if 
married filing a joint return) that is equal to the fraction of 
the two years that the ownership and use requirements are met. 
There are no special rules relating to: (1) members of the 
uniformed services or the Foreign Service of the United States 
or (2) individuals relocated outside of the United States.

                           Reasons for Change

    The Committee believes that members of the uniformed 
services and the Foreign Service of the United States who would 
otherwise qualify for the exclusion of the gain on the sale of 
a principal residence should not be deprived the exclusion 
because of service to their country. Further, the Committee 
believes that when an employee is relocated outside of the 
United States for an extended period of time that such 
individual and the individual's spouse should not be deprived 
of the exclusion if the absence from the principal residence 
does not exceed five years.

                        Explanation of Provision

    Under the bill, the five-year test period for ownership and 
use is suspended during certain absences due to service in the 
uniformed services or the Foreign Service of the United States. 
The uniformed services include: (1) the armed forces (the Army, 
Navy, Air Force, Marine Corp, and Coast Guard); (2) the 
commissioned corps of the National Oceanic and Atmospheric 
Administration; and (3) the commissioned corps of the Public 
Health Service. Specifically, the five-year period ending on 
the date of the sale or exchange of a principal residence will 
not include any periods during which the taxpayer or the 
taxpayer's spouse is on qualified official extended duty as a 
member of the uniformed services or the Foreign Service of the 
United States. Qualified official extended duty is any period 
of extended duty by a member of the uniformed services or the 
Foreign Service of the United States while serving at a place 
of duty at least 50 miles away from the taxpayer's principal 
residence or under orders compelling residence in Government 
furnished quarters. Extended duty is defined as any period of 
active duty pursuant to a call or order to such duty for a 
period in excess of 90 days or for an indefinite period.
    The bill also suspends for up to five years, the five-year 
test period for an individual relocated for a period of more 
than 90 days outside of the United States by the individual's 
(or spouse's ) employer. This provision does not apply to self-
employed individuals.

                             Effective Date

    The provision is effective for sales or exchanges of 
principal residences after the date of enactment.

    E. Clarify the Tax Treatment of Income and Losses on Derivatives


            (sec. 205 of the bill and sec. 1221 of the Code)


                              Present Law

    Capital gain treatment applies to gain on the sale or 
exchange of a capital asset. Capital assets include property 
other than (1) stock in trade or other types of assets 
includible in inventory, (2) property used in a trade or 
business that is real property or property subject to 
depreciation, (3) accounts or notes receivable acquired in the 
ordinary course of a trade or business, or (4) certain 
copyrights (or similar property) and U.S. government 
publications. Gain or loss on such assets generally is treated 
as ordinary, rather than capital, gain or loss. Certain other 
Code sections also treat gains or losses as ordinary. For 
example, the gains or losses of securities dealers or certain 
electing commodities dealers or electing traders in securities 
or commodities that are subject to ``mark-to-market'' 
accounting are treated as ordinary (sec. 475).
    Under case law in a number of Federal courts prior to 1988, 
business hedges generally were treated as giving rise to 
ordinary, rather than capital, income or loss. In 1988, the 
U.S. Supreme Court rejected this interpretation in Arkansas 
Best v. Commissioner which, relying on the statutory definition 
of a capital asset described above, held that a loss realized 
on a sale of stock was capital even though the stock was 
purchased for a business, rather than an investment, purpose. 
13
---------------------------------------------------------------------------
    \13\ 485 U.S. 212 (1988).
---------------------------------------------------------------------------
    Treasury regulations (which were finalized in 1994) require 
ordinary character treatment for most business hedges and 
provide timing rules requiring that gains or losses on hedging 
transactions be taken into account in a manner that matches the 
income or loss from the hedged item or items. The regulations 
apply to hedges that meet a standard of ``risk reduction'' with 
respect to ordinary property held (or to be held) or certain 
liabilities incurred (or to be incurred) by the taxpayer and 
that meet certain identification and other requirements (Treas. 
reg. sec. 1.1221-2).

                           Reasons for Change

    Derivative financial instruments entered into by securities 
dealers generally are required to be marked to market and the 
resulting gain or loss is automatically treated as ordinary 
income or loss under section 475. With respect to commodities 
derivative financial instruments entered into by a commodities 
derivatives dealer, on the other hand, the character of the 
gains and losses therefrom may be unclear (absent an election 
to be treated the same as a dealer in securities under section 
475). The Committee is concerned that this uncertainty (i.e., 
the potential for capital treatment of the commodities 
derivatives financial instruments) could inhibit commodities 
derivatives dealers from entering into transactions with 
respect to commodities derivative financial instruments that 
qualify as ``hedging transactions'' within the meaning of the 
Treasury regulations under section 1221. The Committee believes 
that commodities derivatives financial instruments are 
integrally related to the ordinary course of the trade or 
business of commodities derivatives dealers and, therefore, 
such assets should be treated as ordinary assets.
    The Committee further believes that ordinary character 
treatment is appropriate for business hedges with respect to 
ordinary property. The Committee believes that the approach 
taken in Treasury regulations with respect to the character of 
hedging transactions generally should be codified. The Treasury 
regulations model the definition of a hedging transaction after 
the present-law definition contained in section 1256, which 
generally requires that a hedging transaction ``reduces'' a 
taxpayer's risk. The Committee believes that a ``risk 
management'' standard better describes modern business hedging 
practices that appropriately should be accorded ordinary 
character treatment. In fact, Treasury regulations 
appropriately interpret risk reduction flexibly within the 
constraints of present law. For example, the regulations 
recognize that certain transactions that economically convert 
an interest rate or price from a fixed rate or price to a 
floating rate or price may qualify as hedging transactions. 
14 Similarly, the regulations provide hedging 
treatment for certain written call options, hedges of aggregate 
risk, dynamic hedges under which a taxpayer can more frequently 
manage or adjust its exposure to identified risk, partial 
hedges, ``recycled'' hedges (using a position entered into to 
hedge one asset or liability to hedge another asset or 
liability), and hedges of aggregate risk. 15 The 
Committee believes that (depending on the facts) treatment of 
such transactions as hedging transactions is appropriate and 
that it also is appropriate to modernize the definition of a 
hedging transaction by providing risk management as the 
standard.
---------------------------------------------------------------------------
    \14\ Treas. Reg. sec. 1. 1221-2(c)(1)(ii)(B).
    \15\ See Treas. Reg. sec. 1.1221-2(c).
---------------------------------------------------------------------------
    The Committee does not intend that speculative transactions 
or other transactions not entered into in the normal course of 
a taxpayer's trade or business should qualify for ordinary 
character treatment, and risk management should not be 
interpreted so broadly as to cover such transactions. In 
addition, to minimize whipsaw potential, the Committee believes 
that it is essential for hedging transactions to be properly 
identified by the taxpayer when the hedging transaction is 
entered into.
    Finally, because hedging status under present law is 
dependent upon the ordinary character of the property being 
hedged, an issue arises with respect to hedges of certain 
supplies, sales of which could give rise to capital gain, but 
which are generally consumed in the ordinary course of a 
taxpayer's trade or business and that would give rise to 
ordinary deductions. For purposes of defining a hedging 
transaction, Treasury regulations treat such supplies as 
ordinary property. 16 The Committee believes that it 
is appropriate to confirm this treatment by specifying that 
such supplies are ordinary assets.
---------------------------------------------------------------------------
    \16\ Treas. Reg. sec. 1.1221-2(c)(5)(ii).
---------------------------------------------------------------------------

                        Explanation of Provision

    The bill adds three categories to the list of assets the 
gain or loss on which is treated as ordinary (sec. 1221). The 
new categories are: (1) commodities derivative financial 
instruments entered into by derivatives dealers; (2) hedging 
transactions; and (3) supplies of a type regularly consumed by 
the taxpayer in the ordinary course of a taxpayer's trade or 
business.
    For this purpose, a commodities derivatives dealer is any 
person that regularly offers to enter into, assume, offset, 
assign or terminate positions in commodities derivative 
financial instruments with customers in the ordinary course of 
a trade or business. A commodities derivative financial 
instrument means a contract or financial instrument with 
respect to commodities, the value or settlement price of which 
is calculated by reference to any combination of a fixed rate, 
price, or amount, or a variable rate, price, or amount, which 
is based on current, objectively determinable financial or 
economic information. This includes swaps, caps, floors, 
options, futures contracts, forward contracts, and similar 
financial instruments with respect to commodities. It does not 
include shares of stock in a corporation; a beneficial interest 
in a partnership or trust; a note, bond, debenture, or other 
evidence of indebtedness; or a contract to which section 1256 
applies.
    In defining a hedging transaction, the provision generally 
codifies the approach taken by the Treasury regulations, but 
modifies the rules. The ``risk reduction'' standard of the 
regulations is broadened to ``risk management'' with respect to 
ordinary property held (or to be held) or certain liabilities 
incurred (or to be incurred). As under the Treasury 
regulations, the transaction must be identified as a hedge of 
specified property. It is intended that this be the exclusive 
means through which the gains or losses with respect to a 
hedging transaction are treated as ordinary. Authority is 
provided for Treasury regulations that would address improperly 
identified or non-identified hedging transactions. The Treasury 
Secretary is also given authority to apply these rules to 
related parties.

                             Effective Date

    The provision is effective for any instrument held, 
acquired or entered into, any transaction entered into, and 
supplies held or acquired on or after the date of enactment.

         F. Treatment of Loss on Worthless Stock of Subsidiary


         (sec. 206 of the bill and sec. 165(g)(3) of the Code)


                              Present Law

    Under present law, the loss on stock of a subsidiary 
corporation that becomes worthless is treated as an ordinary 
loss (rather than a capital loss), unless 10 percent or more of 
its gross receipts for all taxable years has been, with minor 
exceptions, from royalties, rents, dividends, interest, 
annuities, and gains from the sales or exchanges of stocks and 
securities (sec. 165(g)(3)).

                           Reasons for Change

    The Committee believes that the worthless stock of an 
insurance company or financial institution that is engaged in 
an active business should be treated the same as the worthless 
stock of other active businesses.

                        Explanation of Provision

    Under the bill, income from the conduct of an active trade 
or business of an insurance company or financial institution 
will not be included as gross receipts from the types of 
passive income listed above. Thus, a loss recognized with 
respect to the worthless stock of a subsidiary corporation 
which is an insurance company or financial institution could be 
treated as an ordinary loss, rather than as a capital loss.

                             Effective Date

    The provision applies to stock becoming worthless in 
taxable years beginning after December 31, 1999.

            TITLE III. BUSINESS INVESTMENT AND JOB CREATION


             A. Alternative Tax for Corporate Capital Gains


            (sec. 301 of the bill and sec. 1201 of the Code)


                              Present Law

    Under present law, the net capital gain of a corporation is 
taxed at the same rates as ordinary income, and subject to tax 
at graduated rates up to 35 percent.

                           Reasons for Change

    The Committee believes it is important that tax policy be 
conducive to economic growth. Economic growth cannot occur 
without savings, investment, and the willingness of business to 
take risks and exploit new economic opportunities. The greater 
the pool of savings, the greater the monies available for 
business investment in equipment and research. It is through 
such investment in equipment and new products and services that 
the United States economy can increase output and productivity. 
It is through increases in productivity that workers earn 
higher real wages. Hence, a greater saving rate is necessary 
for all Americans to benefit through a higher standard of 
living.
    The Committee observes that the net business saving rate 
has not increased significantly from its levels of a decade 
ago. The Committee believes that a lower rate of tax on 
corporate capital gains will encourage investment, saving, and 
risk-taking, create new jobs, and promote economic growth.

                        Explanation of Provision

    Under the bill, an alternative tax applies to the net 
capital gain of a corporation if that tax is lower than the 
corporation's regular tax. For taxable years beginning in 2000, 
the rate of the alternative tax is 34.1 percent. The 
alternative tax rate is reduced for each subsequent year, until 
a 25-percent rate is reached. The 25-percent rate applies to 
taxable years beginning after 2009.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1999.

              B. Repeal Corporate Alternative Minimum Tax


           (sec. 302(a) of the bill and sec. 55 of the Code)


                              Present Law

In general

    Present law imposes a minimum tax on a corporation to the 
extent the corporation's minimum tax liability exceeds its 
regular tax liability. This alternative minimum tax (``AMT'') 
is imposed on corporations at the rate of 20 percent on the 
alternative minimum taxable income (``AMTI'') in excess of a 
$40,000 phased-out exemption amount. The exemption amount is 
phased-out by an amount equal to 25 percent of the amount that 
the corporation's AMTI exceeds $150,000.
    AMTI is the taxpayer's taxable income increased by certain 
preference items and adjusted by determining the tax treatment 
of certain items in a manner that negates the deferral of 
income resulting from the regular tax treatment of those items.
    A corporation with average gross receipts of less than $7.5 
million for the prior three taxable years is exempt from the 
corporate minimum tax. The $7.5 million threshold is reduced to 
$5 million for the corporation's first 3-taxable year period.

Preference items in computing AMTI

    The corporate minimum tax preference items are:
    (1) The excess of the deduction for percentage depletion 
over the adjusted basis of the property at the end of the 
taxable year. This preference does not apply to percentage 
depletion allowed with respect to oil and gas properties.
    (2) The amount by which excess intangible drilling costs 
arising in the taxable year exceed 65 percent of the net income 
from oil, gas, and geothermal properties. This preference does 
not apply to an independent producer to the extent the 
preference would not reduce the producer's AMTI by more than 40 
percent.
    (3) Tax-exempt interest income on private activity bonds 
(other than qualified 501(c)(3) bonds) issued after August 7, 
1986.
    (4) Accelerated depreciation or amortization on certain 
property placed in service before January 1, 1987.

Adjustments in computing AMTI

    The adjustments that corporations must make in computing 
AMTI are:
    (1) Depreciation on property placed in service after 1986 
and before January 1, 1999, must be computed by using the 
generally longer class lives prescribed by the alternative 
depreciation system of section 168(g) and either (a) the 
straight-line method in the case of property subject to the 
straight-line method under the regular tax or (b) the 150-
percent declining balance method in the case of other property. 
Depreciation on property placed in service after December 31, 
1998, is computed by using the regular tax recovery periods and 
the AMT methods described in the previous sentence.
    (2) Mining exploration and development costs must be 
capitalized and amortized over a 10-year period.
    (3) Taxable income from a long-term contract (other than a 
home construction contract) must be computed using the 
percentage of completion method of accounting.
    (4) The amortization deduction allowed for pollution 
control facilities placed in service before January 1, 1999 
(generally determined using 60-month amortization for a portion 
of the cost of the facility under the regular tax), must be 
calculated under the alternative depreciation system 
(generally, using longer class lives and the straight-line 
method). The amortization deduction allowed for pollution 
control facilities placed in service after December 31, 1998, 
is calculated using the regular tax recovery periods and the 
straight-line method.
    (5) The special rules applicable to Merchant Marine 
construction funds are not applicable.
    (6) The special deduction allowable under section 833(b) 
for Blue Cross and Blue Shield organizations is not allowed.
    (7) The adjusted current earnings adjustment, described 
below.

Adjusted current earning (``ACE'') adjustment

    The adjusted current earnings adjustment is the amount 
equal to 75 percent of the amount by which the adjusted current 
earnings (``ACE'') of a corporation exceeds its AMTI 
(determined without the ACE adjustment and the alternative tax 
net operating loss deduction. In determining ACE the following 
rules apply:
    (1) For property placed in service before 1994, 
depreciation generally is determined using the straight-line 
method and the class life determined under the alternative 
depreciation system.
    (2) Any amount that is excluded from gross income under the 
regular tax but is included for purposes of determining 
earnings and profits is included in determining ACE.
    (3) The inside build-up of a life insurance contract is 
included in ACE (and the related premiums are deductible).
    (4) Intangible drilling costs of integrated oil companies 
must be capitalized and amortized over a 60-month period.
    (5) The regular tax rules of section 173 (allowing 
circulation expenses to be amortized) and section 248 (allowing 
organizational expenses to be amortized) do not apply.
    (6) Inventory must be calculated using the FIFO, rather 
than LIFO, method.
    (7) The installment sales method generally may not be used.
    (8) No loss may be recognized on the exchange of any pool 
of debt obligations for another pool of debt obligations having 
substantially the same effective interest rates and maturities.
    (9) Depletion (other than for oil and gas) must be 
calculated using the cost, rather than the percentage, method.
    (10) In certain cases, the assets of a corporation that has 
undergone an ownership change must be stepped-down to their 
fair market values.

Other rules

    The combination of the taxpayer's net operating loss 
carryover and foreign tax credits cannot reduce the taxpayer's 
AMT liability by more than 90 percent of the amount determined 
without these items.
    The various nonrefundable business credits allowed under 
the regular tax generally are not allowed against the AMT.
    If a corporation is subject to AMT in any year, the amount 
of tax exceeding the taxpayer's regular tax liability is 
allowed as a credit (the ``AMT credit'') in any subsequent 
taxable year to the extent the taxpayer's regular tax liability 
exceeds its tentative minimum tax in such subsequent year.

                           Reasons for Change

    The Committee believes that the corporate AMT inhibits 
capital formation and business enterprise, and is 
administratively complex. Therefore, the bill repeals the 
corporate AMT.

                        Explanation of Provision

    For taxable years beginning in 2003, the limitation on the 
amount of AMT credits allowable to a corporation will be 
increased by 20 percent of the corporation's tentative minimum 
tax. This percentage is raised to 30 and 40 percent, 
respectively, for 2004 and 2005, and is raised to 50 percent 
for 2006 and 2007. The AMT credit may not exceed an amount 
equal to the sum of the regular tax and minimum tax less the 
other nonrefundable credits.
    For taxable years beginning after 2007, the provision 
repeals the corporate AMT. A corporation then will be allowed 
to use the AMT credit to offset 90 percent of its regular tax 
liability (determined after the application of other 
nonrefundable credits).

                             Effective Date

    The provision allowing the AMT credit to be offset a 
portion of the minimum tax applies to taxable years beginning 
after December 31, 2002.
    The provision repealing the AMT applies to taxable years 
beginning after December 31, 2007.

C. Repeal of Limitation of Foreign Tax Credit under Alternative Minimum 
                                  Tax


           (sec. 302(b) of the bill and sec. 59 of the Code)


                              Present Law

    Under present law, taxpayers are subject to an alternative 
minimum tax (``AMT''), which is payable, in addition to all 
other tax liabilities, to the extent that it exceeds the 
taxpayer's regular income tax liability. The tax is imposed at 
a flat rate of 20 percent, in the case of corporate taxpayers, 
on alternative minimum taxable income (``AMTI'') in excess of a 
phased-out exemption amount. The maximum rate for noncorporate 
taxpayers is 28 percent. AMTI is the taxpayer's taxable income 
increased for certain tax preferences and adjusted by 
determining the tax treatment of certain items in a manner 
which negates the exclusion or deferral of income resulting 
from the regular tax treatment of those items.
    Taxpayers are permitted to reduce their AMT liability by an 
AMT foreign tax credit. The AMT foreign tax credit for a 
taxable year is determined under principles similar to those 
used in computing the regular tax foreign tax credit, except 
that (1) the numerator of the AMT foreign tax credit limitation 
fraction is foreign source AMTI and (2) the denominator of that 
fraction is total AMTI.17 Taxpayers may elect to use 
as their AMT foreign tax credit limitation fraction the ratio 
of foreign source regular taxable income to total AMTI (sec. 
59(a)(4)).
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    \17\ Similar to the regular tax foreign tax credit, the AMT foreign 
tax credit is subject to the separate limitation categories set forth 
in section 904(d). Under the AMT foreign tax credit, however, the 
determination of whether any income is high taxed for purposes of the 
high-tax-kick-out rules (sec. 904(d)(2)) is made on the basis of the 
applicable AMT rate rather than the highest applicable rate of regular 
tax.
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    The AMT foreign tax credit for any taxable year generally 
may not offset a taxpayer's entire pre-credit AMT. Rather, the 
AMT foreign tax credit is limited to 90 percent of AMT computed 
without an AMT net operating loss deduction, an AMT energy 
preference deduction, or an AMT foreign tax credit. For 
example, assume that a corporation has $10 million of AMTI, has 
no AMT net operating loss or energy preference deductions, and 
is subject to the AMT. In the absence of the AMT foreign tax 
credit, the corporation's tax liability would be $2 million. 
Accordingly, the AMT foreign tax credit cannot be applied to 
reduce the taxpayer's tax liability below $200,000. Any unused 
AMT foreign tax credit may be carried back 2 years and carried 
forward 5 years for use against AMT in those years under the 
principles of the foreign tax credit carryback and carryforward 
rules set forth in section 904(c).

                           Reasons for Change

    The purpose of the foreign tax credit generally is to 
eliminate the possibility of double taxation (once by the 
foreign jurisdiction and again by the United States) on the 
foreign source income of a U.S. person. The Committee believes, 
however, that the 90-percent limitation on the AMT foreign tax 
credit has the effect of double taxing such income for AMT 
taxpayers and, thus, finds that the limitation is inconsistent 
with the purpose of providing a foreign tax credit.

                        Explanation of Provision

    The bill repeals the 90-percent limitation on the 
utilization of the AMT foreign tax credit.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2001.

               TITLE IV. EDUCATION TAX RELIEF PROVISIONS


                  A. Expand Education Savings Accounts


       (sec. 401 of the bill and secs. 530 and 4973 of the Code)


                              Present Law

In general

    Section 530 provides tax-exempt status to education 
individual retirement accounts (``education IRAs''), meaning 
certain trusts (or custodial accounts) which are created or 
organized in the United States exclusively for the purpose of 
paying the qualified higher education expenses of a named 
beneficiary.18 Contributions to education IRAs may 
be made only in cash. Annual contributions to education IRAs 
may not exceed $500 per designated beneficiary (except in cases 
involving certain tax-free rollovers, as described below), and 
may not be made after the designated beneficiary reaches age 
18.19 Moreover, an excise tax is imposed if a 
contribution is made by any person to an education IRA 
established on behalf of a beneficiary during any taxable year 
in which any contributions are made by anyone to a qualified 
State tuition program (defined under sec. 529) on behalf of the 
same beneficiary.
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    \18\ Education IRAs generally are not subject to Federal income 
tax, but are subject to the unrelated business income tax (``UBIT'') 
imposed by section 511.
    \19\ An excise tax may be imposed under present law to the extent 
that excess contributions above the $500 annual limit are made to an 
education IRA.
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Phase-out of contribution limit

    The $500 annual contribution limit for education IRAs is 
phased out ratably for contributors with modified adjusted 
gross income (``AGI'') between $95,000 and $110,000 (between 
$150,000 and $160,000 for joint returns). Individuals with 
modified AGI above the phase-out range are not allowed to make 
contributions to an education IRA established on behalf of any 
individual.

Treatment of distributions

    Amounts distributed from an education IRA are excludable 
from gross income to the extent that the amounts distributed do 
not exceed qualified higher education expenses of the 
designated beneficiary incurred during the year the 
distribution is made (provided that a HOPE credit or Lifetime 
Learning credit is not claimed with respect to the beneficiary 
for the same taxable year). Distributions from an education IRA 
are generally deemed to consist of distributions of principal 
(which, under all circumstances, are excludable from gross 
income) and earnings (which may be excludable from gross 
income) by applying the ratio that the aggregate amount of 
contributions to the account for the beneficiary bears to the 
total balance of the account. If the qualified higher education 
expenses of the student for the year are at least equal to the 
total amount of the distribution (i.e., principal and earnings 
combined) from an education IRA, then the earnings in their 
entirety are excludable from gross income. If, on the other 
hand, the qualified higher education expenses of the student 
for the year are less than the total amount of the distribution 
(i.e., principal and earnings combined) from an education IRA, 
then the qualified higher education expenses are deemed to be 
paid from a pro-rata share of both the principal and earnings 
components of the distribution. Thus, in such a case, only a 
portion of the earnings are excludable (i.e., a portion of the 
earnings based on the ratio that the qualified higher education 
expenses bear to the total amount of the distribution) and the 
remaining portion of the earnings is includible in the 
distributee's gross income.
    To the extent that a distribution exceeds qualified higher 
education expenses of the designated beneficiary, an additional 
10-percent tax is imposed on the earnings portion of such 
excess distribution, unless such distribution is made on 
account of the death or disability of, or scholarship received 
by, the designated beneficiary. The additional 10-percent tax 
also does not apply to the distribution of any contribution to 
an education IRA made during the taxable year if such 
distribution is made on or before the date that a return is 
required to be filed (including extensions of time) by the 
beneficiary for the taxable year during which the contribution 
was made (or, if the beneficiary is not required to file such a 
return, April 15th of the year following the taxable year 
during which the contribution was made).
    Present law allows tax-free transfers or rollovers of 
account balances from one education IRA benefitting one 
beneficiary to another education IRA benefitting another 
beneficiary (as well as redesignations of the named 
beneficiary), provided that the new beneficiary is a member of 
the family of the old beneficiary. For this purpose, a ``member 
of the family'' means persons described in paragraphs (1) 
through (8) of section 152(a)--e.g., sons, daughters, brothers, 
sisters, nephews and nieces, certain in-laws--and any spouse of 
such persons or of the original beneficiary.
    Any balance remaining in an education IRA is deemed to be 
distributed within 30 days after the date that the named 
beneficiary reaches age 30 (or, if earlier, within 30 days of 
the date that the beneficiary dies).

Qualified higher education expenses

    The term ``qualified higher education expenses'' includes 
tuition, fees, books, supplies, and equipment required for the 
enrollment or attendance of the designated beneficiary at an 
eligible education institution, regardless of whether the 
beneficiary is enrolled at an eligible educational institution 
on a full-time, half-time, or less than half-time basis. 
Moreover, the term ``qualified higher education expenses'' 
includes certain room and board expenses for any period during 
which the beneficiary is at least a half-time student. 
Qualified higher education expenses include expenses with 
respect to undergraduate or graduate-level courses. In 
addition, qualified higher education expenses include amounts 
paid or incurred to purchase tuition credits (or to make 
contributions to an account) under a qualified State tuition 
program, as defined in section 529, for the benefit of the 
beneficiary of the education IRA.
    Qualified higher education expenses generally include only 
out-of-pocket expenses. Such qualified higher education 
expenses do not include expenses covered by educational 
assistance for the benefit of the beneficiary that is 
excludable from gross income. Thus, total qualified higher 
education expenses are reduced by scholarship or fellowship 
grants excludable from gross income under present- law section 
117, as well as any other tax-free educational benefits, such 
as employer-provided educational assistance that is excludable 
from the employee's gross income under section 127.\20\
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    \20\ No reduction of qualified higher education expenses is 
required, however, for a gift, bequest, devise, or inheritance.
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    Present law also provides that, if any qualified higher 
education expenses are taken into account in determining the 
amount of the exclusion for a distribution from an education 
IRA, then no deduction (e.g., for trade or business expenses 
deductible under sec. 162), or exclusion (e.g., for expenses 
paid with interest on education savings bonds excludable under 
sec. 135), or credit is allowed with respect to such expenses.

Eligible educational institution

    Eligible educational institutions are defined by reference 
to section 481 of the Higher Education Act of 1965. Such 
institutions generally are accredited post-secondary 
educational institutions offering credit toward a bachelor's 
degree, an associate's degree, a graduate-level or professional 
degree, or another recognized post-secondary credential. 
Certain proprietary institutions and post-secondary vocational 
institutions also are eligible institutions. The institution 
must be eligible to participate in Department of Education 
student aid programs.

                           Reasons for Change

    The Committee believes that the present-law rules and 
contribution limits governing education IRAs should be expanded 
to provide a greater incentive for families and other persons 
to save for educational purposes, including for expenses 
related to elementary and secondary school education. The 
Committee also believes that more flexible rules are needed for 
education IRAs (e.g., accounts established for the benefit of 
special needs students). The Committee further believes that 
the benefits of education IRAs should be coordinated with other 
education tax provisions so as to maximize the potential 
benefit of all the education tax incentives.

                        Explanation of Provision

Annual contribution limit

    The bill increases the annual education IRA contribution 
limit to $2,000. Thus, under the bill, aggregate contributions 
that can be made by all contributors to one (or more) education 
IRAs established on behalf of any particular beneficiary are 
limited to $2,000 for each year in years beginning after 2000.

Qualified expenses

    The bill expands the definition of qualified education 
expenses that may be paid with tax-free distributions from an 
education IRA for distributions made in taxable years beginning 
after December 31, 2000. Specifically, the definition of 
qualified education expenses is expanded to include ``qualified 
elementary and secondary education expenses,'' meaning (1) 
tuition, fees, academic tutoring,\21\ special needs services, 
books, supplies, and equipment (including computers and related 
software and services) incurred in connection with the 
enrollment or attendance of the designated beneficiary as an 
elementary or secondary student at a public, private, or 
religious school providing elementary or secondary education 
(kindergarten through grade 12), and (2) room and board, 
uniforms, transportation, and supplementary items and services 
(including extended-day programs) required or provided by such 
a school in connection with such enrollment or attendance of 
the designated beneficiary.\22\ ``Qualified elementary and 
secondary education expenses'' also include certain 
homeschooling education expenses if the requirements of any 
applicable State or local law are met with respect to such 
homeschooling.
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    \21\ For this purpose, the Committee intends that ``academic 
tutoring'' means additional, personalized instruction provided in 
coordination with the student's academic courses.
    \22\ The Committee intends that contributions made to education 
IRAs prior to December 31, 2000, (and earnings thereon) may be used for 
distributions for qualified elementary and secondary education expenses 
made after January 1, 2001. Thus, it is not necessary for trustees of 
education IRAs to keep separate accounts with respect to contributions 
made prior to January 1, 2001, and earnings thereon.
---------------------------------------------------------------------------
    Under the bill, the definition of ``qualified higher 
education expenses'' is modified to mean: (1) tuition and fees 
required for the enrollment or attendance of a designated 
beneficiary at an eligible education institution, and (2) an 
amount determined by the educational institution for purposes 
of Federal financial assistance programs as a reasonable 
allowance for books, supplies, and equipment.\23\ The bill also 
provides that ``qualified higher education expenses'' does not 
include expenses for education involving sports, games, or 
hobbies unless this education is part of the student's degree 
program or is taken to acquire or improve job skills of the 
individual. The bill does not change the definition of 
``qualified higher education expenses'' with respect to 
expenses for room and board.
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    \23\ ``Qualified higher education expenses'' for purposes of 
education IRAs are defined by reference to the definition of such 
expenses for purposes of qualified State tuition programs (sec. 
530(b)(2)(A)). Because the bill modifies the definition of ``qualified 
higher education expenses'' for purposes of qualified State tuition 
programs (sec. 529(e)(3)), the definition of ``qualified higher 
education expenses'' for education IRAs is also modified.
---------------------------------------------------------------------------

Special needs beneficiaries

    The bill also provides that, although contributions to an 
education IRA generally may not be made after the designated 
beneficiary reaches age 18, contributions may continue to be 
made to an education IRA in the case of a special needs 
beneficiary (as defined by Treasury Department regulations). In 
addition, under the bill, in the case of a special needs 
beneficiary, a deemed distribution of any balance in an 
education IRA will not occur when the beneficiary reaches age 
30.\24\
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    \24\ The Committee intends that the determination of whether a 
beneficiary has ``special needs'' will be made for each year that 
contributions are made to an education IRA after the beneficiary 
reaches age 18. However, if an individual meets the definition of a 
``special needs'' beneficiary when such individual reaches age 30, then 
such individual thereafter will be presumed to be a ``special needs'' 
beneficiary.
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Contributions by persons other than individuals

    The bill clarifies that corporations and other entities 
(including tax-exempt organizations) are permitted to make 
contributions to education IRAs, regardless of the income of 
the corporation or entity during the year of the 
contribution.\25\ As under present law, the eligibility of 
high-income individuals to make contributions to education IRAs 
is phased out ratably for individuals with modified AGI between 
$95,000 and $110,000 ($150,000 and $160,000 for joint returns).
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    \25\ The Committee intends that present-law rules governing the 
definition of gross income apply for purposes of determining whether a 
contribution by a corporation or another entity to an education IRA on 
behalf of a designated beneficiary is includible in the gross income of 
the beneficiary or another individual (e.g., includible in gross income 
as compensation to a parent employed by the contributing corporation).
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Contributions permitted until April 15

    Under the bill, individual contributors to education IRAs 
are deemed to have made a contribution on the last day of the 
preceding taxable year if the contribution is made on account 
of such taxable year and is made not later than the time 
prescribed by law for filing the return for such taxable year 
(not including extensions), generally April 15.\26\ The bill 
also provides that the additional 10- percent tax does not 
apply to the distribution of any contribution to an education 
IRA made during the taxable year if such distribution is made 
on or before the first day of the sixth month of the taxable 
year (generally June 1) following the taxable year during which 
the contribution was or was deemed made.\27\
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    \26\ The Committee intends that trustees of education IRAs will 
require documentation from a contributor (whether an individual, 
corporation, or other entity) indicating the taxable year to which the 
contribution should be allocated.
    \27\ Thus, taxpayers will have approximately one and one-half 
months after the April 15 deadline for making contributions to an 
education IRA on account of the preceding year to determine whether an 
excess contribution was made to an education IRA and distribute (or 
reallocate to the current taxable year) the excess in order to avoid 
the additional 10-percent tax.
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Coordination with HOPE and Lifetime Learning credits

    For distributions made after December 31, 2000, the bill 
allows a taxpayer to claim a HOPE credit or Lifetime Learning 
credit for a taxable year and to exclude from gross income 
amounts distributed (both the principal and the earnings 
portions) from an education IRA on behalf of the same student 
as long as the distribution is not used for the same 
educational expenses for which a credit was claimed.\28\
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    \28\ In determining the amount of a distribution that can be 
excluded from income for a taxable year, a taxpayer's total higher 
education expenses will be reduced first by the amount of such expenses 
which were taken into account in determining the amount of any HOPE or 
Lifetime Learning credit allowed to the taxpayer (or other person) with 
respect to such expenses. After any reduction for expenses allocable to 
the credits, taxpayers may determine how to allocate their qualified 
education expenses among the various remaining education provisions for 
which they are eligible; however, under no circumstances, can the same 
expenses be allocated to more than one provision. For example, suppose 
that in 2002, a college freshman withdraws funds from both an education 
IRA and a qualified tuition program. If the student is otherwise 
eligible, he or she may claim a HOPE credit of $1,500 with respect to 
first $2,000 of tuition expense. To the extent that the student's 
remaining educational expenses constitute ``qualified higher education 
expenses'' and exceed the amounts distributed from both the education 
IRA and the qualified tuition program, the student may exclude from 
gross income the earnings portions (and, as always, the principal 
portions) of both distributions. Alternatively, if after allocating the 
first $2,000 of tuition expense to the HOPE credit, the student's 
remaining educational expenses do not exceed his or her total 
distributions from the education IRA and qualified tuition program, the 
student will not be able to exclude from gross income the entire 
earnings portions of both distributions. In addition, the student may 
be liable for a penalty imposed under the qualified tuition program or 
for additional tax imposed on the excess amounts distributed from the 
education IRA, or both. The student may allocate his or her educational 
expenses between the distributions as the student determines 
appropriate, but may not use the same expenses for both distributions, 
nor may he or she ``reuse'' the expenses taken into account for 
purposes of computing the HOPE credit claimed.
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Coordination with qualified tuition programs

    The bill repeals the excise tax on contributions made by 
any person to an education IRA on behalf of a beneficiary 
during any taxable year in which any contributions are made by 
anyone to a qualified State tuition program on behalf of the 
same beneficiary (sec. 4973(e)(1)(B)).

Change Name to ``Education Savings Accounts''

    The bill changes the name of education IRAs to ``Education 
Savings Accounts.''

                             Effective Date

    The provisions modifying education IRAs generally are 
effective for taxable years beginning after December 31, 2000. 
The provision modifying the definition of ``qualified higher 
education expenses'' applies to amounts paid for education 
furnished after December 31, 1999, the same date that this 
provision is effective for qualified state tuition plans 
described in section 529. The provision changing the name of 
education IRAs to Education Savings Accounts is effective on 
the date of enactment.

   B. Allow Tax-Free Distributions From State and Private Education 
                                Programs


            (sec. 402 of the bill and sec. 529 of the Code)


                              present law

    Section 529 provides tax-exempt status to ``qualified State 
tuition programs,'' meaning certain programs established and 
maintained by a State (or agency or instrumentality thereof) 
under which persons may (1) purchase tuition credits or 
certificates on behalf of a designated beneficiary that entitle 
the beneficiary to a waiver or payment of qualified higher 
education expenses of the beneficiary, or (2) make 
contributions to an account that is established for the purpose 
of meeting qualified higher education expenses of the 
designated beneficiary of the account (a ``savings account 
plan''). The term ``qualified higher education expenses'' 
generally has the same meaning as does the term for purposes of 
education IRAs (as described above) and, thus, includes 
expenses for tuition, fees, books, supplies, and equipment 
required for the enrollment or attendance at an eligible 
educational institution,29 as well as certain room 
and board expenses for any period during which the student is 
at least a half-time student.
---------------------------------------------------------------------------
    \29\ ``Eligible educational institutions'' are defined the same for 
purposes of education IRAs (described above) and qualified State 
tuition programs.
---------------------------------------------------------------------------
    No amount is included in the gross income of a contributor 
to, or beneficiary of, a qualified State tuition program with 
respect to any distribution from, or earnings under, such 
program, except that (1) amounts distributed or educational 
benefits provided to a beneficiary (e.g., when the beneficiary 
attends college) are included in the beneficiary's gross income 
(unless excludable under another Code section) to the extent 
such amounts or the value of the educational benefits exceed 
contributions made on behalf of the beneficiary, and (2) 
amounts distributed to a contributor (e.g., when a parent 
receives a refund) are included in the contributor's gross 
income to the extent such amounts exceed contributions made on 
behalf of the beneficiary.30
---------------------------------------------------------------------------
    \30\ Distributions from qualified State tuition programs are 
treated as representing a pro-rata share of the principal (i.e., 
contributions) and accumulated earnings in the account.
---------------------------------------------------------------------------
    A qualified State tuition program is required to provide 
that purchases or contributions only be made in 
cash.31 Contributors and beneficiaries are not 
allowed to directly or indirectly direct the investment of 
contributions to the program (or earnings thereon). The program 
is required to maintain a separate accounting for each 
designated beneficiary. A specified individual must be 
designated as the beneficiary at the commencement of 
participation in a qualified State tuition program (i.e., when 
contributions are first made to purchase an interest in such a 
program), unless interests in such a program are purchased by a 
State or local government or a tax-exempt charity described in 
section 501(c)(3) as part of a scholarship program operated by 
such government or charity under which beneficiaries to be 
named in the future will receive such interests as 
scholarships. A transfer of credits (or other amounts) from one 
account benefitting one designated beneficiary to another 
account benefitting a different beneficiary is considered a 
distribution (as is a change in the designated beneficiary of 
an interest in a qualified State tuition program), unless the 
beneficiaries are members of the same family. For this purpose, 
the term ``member of the family'' means persons described in 
paragraphs (1) through (8) of section 152(a)--e.g., sons, 
daughters, brothers, sisters, nephews and nieces, certain in-
laws--and any spouse of such persons or of the original 
beneficiary. Earnings on an account may be refunded to a 
contributor or beneficiary, but the State or instrumentality 
must impose a more than de minimis monetary penalty unless the 
refund is (1) used for qualified higher education expenses of 
the beneficiary, (2) made on account of the death or disability 
of the beneficiary, or (3) made on account of a scholarship 
received by the designated beneficiary to the extent the amount 
refunded does not exceed the amount of the scholarship used for 
higher education expenses.
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    \31\ Sections 529(c)(2), (c)(4), and (c)(5), and section 530(d)(3) 
provide special estate and gift tax rules for contributions made to, 
and distributions made from, qualified State tuition programs and 
education IRAs.
---------------------------------------------------------------------------
    To the extent that a distribution from a qualified State 
tuition program is used to pay for qualified tuition and 
related expenses (as defined in sec. 25A(f)(1)), the 
distributee (or another taxpayer claiming the distributee as a 
dependent) may claim the HOPE credit or Lifetime Learning 
credit under section 25A with respect to such tuition and 
related expenses (assuming that the other requirements for 
claiming the HOPE credit or Lifetime Learning credit are 
satisfied and the modified AGI phaseout for those credits does 
not apply).

                           reasons for change

    The Committee believes that distributions from qualified 
tuition programs should not be subject to Federal income tax to 
the extent that such distributions are used to pay for 
qualified higher education expenses of undergraduate or 
graduate students who are attending institutions of higher 
education or certain vocational schools. In addition, the 
Committee believes that the present-law rules governing 
qualified tuition programs should be expanded to permit private 
educational institutions to maintain certain prepaid tuition 
programs.

                        explanation of provision

Qualified tuition program

    The bill expands the definition of ``qualified tuition 
program'' to include certain prepaid tuition programs 
established and maintained by one or more eligible educational 
institutions (which may be private institutions) that satisfy 
the requirements under section 529 (other than the present-law 
State sponsorship rule). In the case of a qualified tuition 
program maintained by one or more private educational 
institutions, persons will be able to purchase tuition credits 
or certificates on behalf of a designated beneficiary, but will 
not be able to make contributions to savings account plans.

Exclusion from gross income

    Under the bill, an exclusion from gross income is provided 
for distributions made in taxable years beginning after 
December 31, 2000, from qualified State tuition programs to the 
extent that the distribution is used to pay for qualified 
higher education expenses. This exclusion from gross income is 
extended to distributions from qualified tuition programs 
established and maintained by an entity other than a State or 
agency or instrumentality thereof, for distributions made in 
taxable years after December 31, 2003.
    The bill also allows a taxpayer to claim a HOPE credit or 
Lifetime Learning credit for a taxable year and to exclude from 
gross income amounts distributed (both the principal and the 
earnings portions) from a qualified tuition program on behalf 
of the same student as long as the distribution is not used for 
the same expenses for which a credit was claimed. 32
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    \32\ In determining the amount of a distribution that can be 
excluded from income for a taxable year, a taxpayer's total higher 
education expenses will be reduced first by the amount of such expenses 
which were taken into account in determining the credit allowed to (and 
elected by) the taxpayer (or other person with respect to such 
expenses). After any reduction for expenses allocable to the credits, 
taxpayers may determine how to allocate their qualified education 
expenses among the various remaining education provisions (including 
education IRAs and qualified tuition programs) for which they are 
eligible; however, under no circumstances, can the same expenses be 
allocated to more than one provision. An example of how a taxpayer may 
claim a HOPE or Lifetime Learning credit and, in the same year, 
coordinate exclusions from gross income for distributions from a 
qualified tuition program and an education IRA is discussed above in 
connection with the modification of the rules governing education IRAs.
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Definition of qualified higher education expenses

    Under the bill, the definition of ``qualified higher 
education expenses'' is modified to mean: (1) tuition and fees 
required for the enrollment or attendance of a designated 
beneficiary at an eligible education institution, and (2) 
expenses for books, supplies, and equipment incurred in 
connection with such enrollment or attendance (but not in 
excess of the allowance for books and supplies determined by 
the educational institution for purposes of federal financial 
assistance programs). The bill also provides that ``qualified 
higher education expenses'' will not include expenses for 
education involving sports, games, or hobbies unless this 
education is part of the student's degree program or is taken 
to acquire or improve job skills of the individual. The bill 
does not change the definition of ``qualified higher education 
expenses'' with respect to expenses for room and board.

Rollovers for benefit of same beneficiary

    The bill provides that a transfer of credits (or other 
amounts) from one qualified tuition program for the benefit of 
a designated beneficiary to another qualified tuition program 
for the benefit of the same beneficiary will not be considered 
a distribution for a maximum of one such transfer in each 1-
year period.

Member of family

    The bill further provides that, for purposes of tax-free 
rollovers and changes of designated beneficiaries, a ``member 
of the family'' includes first cousins of such beneficiary.

                             effective date

    The provision permitting the establishment of qualified 
tuition programs maintained by one or more private educational 
institutions is effective for taxable years beginning after 
December 31, 2000. The exclusion from gross income for certain 
distributions from qualified State tuition programs under 
section 529 is effective for distributions made in taxable 
years beginning after December 31, 2000. In the case of a 
qualified tuition program established and maintained by an 
entity other than a State or agency or instrumentality thereof, 
the provision allowing an exclusion from gross income for 
certain distributions is effective for distributions made in 
taxable years beginning after December 31, 2003. The provision 
coordinating distributions from qualified tuition programs with 
the HOPE and Lifetime Learning credits is effective for 
distributions made after December 31, 2000. The provision 
modifying the definition of qualified higher education expenses 
is effective for amounts paid for education furnished after 
December 31, 1999. The provisions allowing rollovers for the 
same beneficiary and including first cousins as a member of the 
family are effective for taxable years beginning after December 
31, 2000.

    C. Eliminate Tax on Awards under National Health Service Corps 
 Scholarship Program, F. Edward Hebert Armed Forces Health Professions 
 Scholarship and Financial Assistance Program, National Institutes of 
 Health Undergraduate Scholarship Program, and Certain State-sponsored 
                          Scholarship Programs


            (sec. 403 of the bill and sec. 117 of the Code)


                              present law

    Section 117 excludes from gross income qualified 
scholarships received by an individual who is a candidate for a 
degree and used for tuition and fees required for the 
enrollment or attendance (or for fees, books, supplies, and 
equipment required for courses of instruction) at a primary, 
secondary, or post-secondary educational institution. The tax-
free treatment provided by section 117 does not extend to 
scholarship amounts covering regular living expenses, such as 
room and board. In addition to the exclusion for qualified 
scholarships, section 117 provides an exclusion from gross 
income for qualified tuition reductions for certain education 
provided to employees (and their spouses and dependents) of 
certain educational organizations.
    Section 117(c) specifically provides that the exclusion for 
qualified scholarships and qualified tuition reductions does 
not apply to any amount received by a student that represents 
payment for teaching, research, or other services by the 
student required as a condition for receiving the scholarship 
or tuition reduction.
    The National Health Service Corps Scholarship Program (the 
``NHSC Scholarship Program''), the F. Edward Hebert Armed 
Forces Health Professions Scholarship and Financial Assistance 
Program (the ``Armed Forces Scholarship Program''), and the 
National Institutes of Health Undergraduate Scholarship Program 
(the ``NIH Scholarship Program'') provide education awards to 
participants on condition that the participants provide certain 
services. In the case of the NHSC Program, the recipient of the 
scholarship is obligated to provide medical services in a 
geographic area (or to an underserved population group or 
designated facility) identified by the Public Health Service as 
having a shortage of health-care professionals. In the case of 
the Armed Forces Scholarship Program, the recipient of the 
scholarship is obligated to serve a certain number of years in 
the military at an armed forces medical facility. The National 
Institutes of Health Undergraduate Scholarship Program (the 
``NIH Scholarship Program'') awards scholarships to students 
from disadvantaged backgrounds interested in pursuing a career 
in biomedical research. In exchange, the recipients must work 
for the National Institutes of Health after graduation. Several 
States also provide a limited number of scholarships to 
students in health professions who are obligated to work in 
underserved areas for a period of time after graduation. 
Because the recipients of scholarships in all of these programs 
are required to perform services in exchange for the education 
awards, the awards used to pay higher education expenses are 
taxable income to the recipient.

                           reasons for change

    To improve health care services in underserved areas, the 
Committee believes that it is appropriate to provide tax-free 
treatment for scholarships received by students under the NHSC 
Scholarship Program, Armed Forces Scholarship Program, NIH 
Scholarship Program, and State-sponsored programs with similar 
objectives.

                        explanation of provision

    The bill provides that amounts received by an individual 
under the NHSC Scholarship Program, the Armed Forces 
Scholarship Program, the NIH Scholarship Program, or any State-
sponsored health scholarship program determined by the 
Secretary of the Treasury to have substantially similar 
objectives to these programs are eligible for tax-free 
treatment as qualified scholarships under section 117, without 
regard to any service obligation by the recipient. As with 
other qualified scholarships under section 117, the tax-free 
treatment does not apply to amounts received by students for 
regular living expenses, including room and board.

                             effective date

    The provision is effective for education awards received 
under the NHSC Scholarship Program, the Armed Forces 
Scholarship Program, and the NIH Scholarship Program after 
December 31, 1993. The provision is effective for education 
awards received under any State-sponsored health scholarship 
program designated by the Secretary of the Treasury after 
December 31, 1999.

 D. Liberalize Tax-Exempt Bond Arbitrage Rebate Exceptions for Public 
                       School Construction Bonds


          (sec. 404-405 of the bill and sec. 148 of the Code)


                              Present Law

    Interest on debt incurred by States or local governments is 
excluded from income if the proceeds of the borrowing are used 
to carry out governmental functions of those entities or the 
debt is repaid with governmental funds (sec. 103). Like other 
activities carried out and paid for by States and local 
governments, the construction, renovation, and operation of 
public schools is an activity eligible for financing with the 
proceeds of tax-exempt bonds.
    The Federal income tax does not apply to the income of 
States and local governments that is derived from the exercise 
of an essential governmental function. To prevent these tax-
exempt entities from issuing more Federally subsidized tax-
exempt bonds than is necessary for the activity being financed 
or from issuing such bonds earlier than necessary, the Code 
includes arbitrage restrictions limiting the ability to profit 
from investment of tax-exempt bond proceeds. In general, 
arbitrage profits may be earned only during specified periods 
(e.g., defined ``temporary periods'') before funds are needed 
for the purpose of the borrowing or on specified types of 
investments (e.g., ``reasonably required reserve or replacement 
funds''). Subject to limited exceptions, profits that are 
earned during these periods or on such investments must be 
rebated to the Federal Government.
    The Code includes three exceptions applicable to education-
related bonds. First, issuers of all types of tax-exempt bonds 
are not required to rebate arbitrage profits if all of the 
proceeds of the bonds are spent for the purpose of the 
borrowing within six months after issuance. In the case of 
governmental bonds (including bonds to finance public schools) 
the six-month expenditure exception is treated as satisfied if 
at least 95 percent of the proceeds is spent within six months 
and the remaining five percent is spent within 12 months after 
the bonds are issued.
    Second, in the case of bonds to finance certain 
construction activities, including school construction and 
renovation, the six-month period is extended to 24 months for 
construction proceeds. Arbitrage profits earned on construction 
proceeds are not required to be rebated if all such proceeds 
(other than certain retainage amounts) are spent by the end of 
the 24-month period and prescribed intermediate spending 
percentages are satisfied.
    Third, governmental bonds issued by ``small'' governments 
are not subject to the rebate requirement. Small governments 
are defined as general purpose governmental units that issue no 
more than $5 million of tax-exempt governmental bonds in a 
calendar year. The $5 million limit is increased to $10 million 
if at least $5 million of the bonds are used to finance public 
schools.

                           Reasons for Change

    The policy underlying the arbitrage rebate exception for 
bonds of small governmental units is to reduce complexity for 
these entities because they may not have in-house financial 
staff to engage in the expenditure and investment tracking 
necessary for rebate compliance. The exception further is 
justified by the limited potential for arbitrage profits at 
small issuance levels and limitation of the provision to 
governmental bonds, which typically require voter approval 
before issuance. The Committee believes that a limited increase 
of $5 million per year for public school construction bonds 
will more accurately conform this present-law exception to 
current school construction costs.
    The Committee is aware that a great need exists for 
construction and renovation of public schools if American 
educational excellence is to be maintained. The Committee 
determined that a more liberal spend-down exception for public 
school construction bonds is appropriate to allow issuers 
greater flexibility in the timing of bond issuance for this 
limited purpose to meet actual construction needs.

                        Explanation of Provision

Liberalize construction bond expenditure rule for governmental bonds 
        for public schools

    The present-law 24-month expenditure exception to the 
arbitrage rebate requirement are liberalized for certain public 
school bonds. Under the bill, no rebate is required with 
respect to earnings on available construction proceeds of 
public school bonds if the proceeds are spent within 48 months 
after the bonds are issued and the following intermediate 
spending levels are satisfied:




12 months.................................  At least 10 percent
24 months.................................  At least 30 percent
36 months.................................  At least 60 percent
48 months.................................  100 percent (less present-
                                             law retainage amounts which
                                             must be spent within 60
                                             months of issuance)


Increase amount of bonds that may be issued by governments qualifying 
        for the ``small governmental unit'' arbitrage rebate exception

    The additional amount of governmental bonds for public 
schools that small governmental units may issue without being 
subject to the arbitrage rebate requirement is increased from 
$5 million to $10 million. Thus, these governmental units may 
issue up to $15 million of governmental bonds in a calendar 
year, provided that at least $10 million of the bonds are used 
to finance construction of public schools.

                             Effective Date

    The liberalized expenditure exception for public school 
construction bonds is effective for bonds issued after December 
31, 1999.
    The increase in the small governmental unit arbitrage 
rebate exception is effective for calendar years beginning 
after December 31, 1999.

     E. Eliminate 60-month Limit on Student Loan Interest Deduction


            (sec. 406 of the bill and sec. 221 of the Code)


                              Present Law

    Certain individuals who have paid interest on qualified 
education loans may claim an above-the-line deduction for such 
interest expenses, subject to a maximum annual deduction limit 
(sec. 221). The deduction is allowed only with respect to 
interest paid on a qualified education loan during the first 60 
months in which interest payments are required. Required 
payments of interest generally do not include nonmandatory 
payments, such as interest payments made during a period of 
loan forbearance. Months during which interest payments are not 
required because the qualified education loan is in deferral or 
forbearance do not count against the 60-month period. No 
deduction is allowed to an individual if that individual is 
claimed as a dependent on another taxpayer's return for the 
taxable year.
    A qualified education loan generally is defined as any 
indebtedness incurred solely to pay for certain costs of 
attendance (including room and board) of a student (who may be 
the taxpayer, the taxpayer's spouse, or any dependent of the 
taxpayer as of the time the indebtedness was incurred) who is 
enrolled in a degree program on at least a half-time basis at 
(1) an accredited post-secondary educational institution 
defined by reference to section 481 of the Higher Education Act 
of 1965, or (2) an institution conducting an internship or 
residency program leading to a degree or certificate from an 
institution of higher education, a hospital, or a health care 
facility conducting postgraduate training.
    The maximum allowable deduction per taxpayer return is 
$1,500 in 1999, $2,000 in 2000, and $2,500 in 2001 and 
thereafter. 33 The deduction is phased out ratably 
for individual taxpayers with modified adjusted gross income of 
$40,000-$55,000 and $60,000--$75,000 for joint returns. The 
income ranges will be indexed for inflation after 2002.
---------------------------------------------------------------------------
    \33\  The maximum allowable deduction for 1998 was $1,000.
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee understands that many students incur 
considerable debt in the course of obtaining undergraduate and 
graduate education. The Committee believes that it is 
appropriate to expand the deduction for individuals who have 
paid interest on qualified education loans by repealing the 
limitation that the deduction is allowed only with respect to 
interest paid during the first 60 months in which interest 
payments are required. In addition, the repeal of the 60-month 
limitation lessens complexity and administrative burdens for 
taxpayers, lenders, loan servicing agencies, and the Internal 
Revenue Service.

                        Explanation of Provision

    The bill repeals both the limit on the number of months 
during which interest paid on a qualified education loan is 
deductible and the restriction that nonmandatory payments of 
interest are not deductible.

                             effective date

    The provision is effective for interest paid on qualified 
education loans after December 31, 1999.

               TITLE V. HEALTH CARE TAX RELIEF PROVISIONS


       A. Above-the-Line Deduction for Health Insurance Expenses


          (sec. 502 of the bill and new sec. 222 of the Code)


                              Present Law

    Under present law, the 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 1999 
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. 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.
    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 1999 
is as follows: $210 in the case of an individual 40 years old 
or less; $400 in the case of an individual who is more than 40 
but not more than 50; $800 in the case of an individual who is 
more than 50 but not more than 60; $2,120 in the case of an 
individual who is more than 60 but not more than 70; and $2,660 
in the case of an individual who is more than 70. These dollar 
limits are indexed for inflation.

                           Reasons for Change

    The Committee believes that the present-law inequities in 
tax treatment of health insurance expenses should be reduced. 
In addition, the Committee believes that individuals who are 
uninsured should be provided with a tax incentive to purchase 
health insurance for themselves and their families.

                        Explanation of Provision

    The provision 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.34 The deductible percentage is: 25 
percent in 2001; 40 percent in 2002; 50 percent in 2003 through 
2006; 75 percent in 2007; and 100 percent in 2008 and 
thereafter.
---------------------------------------------------------------------------
    \34\ 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.35 For 
purposes of this rule, any amounts 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.36 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. The following examples illustrate the 
application of the 50-percent rule.
---------------------------------------------------------------------------
    \35\ This rule is applied separately with respect to qualified 
long-term care insurance.
    \36\ 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.
---------------------------------------------------------------------------
    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). Thus, 
the deduction is not available.
    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 for half the cost of this plan ($1,000). The 
second plan provides only dental coverage. The cost of the 
dental plan is $300 per year, which is paid by the employee. 
The total cost of the health plans in which B participates is 
$2,300. The employer pays for less than 50 percent of this 
total cost. B may deduct the cost of the dental coverage; but 
not B's share of the premium for the major medical plan, 
because the employer pays for at least 50 percent of the cost 
of that plan.
    Example 3: Employee C participates in an employer-sponsored 
health plan. The cost of the plan is $4,000. Employee C pays 
$1,000 of the cost of the plan by salary reduction through a 
cafeteria plan. The $1,000 salary reduction contribution is an 
employer payment. Thus, the employer pays only one-fourth of 
the cost of the coverage. C may deduct the $3,000 C pays for 
the plan on an after-tax basis.
    The deduction is not available to individuals enrolled in 
Medicare, Medicaid, the Federal Employees Health Benefit 
Program (``FEHBP''),37 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.
---------------------------------------------------------------------------
    \37\ 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, 2000.

           B. Provisions Relating to Long-term Care Insurance


(secs. 501 and 502 of the bill, new sec. 222 of the Code and secs. 106 
                          and 125 of the Code)


                              Present Law

Tax treatment of health insurance and long-term care insurance

    Under present law, the 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 1999 
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. 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 1999 
is as follows: $210 in the case of an individual 40 years old 
or less; $400 in the case of an individual who is more than 40 
but not more than 50; $800 in the case of an individual who is 
more than 50 but not more than 60; $2,120 in the case of an 
individual who is more than 60 but not more than 70; and $2,660 
in the case of an individual who is more than 70. These dollar 
limits are indexed for inflation.

Cafeteria plans

    Under present law, compensation generally is includible in 
gross income when actually or constructively received. An 
amount is constructively received by an individual if it is 
made available to the individual or the individual has an 
election to receive such amount. Under one exception to the 
general principle of constructive receipt, amounts are not 
included in the gross income of a participant in a cafeteria 
plan described in section 125 of the Code solely because the 
participant may elect among cash and certain employer-provided 
qualified benefits under the plan. This constructive receipt 
exception is not available if the individual is permitted to 
revoke a benefit election during a period of coverage in the 
absence of a change in family status or certain other events.
    In general, qualified benefits are certain specified 
benefits that are excludable from an employee's gross income by 
reason of a specific provision of the Code. Thus, employer-
provided accident or health coverage, group-term life insurance 
coverage (whether or not subject to tax by reason of being in 
excess of the dollar limit on the exclusion for such 
insurance), and benefits under dependent care assistance 
programs may be provided through a cafeteria plan. The 
cafeteria plan exception from the principle of constructive 
receipt generally also applies for employment tax (FICA and 
FUTA) purposes.38
---------------------------------------------------------------------------
    \38\ Elective contributions under a qualified cash or deferred 
arrangement that is part of a cafeteria plan are subject to employment 
taxes.
---------------------------------------------------------------------------
    Long-term care insurance cannot be provided under a 
cafeteria plan.

Flexible spending arrangements

    A flexible spending arrangement (``FSA'') is a 
reimbursement account or other arrangement under which an 
employer pays or reimburses employees for medical expenses or 
certain other nontaxable employer-provided benefits, such as 
dependent care. An FSA may be part of a cafeteria plan and may 
be funded through salary reduction. FSAs may also be provided 
by an employer outside a cafeteria plan. FSAs are commonly 
used, for example, to reimburse employees for medical expenses 
not covered by insurance. Qualified long-term care services 
cannot be provided through an FSA.

                           Reasons for Change

    The Health Insurance Portability and Accountability Act of 
1996 (``HIPAA'') included provisions providing favorable tax 
treatment for qualified long-term care insurance. The Congress 
enacted those provisions in order to provide an incentive for 
individuals to take financial responsibility for their long-
term care needs. The Committee believes that further incentives 
are appropriate for individuals to purchase their own qualified 
long-term care insurance. The Committee also wishes to 
facilitate the purchase of qualified long-term care insurance 
through the workplace.

                        Explanation of Provision

Deduction for qualified long-term care insurance expenses

    The provision provides an above-the-line deduction for a 
percentage of the amount paid during the year for long-term 
care insurance which constitutes medical care (as defined under 
sec. 213) for the taxpayer and his or her spouse and 
dependents.39 The deductible percentage is: 25 
percent in 2001; 40 percent in 2002; 50 percent in 2003 through 
2006; 75 percent in 2007; and 100 percent in 2008 and 
thereafter.
---------------------------------------------------------------------------
    \39\ The deduction would only apply to insurance that constitutes 
medical care; it would not apply to long-term care insurance expenses. 
The deduction would apply 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 health plan if at least 50 percent of the cost of the 
coverage is paid or incurred by the employer.40 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 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.
---------------------------------------------------------------------------
    \40\ 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.
    The provision provides that qualified long-term care 
insurance is a qualified benefit under a cafeteria plan. The 
provision also provides that qualified long-term care services 
can be provided under an FSA.41
---------------------------------------------------------------------------
    \41\ Excludable employer contributions to a flexible spending 
arrangement or a cafeteria plan for qualified long-term care insurance 
or services are considered an amount paid by the employer for long-term 
care insurance.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2000.

           C. Extend Availability of Medical Savings Accounts


            (sec. 503 of the bill and sec. 220 of the Code)


                              Present Law

In general

    Within limits, contributions to a medical savings account 
(``MSA'') 42 are deductible in determining 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.
---------------------------------------------------------------------------
    \42\ 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.
---------------------------------------------------------------------------

Eligible individuals

    MSAs are available to employees covered under an employer-
sponsored high deductible plan of a small employer and self-
employed individuals regardless of the size of the entity for 
which the individual performs services.43 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.
---------------------------------------------------------------------------
    \43\ 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.
---------------------------------------------------------------------------
    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, described below). In the case of an employee, 
contributions can be made to an MSA either by the individual or 
by the individual's employer. However, an individual is not 
eligible to make contributions to an MSA for a year if any 
employer contributions are made to an MSA on behalf of the 
individual for the year. Similarly, if the individual's spouse 
is covered under the high deductible plan covering such 
individual and the spouse's employer makes a contribution to an 
MSA for the spouse, the individual may not make MSA 
contributions for the year.
    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).
    An individual with other coverage in addition to a high 
deductible plan is still eligible for an MSA if such other 
coverage is certain permitted insurance or is coverage (whether 
provided through insurance or otherwise) for accidents, 
disability, dental care, vision care, or long-term care. 
Permitted insurance is: (1) Medicare supplemental insurance; 
(2) insurance if substantially all of the coverage provided 
under such insurance relates to (a) liabilities incurred under 
worker's compensation law, (b) tort liabilities, (c) 
liabilities relating to ownership or use of property (e.g., 
auto insurance), or (d) such other similar liabilities as the 
Secretary may prescribe by regulations; (3) insurance for a 
specified disease or illness; and (4) insurance that provides a 
fixed payment for hospitalization.
    If a small employer with an MSA plan ceases to become a 
small employer (i.e., exceeds the 50-employee limit), then the 
employer (and its employees) can continue to establish and make 
contributions to MSAs (including contributions for new 
employees and employees that did not previously have an MSA) 
until the year following the first year in which the employer 
has more than 200 employees. After that, those employees who 
had an MSA (to which individual or employer contributions were 
made in any year) can continue to make contributions (or have 
contributions made on their behalf) even if the employer has 
more than 200 employees.

Tax treatment of and limits on contributions

    Individual contributions to an MSA are deductible (within 
limits) in determining adjusted gross income (i.e., ``above the 
line''). In addition, employer contributions are excludable 
from gross income and wages for employment tax purposes (within 
the same limits), except that this exclusion does not apply to 
contributions made through a cafeteria plan. No deduction is 
allowed to any individual for MSA contributions if such 
individual is a dependent on another taxpayer's tax return.
    In the case of a self-employed individual, the deduction 
cannot exceed the individual's earned income from the trade or 
business with respect to which the high deductible plan is 
established. In the case of an employee, the deduction cannot 
exceed the individual's compensation attributable to the 
employer sponsoring the high deductible plan in which the 
individual is enrolled.
    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.
    Contributions for a year can be made until the due date for 
the individual's tax return for the year (determined without 
regard to extensions).
    If an employer provides high deductible health plan 
coverage coupled with an MSA to employees and makes employer 
contributions to the MSAs during a calendar year, the employer 
must make available a comparable contribution on behalf of all 
employees with comparable coverage during the same coverage 
period in the calendar year. Contributions are considered 
comparable if they are either of the same dollar amount or the 
same percentage of the deductible under the high deductible 
plan. The comparability rule does not restrict contributions 
that can be made to an MSA by a self- employed individual.
    If employer contributions do not comply with the 
comparability rule during a calendar year, then the employer is 
subject to an excise tax equal to 35 percent of the aggregate 
amount contributed by the employer to MSAs of the employer for 
the year. In the case of a failure to comply with the 
comparability rule which is due to reasonable cause and not to 
willful neglect, the Secretary may waive part or all of the tax 
imposed to the extent that the payment of the tax is excessive 
relative to the failure involved.

Definition of high deductible plan

    A high deductible plan is a health plan with an annual 
deductible of at least $1,550 and no more than $2,300 in the 
case of individual coverage and at least $3,050 and no more 
than $4,600 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 $3,050 in the 
case of individual coverage and no more than $5,600 in the case 
of family coverage.44 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.
---------------------------------------------------------------------------
    \44\ These dollar amounts are for 1999. These amounts are indexed 
for inflation in $50 increments.
---------------------------------------------------------------------------

Tax treatment of MSAs

    Earnings on amounts in an MSA are not currently includible 
in income.

Taxation of distributions

    Distributions from an MSA for the medical expenses of the 
individual and his or her spouse or dependents generally are 
excludable from income.45 However, in any year for 
which a contribution is made to an MSA, withdrawals from an MSA 
maintained by that individual generally are excludable from 
income only if the individual for whom the expenses were 
incurred was covered under a high deductible plan for the month 
in which the expenses were incurred.46 This rule is 
designed to ensure that MSAs are in fact used in conjunction 
with a high deductible plan, and that they are not primarily 
used by other individuals who have health plans that are not 
high deductible plans.
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    \45\ This exclusion does not apply to expenses that are reimbursed 
by insurance or otherwise.
    \46\ The exclusion still applies to expenses for continuation 
coverage or coverage while the individual is receiving unemployment 
compensation, even if for an individual who is not an eligible 
individual.
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    For this purpose, medical expenses are defined as under the 
itemized deduction for medical expenses, except that medical 
expenses do not include expenses for insurance other than long-
term care insurance, premiums for health care continuation 
coverage, and premiums for health care coverage while an 
individual is receiving unemployment compensation under Federal 
or State law.
    Distributions that are not used for medical expenses are 
includible in income. Such distributions are also subject to an 
additional 15-percent tax unless made after age 65, death, or 
disability.

Cap on taxpayers utilizing MSAs

    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.47 
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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    \47\ 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.

End of MSA pilot program

    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 madeany 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.

                           Reasons for Change

    In enacting the MSA pilot program, the Congress wanted to 
provide additional health care options for individuals. The 
Congress believed that MSAs would give individuals more control 
over their health care dollars and provide an incentive for 
Americans to be more cost conscious purchasers of medical 
services by making available an alternative to low deductible 
he