Report text available as:

(PDF provides a complete and accurate display of this text.) Tip?



106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    106-289
_______________________________________________________________________

                                     



 
                TAXPAYER REFUND AND RELIEF ACT OF 1999

                               ----------                              

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2488




                 August 4, 1999.--Ordered to be printed



106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    106-289
_______________________________________________________________________

                                     




                TAXPAYER REFUND AND RELIEF ACT OF 1999

                               __________

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2488




                 August 4, 1999.--Ordered to be printed

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
58-371                     WASHINGTON : 1999


                            C O N T E N T S

                              ----------                              

                         STATEMENT OF MANAGERS

                                                                   Page
   I. BROAD-BASED AND FAMILY TAX RELIEF.............................217
          A. Reduction in Individual Income Tax Rates and 
              Expansion of Lowest Individual Regular Income Tax 
              Rate Bracket (sec. 101 of the House bill and secs. 
              101-102 of the Senate amendment)...................   217
          B. Marriage Penalty Relief Provisions Relating to the 
              Rate Structure and Standard Deduction Amounts (sec. 
              111 of the House bill and secs. 201 and 209 of the 
              Senate amendment)..................................   219
          C. Marriage Penalty Relief Relating to the Earned 
              Income Credit (sec. 202 of the Senate amendment)...   223
          D. Individual Alternative Minimum Tax Provisions (sec. 
              121 of the House bill and secs. 206 and 1134 of the 
              Senate amendment)..................................   224
          E. Expand the Exclusion From Income for Certain Foster 
              Care Payments (sec. 1301 of the House bill and sec. 
              203 of the Senate amendment).......................   227
          F. Increase and Expand the Dependent Care Credit (sec. 
              204 of the Senate amendment).......................   229
          G. Tax Credit for Employer-Provided Child Care 
              Facilities (sec. 205 of the Senate amendment)......   230
          H. Extension and Expansion of the Adoption Credit (sec. 
              210 of the Senate amendment).......................   231
  II. SAVINGS AND INVESTMENT TAX RELIEF PROVISIONS..................233
          A. Partial Exclusion for Interest and Dividends (sec. 
              201 of the House bill).............................   233
          B. Individual Capital Gains (sec. 202 of the House bill 
              and sec. 207 of the Senate amendment)..............   234
          C. Apply Capital Gains Rates to Capital Gains Earned by 
              Designated Settlement Funds (sec. 203 of the House 
              bill)..............................................   238
          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 House bill)................   239
          E. Clarify the Tax Treatment of Income and Losses on 
              Derivatives (sec. 205 of the House bill and sec. 
              1306 of the Senate amendment)......................   240
          F. Treatment of Loss on Worthless Stock of Subsidiary 
              (sec. 206 of the House bill).......................   241
          G. Individual Retirement Arrangements (sec. 113 of the 
              House bill and secs. 301-303, 304 and 321 of the 
              Senate amendment)..................................   241
          H. Creation of Individual Development Accounts (sec. 
              304 of the Senate amendment).......................   246
 III. BUSINESS INVESTMENT AND JOB CREATION PROVISIONS...............247
          A. Alternative Tax for Corporate Capital Gains (sec. 
              301 of the House bill).............................   247
          B. Corporate Alternative Minimum Tax (sec. 302(a) of 
              the House bill and sec. 1103 of the Senate 
              amendment).........................................   247
          C. Repeal of Limitation of Foreign Tax Credit under 
              Alternative Minimum Tax (sec. 302(b) of the House 
              bill and sec. 907 of the Senate amendment).........   251
  IV. EDUCATION TAX RELIEF PROVISIONS...............................252
          A. Student Loan Interest Deduction (secs. 112 and 406 
              of the House bill and sec. 401 of the Senate 
              amendment).........................................   252
          B. Expand Education Savings Accounts (sec. 401 of the 
              House bill)........................................   253
          C. Allow Tax-Free Distributions from State and Private 
              Education Programs (sec. 402 of the House bill and 
              the Senate amendment)..............................   258
          D. 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 House bill and Senate amendment)........   262
          E. Exclusion for Employer-Provided Educational 
              Assistance (sec. 404 of the Senate amendment)......   264
          F. Liberalize Tax-Exempt Financing Rules for Public 
              School Construction (secs. 404-405 of the House 
              bill and secs. 405-407 of the Senate amendment)....   265
          G. Expansion of Deduction for Computer Donations to 
              Schools (sec. 1124 of the Senate amendment)........   269
          H. Credit for Computer Donations to Schools and Senior 
              Centers (sec. 1125 of the Senate amendment)........   271
          I. Two-Percent Floor Not To Apply to Professional 
              Development Expenses of Teachers (sec. 1123 of the 
              Senate amendment)..................................   272
          J. Exclusion for Education Benefits Provided by 
              Employers to Children of Employees (sec. 404 of the 
              Senate amendment)..................................   273
          K. Credit for Interest on Higher Education Loans (sec. 
              208 of the Senate amendment).......................   274
   V. HEALTH CARE TAX RELIEF PROVISIONS.............................275
          A. Above-the-Line Deduction for Health Insurance 
              Expenses (sec. 501 of the House bill and the Senate 
              amendment).........................................   275
          B. Provisions Relating to Long-Term Care Insurance 
              (secs. 501 and 502 of the House bill and the Senate 
              amendment).........................................   277
          C. Extend Availability of Medical Savings Accounts 
              (sec. 503 of the House bill).......................   281
          D. Additional Personal Exemption for Caretakers (sec. 
              504 of the House bill and sec. 503 of the Senate 
              amendment).........................................   285
          E. Expand Human Clinical Trials Expenses Qualifying for 
              the Orphan Drug Tax Credit (sec. 505 of the House 
              bill)..............................................   287
          F. Add Certain Vaccines Against Streptococcus 
              Pneumoniae to the List of Taxable Vaccines; Reduce 
              Vaccine Excise Tax (sec. 506 of the House bill and 
              sec. 504 of the Senate amendment)..................   288
          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 of the House 
              bill)..............................................   290
          H. Credit for Employee Health Insurance Expenses of 
              Small Employers (sec. 609 of the Senate amendment).   291
  VI. ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX RELIEF 
      PROVISIONS....................................................292
          A. Phase in Repeal of Estate, Gift, and Generation-
              Skipping Taxes (secs. 601-603, 611, and 621 of the 
              House bill and secs. 701-702 of the Senate 
              amendment).........................................   292
          B. Modify Generation-Skipping Transfer Tax Rules.......   294
              1. Deemed allocation of the generation-skipping 
                  transfer (``GST'') tax exemption to lifetime 
                  transfers (sec. 631 of the House bill).........   294
              2. Retroactive allocation of the GST tax exemption 
                  (sec. 631 of the House bill and sec. 731 of the 
                  Senate amendment)..............................   297
              3. Severing of trusts holding property having an 
                  inclusion ratio of greater than zero (sec. 632 
                  of the House bill and sec. 732 of the Senate 
                  amendment).....................................   298
              4. Modification of certain valuation rules (sec. 
                  633 of the House bill and sec. 733 of the 
                  Senate amendment)..............................   299
              5. Relief from late elections (sec. 634 of the 
                  House bill and sec. 734 of the Senate 
                  amendment).....................................   300
              6. Substantial compliance (sec. 634 of the House 
                  bill and sec. 734 of the Senate amendment).....   300
          C. Expand Estate Tax Rule for Conservation Easements 
              (sec. 711 of the Senate amendment).................   301
          D. Increase Annual Gift Exclusion (sec. 721 of the 
              Senate amendment)..................................   302
          E. Increase in Estate Tax Deduction for Family-Owned 
              Business Interest (sec. 608 of the Senate 
              amendment).........................................   303
 VII. DISTRESSED COMMUNITIES AND INDUSTRIES PROVISIONS..............305
          A. Renewal Community Provisions (secs. 701-706 of the 
              House bill)........................................   305
          B. Provide That Federal Production Payments to Farmers 
              Are Taxable in the Year Received (sec. 711 of the 
              House bill)........................................   311
          C. Allow Net Operating Losses From Oil and Gas 
              Properties To Be Carried Back for Up to Five Years 
              (sec. 721 of the House bill and sec. 1104 of the 
              Senate amendment)..................................   312
          D. Deduction for Delay Rental Payments (sec. 722 of the 
              House bill and sec. 1106 of the Senate amendment)..   313
          E. Election to Expense Geological and Geophysical 
              Expenditures (sec. 723 of the House bill and sec. 
              1105 of the Senate amendment)......................   314
          F. Temporary Suspension of Limitation Based on 65 
              Percent of Taxable Income (sec. 724 of the House 
              bill)..............................................   315
          G. Modify Small Refiner Limit for Eligibility for 
              Percentage Depletion Deductions (sec. 725 of the 
              House bill)........................................   316
          H. Increase the Maximum Dollar Amount of Reforestation 
              Expenditures Eligible for Amortization and Credit 
              (sec. 731 of the House bill and sec. 1108 of the 
              Senate amendment)..................................   316
          I. Capital Gain Treatment Under Section 631(b) to Apply 
              to Outright Sales by Landowners (sec. 732 of the 
              House bill and sec. 1136 of the Senate amendment)..   318
          J. Minimum Tax Relief for the Steel Industry (sec. 741 
              of the House bill).................................   319
VIII. SMALL BUSINESS TAX RELIEF PROVISIONS..........................320
          A. Accelerate 100-Percent Self-Employed Health 
              Insurance Deduction (sec. 801 of the House bill and 
              sec. 601 of the Senate amendment)..................   320
          B. Increase Section 179 Expensing (sec. 802 of the 
              House bill and sec. 602 of the Senate amendment)...   321
          C. Repeal of Temporary Federal Unemployment Surtax 
              (sec. 803 of the House bill and sec. 603 of the 
              Senate amendment)..................................   322
          D. Farmer and Fishermen Income Averaging (sec. 604 of 
              the Senate amendment)..............................   323
          E. Farm, Fish, and Ranch Risk Management Accounts (sec. 
              605 of the Senate amendment).......................   324
          F. S Corporation Bank Provisions.......................   325
              1. Definition of passive investment income for 
                  banks (sec. 606 of the Senate amendment).......   325
              2. Bank director stock (sec. 607 of the Senate 
                  amendment).....................................   326
  IX. INTERNATIONAL TAX RELIEF PROVISIONS...........................327
          A. Allocate Interest Expense on Worldwide Basis (sec. 
              901 of the House bill and the Senate amendment)....   327
          B. Look-Through Rules to Apply to Dividends from 
              Noncontrolled Section 902 Corporations (sec. 902 of 
              the House bill and the Senate amendment)...........   338
          C. Subpart F Treatment of Pipeline Transportation 
              Income and Income from Transmission of High Voltage 
              Electricity (secs. 903-904 of the House bill and 
              the Senate amendment)..............................   340
          D. Recharacterization of Overall Domestic Loss (sec. 
              905 of the House bill).............................   341
          E. Treatment of Military Property of Foreign Sales 
              Corporations (sec. 906 of the House bill and sec. 
              908 of the Senate amendment).......................   343
          F. Modify Treatment of RIC Dividends Paid to Foreign 
              Persons (sec. 907 of the House bill)...............   344
          G. Repeal of Special Rules for Applying Foreign Tax 
              Credit in Case of Foreign Oil And Gas Income (sec. 
              908 of the House bill).............................   346
          H. Study of Proper Treatment of European Union under 
              Subpart F Same Country Exceptions (sec. 909 of the 
              House bill)........................................   347
          I. Provide Waiver From Denial of Foreign Tax Credits 
              (sec. 910 of the House bill).......................   348
          J. Prohibit Disclosure of APAs and APA Background Files 
              (sec. 911 of the House bill and sec. 905 of the 
              Senate amendment)..................................   349
          K. Increase Dollar Limitation on Section 911 Exclusion 
              (sec. 912 of the House bill).......................   354
          L. Exempt Certain Sales of Frequent-Flyer and Similar 
              Reduced-Fare Air Transportation Rights From 
              Aviation Excise Taxes (sec. 906 of the Senate 
              amendment).........................................   355
   X. TAX-EXEMPT ORGANIZATION PROVISIONS............................356
          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 of the House bill 
              and sec. 801 of the Senate amendment)..............   356
          B. Conform Provisions Relating to Arbitrage Treatment 
              to Reflect Proposed State Constitutional Amendments 
              (sec. 1002 of the House bill)......................   359
          C. Authorize Secretary of Treasury to Grant Waivers 
              from Section 4941 Prohibitions (sec. 1004 of the 
              House bill)........................................   360
          D. Extend Declaratory Judgment Procedures to Non-
              501(c)(3) Tax-Exempt Organizations (sec. 1005 of 
              the House bill)....................................   361
          E. Modify Section 512(b)(13) (sec. 1006 of the House 
              bill and sec. 802 of the Senate amendment).........   363
          F. Simplify Lobbying Expenditure Limitations (sec. 803 
              of the Senate amendment)...........................   364
          G. Tax-Free Withdrawals From IRAs for Charitable 
              Purposes (sec. 804 of the Senate amendment)........   366
          H. Provide Exclusion for Mileage Reimbursements by 
              Charitable Organizations (sec. 1302 of the House 
              bill and sec. 805 of the Senate amendment).........   368
          I. Charitable Contribution Deduction for Certain 
              Expenses in Support of Native Alaskan Subsistence 
              Whaling (sec. 806 of the Senate amendment).........   369
          J. Charitable Giving Provisions (secs. 807-809 of the 
              Senate amendment)..................................   370
          K. Modify Excess Business Holdings Rules for Publicly 
              Traded Stock (sec. 810 of the Senate amendment)....   372
          L. Certain Costs of Private Foundation in Removing 
              Hazardous Substances Treated as Qualifying 
              Distribution (sec. 811 of the Senate amendment)....   374
  XI. REAL ESTATE TAX RELIEF PROVISIONS.............................375
          A. Provisions Relating to REITs (secs. 1101-1106, 1111, 
              1121, 1131, 1141, and 1151 of the House bill and 
              secs. 1021-1026, 1031, 1041, 1051, 1061, and 1071 
              of the Senate amendment)...........................   375
          B. Modify At-Risk Rules for Publicly Traded Nonrecourse 
              Debt (sec. 1161 of the House bill).................   381
          C. Qualified Lessee Construction Allowances Not Limited 
              to Short-Term Leases for Certain Retailers (sec. 
              1171 of the House bill)............................   382
          D. Exclusion From Gross Income for Certain 
              Contributions to the Capital of Certain Retailers 
              (sec. 1172 of the House bill)......................   383
          E. Increase the Low-Income Housing Tax Credit Cap and 
              Make Other Modifications (secs. 1331-1337 of the 
              House bill and sec. 1001 of the Senate amendment)..   386
          F. Tax Credit for Renovating Historic Homes (sec. 1011 
              of the Senate amendment)...........................   391
          G. Accelerate the Scheduled Increase in State Volume 
              Limits on Tax-Exempt Private Activity Bonds 
              (sec.1351 of the House bill and sec. 1081 of the 
              Senate amendment)..................................   393
          H. Treatment of Leasehold Improvements (sec. 1091 of 
              the Senate amendment)..............................   395
 XII. PENSION REFORM PROVISIONS.....................................397
          A. Expanding Coverage..................................   397
              1. Increase in benefit and contribution limits 
                  (sec. 1201 of the House bill and sec. 312 of 
                  the Senate amendment)..........................   397
              2. Plans loans for Subchapter S shareholders, 
                  partners, and sole proprietors (sec. 1202 of 
                  the House bill and sec. 313 of the Senate 
                  amendment).....................................   400
              3. Modification of top-heavy rules (sec. 1203 of 
                  the House bill and sec. 319 of the Senate 
                  amendment).....................................   401
              4. Elective deferrals not taken into account for 
                  purposes of deduction limits (sec. 1204 of the 
                  House bill and sec. 314 of the Senate 
                  amendment).....................................   404
              5. Repeal of coordination requirements for deferred 
                  compensation plans of State and local 
                  governments and tax-exempt organizations (sec. 
                  1205 of the House bill)........................   405
              6. Eliminate IRS user fees for certain requests 
                  regarding employer plans (sec. 1206 of the 
                  House bill and sec. 317 of the Senate 
                  amendment).....................................   406
              7. Definition of compensation for purposes of 
                  deduction limits (sec. 1207 of the House bill).   407
              8. Option to treat elective deferrals as after-tax 
                  contributions (sec. 1208 of the House bill and 
                  sec. 311 of the Senate amendment)..............   408
              9. Increase minimum benefit under defined benefit 
                  plans (sec. 1209 of the House bill)............   410
              10. Reduced PBGC premiums for small and new plans 
                  (secs. 315-316 of the Senate amendment)........   410
              11. SAFE annuities and trusts (sec. 318 of the 
                  Senate amendment)..............................   412
          B. Enhancing Fairness for Women........................   415
              1. Additional catch-up contributions (sec. 1221 of 
                  the House bill and sec. 321 of the Senate 
                  amendment).....................................   415
              2. Equitable treatment for contributions of 
                  employees to defined contribution plans (sec. 
                  1222 of the House bill and sec. 322 of the 
                  Senate amendment)..............................   417
              3. Faster vesting of employer matching 
                  contributions (sec. 1223 of the House bill and 
                  sec. 325 of the Senate amendment)..............   418
              4. Simplify and update the minimum distribution 
                  rules (secs. 1224 and 1239 of the House bill)..   419
              5. Clarification of tax treatment of division of 
                  section 457 plan benefits upon divorce (sec. 
                  1225 of the House bill and sec. 323 of the 
                  Senate amendment)..............................   422
              6. Modification of safe harbor relief for hardship 
                  withdrawals from 401(k) plans (sec. 324 of the 
                  Senate amendment)..............................   423
          C. Increasing Portability for Participants.............   424
              1. Rollovers of retirement plan and IRA 
                  distributions (secs. 1231-1233 and 1239 of the 
                  House bill and secs. 331-333 and 339 of the 
                  Senate amendment)..............................   424
              2. Waiver of 60-day rule (sec. 1234 of the House 
                  bill and sec. 334 of the Senate amendment).....   428
              3. Treatment of forms of distribution (sec. 1235 of 
                  the House bill and sec. 335 of the Senate 
                  amendment).....................................   428
              4. Rationalization of restrictions on distributions 
                  (sec. 1236 of the House bill and sec. 336 of 
                  the Senate amendment)..........................   430
              5. Purchase of service credit under governmental 
                  pension plans (sec. 1237 of the House bill and 
                  sec. 337 of the Senate amendment)..............   431
              6. Employers may disregard rollovers for purposes 
                  of cash-out rules (sec. 1238 of the House bill 
                  and sec. 338 of the Senate amendment)..........   432
          D. Strengthening Pension Security and Enforcement......   433
              1. Phase in repeal of 150 percent of current 
                  liability funding limit; deduction for 
                  contributions to fund termination liability 
                  (secs. 1241-1242 of the House bill and secs. 
                  341 and 347 of the Senate amendment)...........   433
              2. Excise tax relief for sound pension funding 
                  (sec. 1243 of the House bill and sec. 343 of 
                  the Senate amendment)..........................   435
              3. Notice of significant reduction in plan benefit 
                  accruals (sec. 1244 of the House bill and sec. 
                  344 of the Senate amendment)...................   436
              4. Extension of PBGC missing participants program 
                  (sec. 342 of the Senate amendment).............   443
              5. Investment of employee contributions in 401(k) 
                  plans (sec. 345 of the Senate amendment).......   444
              6. Periodic pension benefit statements (sec. 351 of 
                  the Senate amendment)..........................   446
          E. Reducing Regulatory Burdens.........................   447
              1. Repeal of the multiple use test (sec. 1251 of 
                  the House bill)................................   447
              2. Modification of timing of plan valuations (sec. 
                  1252 of the House bill and sec. 362 of the 
                  Senate amendment)..............................   448
              3. Flexibility in nondiscrimination and line of 
                  business rules (sec. 1253 of the House bill and 
                  sec. 361 of the Senate amendment)..............   449
              4. ESOP dividends may be reinvested without loss of 
                  dividend deduction (sec. 1254 of the House bill 
                  and sec. 364 of the Senate amendment)..........   450
              5. Notice and consent period regarding 
                  distributions (sec. 1255 of the House bill and 
                  sec. 365 of the Senate amendment)..............   451
              6. Repeal transition rule relating to certain 
                  highly compensated employees (sec. 1256 of the 
                  House bill and sec. 366 of the Senate 
                  amendment).....................................   452
              7. Employees of tax-exempt entities (sec. 1257 of 
                  the House bill and sec. 367 of the Senate 
                  amendment).....................................   453
              8. Treatment of employer-provided retirement advice 
                  (sec. 1258 of the House bill and sec. 352 of 
                  the Senate amendment)..........................   454
              9. Provisions relating to plan amendments (sec. 
                  1259 of the House bill and sec. 371 of the 
                  Senate amendment)..............................   456
              10. Model plans for small businesses (sec. 1260 of 
                  the House bill)................................   456
              11. Reporting simplification (sec. 1261 of the 
                  House bill and sec. 370A of the Senate 
                  amendment).....................................   457
              12. Improvement to Employer Plans Compliance 
                  Resolution System (sec. 1262 of the House bill)   458
              13. Modifications to section 415 limits for 
                  multiemployer and governmental plans (secs. 
                  1263 of the House bill and sec. 346 and 348 of 
                  the Senate amendment)..........................   460
              14. Rules for substantial owner benefits in 
                  terminated plans (sec. 363 of the Senate 
                  amendment).....................................   461
              15. Extension to international organizations of 
                  moratorium on application of certain 
                  nondiscrimination rules applicable to State and 
                  local government plans (sec. 368 of the Senate 
                  amendment).....................................   462
              16. Annual report dissemination (sec. 369 of the 
                  Senate amendment)..............................   463
              17. Clarification of exclusion for employer-
                  provided transit passes (sec. 370 of the Senate 
                  amendment).....................................   463
XIII. MISCELLANEOUS PROVISIONS......................................464
          A. Expand Employer Reporting on Annual Wage and Tax 
              Statements (sec. 1303 of the House bill)...........   464
          B. Survivor Benefits of Public Safety Officers Killed 
              in the Line of Duty (sec. 1304 of the House bill)..   465
          C. Income from Publicly Traded Partnerships Treated as 
              Qualifying Income of Regulated Investment Companies 
              (secs. 1311-1312 of the House bill)................   465
          D. Equalize the Tax Treatment of Oversized ``Clean 
              Fuel'' Vehicles and Electric Vehicles (sec. 1313 of 
              the House bill)....................................   467
          E. Nuclear Decommissioning Costs (sec. 1314 of the 
              House bill)........................................   467
          F. Permit Consolidation of Life and Nonlife Insurance 
              Companies (sec. 1315 of the House bill and sec. 
              1113 of the Senate amendment)......................   470
          G. Consolidate Code Provisions Governing the Hazardous 
              Substance Superfund and the Leaking Underground 
              Storage Tank Trust Fund (sec. 1321 of the House 
              bill)..............................................   472
          H. Repeal Certain Excise Taxes on Rail Diesel Fuel and 
              Inland Waterway Barge Fuels (sec. 1322 of the House 
              bill and sec. 1101 of the Senate amendment)........   473
          I. Repeal Excise Tax on Fishing Tackle Boxes (sec. 1323 
              of the House bill).................................   474
          J. Modify Excise Tax on Arrow Components and 
              Accessories (sec. 1324 of the House bill and sec. 
              1109 of the Senate amendment)......................   475
          K. Entrepreneurial Equity Capital Formation 
              (``SSBICS'') (secs. 1341-1347 of the House bill)...   476
          L. Tax Treatment of Alaska Native Settlement Trusts 
              (sec. 1352 of the House bill and sec. 1102 of the 
              Senate amendment)..................................   477
          M. Increase Joint Committee on Taxation Refund Review 
              Threshold to $2 Million (sec. 1353 of the House 
              bill and sec. 1110 of the Senate amendment)........   479
          N. Clarification of Depreciation Study (sec. 1354 of 
              the House bill)....................................   479
          O. Tax Court Provisions................................   480
              1. Tax Court filing fee (sec. 1361 of the House 
                  bill)..........................................   481
              2. Use of practitioner fee (sec. 1362 of the House 
                  bill)..........................................   481
              3. Tax Court authority to apply equitable 
                  recoupment (sec. 1363 of the House bill).......   481
          P. Allow Certain Wholesale Distributors and Control 
              State Entities to Elect to Be Treated as Distilled 
              Spirits Plants Operators (secs. 1371-1377 of the 
              House bill)........................................   482
          Q. Simplify the Active Trade or Business Requirement 
              for Tax-Free Spin-Offs (sec. 1107 of the Senate 
              amendment).........................................   483
          R. Modify the Definition of Rural Airport Eligible for 
              Reduced Air Passenger Ticket Tax Rate (sec. 1111 of 
              the Senate amendment)..............................   485
          S. Dividends Paid by Cooperatives (sec. 1112 of the 
              Senate amendment)..................................   485
          T. Modify Personal Holding Company ``Lending or Finance 
              Business'' Exception (sec. 1113 of the Senate 
              amendment).........................................   486
          U. Tax Credit for Modifications to Inter-City Buses 
              Required Under the Americans With Disabilities Act 
              of 1990 (sec. 1115 of the Senate amendment)........   487
          V. Provisions Relating to Deduction for Business Meals.   489
              1. Increase deduction for business meals (sec. 804 
                  of the House bill).............................   489
              2. Increased deduction for business meals while 
                  operating under Department of Transportation 
                  hours of service limitations (sec. 1116 of the 
                  Senate amendment)..............................   490
          W. Authorize Limited Private Activity Tax-Exempt 
              Financing for Highway Construction (sec. 1117 of 
              the Senate amendment)..............................   491
          X. Provisions Relating to Tax Incentives for the 
              District of Columbia...............................   491
              1. Extend tax credit for first-time D.C. homebuyers 
                  (sec. 1118 of the Senate amendment)............   491
              2. Expand the zero-percent capital gains rate for 
                  D.C. zone assets (sec. 1119 of the Senate 
                  amendment).....................................   492
          Y. Establish a Seven-Year Recovery Period for Natural 
              Gas Gathering Lines (sec. 1120 of the Senate 
              amendment).........................................   493
          Z. Reclassify Air Transportation on Certain Small 
              Seaplanes as Non-Commercial Aviation for Excise Tax 
              Purposes (sec. 1121 of the Senate amendment).......   494
 XIV. ADDITIONAL MISCELLANEOUS PROVISIONS...........................495
          A. Exemption from Federal Income Tax for Amounts 
              Received by Holocaust Victims and Their Heirs (sec. 
              1122 of the Senate amendment)......................   495
          B. Medical Innovation Tax Credit (sec. 1137 of the 
              Senate amendment)..................................   496
          C. Capital Gain Holding Period for Horses (sec. 812 of 
              the Senate amendment)..............................   496
          D. Disclosure of Tax Return Information for Combined 
              Employment Tax Reporting (sec. 1131 of the Senate 
              amendment).........................................   497
          E. Tax Rates for Trusts with Disabled Beneficiary (sec. 
              211 of the Senate amendment).......................   498
          F. Taxation of Flights on Noncommercial Aircraft (sec. 
              370 of the Senate amendment).......................   499
          G. Exclusion for Certain Severance Payments (sec. 1135 
              of the Senate amendment)...........................   500
          H. FUTA Treatment of Maple Syrup Workers (sec. 1132 of 
              the Senate amendment)..............................   501
          I. Modify Rules Governing Tax-Exempt Bonds for Section 
              501(c)(3) Organizations as Applied to Organizations 
              Engaged in Timber Conservation Activities (sec. 
              1133 of the Senate amendment)......................   502
  XV. EXTENSION OF EXPIRING TAX PROVISIONS..........................503
          A. Extension of Research and Experimentation Credit and 
              Increase in the Rates for the Alternative 
              Incremental Research Credit (sec. 1401 of the House 
              bill and sec. 1201 of the Senate amendment)........   503
          B. Extend Exceptions Under Subpart F for Active 
              Financing Income (sec. 1402 of the House bill and 
              sec. 1202 of the Senate amendment).................   504
          C. Extend Suspension of Net Income Limitation on 
              Percentage Depletion From Marginal Oil and Gas 
              Wells (sec. 1403 of the House bill and sec. 1203 of 
              the Senate amendment)..............................   506
          D. Extend the Work Opportunity Tax Credit (sec. 1404 of 
              the House bill and sec. 1204 of the Senate 
              amendment).........................................   507
          E. Extend the Welfare-to-Work Tax Credit (sec. 1404 of 
              the House bill and sec. 1204 of the Senate 
              amendment).........................................   508
          F. Extend and Modify Tax Credit for Electricity 
              Produced by Wind and Closed-Loop Biomass Facilities 
              (sec. 1205 of the Senate amendment)................   510
          G. Extend Exemption from Diesel Dyeing Requirement for 
              Certain Areas in Alaska (sec. 1206 of the Senate 
              amendment).........................................   511
          H. Expensing of Environmental Remediation Expenditures 
              and Expansion of Qualifying Sites (sec. 1207 of the 
              Senate amendment)..................................   512
 XVI. REVENUE OFFSET PROVISIONS.....................................513
          A. Expand Reporting of Cancellation of Indebtedness 
              Income (sec. 1501 of the House bill and sec. 1302 
              of the Senate amendment)...........................   513
          B. Extension of IRS User Fees (sec. 1502 of the House 
              bill and sec. 1304 of the Senate amendment)........   514
          C. Impose Limitation on Prefunding of Certain Employee 
              Benefits (sec. 1503 of the House bill and sec. 1312 
              of the Senate amendment)...........................   515
          D. Increase Elective Withholding Rate for Nonperiodic 
              Distributions from Deferred Compensation Plans 
              (sec. 1504 of the House bill and sec. 1303 of the 
              Senate amendment)..................................   517
          E. Modify Treatment of Closely-Held REITs (sec. 1505 of 
              the House bill and sec. 1320 of the Senate 
              amendment).........................................   518
          F. Limit Conversion of Character of Income from 
              Constructive Ownership Transactions (sec. 1506 of 
              the House bill and sec. 1314 of the Senate 
              amendment).........................................   521
          G. Treatment of Excess Pension Assets Used for Retiree 
              Health Benefits (sec. 1507 of the House bill and 
              sec. 1305 of the Senate amendment).................   523
          H. Modify Installment Method and Prohibit Its Use by 
              Accrual Method Taxpayers (sec. 1508 of the House 
              bill and sec. 1313 of the Senate amendment)........   526
          I. Limitation on Use of Nonaccrual Experience Method of 
              Accounting (sec. 1509 of the House bill and sec. 
              1311 of the Senate amendment)......................   528
          J. Exclusion of Like-Kind Exchange Property from 
              Nonrecognition Treatment on the Sale or Exchange of 
              a Principal Residence (sec. 1510 of the House bill)   529
          K. Denial of Charitable Contribution Deduction for 
              Transfers Associated with Split-Dollar Insurance 
              Arrangements (sec. 1003 of the House bill and sec. 
              1315 of the Senate amendment)......................   530
          L. Modify Foreign Tax Credit Carryover Rules (sec. 1301 
              of the Senate amendment)...........................   533
          M. Modify Estimated Tax Rules for Closely Held REITs 
              (sec. 1316 of the Senate amendment)................   534
          N. Prohibited Allocations of Stock in an S Corporation 
              ESOP (sec. 1317 of the Senate amendment)...........   535
          O. Modify Anti-Abuse Rules Relating to Assumption of 
              Liabilities (sec. 1318 of the Senate amendment)....   537
          P. Require Consistent Treatment and Provide Basis 
              Allocation Rules for Transfers of Intangibles in 
              Certain Nonrecognition Transactions (sec. 1319 of 
              the Senate amendment)..............................   538
          Q. Distributions by a Partnership to a Corporate 
              Partner of Stock in Another Corporation (sec. 1321 
              of the Senate amendment)...........................   539
XVII. TAX TECHNICAL CORRECTIONS (secs. 1601-1605 of the House bill and 
      secs. 504(c) and 1401-1405 of the Senate amendment)...........542
XVIII. SENSE OF THE SENATE AND OTHER PROVISIONS                     543
          A. Sense of the Congress Regarding Empowerment Zones 
              (sec. 1128 of the Senate amendment)................   543
          B. Sense of the Senate Regarding Savings Incentives 
              (sec. 1127 of the Senate amendment)................   544
          C. Sense of the Congress Regarding Small Business 
              Incentives (sec. 1129 of the Senate amendment).....   544
          D. Direct Expenditure Block Grant (sec. 1126 of the 
              Senate amendment)..................................   545
 XIX. CONTINGENCY FOR RATE REDUCTIONS AND COMMITMENT TO DEBT REDUCTION 
      (secs. 101 and 1701 of the House bill)........................546
  XX. EXCLUSION FROM PAYGO SCORECARD (sec. 1801 of the House bill)..547
 XXI. COMPLIANCE WITH CONGRESSIONAL BUDGET ACT (sec. 1501 of the Senate 
      amendment)....................................................548
XXII. TAX COMPLEXITY ANALYSIS.......................................548


106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    106-289

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




                 TAXPAYER REFUND AND RELIEF ACT OF 1999

                                _______
                                

                 August 4, 1999.--Ordered to be printed

                                _______


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

                           CONFERENCE REPORT

                        [To accompany H.R. 2488]

      The committee of conference on the disagreeing votes of 
the two Houses on the amendment of the Senate to the bill (H.R. 
2488), to provide for reconciliation pursuant to sections 105 
and 211 of the concurrent resolution on the budget for fiscal 
year 2000, having met, after full and free conference, have 
agreed to recommend and do recommend to their respective Houses 
as follows:
      That the House recede from its disagreement to the 
amendment of the Senate and agree to the same with an amendment 
as follows:
      In lieu of the matter proposed to be inserted by the 
Senate amendment, insert the following:

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Taxpayer 
Refund and Relief 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 AND FAMILY TAX RELIEF

            Subtitle A--Reduction in Individual Income Taxes

Sec. 101. Reduction in individual income taxes.

                      Subtitle B--Family Tax Relief

Sec. 111. Elimination of marriage penalty in standard deduction.
Sec. 112. Exclusion for foster care payments to apply to payments by 
          qualified placement agencies.
Sec. 113. Expansion of adoption credit.
Sec. 114. Modification of dependent care credit.
Sec. 115. Marriage penalty relief for earned income credit.

      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

                  Subtitle A--Capital Gains Tax Relief

Sec. 201. Reduction in individual capital gain tax rates.
Sec. 202. Indexing of certain assets acquired after December 31, 1999, 
          for purposes of determining gain.
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. Tax treatment of income and loss on derivatives.
Sec. 206. Worthless securities of financial institutions.

             Subtitle B--Individual Retirement Arrangements

Sec. 211. Modification of deduction limits for IRA contributions.
Sec. 212. Modification of income limits on contributions and rollovers 
          to Roth IRAs.
Sec. 213. Deemed IRAs under employer plans.
Sec. 214. Catchup contributions to IRAs by individuals age 50 or over.

                TITLE III--ALTERNATIVE MINIMUM TAX REFORM

Sec. 301. Modification of alternative minimum tax on corporations.
Sec. 302. Repeal of 90 percent limitation on foreign tax credit.

                 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. Extension of exclusion for employer-provided educational 
          assistance.
Sec. 405. Additional increase in arbitrage rebate exception for 
          governmental bonds used to finance educational facilities.
Sec. 406. Modification of arbitrage rebate rules applicable to public 
          school construction bonds.
Sec. 407. Elimination of 60-month limit and increase in income 
          limitation on student loan interest deduction.
Sec. 408. 2-percent floor on miscellaneous itemized deductions not to 
          apply to qualified professional development expenses of 
          elementary and secondary school teachers.

                     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. Additional personal exemption for taxpayer caring for elderly 
          family member in taxpayer's home.
Sec. 504. Expanded human clinical trials qualifying for orphan drug 
          credit.
Sec. 505. Inclusion of certain vaccines against streptococcus pneumoniae 
          to list of taxable vaccines; reduction in per dose tax rate.
Sec. 506. Drug benefits for medicare beneficiaries.

                       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.

                   Subtitle E--Conservation Easements

Sec. 641. Expansion of estate tax rule for conservation easements.

     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.

                      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.

                 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. Increased deduction for meal expenses; increased deductibility 
          of business meal expenses for individuals subject to Federal 
          limitations on hours of service.
Sec. 805. Income averaging for farmers and fishermen not to increase 
          alternative minimum tax liability.
Sec. 806. Farm, fishing, and ranch risk management accounts.
Sec. 807. Exclusion of investment securities income from passive income 
          test for bank S corporations.
Sec. 808. Treatment of qualifying director shares.

                   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. Advance pricing agreements treated as confidential taxpayer 
          information.
Sec. 910. Increase in dollar limitation on section 911 exclusion.
Sec. 911. Airline mileage awards to certain foreign persons.

        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. Exemption procedure from taxes on self-dealing.
Sec. 1004. Expansion of declaratory judgment remedy to tax-exempt 
          organizations.
Sec. 1005. Modifications to section 512(b)(13).
Sec. 1006. Mileage reimbursements to charitable volunteers excluded from 
          gross income.
Sec. 1007. Charitable contribution deduction for certain expenses 
          incurred in support of Native Alaskan subsistence whaling.
Sec. 1008. Simplification of lobbying expenditure limitation.
Sec. 1009. Tax-free distributions from individual retirement accounts 
          for charitable purposes.

                    TITLE XI--REAL ESTATE PROVISIONS

          Subtitle A--Improvements in Low-Income Housing Credit

Sec. 1101. Modification of State ceiling on low-income housing credit.
Sec. 1102. Modification of criteria for allocating housing credits among 
          projects.
Sec. 1103. Additional responsibilities of housing credit agencies.
Sec. 1104. Modifications to rules relating to basis of building which is 
          eligible for credit.
Sec. 1105. Other modifications.
Sec. 1106. Carryforward rules.
Sec. 1107. Effective date.

    Subtitle B--Provisions Relating to Real Estate Investment Trusts

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

Sec. 1111. Modifications to asset diversification test.
Sec. 1112. Treatment of income and services provided by taxable REIT 
          subsidiaries.
Sec. 1113. Taxable REIT subsidiary.
Sec. 1114. Limitation on earnings stripping.
Sec. 1115. 100 percent tax on improperly allocated amounts.
Sec. 1116. Effective date.

                       Part II--Health Care REITs

Sec. 1121. Health care REITs.

      Part III--Conformity With Regulated Investment Company Rules

Sec. 1131. Conformity with regulated investment company rules.

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

Sec. 1141. Clarification of exception for independent operators.

           Part V--Modification of Earnings and Profits Rules

Sec. 1151. Modification of earnings and profits rules.

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

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

 Subtitle D--Treatment of Certain Contributions to Capital of Retailers

Sec. 1171. Exclusion from gross income for certain contributions to the 
          capital of certain retailers.

              Subtitle E--Private Activity Bond Volume Cap

Sec. 1181. Acceleration of phase-in of increase in volume cap on private 
          activity bonds.

           Subtitle F--Deduction for Renovating Historic Homes

Sec. 1191. Deduction for renovating historic homes.

               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. Repeal of coordination requirements for deferred compensation 
          plans of State and local governments and tax-exempt 
          organizations.
Sec. 1206. Elimination of user fee for requests to IRS regarding pension 
          plans.
Sec. 1207. Deduction limits.
Sec. 1208. Option to treat elective deferrals as after-tax 
          contributions.
Sec. 1209. Reduced PBGC premium for new plans of small employers.
Sec. 1210. Reduction of additional PBGC premium for new and small plans.

                Subtitle B--Enhancing Fairness for Women

Sec. 1221. Catchup contributions for individuals age 50 or over.
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.
Sec. 1226. Modification of safe harbor relief for hardship withdrawals 
          from cash or deferred arrangements.

           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.
Sec. 1246. Protection of investment of employee contributions to 401(k) 
          plans.
Sec. 1247. Treatment of multiemployer plans under section 415.

                 Subtitle E--Reducing Regulatory Burdens

Sec. 1251. Modification of timing of plan valuations.
Sec. 1252. ESOP dividends may be reinvested without loss of dividend 
          deduction.
Sec. 1253. Repeal of transition rule relating to certain highly 
          compensated employees.
Sec. 1254. Employees of tax-exempt entities.
Sec. 1255. Clarification of treatment of employer-provided retirement 
          advice.
Sec. 1256. Reporting simplification.
Sec. 1257. Improvement of employee plans compliance resolution system.
Sec. 1258. Substantial owner benefits in terminated plans.
Sec. 1259. Modification of exclusion for employer provided transit 
          passes.
Sec. 1260. Repeal of the multiple use test.
Sec. 1261. Flexibility in nondiscrimination, coverage, and line of 
          business rules.
Sec. 1262. Extension to international organizations of moratorium on 
          application of certain nondiscrimination rules applicable to 
          State and local plans.

                       Subtitle F--Plan Amendments

Sec. 1271. Provisions relating to plan amendments.

                  TITLE XIII--MISCELLANEOUS PROVISIONS

         Subtitle A--Provisions Primarily Affecting Individuals

Sec. 1301. Consistent treatment of survivor benefits for public safety 
          officers killed in the line of duty.
Sec. 1302. Expansion of dc homebuyer tax credit.
Sec. 1303. No Federal income tax on amounts and lands received by 
          Holocaust victims or their heirs.

          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.
Sec. 1316. Modification of active business definition under section 355.
Sec. 1317. Expansion of exemption from personal holding company tax for 
          lending or finance companies.
Sec. 1318. Extension of expensing of environmental remediation costs.

             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.
Sec. 1325. Exemption from ticket taxes for certain transportation 
          provided by small seaplanes.
Sec. 1326. Modification of rural airport definition.

                      Subtitle D--Other Provisions

Sec. 1331. Tax-exempt financing of qualified highway infrastructure 
          construction.
Sec. 1332. Tax treatment of Alaska Native Settlement Trusts.
Sec. 1333. Increase in threshold for Joint Committee reports on refunds 
          and credits.
Sec. 1334. Credit for clinical testing research expenses attributable to 
          certain qualified academic institutions including teaching 
          hospitals.
Sec. 1335. Payment of dividends on stock of cooperatives without 
          reducing patronage dividends.

                    Subtitle E--Tax Court Provisions

Sec. 1341. Tax court filing fee in all cases commenced by filing 
          petition.
Sec. 1342. Expanded use of Tax Court practice fee.
Sec. 1343. Confirmation of authority of Tax Court to apply doctrine of 
          equitable recoupment.

              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.
Sec. 1405. Extension and modification of credit for producing 
          electricity from certain renewable resources.

                        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. Charitable split-dollar life insurance, annuity, and 
          endowment contracts.
Sec. 1511. Restriction on use of real estate investment trusts to avoid 
          estimated tax payment requirements.
Sec. 1512. Modification of anti-abuse rules related to assumption of 
          liability.
Sec. 1513. Allocation of basis on transfers of intangibles in certain 
          nonrecognition transactions.
Sec. 1514. Distributions to a corporate partner of stock in another 
          corporation.
Sec. 1515. Prohibited allocations of S corporation stock held by an 
          ESOP.

                  TITLE XVI--COMPLIANCE WITH BUDGET ACT

Sec. 1601. Compliance with Budget Act.

               TITLE I--BROAD-BASED AND FAMILY TAX RELIEF

            Subtitle A--Reduction in Individual Income Taxes

SEC. 101. REDUCTION IN INDIVIDUAL INCOME TAXES.

    (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.--The following adjustments 
        shall apply in prescribing the tables under paragraph 
        (1):
                    ``(A) Reduction in lowest rate.--With 
                respect to taxable years beginning after 
                December 31, 2000, the rate applicable to the 
                lowest income bracket shall be--
                            ``(i) 14.5 percent in the case of 
                        taxable years beginning during 2001 or 
                        2002, and
                            ``(ii) 14.0 percent in the case of 
                        taxable years beginning after 2002.
                    ``(B) Reduction in other rates.--With 
                respect to taxable years beginning after 
                December 31, 2004, each rate (other than the 
                rate referred to in subparagraph (A)) shall be 
                reduced by 1 percentage point.
                    ``(C) Phaseout of marriage penalty in 
                lowest bracket.--
                            ``(i) In general.--With respect to 
                        taxable years beginning after December 
                        31, 2004--
                                    ``(I) the maximum taxable 
                                income in the lowest rate 
                                bracket in the table contained 
                                in subsection (a) (and the 
                                minimum taxable income in the 
                                next higher taxable income 
                                bracket in such table) shall be 
                                the applicable percentage of 
                                the maximum taxable income in 
                                the lowest rate bracket in the 
                                table contained in subsection 
                                (c) (after any other adjustment 
                                under this subsection), and
                                    ``(II) the comparable 
                                taxable income amounts in the 
                                table contained in subsection 
                                (d) shall be \1/2\ of the 
                                amounts determined under 
                                subclause (I).
                            ``(ii) Applicable percentage.--For 
                        purposes of clause (i), the applicable 
                        percentage shall be determined in 
                        accordance with the following table:

``For taxable years beginning
                                                          The applicable
    in calendar year--
                                                         percentage is--
            2005..............................................    173.7 
            2006..............................................    176.1 
            2007..............................................    188.1 
            2008 and thereafter...............................   200.0. 

                    ``(D) Increase in maximum taxable income in 
                lowest bracket for other individuals.--
                            ``(i) In general.--With respect to 
                        taxable years beginning after December 
                        31, 2005, the maximum taxable income in 
                        the lowest rate bracket in the tables 
                        contained in subsections (b) and (c), 
                        after any other adjustment under this 
                        subsection (and the minimum taxable 
                        income in the next higher taxable 
                        income bracket in such tables, as so 
                        adjusted) shall be increased by $3,000.
                            ``(ii) Cost-of-living adjustment.--
                        In the case of any taxable year 
                        beginning in any calendar year after 
                        2006, the $3,000 amount in clause (i) 
                        shall be increased by an amount equal 
                        to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of living 
                                adjustment determined under 
                                paragraph (3) for the calendar 
                                year in which the taxable year 
                                begins, determined by 
                                substituting `calendar year 
                                2005' for `calendar year 1992' 
                                in subparagraph (B) thereof.''.
                            ``(iii) Any increase under clause 
                        (ii) shall be added to the amount it is 
                        increasing before such amount is 
                        rounded under paragraph (6).
            ``(9) Post-2001 rate reductions contingent on no 
        increase in interest on total united states debt.--
                    ``(A) In general.--If the calendar year 
                preceding any adjustment year is not a debt 
                reduction calendar year, then--
                            ``(i) such adjustment shall not 
                        take effect until the calendar year 
                        following the adjustment year, and
                            ``(ii) this subparagraph shall 
                        apply to such following calendar year 
                        as if it were an adjustment year.
                For purposes of this subparagraph, the term 
                `adjustment year' means, with respect to any 
                adjustment under subparagraph (A), (B), or (D) 
                of paragraph (8), the first calendar year for 
                which such adjustment takes effect without 
                regard to this paragraph.
                    ``(B) Debt reduction calendar year.--For 
                purposes of this paragraph, the term `debt 
                reduction calendar year' means any calendar 
                year after 2000 if the Secretary of the 
                Treasury (after consultation with the chairman 
                of the Federal Reserve Board) determines by 
                August 31 of such calendar year that the United 
                States interest expense for the 12-month period 
                ending on July 31 of such calendar year is not 
                more than $1,000,000,000 greater than the 
                United States interest expense for the 12-month 
                period ending on July 31 of the preceding 
                calendar year.
                    ``(C) United states interest expense.--For 
                purposes of this paragraph, the term `United 
                States interest expense' means interest on 
                obligations which are subject to the public 
                debt limit in section 3101 of title 31, United 
                States Code.''.
            (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 ``27 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 
                        December 31, 2004, each rate in clause 
                        (i) shall be reduced by 1 percentage 
                        point.''
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

                     Subtitle B--Family 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 ``200 percent of the dollar amount in effect 
        under subparagraph (C) for the taxable year'',
            (2) by adding ``or'' at the end of subparagraph 
        (B),
            (3) by striking ``in the case of'' and all that 
        follows in subparagraph (C) and inserting ``in any 
        other case.'', and
            (4) by striking subparagraph (D).
    (b) Phase-in.--Subsection (c) of section 63 is amended by 
adding at the end the following new paragraph:
            ``(7) Phase-in of increase in basic standard 
        deduction.--In the case of taxable years beginning 
        before January 1, 2005--
                    ``(A) paragraph (2)(A) shall be applied by 
                substituting for `200 percent'--
                            ``(i) `172.8 percent' in the case 
                        of taxable years beginning during 2001,
                            ``(ii) `180.1 percent' in the case 
                        of taxable years beginning during 2002,
                            ``(iii) `187.0 percent' in the case 
                        of taxable years beginning during 2003, 
                        and
                            ``(iv) `193.5 percent' in the case 
                        of taxable years beginning during 2004, 
                        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. 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) the 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. 113. EXPANSION OF ADOPTION CREDIT.

    (a) In General.--Section 23(a)(1) (relating to allowance of 
credit) is amended to read as follows:
            ``(1) In general.--In the case of an individual, 
        there shall be allowed as a credit against the tax 
        imposed by this chapter--
                    ``(A) in the case of an adoption of a child 
                other than a child with special needs, the 
                amount of the qualified adoption expenses paid 
                or incurred by the taxpayer, and
                    ``(B) in the case of an adoption of a child 
                with special needs, $10,000.''.
    (b) Dollar Limitation.--Section 23(b)(1) is amended--
            (1) by striking ``($6,000, in the case of a child 
        with special needs)'', and
            (2) by striking ``subsection (a)'' and inserting 
        ``subsection (a)(1)''.
    (c) Year Credit Allowed.--Section 23(a)(2) is amended by 
adding at the end the following new flush sentence:
        ``In the case of the adoption of a child with special 
        needs, the credit allowed under paragraph (1) shall be 
        allowed for the taxable year in which the adoption 
        becomes final.''.
    (d) Definition of Eligible Child.--
            (1) In general.--Section 23(d)(2) is amended to 
        read as follows:
            ``(2) Eligible child.--The term `eligible child' 
        means any individual who--
                    ``(A) has not attained age 18, or
                    ``(B) is physically or mentally incapable 
                of caring for himself.''.
            (2) Clarification of termination.--Section 23 is 
        amended by adding at the end the following new 
        subsection:
    ``(i) Termination for Children Without Special Needs.--
Except in the case of a child with special needs, this section 
shall not apply to expenses paid or incurred after December 31, 
2001.''
    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 114. MODIFICATION OF DEPENDENT CARE CREDIT.

    (a) Increase in Percentage of Employment-Related Expenses 
Taken Into Account.--Subsection (a)(2) of section 21 (relating 
to expenses for household and dependent care services necessary 
for gainful employment) is amended--
            (1) by striking ``30 percent'' and inserting ``35 
        percent (40 percent in the case of taxable years 
        beginning after December 31, 2005)'',
            (2) by striking ``$2,000'' and inserting 
        ``$1,000'', and
            (3) by striking ``$10,000'' and inserting 
        ``$30,000''.
    (b) Indexing of Limit on Employment-Related Expenses.--
Section 21(c) (relating to dollar limit on amount creditable) 
is amended to read as follows:
    ``(c) Dollar Limit on Amount Creditable.--
            ``(1) In general.--The amount of the employment-
        related expenses incurred during any taxable year which 
        may be taken into account under subsection (a) shall 
        not exceed--
                    ``(A) an amount equal to 50 percent of the 
                amount determined under subparagraph (B) if 
                there is 1 qualifying individual with respect 
                to the taxpayer for such taxable year, or
                    ``(B) $4,800 if there are 2 or more 
                qualifying individuals with respect to the 
                taxpayer for such taxable year.
        The amount determined under subparagraph (A) or (B) 
        (whichever is applicable) shall be reduced by the 
        aggregate amount excludable from gross income under 
        section 129 for the taxable year.
            ``(2) Cost-of-living adjustment.--
                    ``(A) In general.--In the case of a taxable 
                year beginning after 2001, the $4,800 amount 
                under paragraph (1)(B) shall be increased by an 
                amount equal to--
                            ``(i) such dollar amount, 
                        multiplied by
                            ``(ii) the cost-of-living 
                        adjustment determined under section 
                        1(f)(3) for the calendar year in which 
                        the taxable year begins, determined by 
                        substituting `calendar year 2000' for 
                        `calendar year 1992' in subparagraph 
                        (B) thereof.
                    ``(B) Rounding rules.--If any amount after 
                adjustment under subparagraph (A) is not a 
                multiple of $50, such amount shall be rounded 
                to the next lower multiple of $50.''.
    (c) Minimum Dependent Care Credit Allowed for Stay-at-Home 
Parents.--Section 21(e) (relating to special rules) is amended 
by adding at the end the following:
            ``(11) Minimum credit allowed for stay-at-home 
        parents.--
                    ``(A) In general.--Notwithstanding 
                subsection (d), in the case of any taxpayer 
                with 1 or more qualifying individuals described 
                in subsection (b)(1)(A) under the age of 1, 
                such taxpayer shall be deemed to have 
                employment-related expenses for the taxable 
                year with respect to each such qualifying 
                individual in an amount equal to the sum of--
                            ``(i) $200 for each month in such 
                        taxable year during which such 
                        qualifying individual is under the age 
                        of 1, and
                            ``(ii) the amount of employment-
                        related expenses otherwise incurred for 
                        such qualifying individual for the 
                        taxable year (determined under this 
                        section without regard to this 
                        paragraph).
                    ``(B) Election to not apply this 
                paragraph.--This paragraph shall not apply with 
                respect to any qualifying individual for any 
                taxable year if the taxpayer elects to not have 
                this paragraph apply to such qualifying 
                individual for such taxable year.''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        December 31, 2001.
            (2) Subsection (c).--The amendment made by 
        subsection (c) shall apply to taxable years beginning 
        after December 31, 2005.

SEC. 115. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT.

    (a) In General.--Paragraph (2) of section 32(b) (relating 
to percentages and amounts) is amended--
            (1) by striking ``Amounts.--The earned'' and 
        inserting ``Amounts.--
                    ``(A) In general.--Subject to subparagraph 
                (B), the earned'', and
            (2) by adding at the end the following new 
        subparagraph:
                    ``(B) Joint returns.--In the case of a 
                joint return, the phaseout amount determined 
                under subparagraph (A) shall be increased by 
                $2,000.''.
    (b) Inflation adjustment.--Paragraph (1)(B) of section 
32(j) (relating to inflation adjustments) is amended to read as 
follows:
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for the 
                calendar year in which the taxable year begins, 
                determined--
                            ``(i) in the case of amounts in 
                        subsections (b)(1)(A) and (i)(1), by 
                        substituting `calendar year 1995' for 
                        `calendar year 1992' in subparagraph 
                        (B) thereof, and
                            ``(ii) in the case of the $2,000 
                        amount in subsection (b)(1)(B), by 
                        substituting `calendar year 2005' for 
                        `calendar year 1992' in subparagraph 
                        (B) of such section 1.''.
    (c) Rounding.--Section 32(j)(2)(A) (relating to rounding) 
is amended by striking ``subsection (b)(2)'' and inserting 
``subsection (b)(2)(A) (after being increased under 
subparagraph (B) thereof)''.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2005.

      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, 2004, 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--
        2005..................................................   80     
        2006..................................................   70     
        2007..................................................60.''.    

    (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

                  Subtitle A--Capital Gains Tax Relief

SEC. 201. 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 ``8 
        percent''.
            (2) The following sections are each amended by 
        striking ``20 percent'' and inserting ``18 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 ``23 
        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 ``28 percent'', and
                    (B) by striking the last sentence.
    (c) Effective Dates.--
            (1) In general.--Except as otherwise provided by 
        this subsection, the amendments made by this section 
        shall apply to taxable years beginning after December 
        31, 1998.
            (2) Withholding.--The amendment made by subsection 
        (a)(2)(C) shall apply to amounts paid after the date of 
        the enactment of this Act.

SEC. 202. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 1999, 
                    FOR PURPOSES OF DETERMINING GAIN.

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

``SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 
                    1999, FOR PURPOSES OF DETERMINING GAIN.

    ``(a) General Rule.--
            ``(1) Indexed basis substituted for adjusted 
        basis.--Solely for purposes of determining gain on the 
        sale or other disposition by a taxpayer (other than a 
        corporation) of an indexed asset which has been held 
        for more than 1 year, the indexed basis of the asset 
        shall be substituted for its adjusted basis.
            ``(2) Exception for depreciation, etc.--The 
        deductions for depreciation, depletion, and 
        amortization shall be determined without regard to the 
        application of paragraph (1) to the taxpayer or any 
        other person.
            ``(3) Exception for principal residences.--
        Paragraph (1) shall not apply to any disposition of the 
        principal residence (within the meaning of section 121) 
        of the taxpayer .
    ``(b) Indexed Asset.--
            ``(1) In general.--For purposes of this section, 
        the term `indexed asset' means--
                    ``(A) common stock in a C corporation 
                (other than a foreign corporation), and
                    ``(B) tangible property,
        which is a capital asset or property used in the trade 
        or business (as defined in section 1231(b)).
            ``(2) Stock in certain foreign corporations 
        included.--For purposes of this section--
                    ``(A) In general.--The term `indexed asset' 
                includes common stock in a foreign corporation 
                which is regularly traded on an established 
                securities market.
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply to--
                            ``(i) stock of a foreign investment 
                        company (within the meaning of section 
                        1246(b)),
                            ``(ii) stock in a passive foreign 
                        investment company (as defined in 
                        section 1296),
                            ``(iii) stock in a foreign 
                        corporation held by a United States 
                        person who meets the requirements of 
                        section 1248(a)(2), and
                            ``(iv) stock in a foreign personal 
                        holding company (as defined in section 
                        552).
                    ``(C) Treatment of american depository 
                receipts.--An American depository receipt for 
                common stock in a foreign corporation shall be 
                treated as common stock in such corporation.
    ``(c) Indexed Basis.--For purposes of this section--
            ``(1) General rule.--The indexed basis for any 
        asset is--
                    ``(A) the adjusted basis of the asset, 
                increased by
                    ``(B) the applicable inflation adjustment.
            ``(2) Applicable inflation adjustment.--The 
        applicable inflation adjustment for any asset is an 
        amount equal to--
                    ``(A) the adjusted basis of the asset, 
                multiplied by
                    ``(B) the percentage (if any) by which--
                            ``(i) the chain-type price index 
                        for GDP for the last calendar quarter 
                        ending before the asset is disposed of, 
                        exceeds
                            ``(ii) the chain-type price index 
                        for GDP for the last calendar quarter 
                        ending before the asset was acquired by 
                        the taxpayer.
        The percentage under subparagraph (B) shall be rounded 
        to the nearest \1/10\ of 1 percentage point.
            ``(3) Chain-type price index for GDP.--The chain-
        type price index for GDP for any calendar quarter is 
        such index for such quarter (as shown in the last 
        revision thereof released by the Secretary of Commerce 
        before the close of the following calendar quarter).
    ``(d) Suspension of Holding Period Where Diminished Risk of 
Loss; Treatment of Short Sales.--
            ``(1) In general.--If the taxpayer (or a related 
        person) enters into any transaction which substantially 
        reduces the risk of loss from holding any asset, such 
        asset shall not be treated as an indexed asset for the 
        period of such reduced risk.
            ``(2) Short sales.--
                    ``(A) In general.--In the case of a short 
                sale of an indexed asset with a short sale 
                period in excess of 1 year, for purposes of 
                this title, the amount realized shall be an 
                amount equal to the amount realized (determined 
                without regard to this paragraph) increased by 
                the applicable inflation adjustment. In 
                applying subsection (c)(2) for purposes of the 
                preceding sentence, the date on which the 
                property is sold short shall be treated as the 
                date of acquisition and the closing date for 
                the sale shall be treated as the date of 
                disposition.
                    ``(B) Short sale period.--For purposes of 
                subparagraph (A), the short sale period begins 
                on the day that the property is sold and ends 
                on the closing date for the sale.
    ``(e) Treatment of Regulated Investment Companies and Real 
Estate Investment Trusts.--
            ``(1) Adjustments at entity level.--
                    ``(A) In general.--Except as otherwise 
                provided in this paragraph, the adjustment 
                under subsection (a) shall be allowed to any 
                qualified investment entity (including for 
                purposes of determining the earnings and 
                profits of such entity).
                    ``(B) Exception for corporate 
                shareholders.--Under regulations--
                            ``(i) in the case of a distribution 
                        by a qualified investment entity 
                        (directly or indirectly) to a 
                        corporation--
                                    ``(I) the determination of 
                                whether such distribution is a 
                                dividend shall be made without 
                                regard to this section, and
                                    ``(II) the amount treated 
                                as gain by reason of the 
                                receipt of any capital gain 
                                dividend shall be increased by 
                                the percentage by which the 
                                entity's net capital gain for 
                                the taxable year (determined 
                                without regard to this section) 
                                exceeds the entity's net 
                                capital gain for such year 
                                determined with regard to this 
                                section, and
                            ``(ii) there shall be other 
                        appropriate adjustments (including 
                        deemed distributions) so as to ensure 
                        that the benefits of this section are 
                        not allowed (directly or indirectly) to 
                        corporate shareholders of qualified 
                        investment entities.
                For purposes of the preceding sentence, any 
                amount includible in gross income under section 
                852(b)(3)(D) shall be treated as a capital gain 
                dividend and an S corporation shall not be 
                treated as a corporation.
                    ``(C) Exception for qualification 
                purposes.--This section shall not apply for 
                purposes of sections 851(b) and 856(c).
                    ``(D) Exception for certain taxes imposed 
                at entity level.--
                            ``(i) Tax on failure to distribute 
                        entire gain.--If any amount is subject 
                        to tax under section 852(b)(3)(A) for 
                        any taxable year, the amount on which 
                        tax is imposed under such section shall 
                        be increased by the percentage 
                        determined under subparagraph 
                        (B)(i)(II). A similar rule shall apply 
                        in the case of any amount subject to 
                        tax under paragraph (2) or (3) of 
                        section 857(b) to the extent 
                        attributable to the excess of the net 
                        capital gain over the deduction for 
                        dividends paid determined with 
                        reference to capital gain dividends 
                        only. The first sentence of this clause 
                        shall not apply to so much of the 
                        amount subject to tax under section 
                        852(b)(3)(A) as is designated by the 
                        company under section 852(b)(3)(D).
                            ``(ii) Other taxes.--This section 
                        shall not apply for purposes of 
                        determining the amount of any tax 
                        imposed by paragraph (4), (5), or (6) 
                        of section 857(b).
            ``(2) Adjustments to interests held in entity.--
                    ``(A) Regulated investment companies.--
                Stock in a regulated investment company (within 
                the meaning of section 851) shall be an indexed 
                asset for any calendar quarter in the same 
                ratio as--
                            ``(i) the average of the fair 
                        market values of the indexed assets 
                        held by such company at the close of 
                        each month during such quarter, bears 
                        to
                            ``(ii) the average of the fair 
                        market values of all assets held by 
                        such company at the close of each such 
                        month.
                    ``(B) Real estate investment trusts.--Stock 
                in a real estate investment trust (within the 
                meaning of section 856) shall be an indexed 
                asset for any calendar quarter in the same 
                ratio as--
                            ``(i) the fair market value of the 
                        indexed assets held by such trust at 
                        the close of such quarter, bears to
                            ``(ii) the fair market value of all 
                        assets held by such trust at the close 
                        of such quarter.
                    ``(C) Ratio of 80 percent or more.--If the 
                ratio for any calendar quarter determined under 
                subparagraph (A) or (B) would (but for this 
                subparagraph) be 80 percent or more, such ratio 
                for such quarter shall be 100 percent.
                    ``(D) Ratio of 20 percent or less.--If the 
                ratio for any calendar quarter determined under 
                subparagraph (A) or (B) would (but for this 
                subparagraph) be 20 percent or less, such ratio 
                for such quarter shall be zero.
                    ``(E) Look-thru of partnerships.--For 
                purposes of this paragraph, a qualified 
                investment entity which holds a partnership 
                interest shall be treated (in lieu of holding a 
                partnership interest) as holding its 
                proportionate share of the assets held by the 
                partnership.
            ``(3) Treatment of return of capital 
        distributions.--Except as otherwise provided by the 
        Secretary, a distribution with respect to stock in a 
        qualified investment entity which is not a dividend and 
        which results in a reduction in the adjusted basis of 
        such stock shall be treated as allocable to stock 
        acquired by the taxpayer in the order in which such 
        stock was acquired.
            ``(4) Qualified investment entity.--For purposes of 
        this subsection, the term `qualified investment entity' 
        means--
                    ``(A) a regulated investment company 
                (within the meaning of section 851), and
                    ``(B) a real estate investment trust 
                (within the meaning of section 856).
    ``(f) Other Pass-Thru Entities.--
            ``(1) Partnerships.--
                    ``(A) In general.--In the case of a 
                partnership, the adjustment made under 
                subsection (a) at the partnership level shall 
                be passed through to the partners.
                    ``(B) Special rule in the case of section 
                754 elections.--In the case of a transfer of an 
                interest in a partnership with respect to which 
                the election provided in section 754 is in 
                effect--
                            ``(i) the adjustment under section 
                        743(b)(1) shall, with respect to the 
                        transferor partner, be treated as a 
                        sale of the partnership assets for 
                        purposes of applying this section, and
                            ``(ii) with respect to the 
                        transferee partner, the partnership's 
                        holding period for purposes of this 
                        section in such assets shall be treated 
                        as beginning on the date of such 
                        adjustment.
            ``(2) S corporations.--In the case of an S 
        corporation, the adjustment made under subsection (a) 
        at the corporate level shall be passed through to the 
        shareholders. This section shall not apply for purposes 
        of determining the amount of any tax imposed by section 
        1374 or 1375.
            ``(3) Common trust funds.--In the case of a common 
        trust fund, the adjustment made under subsection (a) at 
        the trust level shall be passed through to the 
        participants.
            ``(4) Indexing adjustment disregarded in 
        determining loss on sale of interest in entity.--
        Notwithstanding the preceding provisions of this 
        subsection, for purposes of determining the amount of 
        any loss on a sale or exchange of an interest in a 
        partnership, S corporation, or common trust fund, the 
        adjustment made under subsection (a) shall not be taken 
        into account in determining the adjusted basis of such 
        interest.
    ``(g) Dispositions Between Related Persons.--
            ``(1) In general.--This section shall not apply to 
        any sale or other disposition of property between 
        related persons except to the extent that the basis of 
        such property in the hands of the transferee is a 
        substituted basis.
            ``(2) Related persons defined.--For purposes of 
        this section, the term `related persons' means--
                    ``(A) persons bearing a relationship set 
                forth in section 267(b), and
                    ``(B) persons treated as single employer 
                under subsection (b) or (c) of section 414.
    ``(h) Transfers To Increase Indexing Adjustment.--If any 
person transfers cash, debt, or any other property to another 
person and the principal purpose of such transfer is to secure 
or increase an adjustment under subsection (a), the Secretary 
may disallow part or all of such adjustment or increase.
    ``(i) Special Rules.--For purposes of this section--
            ``(1) Treatment of improvements, etc.--If there is 
        an addition to the adjusted basis of any tangible 
        property or of any stock in a corporation during the 
        taxable year by reason of an improvement to such 
        property or a contribution to capital of such 
        corporation--
                    ``(A) such addition shall never be taken 
                into account under subsection (c)(1)(A) if the 
                aggregate amount thereof during the taxable 
                year with respect to such property or stock is 
                less than $1,000, and
                    ``(B) such addition shall be treated as a 
                separate asset acquired at the close of such 
                taxable year if the aggregate amount thereof 
                during the taxable year with respect to such 
                property or stock is $1,000 or more.
        A rule similar to the rule of the preceding sentence 
        shall apply to any other portion of an asset to the 
        extent that separate treatment of such portion is 
        appropriate to carry out the purposes of this section.
            ``(2) Assets which are not indexed assets 
        throughout holding period.--The applicable inflation 
        adjustment shall be appropriately reduced for periods 
        during which the asset was not an indexed asset.
            ``(3) Treatment of certain distributions.--A 
        distribution with respect to stock in a corporation 
        which is not a dividend shall be treated as a 
        disposition.
            ``(4) Acquisition date where there has been prior 
        application of subsection (a)(1) with respect to the 
        taxpayer.--If there has been a prior application of 
        subsection (a)(1) to an asset while such asset was held 
        by the taxpayer, the date of acquisition of such asset 
        by the taxpayer shall be treated as not earlier than 
        the date of the most recent such prior application.
            ``(5) Collapsible corporations.--The application of 
        section 341(a) (relating to collapsible corporations) 
        shall be determined without regard to this section.
    ``(j) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.''.
    (b) Clerical Amendment.--The table of sections for part II 
of subchapter O of chapter 1 is amended by inserting after the 
item relating to section 1021 the following new item:

        ``Sec. 1022. Indexing of certain assets acquired after December 
                  31, 1999, for purposes of determining gain.''.

    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to the disposition of any property 
        the holding period of which begins after December 31, 
        1999.
            (2) Certain transactions between related persons.--
        The amendments made by this section shall not apply to 
        the disposition of any property acquired after December 
        31, 1999, from a related person (as defined in section 
        1022(g)(2) of the Internal Revenue Code of 1986, as 
        added by this section) if--
                    (A) such property was so acquired for a 
                price less than the property's fair market 
                value, and
                    (B) the amendments made by this section did 
                not apply to such property in the hands of such 
                related person.
    (d) Election To Recognize Gain on Assets Held on January 1, 
2000.--For purposes of the Internal Revenue Code of 1986--
            (1) In general.--A taxpayer other than a 
        corporation may elect to treat--
                    (A) any readily tradable stock (which is an 
                indexed asset) held by such taxpayer on January 
                1, 2000, and not sold before the next business 
                day after such date, as having been sold on 
                such next business day for an amount equal to 
                its closing market price on such next business 
                day (and as having been reacquired on such next 
                business day for an amount equal to such 
                closing market price), and
                    (B) any other indexed asset held by the 
                taxpayer on January 1, 2000, as having been 
                sold on such date for an amount equal to its 
                fair market value on such date (and as having 
                been reacquired on such date for an amount 
                equal to such fair market value).
            (2) Treatment of gain or loss.--
                    (A) Any gain resulting from an election 
                under paragraph (1) shall be treated as 
                received or accrued on the date the asset is 
                treated as sold under paragraph (1) and shall 
                be recognized notwithstanding any provision of 
                the Internal Revenue Code of 1986.
                    (B) Any loss resulting from an election 
                under paragraph (1) shall not be allowed for 
                any taxable year.
            (3) Election.--An election under paragraph (1) 
        shall be made in such manner as the Secretary of the 
        Treasury or his delegate may prescribe and shall 
        specify the assets for which such election is made. 
        Such an election, once made with respect to any asset, 
        shall be irrevocable.
            (4) Readily tradable stock.--For purposes of this 
        subsection, the term ``readily tradable stock'' means 
        any stock which, as of January 1, 2000, is readily 
        tradable on an established securities market or 
        otherwise.

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 Taxpayer Refund and 
                        Relief 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 Taxpayer Refund 
                        and Relief 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 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. TAX TREATMENT OF INCOME AND LOSS ON DERIVATIVES.

    (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,
                            ``(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, or
                            ``(iii) to manage such other risks 
                        as the Secretary may prescribe in 
                        regulations.
                    ``(B) Treatment of nonidentification or 
                improper identification of hedging 
                transactions.--Notwithstanding subsection 
                (a)(7), the Secretary shall prescribe 
                regulations to properly characterize 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) Conforming Amendments.--
            (1) Each of the following sections are amended by 
        striking ``section 1221'' and inserting ``section 
        1221(a)'':
                    (A) Section 170(e)(3)(A).
                    (B) Section 170(e)(4)(B).
                    (C) Section 367(a)(3)(B)(i).
                    (D) Section 818(c)(3).
                    (E) Section 865(i)(1).
                    (F) Section 1092(a)(3)(B)(ii)(II).
                    (G) Subparagraphs (C) and (D) of section 
                1231(b)(1).
                    (H) Section 1234(a)(3)(A).
            (2) Each of the following sections are amended by 
        striking ``section 1221(1)'' and inserting ``section 
        1221(a)(1)'':
                    (A) Section 198(c)(1)(A)(i).
                    (B) Section 263A(b)(2)(A).
                    (C) Clauses (i) and (iii) of section 
                267(f)(3)(B).
                    (D) Section 341(d)(3).
                    (E) Section 543(a)(1)(D)(i).
                    (F) Section 751(d)(1).
                    (G) Section 775(c).
                    (H) Section 856(c)(2)(D).
                    (I) Section 856(c)(3)(C).
                    (J) Section 856(e)(1).
                    (K) Section 856(j)(2)(B).
                    (L) Section 857(b)(4)(B)(i).
                    (M) Section 857(b)(6)(B)(iii).
                    (N) Section 864(c)(4)(B)(iii).
                    (O) Section 864(d)(3)(A).
                    (P) Section 864(d)(6)(A).
                    (Q) Section 954(c)(1)(B)(iii).
                    (R) Section 995(b)(1)(C).
                    (S) Section 1017(b)(3)(E)(i).
                    (T) Section 1362(d)(3)(C)(ii).
                    (U) Section 4662(c)(2)(C).
                    (V) Section 7704(c)(3).
                    (W) Section 7704(d)(1)(D).
                    (X) Section 7704(d)(1)(G).
                    (Y) Section 7704(d)(5).
            (3) Section 818(b)(2) is amended by striking 
        ``section 1221(2)'' and inserting ``section 
        1221(a)(2)''.
            (4) Section 1397B(e)(2) is amended by striking 
        ``section 1221(4)'' and inserting ``section 
        1221(a)(4)''.
    (d) 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.

             Subtitle B--Individual Retirement Arrangements

SEC. 211. MODIFICATION OF DEDUCTION LIMITS FOR IRA CONTRIBUTIONS.

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

``For taxable years beginning in:              The deductible amount is:
        512001, 2002, and 2003..........................         $3,000 
        2004 and 2005...................................         $4,000 
        2006 and thereafter.............................         $5,000.

                    ``(B) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of 
                        any taxable year beginning in a 
                        calendar year after 2006, the $5,000 
                        amount under subparagraph (A) shall be 
                        increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for the 
                                calendar year in which the 
                                taxable year begins, determined 
                                by substituting `calendar year 
                                2005' for `calendar year 1992' 
                                in subparagraph (B) thereof.
                            ``(ii) Rounding rules.--If any 
                        amount after adjustment under clause 
                        (i) is not a multiple of $100, such 
                        amount shall be rounded to the next 
                        lower multiple of $100.''.
    (b) Conforming Amendments.--
            (1) Section 408(a)(1) is amended by striking ``in 
        excess of $2,000 on behalf of any individual'' and 
        inserting ``on behalf of any individual in excess of 
        the amount in effect for such taxable year under 
        section 219(b)(1)(A)''.
            (2) Section 408(b)(2)(B) is amended by striking 
        ``$2,000'' and inserting ``the dollar amount in effect 
        under section 219(b)(1)(A)''.
            (3) Section 408(b) is amended by striking 
        ``$2,000'' in the matter following paragraph (4) and 
        inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
            (4) Section 408(j) is amended by striking 
        ``$2,000''.
            (5) Section 408(p)(8) is amended by striking 
        ``$2,000'' and inserting ``the dollar amount in effect 
        under section 219(b)(1)(A)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 212. MODIFICATION OF INCOME LIMITS ON CONTRIBUTIONS AND ROLLOVERS 
                    TO ROTH IRAS.

    (a) Repeal of AGI Limit on Contributions.--Section 
408A(c)(3) (relating to limits based on modified adjusted gross 
income) is amended--
            (1) by striking clause (ii) of subparagraph (A) and 
        inserting:
                            ``(ii) $10,000.'', and
            (2) by striking clause (ii) of subparagraph (C) and 
        inserting:
                            ``(ii) the applicable dollar amount 
                        is--
                                    ``(I) $200,000 in the case 
                                of a taxpayer filing a joint 
                                return, and
                                    ``(II) $100,000 in the case 
                                of any other taxpayer.''
    (b) Increase in AGI Limit for Rollover Contributions.--
Section 408A(c)(3)(B) (relating to rollover from IRA) is 
amended to read as follows:
                    ``(B) Rollover from ira.--A taxpayer shall 
                not be allowed to make a qualified rollover 
                contribution from an individual retirement plan 
                other than a Roth IRA during any taxable year 
                if, for the taxable year of the distribution to 
                which the contribution relates, the taxpayer's 
                adjusted gross income exceeds $100,000 
                ($200,000 in the case of a taxpayer filing a 
                joint return).''
    (c) Effective Dates.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2002.

SEC. 213. DEEMED IRAS UNDER EMPLOYER PLANS.

    (a) In General.--Section 408 (relating to individual 
retirement accounts) is amended by redesignating subsection (q) 
as subsection (r) and by inserting after subsection (p) the 
following new subsection:
    ``(q) Deemed IRAs Under Qualified Employer Plans.--
            ``(1) General rule.--If--
                    ``(A) a qualified employer plan elects to 
                allow employees to make voluntary employee 
                contributions to a separate account or annuity 
                established under the plan, and
                    ``(B) under the terms of the qualified 
                employer plan, such account or annuity meets 
                the applicable requirements of this section or 
                section 408A for an individual retirement 
                account or annuity,
        then such account or annuity shall be treated for 
        purposes of this title in the same manner as an 
        individual retirement plan (and contributions to such 
        account or annuity as contributions to an individual 
        retirement plan). For purposes of subparagraph (B), the 
        requirements of subsection (a)(5) shall not apply.
            ``(2) Special rules for qualified employer plans.--
        For purposes of this title--
                    ``(A) a qualified employer plan shall not 
                fail to meet any requirement of this title 
                solely by reason of establishing and 
                maintaining a program described in paragraph 
                (1), and
                    ``(B) any account or annuity described in 
                paragraph (1), and any contribution to the 
                account or annuity, shall not be subject to any 
                requirement of this title applicable to a 
                qualified employer plan or taken into account 
                in applying any such requirement to any other 
                contributions under the plan.
            ``(3) Definitions.--For purposes of this 
        subsection--
                    ``(A) Qualified employer plan.--The term 
                `qualified employer plan' has the meaning given 
                such term by section 72(p)(4).
                    ``(B) Voluntary employee contribution.--The 
                term `voluntary employee contribution' means 
                any contribution (other than a mandatory 
                contribution within the meaning of section 
                411(c)(2)(C))--
                            ``(i) which is made by an 
                        individual as an employee under a 
                        qualified employer plan which allows 
                        employees to elect to make 
                        contributions described in paragraph 
                        (1), and
                            ``(ii) with respect to which the 
                        individual has designated the 
                        contribution as a contribution to which 
                        this subsection applies.''.
    (b) Amendment of ERISA.--
            (1) In general.--Section 4 of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1003) 
        is amended by adding at the end the following new 
        subsection:
    ``(c) If a pension plan allows an employee to elect to make 
voluntary employee contributions to accounts and annuities as 
provided in section 408(q) of the Internal Revenue Code of 
1986, such accounts and annuities (and contributions thereto) 
shall not be treated as part of such plan (or as a separate 
pension plan) for purposes of any provision of this title other 
than section 403(c), 404, or 405 (relating to exclusive 
benefit, and fiduciary and co-fiduciary responsibilities).''.
            (2) Conforming amendment.--Section 4(a) of such Act 
        (29 U.S.C. 1003(a)) is amended by inserting ``or (c)'' 
        after ``subsection (b)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to plan years beginning after December 31, 1999.

SEC. 214. CATCHUP CONTRIBUTIONS TO IRAS BY INDIVIDUALS AGE 50 OR OVER.

    (a) In General.--Section 219(b), as amended by section 211, 
is amended by adding at the end the following new paragraph:
            ``(6) Catchup contributions.--
                    ``(A) In general.--In the case of an 
                individual who has attained the age of 50 
                before the close of the taxable year, the 
                dollar amount in effect under paragraph (1)(A) 
                for such taxable year shall be equal to the 
                applicable percentage of such amount determined 
                without regard to this paragraph.
                    ``(B) Applicable percentage.--For purposes 
                of this paragraph, the applicable percentage 
                shall be determined in accordance with the 
                following table:

``For taxable years beginning in:          The applicable percentage is:
        2001............................................    110 percent 
        2002............................................    120 percent 
        2003............................................    130 percent 
        2004............................................    140 percent 
        2005 and thereafter.............................  150percent.''.

    (b) Effective Date.--The amendment made by this section 
shall apply to contributions in taxable years beginning after 
December 31, 2000.

               TITLE III--ALTERNATIVE MINIMUM TAX REFORM

SEC. 301. MODIFICATION OF ALTERNATIVE MINIMUM TAX ON CORPORATIONS.

    (a) Limitation on Use of Credit for Prior Year Minimum Tax 
Liability.--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 2004.--In the case of a corporation for any 
        taxable year beginning after 2004, the limitation under 
        paragraph (1) shall be increased by the lesser of--
                    ``(A) 50 percent of the tentative minimum 
                tax for the taxable year, or
                    ``(B) the excess (if any) of the tentative 
                minimum tax for the taxable year over the 
                regular tax for the taxable year.''
    (b) Repeal of 90 Percent Limitation on NOL Deduction.--
Section 56(d)(1)(A) is amended by striking ``90 percent'' and 
inserting ``90 percent (100 percent in the case of a 
corporation)''.
    (c) Effective Dates.--
            (1) Subsection (a).--The amendment made by 
        subsection (a) shall apply to taxable years beginning 
        after December 31, 2004.
            (2) Subsection (b).--The amendment made by 
        subsection (b) shall apply to taxable years beginning 
        after December 31, 2001.

SEC. 302. REPEAL OF 90 PERCENT LIMITATION ON FOREIGN TAX CREDIT.

    (a) 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.
    (b) Conforming Amendment.--Section 53(d)(1)(B)(i)(II) is 
amended by striking ``and if section 59(a)(2) did not apply''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2001.

                 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) Short Title.--This section may be cited as the 
``Collegiate Learning and Student Savings (CLASS) Act''.
    (b) 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''.
    (c) Exclusion From Gross Income of Education Distributions 
From Qualified Tuition Programs.--
            (1) In general.--Section 529(c)(3)(B) (relating to 
        distributions) is amended to read as follows:
                    ``(B) Distributions for qualified higher 
                education expenses.--For purposes of this 
                paragraph--
                            ``(i) In-kind distributions.--No 
                        amount shall be includible in gross 
                        income under subparagraph (A) by reason 
                        of a distribution which consists of 
                        providing a benefit to the distributee 
                        which, if paid for by the distributee, 
                        would constitute payment of a qualified 
                        higher education expense.
                            ``(ii) Cash distributions.--In the 
                        case of distributions not described in 
                        clause (i), if--
                                    ``(I) such distributions do 
                                not exceed the qualified higher 
                                education expenses (reduced by 
                                expenses described in clause 
                                (i)), no amount shall be 
                                includible in gross income, and
                                    ``(II) in any other case, 
                                the amount otherwise includible 
                                in gross income shall be 
                                reduced by an amount which 
                                bears the same ratio to such 
                                amount as such expenses bear to 
                                such distributions.
                            ``(iii) Exception for institutional 
                        programs.--In the case of any taxable 
                        year beginning before January 1, 2004, 
                        clauses (i) and (ii) shall not apply 
                        with respect to any distribution during 
                        such taxable year under a qualified 
                        tuition program established and 
                        maintained by 1 or more eligible 
                        educational institutions.
                            ``(iv) Treatment as 
                        distributions.--Any benefit furnished 
                        to a designated beneficiary under a 
                        qualified tuition program shall be 
                        treated as a distribution to the 
                        beneficiary for purposes of this 
                        paragraph.
                            ``(v) Coordination with hope and 
                        lifetime learning credits.--The total 
                        amount of qualified higher education 
                        expenses with respect to an individual 
                        for the taxable year shall be reduced--
                                    ``(I) as provided in 
                                section 25A(g)(2), and
                                    ``(II) by the amount of 
                                such expenses which were taken 
                                into account in determining the 
                                credit allowed to the taxpayer 
                                or any other person under 
                                section 25A.
                            ``(vi) Coordination with education 
                        individual retirement accounts.--If, 
                        with respect to an individual for any 
                        taxable year--
                                    ``(I) the aggregate 
                                distributions to which clauses 
                                (i) and (ii) and section 
                                530(d)(2)(A) apply, exceed
                                    ``(II) the total amount of 
                                qualified higher education 
                                expenses otherwise taken into 
                                account under clauses (i) and 
                                (ii) (after the application of 
                                clause (v)) for such year,
                        the taxpayer shall allocate such 
                        expenses among such distributions for 
                        purposes of determining the amount of 
                        the exclusion under clauses (i) and 
                        (ii) and section 530(d)(2)(A).''.
            (2) Conforming amendments.--
                    (A) Section 135(d)(2)(B) 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,''.
    (d) 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 with 
                        respect to such beneficiary which was 
                        not includible in gross income by 
                        reason of clause (i)(I).'', and
            (3) by inserting ``or programs'' after 
        ``beneficiaries'' in the heading.
    (e) 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.''.
    (f) 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 Taxpayer 
                        Refund and Relief 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.''.
    (g) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        December 31, 1999.
            (2) Qualified higher education expenses.--The 
        amendments made by subsection (f) shall apply to 
        amounts paid for courses beginning 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. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL 
                    ASSISTANCE.

    Section 127(d) (relating to termination of exclusion for 
educational assistance programs) is amended by striking ``May 
31, 2000'' and inserting ``December 31, 2003''.

SEC. 405. 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. 406. 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. 407. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME 
                    LIMITATION ON STUDENT LOAN INTEREST DEDUCTION.

    (a) Elimination of 60-Month Limit.--
            (1) In general.--Section 221 (relating to interest 
        on education loans) is amended by striking subsection 
        (d) and by redesignating subsections (e), (f), and (g) 
        as subsections (d), (e), and (f), respectively.
            (2) Conforming amendment.--Section 6050S(e) is 
        amended by striking ``section 221(e)(1)'' and inserting 
        ``section 221(d)(1)''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply with respect to any loan 
        interest paid after December 31, 1999, in taxable years 
        ending after such date.
    (b) Increase in Income Limitation.--
            (1) In general.--Section 221(b)(2)(B) (relating to 
        amount of reduction) is amended by striking clauses (i) 
        and (ii) and inserting the following:
                            ``(i) the excess of--
                                    ``(I) the taxpayer's 
                                modified adjusted gross income 
                                for such taxable year, over
                                    ``(II) $45,000 ($90,000 in 
                                the case of a joint return), 
                                bears to
                            ``(ii) $15,000.''.
            (2) Conforming amendment.--Section 221(g)(1) is 
        amended by striking ``$40,000 and $60,000 amounts'' and 
        inserting ``$45,000 and $90,000 amounts''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to taxable years ending after 
        December 31, 1999.

SEC. 408. 2-PERCENT FLOOR ON MISCELLANEOUS ITEMIZED DEDUCTIONS NOT TO 
                    APPLY TO QUALIFIED PROFESSIONAL DEVELOPMENT 
                    EXPENSES OF ELEMENTARY AND SECONDARY SCHOOL 
                    TEACHERS.

    (a) In General.--Section 67(b) (defining miscellaneous 
itemized deductions) is amended by striking ``and'' at the end 
of paragraph (11), by striking the period at the end of 
paragraph (12) and inserting ``, and'', and by adding at the 
end the following new paragraph:
            ``(13) any deduction allowable for the qualified 
        professional development expenses of an eligible 
        teacher.''.
    (b) Definitions.--Section 67 (relating to 2-percent floor 
on miscellaneous itemized deductions) is amended by adding at 
the end the following new subsection:
    ``(g) Qualified Professional Development Expenses of 
Eligible Teachers.--For purposes of subsection (b)(13)--
            ``(1) Qualified professional development 
        expenses.--
                    ``(A) In general.--The term `qualified 
                professional development expenses' means 
                expenses in an amount not to exceed $1,000 for 
                any taxable year--
                            ``(i) for tuition, fees, books, 
                        supplies, equipment, and transportation 
                        required for the enrollment or 
                        attendance of an individual in a 
                        qualified course of instruction, and
                            ``(ii) with respect to which a 
                        deduction is allowable under section 
                        162 (determined without regard to this 
                        section).
                    ``(B) Qualified course of instruction.--The 
                term `qualified course of instruction' means a 
                course of instruction which--
                            ``(i) is--
                                    ``(I) at an institution of 
                                higher education (as defined in 
                                section 481 of the Higher 
                                Education Act of 1965 (20 
                                U.S.C. 1088), as in effect on 
                                the date of the enactment of 
                                this subsection), or
                                    ``(II) a professional 
                                conference, and
                            ``(ii) is part of a program of 
                        professional development which is 
                        approved and certified by the 
                        appropriate local educational agency as 
                        furthering the individual's teaching 
                        skills.
                    ``(C) Local educational agency.--The term 
                `local educational agency' has the meaning 
                given such term by section 14101 of the 
                Elementary and Secondary Education Act of 1965, 
                as so in effect.
            ``(2) Eligible teacher.--
                    ``(A) In general.--The term `eligible 
                teacher' means an individual who is a 
                kindergarten through grade 12 classroom 
                teacher, instructor, counselor, aide, or 
                principal in an elementary or secondary school.
                    ``(B) Elementary or secondary school.--The 
                terms `elementary school' and `secondary 
                school' have the meanings given such terms by 
                section 14101 of the Elementary and Secondary 
                Education Act of 1965 (20 U.S.C. 8801), as so 
                in effect.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000, 
and ending before January 1, 2005.

                    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 and the taxpayer's spouse and dependents.
    ``(b) Applicable Percentage.--For purposes of subsection 
(a), the applicable percentage shall be determined in 
accordance with the following table:

``For taxable years beginning
                                                          The applicable
    in calendar year--
                                                         percentage is--
    2002, 2003, and 2004......................................    25    
    2005......................................................    35    
    2006......................................................    65    
    2007 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 and 
                without regard to payments made with respect to 
                any coverage described in subsection (e)) is 
                paid or incurred by the employer.
                    ``(B) Employer contributions to cafeteria 
                plans, flexible spending arrangements, and 
                medical savings accounts.--Employer 
                contributions to a cafeteria plan, a flexible 
                spending or similar arrangement, or a medical 
                savings account which are excluded from gross 
                income under section 106 shall be treated for 
                purposes of subparagraph (A) as paid by the 
                employer.
                    ``(C) Aggregation of plans of employer.--A 
                health plan which is not otherwise described in 
                subparagraph (A) shall be treated as described 
                in such subparagraph if such plan would be so 
                described if all health plans of persons 
                treated as a single employer under 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) Deduction Not Available for Payment of Ancillary 
Coverage Premiums.--Any amount paid as a premium for insurance 
which provides for--
            ``(1) coverage for accidents, disability, dental 
        care, vision care, or a specified illness, or
            ``(2) making payments of a fixed amount per day (or 
        other period) by reason of being hospitalized.
shall not be taken into account under subsection (a).
    ``(f) Special Rules.--
            ``(1) Coordination with deduction for health 
        insurance costs of self-employed individuals.--The 
        amount taken into account by the taxpayer in computing 
        the deduction under section 162(l) shall not be taken 
        into account under this section.
            ``(2) Coordination with medical expense 
        deduction.--The amount taken into account by the 
        taxpayer in computing the deduction under this section 
        shall not be taken into account under section 213.
    ``(g) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out this section, 
including regulations requiring employers to report to their 
employees and the Secretary such information as the Secretary 
determines to be appropriate.''.
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
Other Deductions.--Subsection (a) of section 62 is amended by 
inserting after paragraph (17) the following new item:
            ``(18) Health and long-term care insurance costs.--
        The deduction allowed by section 222.''.
    (c) Clerical Amendment.--The table of sections for part VII 
of subchapter B of chapter 1 is amended by striking the last 
item and inserting the following new items:

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

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

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

    (a) Cafeteria Plans.--
            (1) In general.--Subsection (f) of section 125 
        (defining qualified benefits) is amended by inserting 
        before the period at the end ``; except that such term 
        shall include the payment of premiums for any qualified 
        long-term care insurance contract (as defined in 
        section 7702B) to the extent the amount of such payment 
        does not exceed the eligible long-term care premiums 
        (as defined in section 213(d)(10)) for such contract''.
    (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, 2001.

SEC. 503. 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 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 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. 504. 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. 505. INCLUSION OF CERTAIN VACCINES AGAINST STREPTOCOCCUS 
                    PNEUMONIAE TO LIST OF TAXABLE VACCINES; REDUCTION 
                    IN PER DOSE TAX RATE.

    (a) Inclusion of Vaccines.--
            (1) 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.''.
            (2) Effective date.--
                    (A) Sales.--The amendment made by this 
                subsection 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, but shall not take 
                effect if subsection (c) does not take effect.
                    (B) Deliveries.--For purposes of 
                subparagraph (A), in the case of sales on or 
                before the date described in such subparagraph 
                for which delivery is made after such date, the 
                delivery date shall be considered the sale 
                date.
    (b) Reduction in Per Dose Tax Rate.--
            (1) In general.--Section 4131(b)(1) (relating to 
        amount of tax) is amended by striking ``75 cents'' and 
        inserting ``50 cents''.
            (2) Effective date.--
                    (A) Sales.--The amendment made by this 
                subsection shall apply to vaccine sales after 
                December 31, 2004, but shall not take effect if 
                subsection (c) does not take effect.
                    (B) Deliveries.--For purposes of 
                subparagraph (A), in the case of sales on or 
                before the date described in such subparagraph 
                for which delivery is made after such date, the 
                delivery date shall be considered the sale 
                date.
            (3) Limitation on certain credits or refunds.--For 
        purposes of applying section 4132(b) of the Internal 
        Revenue Code of 1986 with respect to any claim for 
        credit or refund filed after August 31, 2004, the 
        amount of tax taken into account shall not exceed the 
        tax computed under the rate in effect on January 1, 
        2005.
    (c) Vaccine Tax and Trust Fund Amendments.--
            (1) Sections 1503 and 1504 of the Vaccine Injury 
        Compensation Program Modification Act (and the 
        amendments made by such sections) are hereby repealed.
            (2) Subparagraph (A) of section 9510(c)(1) is 
        amended by striking ``August 5, 1997'' and inserting 
        ``October 21, 1998''.
            (3) The amendments made by this subsection shall 
        take effect as if included in the provisions of the Tax 
        and Trade Relief Extension Act of 1998 to which they 
        relate.

SEC. 506. DRUG BENEFITS FOR MEDICARE BENEFICIARIES.

    (a) In General.--Section 213 (relating to medical, dental, 
etc., expenses) is amended by redesignating subsection (e) as 
subsection (f) and by inserting after subsection (d) the 
following new subsection:
    ``(e) Drug Benefits for Medicare Beneficiaries.--
            ``(1) Deduction for certain former prescription 
        drugs.--
                    ``(A) In general.--Subsection (b) shall not 
                apply to amounts paid for eligible former 
                prescription drugs for a medicare beneficiary 
                who is the taxpayer or the taxpayer's spouse or 
                dependent (as defined in section 152).
                    ``(B) Eligible former prescription drug.--
                For purposes of subparagraph (A), the term 
                `eligible former prescription drug' means any 
                drug or biological which is not a prescribed 
                drug at the time purchased by the taxpayer but 
                was a prescribed drug at any prior time during 
                the calendar year in which so purchased or 
                during the 2 preceding calendar years.
            ``(2) Adjusted gross income threshold not to apply 
        to prescription drug insurance coverage for medicare 
        beneficiaries if certain conditions met.--The 7.5 
        percent adjusted gross income threshold in subsection 
        (a) shall not apply to the expenses paid during the 
        taxable year for prescription drug insurance coverage 
        for a medicare beneficiary who is the taxpayer or the 
        taxpayer's spouse or dependent (as defined in section 
        152) if--
                    ``(A) the Secretary certifies that, 
                throughout such taxable year, the conditions 
                specified in paragraph (3) are met, and
                    ``(B) the charge for such coverage is 
                either separately stated in the contract or 
                furnished to the policyholder by the insurance 
                company in a separate statement.
            ``(3) Conditions.--For purposes of paragraph (2), 
        the conditions specified in this paragraph are met if 
        all of the following are in effect:
                    ``(A) Assistance for prescription drugs for 
                low-income medicare beneficiaries.--
                            ``(i) Low-income assistance is 
                        available to enable the purchase of 
                        coverage of prescription drugs as 
                        described in subparagraph (B) or (C) 
                        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.
                            ``(ii) The Federal Government 
                        provides funding for the costs of such 
                        assistance.
                    ``(B) Authorizing medigap coverage solely 
                of prescription drugs.--At least 1 of the 
                benefit packages authorized to be offered under 
                a medicare supplemental policy under the Social 
                Security Act is a package which provides solely 
                for the coverage of costs of prescription 
                drugs.
                    ``(C) 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.
                    ``(D) Deduction for eligible former 
                prescription drugs.--The treatment under 
                paragraph (1) of expenses paid for eligible 
                former prescription drugs applies for such 
                taxable year.
            ``(4) Definition and special rule.--
                    ``(A) Medicare beneficiary.--For purposes 
                of this subsection, the term `medicare 
                beneficiary' means an individual who is 
                entitled to benefits under part A, or enrolled 
                under part B or C, of title XVIII of the Social 
                Security Act.
                    ``(B) Coordination with other expenses.--
                Expenses to which the 7.5 percent adjusted 
                gross income threshold in subsection (a) does 
                not apply by reason of paragraph (1) and (2) 
                shall not be taken into account in applying 
                such threshold to other expenses.''
    (b) 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 for 
        medicare beneficiaries.--The deduction allowed by 
        section 213(a) to the extent of the expenses to which 
        the 7.5 percent adjusted gross income threshold in 
        subsection (a) does not apply by reason of paragraph 
        (2) of section 213(e).''
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2002.

                      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 1023.''.
    (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 1023 
        (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 1022, as added by section 202, the 
following:

``SEC. 1023. 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 but only if the value of such property 
                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 the enactment of the Taxpayer 
                Refund and Relief 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 subsection, the term `adjusted 
        fair market value' means, with respect to any property, 
        fair market value reduced by any indebtedness secured 
        by such property.
            ``(3) Limitation on exception for property acquired 
        by surviving spouse.--The adjusted fair market value of 
        property which is not carryover basis property by 
        reason of paragraph (2)(B) shall not exceed $3,000,000. 
        The executor shall allocate the limitation under the 
        preceding sentence among such property.
            ``(4) Phasein of carryover basis if property 
        exceeds $1,300,000.--
                    ``(A) In general.--If the aggregate 
                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 includible 
                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 excepted 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.
            ``(5) 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 
                Taxpayer Refund and Relief Act of 1999:
                            ``(i) Section 2033.
                            ``(ii) Section 2038.
                            ``(iii) Section 2040.
                            ``(iv) Section 2041.
                            ``(v) Section 2042(1).
                    ``(B) Exclusion of property acquired by 
                spouse.--Such term shall not include property 
                which is not carryover basis property by reason 
                of 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 1023)'' 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 1023.''.
            (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. 1023. 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.--
            (1) In general.--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.''.

            (2) Phase-in of reduced rate.--Subsection (c) of 
        section 2001 is amended by adding at the end the 
        following new paragraph:
            ``(3) Phase-in of reduced rate.--In the case of 
        decedents dying, and gifts made, during 2001, the last 
        item in the table contained in paragraph (1) shall be 
        applied by substituting `53%' for `50%'.''.
    (b) Repeal of Phaseout of Graduated Rates.--Subsection (c) 
of section 2001 is amended by striking paragraph (2) and 
redesignating paragraph (3), as added by subsection (a), as 
paragraph (2).
    (c) Additional Reductions of Rates of Tax.--Subsection (c) 
of section 2001, as so amended, is amended by adding at the end 
the following new paragraph:
            ``(3) Phasedown of tax.--In the case of estates of 
        decedents dying, and gifts made, during any calendar 
        year after 2004 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:
            2003..............................................      1.0 
            2004..............................................      2.0 
            2005..............................................      3.0 
            2006..............................................      4.0 
            2007..............................................      5.5 
            2008..............................................      7.5.

                    ``(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, 2004.

   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 Taxpayer 
                Refund and Relief 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.

    ``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 Taxpayer Refund and Relief 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) Subparagraph (B) of section 2001(b)(1) is 
        amended by inserting before the comma ``reduced by the 
        amount described in section 2052(a)(2)(B)''.
            (2)(A) Subsection (b) of section 2011 is amended--
                    (i) by striking ``adjusted'' in the table, 
                and
                    (ii) by striking the last sentence.
            (B) 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)(A) 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''.
            (B) Subparagraph (A) of section 2013(c)(1) is 
        amended by striking ``2010,''.
            (5) Paragraph (2) of section 2014(b) is amended by 
        striking ``2010,''.
            (6) 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 
                        Taxpayer Refund and Relief Act of 1999) 
                        or the exemption allowable under 
                        section 2052 with respect to the 
                        decedent as a credit under section 2505 
                        (as so in effect) or exemption under 
                        section 2521 (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,''.
            (7) Paragraph (3) of section 2057(a) is amended to 
        read as follows:
            ``(3) Coordination with exemption amount.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), if this section applies to an 
                estate, the exemption amount under section 2052 
                shall be $625,000.
                    ``(B) Increase in exemption amount if 
                deduction is less than $675,000.--If the 
                deduction allowed by this section is less than 
                $675,000, the amount of the exemption amount 
                under section 2052 shall be increased (but not 
                above the amount which would apply to the 
                estate without regard to this section) by the 
                excess of $675,000 over the amount of the 
                deduction allowed.''
            (8)(A) Subparagraph (B) of section 2101(b)(1) is 
        amended by inserting before the comma ``reduced by 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 Taxpayer Refund and Relief 
        Act of 1999)''.
            (B) Subsection (b) of section 2101 is amended by 
        striking the last sentence.
            (9) Section 2102 is amended by striking subsection 
        (c).
            (10) 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 Taxpayer Refund and 
                        Relief 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).''
            (11)(A) Subsection (a) of section 2107 is amended 
        by adding at the end the following new paragraph:
            ``(3) Limitation on exemption amount.--
        Subparagraphs (B) and (C) of section 2106(a)(4) shall 
        not apply in applying section 2106 for purposes of this 
        section.''
            (B) Subsection (c) of section 2107 is amended--
                            (i) by striking paragraph (1) and 
                        by redesignating paragraphs (2) and (3) 
                        as paragraphs (1) and (2), 
                        respectively, and
                            (ii) by striking the second 
                        sentence of paragraph (2) (as so 
                        redesignated).
            (12) 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''.
            (13) 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''.
            (14) 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.''
            (15) Subsection (a) of section 2503 is amended by 
        striking ``section 2522'' and inserting ``section 
        2521''.
            (16) Paragraph (1) of section 6018(a) is amended by 
        striking ``the applicable exclusion amount in effect 
        under section 2010(c)'' and inserting ``the exemption 
        amount under section 2052''.
            (17) 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 $1,000,000, or''.
            (18) The table of sections for part II of 
        subchapter A of chapter 11 is amended by striking the 
        item relating to section 2010.
            (19) The table of sections for part IV of 
        subchapter A of chapter 11 is amended by inserting 
        after the item relating to section 2051 the following 
        new item:

        ``Sec. 2052. Exemption.''

            (20) The table of sections for subchapter A of 
        chapter 12 is amended by striking the item relating to 
        section 2505.
            (21) The table of sections for subchapter C of 
        chapter 12 is amended by inserting before the item 
        relating to section 2522 the following new item:

        ``Sec. 2521. Exemption.''

    (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 the enactment 
                of this paragraph.
                    ``(B) Basis for determinations.--In 
                determining whether to grant relief under this 
                paragraph, the Secretary shall take into 
                account all relevant circumstances, including 
                evidence of intent contained in the trust 
                instrument or instrument of transfer and such 
                other factors as the Secretary deems relevant. 
                For purposes of determining whether to grant 
                relief under this paragraph, the time for 
                making the allocation (or election) shall be 
                treated as if not expressly prescribed by 
                statute.
            ``(2) Substantial compliance.--An allocation of GST 
        exemption under section 2632 that demonstrates an 
        intent to have the lowest possible inclusion ratio with 
        respect to a transfer or a trust shall be deemed to be 
        an allocation of so much of the transferor's unused GST 
        exemption as produces the lowest possible inclusion 
        ratio. In determining whether there has been 
        substantial compliance, all relevant circumstances 
        shall be taken into account, including evidence of 
        intent contained in the trust instrument or instrument 
        of transfer and such other factors as the Secretary 
        deems relevant.''.
    (b) 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 
        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.

                   Subtitle E--Conservation Easements

SEC. 641. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASEMENTS.

    (a) Where Land Is Located.--
            (1) In general.--Clause (i) of section 
        2031(c)(8)(A) (defining land subject to a conservation 
        easement) is amended--
                    (A) by striking ``25 miles'' both places it 
                appears and inserting ``50 miles'', and
                    (B) striking ``10 miles'' and inserting 
                ``25 miles''.
            (2) Effective date.--The amendments made by this 
        subsection shall apply to estates of decedents dying 
        after December 31, 1999.
    (b) Clarification of Date for Determining Value of Land and 
Easement.--
            (1) In general.--Section 2031(c)(2) (defining 
        applicable percentage) is amended by adding at the end 
        the following new sentence: ``The values taken into 
        account under the preceding sentence shall be such 
        values as of the date of the contribution referred to 
        in paragraph (8)(B).''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to estates of decedents dying 
        after December 31, 1997.

    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) al.--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 nominated areas 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. 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.
            ``(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.
            ``(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 10 percent of 
        the portion of such amount which is includible in gross 
        income.
            ``(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. 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)), 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.
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 the 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.''.

                     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 disregardedetermining 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, 1999.

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.

                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 and the taxpayer's spouse and dependents.''.
    (b) Clarification of Limitations on Other Coverage.--The 
first sentence of section 162(l)(2)(B) is amended to read as 
follows: ``Paragraph (1) shall not apply to any taxpayer for 
any calendar month for which the taxpayer participates in any 
subsidized health plan maintained by any employer (other than 
an employer described in section 401(c)(4)) of the taxpayer or 
the spouse of the taxpayer.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 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. INCREASED DEDUCTION FOR MEAL EXPENSES; INCREASED 
                    DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR 
                    INDIVIDUALS SUBJECT TO FEDERAL LIMITATIONS ON HOURS 
                    OF SERVICE.

    (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 applicable
    in calendar year--
                                                         percentage is--
            2000 through 2005.................................       50 
            2006..............................................       55 
            2007 and thereafter...............................    60.''.

    (c) Individuals Subject to Federal Limitations on Hours of 
Service.--The table in section 274(n)(4)(B) (relating to 
special rule for individuals subject to Federal hours of 
service), as redesignated by subsection (b), is amended--
            (1) by striking ``or 2007'', and
            (2) by striking ``2008'' and inserting ``2007''.
    (d) 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 (b), is amended by striking 
        ``50 percent'' and inserting ``the allowable 
        percentage''.
    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1999.

SEC. 805. INCOME AVERAGING FOR FARMERS AND FISHERMEN NOT TO INCREASE 
                    ALTERNATIVE MINIMUM TAX LIABILITY.

    (a) In General.--Section 55(c) (defining regular tax) is 
amended by redesignating paragraph (2) as paragraph (3) and by 
inserting after paragraph (1) the following:
            ``(2) Coordination with income averaging for 
        farmers and fishermen.--Solely for purposes of this 
        section, section 1301 (relating to averaging of farm 
        and fishing income) shall not apply in computing the 
        regular tax.''.
    (b) Allowing Income Averaging for Fishermen.--
            (1) In general.--Section 1301(a) is amended by 
        striking ``farming business'' and inserting ``farming 
        business or fishing business,''.
            (2) Definition of elected farm income.--
                    (A) In general.--Clause (i) of section 
                1301(b)(1)(A) is amended by inserting ``or 
                fishing business'' before the semicolon.
                    (B) Conforming amendment.--Subparagraph (B) 
                of section 1301(b)(1) is amended by inserting 
                ``or fishing business'' after ``farming 
                business'' both places it occurs.
            (3) Definition of fishing business.--Section 
        1301(b) is amended by adding at the end the following 
        new paragraph:
            ``(4) Fishing business.--The term `fishing 
        business' means the conduct of commercial fishing as 
        defined in section 3 of the Magnuson-Stevens Fishery 
        Conservation and Management Act (16 U.S.C. 1802).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1999.

SEC. 806. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.

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

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

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

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

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

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

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

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

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

SEC. 807. EXCLUSION OF INVESTMENT SECURITIES INCOME FROM PASSIVE INCOME 
                    TEST FOR BANK S CORPORATIONS.

    (a) In General.--Section 1362(d)(3)(C) (defining passive 
investment income) is amended by adding at the end the 
following:
                            ``(v) Exception for banks; etc.--In 
                        the case of a bank (as defined in 
                        section 581), a bank holding company 
                        (as defined in section 
                        246A(c)(3)(B)(ii)), or a qualified 
                        subchapter S subsidiary bank, the term 
                        `passive investment income' shall not 
                        include--
                                    ``(I) interest income 
                                earned by such bank, bank 
                                holding company, or qualified 
                                subchapter S subsidiary bank, 
                                or
                                    ``(II) dividends on assets 
                                required to be held by such 
                                bank, bank holding company, or 
                                qualified subchapter S 
                                subsidiary bank to conduct a 
                                banking business, including 
                                stock in the Federal Reserve 
                                Bank, the Federal Home Loan 
                                Bank, or the Federal 
                                Agricultural Mortgage Bank or 
                                participation certificates 
                                issued by a Federal 
                                Intermediate Credit Bank.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1999.

SEC. 808. TREATMENT OF QUALIFYING DIRECTOR SHARES.

    (a) In General.--Section 1361 is amended by adding at the 
end the following:
    ``(f) Treatment of Qualifying Director Shares.--
            ``(1) In general.--For purposes of this 
        subchapter--
                    ``(A) qualifying director shares shall not 
                be treated as a second class of stock, and
                    ``(B) no person shall be treated as a 
                shareholder of the corporation by reason of 
                holding qualifying director shares.
            ``(2) Qualifying director shares defined.--For 
        purposes of this subsection, the term `qualifying 
        director shares' means any shares of stock in a bank 
        (as defined in section 581) or in a bank holding 
        company registered as such with the Federal Reserve 
        System--
                            ``(i) which are held by an 
                        individual solely by reason of status 
                        as a director of such bank or company 
                        or its controlled subsidiary; and
                            ``(ii) which are subject to an 
                        agreement pursuant to which the holder 
                        is required to dispose of the shares of 
                        stock upon termination of the holder's 
                        status as a director at the same price 
                        as the individual acquired such shares 
                        of stock.
            ``(3) Distributions.--A distribution (not in part 
        or full payment in exchange for stock) made by the 
        corporation with respect to qualifying director shares 
        shall be includible as ordinary income of the holder 
        and deductible to the corporation as an expense in 
        computing taxable income under section 1363(b) in the 
        year such distribution is received.''.
    (b) Conforming Amendments.--
            (1) Section 1361(b)(1) is amended by inserting ``, 
        except as provided in subsection (f),'' before ``which 
        does not''.
            (2) Section 1366(a) is amended by adding at the end 
        the following:
            ``(3) Allocation with respect to qualifying 
        director shares.--The holders of qualifying director 
        shares (as defined in section 1361(f)) shall not, with 
        respect to such shares of stock, be allocated any of 
        the items described in paragraph (1).''.
            (3) Section 1373(a) is amended by striking ``and'' 
        at the end of paragraph (1), by striking the period at 
        the end of paragraph (2) and inserting ``, and'', and 
        adding at the end the following:
            ``(3) no amount of an expense deductible under this 
        subchapter by reason of section 1361(f)(3) shall be 
        apportioned or allocated to such income.''.
    (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 a 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 each domestic 
                corporation which is a member 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 section 
                        1504 without regard to paragraphs (2) 
                        and (4) of section 1504(b)), 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).
                For purposes of clause (ii), ownership shall be 
                determined under section 958; except that 
                paragraphs (3) and (4) of section 318(a) shall 
                not apply for purposes of section 958(b).
                    ``(C) Treatment of worldwide affiliated 
                group.--For purposes of applying paragraph (1), 
                the taxable income of the domestic members of a 
                worldwide affiliated group from sources outside 
                the United States shall be determined by 
                allocating and apportioning the interest 
                expense of such domestic members to such income 
                in an amount equal to the excess (if any) of--
                            ``(i) the total interest expense of 
                        the worldwide affiliated group 
                        multiplied by the ratio which the 
                        foreign assets of the worldwide 
                        affiliated group bears to all the 
                        assets of the worldwide affiliated 
                        group, over
                            ``(ii) the interest expense of all 
                        foreign corporations which are members 
                        of the worldwide affiliated group to 
                        the extent such interest expense of 
                        such foreign corporations would have 
                        been allocated and apportioned to 
                        foreign source income if this 
                        subsection were applied to a group 
                        consisting of all the foreign 
                        corporations in such worldwide 
                        affiliated group.
                    ``(D) Assets and interest expense of 
                foreign corporations.--
                            ``(i) In general.--For purposes of 
                        subparagraph (C), 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) (without regard to stock 
                        considered as owned under section 
                        958(b)) bears to the aggregate value of 
                        all stock in such corporation.
                    ``(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 common parent and all 
                other corporations which are members of 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.--In the case of a worldwide 
        affiliated group for which an election under subsection 
        (e)(6) is in effect, subsection (e) shall be applied--
                    ``(A) by treating an electing financial 
                institution group as if it were a separate 
                worldwide affiliated group, and
                    ``(B) by treating each electing subsidiary 
                group as if it were a separate worldwide 
                affiliated group for purposes of allocating 
                interest expense with respect to qualified 
                indebtedness of members of an electing 
                subsidiary group.
        Subsection (e) shall apply to any such electing group 
        in the same manner as subsection (e) applies to the 
        pre-election worldwide 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 worldwide affiliated 
                        group, and
                            ``(ii) an election under this 
                        paragraph is in effect for such group 
                        of corporations.
                    ``(B) Financial corporation.--
                            ``(i) In general.--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 which is derived 
                        from transactions with unrelated 
                        persons.
                            ``(ii) Income from related 
                        financial corporations.--Dividend 
                        income, and income described in section 
                        904(d)(2)(C)(ii) and the regulations 
                        thereunder, which is derived directly 
                        or indirectly from a financial 
                        corporation (as defined in clause (i) 
                        without regard to this clause) which is 
                        not an unrelated person shall be 
                        treated as income described in clause 
                        (i).
                            ``(iii) Bank holding companies.--To 
                        the extent provided in regulations 
                        prescribed by the Secretary, a bank 
                        holding company (within the meaning of 
                        section 2(a) of the Bank Holding 
                        Company Act of 1956) shall be treated 
                        as a corporation meeting the 
                        requirements of clause (i).
                            ``(iv) Antiabuse rule.--For 
                        purposes of this subparagraph, there 
                        shall be disregarded any item of income 
                        or gain from a transaction or series of 
                        transactions a principal purpose of 
                        which is the qualification of any 
                        corporation as a financial corporation.
                    ``(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 worldwide 
                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 worldwide 
                affiliated group and may be made only for the 
                first taxable year beginning after December 31, 
                2001, in which such affiliated group includes 1 
                or more financial corporations described in 
                subparagraph (B). Such an election, once made, 
                shall apply to such taxable year and all 
                subsequent years unless revoked with the 
                consent of the Secretary.
            ``(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 
                        worldwide affiliated group,
                            ``(ii) such group includes--
                                    ``(I) a domestic 
                                corporation (which is not the 
                                common parent of the pre-
                                election worldwide 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 worldwide 
                                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 worldwide 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 worldwide 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 
                        worldwide affiliated group other than a 
                        corporation which is a member of the 
                        electing subsidiary group.
                    ``(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 worldwide 
                        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),
                except as provided by the Secretary, 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 worldwide affiliated 
                group. Such an election, once made, shall apply 
                to the taxable year for which made and the 4 
                succeeding taxable years unless revoked with 
                the consent of the Secretary. 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 worldwide affiliated group 
                included in more than 1 electing subsidiary 
                group.
            ``(4) Pre-election worldwide affiliated group.--For 
        purposes of this subsection, the term `pre-election 
        worldwide affiliated group' means, with respect to a 
        corporation, the 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) Unrelated person.--For purposes of this 
        subsection, the term `unrelated person' means any 
        person not bearing a relationship specified in section 
        267(b) or 707(b)(1) to the corporation.
            ``(6) 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) 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, 2005, 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, 2005.

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 
        Taxpayer Refund and Relief 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 Taxpayer Refund 
        and Relief 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, 2007.

SEC. 909. 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.
                    (F) A detailed description of the Secretary 
                of the Treasury's efforts to ensure compliance 
                with existing 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. 910. 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.

SEC. 911. AIRLINE MILEAGE AWARDS TO CERTAIN FOREIGN PERSONS.

    (a) In General.--Paragraph (3) of section 4261(e) is 
amended by redesignating subparagraph (C) as subparagraph (D) 
and by inserting after subparagraph (B) the following new 
subparagraph:
                    ``(C) Mileage awards issued to individuals 
                residing outside the united states.--The tax 
                imposed by subsection (a) shall not apply to 
                amounts attributable to mileage awards credited 
                to individuals whose mailing addresses on 
                record with the person providing the right to 
                air transportation are outside the United 
                States.''
    (b) Effective Date.--The amendment made by this section 
shall apply to amounts paid after December 31, 2004.

        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 to 
                finance the facilities that are to be financed 
                with the proceeds of the bonds, or
                    ``(B) the annual distributions from which 
                cannot exceed 7 percent of the average fair 
                market value of the assets held in such fund 
                except to the extent distributions are 
                necessary to pay debt service on the bond 
                issue,''.
    (b) Conforming Amendment.--Paragraph (3) of such section is 
amended by striking ``the investment earnings of'' and 
inserting ``distributions from''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 2000.

SEC. 1003. 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. 1004. 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. 1005. 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.

SEC. 1006. 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 for which a deduction would otherwise be 
allowable under section 170. 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. 1007. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN EXPENSES 
                    INCURRED IN SUPPORT OF NATIVE ALASKAN SUBSISTENCE 
                    WHALING.

    (a) In General.--Section 170 (relating to charitable, etc., 
contributions and gifts) is amended by redesignating subsection 
(m) as subsection (n) and by inserting after subsection (l) the 
following new subsection:
    ``(m) Expenses Paid by Certain Whaling Captains in Support 
of Native Alaskan Subsistence Whaling.--
            ``(1) In general.--In the case of an individual who 
        is recognized by the Alaska Eskimo Whaling Commission 
        as a whaling captain charged with the responsibility of 
        maintaining and carrying out sanctioned whaling 
        activities and who engages in such activities during 
        the taxable year, the amount described in paragraph (2) 
        (to the extent such amount does not exceed $7,500 for 
        the taxable year) shall be treated for purposes of this 
        section as a charitable contribution.
            ``(2) Amount described.--
                    ``(A) In general.--The amount described in 
                this paragraph is the aggregate of the 
                reasonable and necessary whaling expenses paid 
                by the taxpayer during the taxable year in 
                carrying out sanctioned whaling activities.
                    ``(B) Whaling expenses.--For purposes of 
                subparagraph (A), the term `whaling expenses' 
                includes expenses for--
                            ``(i) the acquisition and 
                        maintenance of whaling boats, weapons, 
                        and gear used in sanctioned whaling 
                        activities,
                            ``(ii) the supplying of food for 
                        the crew and other provisions for 
                        carrying out such activities, and
                            ``(iii) storage and distribution of 
                        the catch from such activities.
            ``(3) Sanctioned whaling activities.--For purposes 
        of this subsection, the term `sanctioned whaling 
        activities' means subsistence bowhead whale hunting 
        activities conducted pursuant to the management plan of 
        the Alaska Eskimo Whaling Commission.''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall apply to taxable years beginning after December 31, 1999.

SEC. 1008. SIMPLIFICATION OF LOBBYING EXPENDITURE LIMITATION.

    (a) Repeal of Grassroots Expenditure Limit.--Paragraph (1) 
of section 501(h) (relating to expenditures by public charities 
to influence legislation) is amended to read as follows:
            ``(1) General rule.--In the case of an organization 
        to which this subsection applies, exemption from 
        taxation under subsection (a) shall be denied because a 
        substantial part of the activities of such organization 
        consists of carrying on propaganda, or otherwise 
        attempting, to influence legislation, but only if such 
        organization normally makes lobbying expenditures in 
        excess of the lobbying ceiling amount for such 
        organization for each taxable year.''.
    (b) Conforming Amendments.--
            (1) Section 501(h)(2) is amended by striking 
        subparagraphs (C) and (D).
            (2) Section 4911(b) is amended to read as follows:
    ``(b) Excess Lobbying Expenditures.--For purposes of this 
section, the term `excess lobbying expenditures' means, for a 
taxable year, the amount by which the lobbying expenditures 
made by the organization during the taxable year exceed the 
lobbying nontaxable amount for such organization for such 
taxable year.''.
            (3) Section 4911(c) is amended by striking 
        paragraphs (3) and (4).
            (4) Paragraph (1)(A) of section 4911(f) is amended 
        by striking ``limits of section 501(h)(1) have'' and 
        inserting ``limit of section 501(h)(1) has''.
            (5) Paragraph (1)(C) of section 4911(f) is amended 
        by striking ``limits of section 501(h)(1) are'' and 
        inserting ``limit of section 501(h)(1) is''.
            (6) Paragraphs (4)(A) and (4)(B) of section 4911(f) 
        are each amended by striking ``limits of section 
        501(h)(1)'' and inserting ``limit of section 
        501(h)(1)''.
            (7) Paragraph (8) of section 6033(b) (relating to 
        certain organizations described in section 501(c)(3)) 
        is amended by inserting ``and'' at the end of 
        subparagraph (A) and by striking subparagraphs (C) and 
        (D).
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1999.

SEC. 1009. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS 
                    FOR CHARITABLE PURPOSES.

    (a) In General.--Subsection (d) of section 408 (relating to 
individual retirement accounts) is amended by adding at the end 
the following new paragraph:
            ``(8) Distributions for charitable purposes.--
                    ``(A) In general.--In the case of a 
                qualified charitable distribution from an 
                individual retirement account to an 
                organization described in section 170(c), no 
                amount shall be includible in the gross income 
                of the distributee.
                    ``(B) Qualified charitable distribution.--
                For purposes of this paragraph, the term 
                `qualified charitable distribution' means any 
                distribution from an individual retirement 
                account--
                            ``(i) which is made on or after the 
                        date that the individual for whose 
                        benefit the account is maintained has 
                        attained age 70\1/2\, and
                            ``(ii) which is a charitable 
                        contribution (as defined in section 
                        170(c)) made directly from the account 
                        to an organization or entity described 
                        in section 170(c).
                    ``(C) Denial of deduction.--The amount 
                allowable as a deduction to the taxpayer for 
                the taxable year under section 170 for 
                qualified charitable distributions shall be 
                reduced (but not below zero) by the sum of the 
                amounts of the qualified charitable 
                distributions during such year which (but for 
                this paragraph) would have been includible in 
                the gross income of the taxpayer for such 
                year.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 2002.

                    TITLE XI--REAL ESTATE PROVISIONS

         Subtitle A--Improvements in Low-Income Housing Credit

SEC. 1101. MODIFICATION OF STATE CEILING ON LOW-INCOME HOUSING CREDIT.

    (a) In General.--Clauses (i) and (ii) of section 
42(h)(3)(C) (relating to State housing credit ceiling) are 
amended to read as follows:
                            ``(i) the unused State housing 
                        credit ceiling (if any) of such State 
                        for the preceding calendar year,
                            ``(ii) the greater of--
                                    ``(I) the applicable amount 
                                under subparagraph (H) 
                                multiplied by the State 
                                population, or
                                    ``(II) $2,000,000,''.
    (b) Applicable Amount.--Paragraph (3) of section 42(h) 
(relating to housing credit dollar amount for agencies) is 
amended by adding at the end the following new subparagraph:
                    ``(H) Applicable amount of state ceiling.--
                For purposes of subparagraph (C)(ii), 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.    

    (d) Adjustment of State Ceiling for Increases in Cost-of-
Living.--Paragraph (3) of section 42(h) (relating to housing 
credit dollar amount for agencies), as amended by subsection 
(c), is amended by adding at the end the following new 
subparagraph:
                    ``(I) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of a 
                        calendar year after 2004, the 
                        $2,000,000 in subparagraph (C) and the 
                        $1.75 amount in subparagraph (H) shall 
                        each be increased by an amount equal 
                        to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for such 
                                calendar year by substituting 
                                `calendar year 2003' for 
                                `calendar year 1992' in 
                                subparagraph (B) thereof.
                            ``(ii) Rounding.--
                                    ``(I) In the case of the 
                                amount in subparagraph (C), any 
                                increase under clause (i) which 
                                is not a multiple of $5,000 
                                shall be rounded to the next 
                                lowest multiple of $5,000.
                                    ``(II) In the case of the 
                                amount in subparagraph (H), any 
                                increase under clause (i) which 
                                is not a multiple of 5 cents 
                                shall be rounded to the next 
                                lowest multiple of 5 cents.''.
    (e) Conforming Amendments.--
            (1) Section 42(h)(3)(C), as amended by subsection 
        (a), is amended--
                    (A) by striking ``clause (ii)'' in the 
                matter following clause (iv) and inserting 
                ``clause (i)'', and
                    (B) by striking ``clauses (i)'' in the 
                matter following clause (iv) and inserting 
                ``clauses (ii)''.
            (2) Section 42(h)(3)(D)(ii) is amended--
                    (A) by striking ``subparagraph (C)(ii)'' 
                and inserting ``subparagraph (C)(i)'', and
                    (B) by striking ``clauses (i)'' in 
                subclause (II) and inserting ``clauses (ii)''.
    (f) Effective Date.--The amendments made by this section 
shall apply to calendar years after 2000 but shall not take 
effect if sections 1102 and 1103 do not take effect.

SEC. 1102. 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. 1103. 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. 1104. MODIFICATIONS TO RULES RELATING TO BASIS OF BUILDING WHICH 
                    IS ELIGIBLE FOR CREDIT.

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

SEC. 1105. 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. 1106. 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. 1107. 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, 1999, 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 B--Provisions Relating to Real Estate Investment Trusts

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

SEC. 1111. 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 issuer is an individual, or
                    ``(B) 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
                    ``(C) the issuer is a partnership and the 
                trust holds at least a 20 percent profits 
                interest in the partnership.''.

SEC. 1112. 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 either of the following subparagraphs 
        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 of 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)''.
            (3) Determining rents from real property.--
                    (A)(i) Paragraph (1) of section 856(d) is 
                amended by striking ``adjusted bases'' each 
                place it occurs and inserting ``fair market 
                values''.
                    (ii) The amendment made by this 
                subparagraph shall apply to taxable years 
                beginning after December 31, 2000.
                    (B)(i) Clause (i) of section 856(d)(2)(B) 
                is amended by striking ``number'' and inserting 
                ``value''.
                    (ii) The amendment made by this 
                subparagraph shall apply to amounts received or 
                accrued in taxable years beginning after 
                December 31, 2000, except for amounts paid 
                pursuant to leases in effect on July 12, 1999, 
                or pursuant to a binding contract in effect on 
                such date and at all times thereafter.

SEC. 1113. 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. 1114. 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. 1115. 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 trust who 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 decreased 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. 1116. 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 1111.--
            (1) Existing arrangements.--
                    (A) In general.--Except as otherwise 
                provided in this paragraph, the amendment made 
                by section 1111 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.
                    (C) Limitation on transition rules.--
                Subparagraph (A) shall cease to apply to 
                securities of a corporation held, acquired, or 
                received, directly or indirectly, by a real 
                estate investment trust as of the first day 
                after July 12, 1999, on which such trust 
                acquires any additional securities of such 
                corporation other than--
                            (i) pursuant to a binding contract 
                        in effect on July 12, 1999, and at all 
                        times thereafter, or
                            (ii) 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 1021 
                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. 1121. 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. 1131. 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. 1141. 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. 1151. 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.

     Subtitle C--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 D--Treatment of Certain Contributions to Capital of Retailers

SEC. 1171. 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.

              Subtitle E--Private Activity Bond Volume Cap

SEC. 1181. ACCELERATION OF PHASE-IN OF INCREASE IN VOLUME CAP ON 
                    PRIVATE ACTIVITY BONDS.

    (a) In General.--The table contained in section 146(d)(2) 
(relating to per capita limit; aggregate limit) is amended to 
read as follows:


        Calendar Year            Per Capita Limit      Aggregate Limit

  2000.......................         $55.00             165,000,000
  2001.......................          60.00             180,000,000
  2002.......................          65.00             195,000,000
  2003.......................          70.00             210,000,000
  2004 and thereafter........          75.00            225,000,000.''



    (b) Effective Date.--The amendment made by this section 
shall apply to calendar years beginning after 1999.

          Subtitle F--Deduction for Renovating Historic Homes

SEC. 1191. DEDUCTION FOR RENOVATING HISTORIC HOMES.

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

``SEC. 223. HISTORIC HOMEOWNERSHIP REHABILITATION DEDUCTION.

    ``(a) General Rule.--In the case of an individual, there 
shall be allowed as a deduction an amount equal to 50 percent 
of the qualified rehabilitation expenditures made by the 
taxpayer with respect to a qualified historic home.
    ``(b) Dollar Limitation.--The deduction allowed by 
subsection (a) with respect to any residence of a taxpayer 
shall not exceed $50,000 ($25,000 in the case of a married 
individual filing a separate return).
    ``(c) Qualified Rehabilitation Expenditure.--For purposes 
of this section--
            ``(1) In general.--The term `qualified 
        rehabilitation expenditure' means any amount properly 
        chargeable to capital account--
                    ``(A) in connection with the certified 
                rehabilitation of a qualified historic home, 
                and
                    ``(B) for property for which depreciation 
                would be allowable under section 168 if the 
                qualified historic home were used in a trade or 
                business.
            ``(2) Certain expenditures not included.--
                    ``(A) Exterior.--Such term shall not 
                include any expenditure in connection with the 
                rehabilitation of a building unless at least 5 
                percent of the total expenditures made in the 
                rehabilitation process are allocable to the 
                rehabilitation of the exterior of such 
                building.
                    ``(B) Other rules to apply.--Rules similar 
                to the rules of clauses (ii) and (iii) of 
                section 47(c)(2)(B) shall apply.
            ``(3) Mixed use or multifamily building.--If only a 
        portion of a building is used as the principal 
        residence of the taxpayer, only qualified 
        rehabilitation expenditures which are properly 
        allocable to such portion shall be taken into account 
        under this section.
    ``(d) Certified Rehabilitation.--For purposes of this 
section:
            ``(1) In general.--Except as otherwise provided in 
        this subsection, the term `certified rehabilitation' 
        has the meaning given such term by section 47(c)(2)(C).
            ``(2) Factors to be considered in the case of 
        targeted area residences, etc.--
                    ``(A) In general.--For purposes of applying 
                section 47(c)(2)(C) under this section with 
                respect to the rehabilitation of a building to 
                which this paragraph applies, consideration 
                shall be given to--
                            ``(i) the feasibility of preserving 
                        existing architectural and design 
                        elements of the interior of such 
                        building,
                            ``(ii) the risk of further 
                        deterioration or demolition of such 
                        building in the event that 
                        certification is denied because of the 
                        failure to preserve such interior 
                        elements, and
                            ``(iii) the effects of such 
                        deterioration or demolition on 
                        neighboring historic properties.
                    ``(B) Buildings to which this paragraph 
                applies.--This paragraph shall apply with 
                respect to any building--
                            ``(i) any part of which is a 
                        targeted area residence within the 
                        meaning of section 143(j)(1), or
                            ``(ii) which is located within an 
                        enterprise community or empowerment 
                        zone as designated under section 1391,
                but shall not apply with respect to any 
                building which is listed in the National 
                Register.
            ``(3) Approved state program.--The term `certified 
        rehabilitation' includes a certification made by--
                    ``(A) a State Historic Preservation Officer 
                who administers a State Historic Preservation 
                Program approved by the Secretary of the 
                Interior pursuant to section 101(b)(1) of the 
                National Historic Preservation Act, as in 
                effect on July 21, 1999, or
                    ``(B) a local government, certified 
                pursuant to section 101(c)(1) of the National 
                Historic Preservation Act, as in effect on July 
                21, 1999, and authorized by a State Historic 
                Preservation Officer, or the Secretary of the 
                Interior where there is no approved State 
                program),
        subject to such terms and conditions as may be 
        specified by the Secretary of the Interior for the 
        rehabilitation of buildings within the jurisdiction of 
        such officer (or local government) for purposes of this 
        section.
    ``(e) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified historic home.--The term `qualified 
        historic home' means a certified historic structure--
                    ``(A) which has been substantially 
                rehabilitated, and
                    ``(B) which (or any portion of which)--
                            ``(i) is owned by the taxpayer, and
                            ``(ii) is used (or will, within a 
                        reasonable period, be used) by such 
                        taxpayer as his principal residence.
            ``(2) Substantially rehabilitated.--The term 
        `substantially rehabilitated' has the meaning given 
        such term by section 47(c)(1)(C); except that, in the 
        case of any building described in subsection (d)(2), 
        clause (i)(I) of section 47(c)(1)(C) shall not apply.
            ``(3) Principal residence.--The term `principal 
        residence' has the same meaning as when used in section 
        121.
            ``(4) Certified historic structure.--
                    ``(A) In general.--The term `certified 
                historic structure' means any building (and its 
                structural components) which--
                            ``(i) is listed in the National 
                        Register, or
                            ``(ii) is located in a registered 
                        historic district (as defined in 
                        section 47(c)(3)(B)) within which only 
                        qualified census tracts (or portions 
                        thereof) are located, and is certified 
                        by the Secretary of the Interior to the 
                        Secretary as being of historic 
                        significance to the district.
                    ``(B) Certain structures included.--Such 
                term includes any building (and its structural 
                components) which is designated as being of 
                historic significance under a statute of a 
                State or local government, if such statute is 
                certified by the Secretary of the Interior to 
                the Secretary as containing criteria which will 
                substantially achieve the purpose of preserving 
                and rehabilitating buildings of historic 
                significance.
                    ``(C) Qualified census tracts.--For 
                purposes of subparagraph (A)(ii)--
                            ``(i) In general.--The term 
                        `qualified census tract' means a census 
                        tract in which the median family income 
                        is less than twice the statewide median 
                        family income.
                            ``(ii) Data used.--The 
                        determination under clause (i) shall be 
                        made on the basis of the most recent 
                        decennial census for which data are 
                        available.
            ``(5) Rehabilitation not complete before 
        certification.--A rehabilitation shall not be treated 
        as complete before the date of the certification 
        referred to in subsection (d).
            ``(6) Lessees.--A taxpayer who leases his principal 
        residence shall, for purposes of this section, be 
        treated as the owner thereof if the remaining term of 
        the lease (as of the date determined under regulations 
        prescribed by the Secretary) is not less than such 
        minimum period as the regulations require.
            ``(7) Tenant-stockholder in cooperative housing 
        corporation.--If the taxpayer holds stock as a tenant-
        stockholder (as defined in section 216) in a 
        cooperative housing corporation (as defined in such 
        section), such stockholder shall be treated as owning 
        the house or apartment which the taxpayer is entitled 
        to occupy as such stockholder.
            ``(8) Allocation of expenditures relating to 
        exterior of building containing cooperative or 
        condominium units.--The percentage of the total 
        expenditures made in the rehabilitation of a building 
        containing cooperative or condominium residential units 
        allocated to the rehabilitation of the exterior of the 
        building shall be attributed proportionately to each 
        cooperative or condominium residential unit in such 
        building for which a deduction under this section is 
        claimed.
    ``(f) When Expenditures Taken Into Account.--Qualified 
rehabilitation expenditures shall be treated for purposes of 
this section as made on the date the rehabilitation is 
completed.
    ``(g) Recapture.--
            ``(1) In general.--If, before the end of the 5-year 
        period beginning on the date on which the 
        rehabilitation of the building is completed--
                    ``(A) the taxpayer disposes of such 
                taxpayer's interest in such building, or
                    ``(B) such building ceases to be used as 
                the principal residence of the taxpayer,
        the taxpayer's gross income for the taxable year in 
        which such disposition or cessation occurs shall be 
        increased by the recapture percentage of the deduction 
        allowed under this section for all prior taxable years 
        with respect to such rehabilitation.
            ``(2) Recapture percentage.--For purposes of 
        paragraph (1), the recapture percentage shall be 
        determined in accordance with the following table:



                                                                 The
                                                              recapture
     ``If the disposition or cessation occurs within--        percentage
                                                                 is--

(i) One full year after the taxpayer becomes entitled to             100
 the deduction.............................................
(ii) One full year after the close of the period described           805
 in clause (i).............................................
(iii) One full year after the close of the period described           60
 in clause (ii)............................................
(iv) One full year after the close of the period described            40
 in clause (iii)...........................................
(v) One full year after the close of the period described         20.''.
 in clause (iv)............................................



    ``(h) Basis Adjustments.--For purposes of this subtitle, if 
a deduction is allowed under this section for any expenditure 
with respect to any property, the increase in the basis of such 
property which would (but for this subsection) result from such 
expenditure shall be reduced by the amount of the deduction so 
allowed.
    ``(i) Denial of Double Benefit.--No deduction shall be 
allowed under this section for any amount for which credit is 
allowed under section 47.
    ``(j) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out the purposes of 
this section, including regulations where less than all of a 
building is used as a principal residence and where more than 1 
taxpayer use the same dwelling unit as their principal 
residence.''.
    (b) Conforming Amendments.--
            (1) Clause (i) of section 56(b)(1)(A) is amended by 
        inserting before the comma ``other than the deduction 
        under section 223 (relating to historic homeownership 
        rehabilitation deduction)''.
            (2) Subsection (a) of section 1016 is amended by 
        striking ``and'' at the end of paragraph (27), by 
        striking the period at the end of paragraph (28) and 
        inserting ``, and'', and by adding at the end the 
        following new item:
            ``(29) to the extent provided in section 223(h).''.
    (c) Clerical Amendment.--The table of sections for part VII 
of subchapter B of chapter 1 is amended by striking the item 
relating to section 223 and inserting the following new items:

        ``Sec. 223. Historic homeownership rehabilitation deduction.
        ``Sec. 224. Cross reference.''

    (d) Effective Date.--The amendments made by this section 
shall apply to expenses paid or incurred in taxable years 
beginning 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) by striking ``$90,000'' in paragraph 
                (1)(A) and inserting ``$160,000'', and
                    (B) in paragraph (3)(A)--
                            (i) by striking ``$90,000'' in the 
                        heading and inserting ``$160,000'', and
                            (ii) by striking ``October 1, 
                        1986'' and inserting ``July 1, 2000''.
            (5) Conforming amendment.--Section 415(b)(2) is 
        amended by striking subparagraph (F).
    (b) Defined Contribution Plans.--
            (1) Dollar limit.--Subparagraph (A) of section 
        415(c)(1) (relating to limitation for defined 
        contribution plans) is amended by striking ``$30,000'' 
        and inserting ``$40,000''.
            (2) Cost-of-living adjustments.--Subsection (d) of 
        section 415 (related to cost-of-living adjustments) is 
        amended--
                    (A) by striking ``$30,000'' in paragraph 
                (1)(C) and inserting ``$40,000'', and
                    (B) in paragraph (3)(D)--
                            (i) by striking ``$30,000'' in the 
                        heading and inserting ``$40,000'', and
                            (ii) by striking ``October 1, 
                        1993'' and inserting ``July 1, 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:

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

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

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

                    ``(B) Cost-of-living adjustments.--In the 
                case of taxable years beginning after December 
                31, 2005, the Secretary shall adjust the 
                $15,000 amount 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:

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

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

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

    (a) Amendment to 1986 Code.--Subparagraph (B) of section 
4975(f)(6) (relating to exemptions not to apply to certain 
transactions) is amended by adding at the end the following new 
clause:
                            ``(iii) Loan exception.--For 
                        purposes of subparagraph (A)(i), the 
                        term `owner-employee' shall only 
                        include a person described in subclause 
                        (II) or (III) of clause (i).''.
    (b) Amendment to ERISA.--Section 408(d)(2) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2)) 
is amended by adding at the end the following new subparagraph:
    ``(C) For purposes of paragraph (1)(A), the term `owner-
employee' shall only include a person described in clause (ii) 
or (iii) of subparagraph (A).''.
    (c) Effective Date.--The amendments 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) by striking ``clause (ii)'' in clause 
                (i) and inserting ``clause (ii) or (iii)'', and
                    (B) by adding at the end the following:
                            ``(iii) Exception for frozen 
                        plan.--For purposes of determining an 
                        employee's years of service with the 
                        employer, any service with the employer 
                        shall be disregarded to the extent that 
                        such service occurs during a plan year 
                        when the plan benefits (within the 
                        meaning of section 410(b)) no employee 
                        or former employee.''.
    (f) Elimination of Family Attribution.--Section 
416(i)(1)(B) (defining 5-percent owner) is amended by adding at 
the end the following new clause:
                            ``(iv) Family attribution 
                        disregarded.--Solely for purposes of 
                        applying this paragraph (and not for 
                        purposes of any provision of this title 
                        which incorporates by reference the 
                        definition of a key employee or 5-
                        percent owner under this paragraph), 
                        section 318 shall be applied without 
                        regard to subsection (a)(1) thereof in 
                        determining whether any person is a 5-
                        percent owner.''.
    (g) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 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. 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, 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. 1206. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING 
                    PENSION PLANS.

    (a) Elimination of Certain User Fees.--The Secretary of the 
Treasury or the Secretary's delegate shall not require payment 
of user fees under the program established under section 7527 
of the Internal Revenue Code of 1986 for requests to the 
Internal Revenue Service for determination letters with respect 
to the qualified status of a pension benefit plan maintained 
solely by one or more eligible employers or any trust which is 
part of the plan. The preceding sentence shall not apply to any 
request--
            (1) made after the 5th plan year the pension 
        benefit plan is in existence, or
            (2) made by the sponsor of any prototype or similar 
        plan which the sponsor intends to market to 
        participating employers.
    (b) Pension Benefit Plan.--For purposes of this section, 
the term ``pension benefit plan'' means a pension, profit-
sharing, stock bonus, annuity, or employee stock ownership 
plan.
    (c) Eligible Employer.--For purposes of this section, the 
term ``eligible employer'' has the same meaning given such term 
in section 408(p)(2)(C)(i)(I) of the Internal Revenue Code of 
1986. The determination of whether an employer is an eligible 
employer under this section shall be made as of the date of the 
request described in subsection (a).
    (d) Effective Date.--The provisions of this section shall 
apply with respect to requests made after December 31, 2000.

SEC. 1207. 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. 1208. 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. 1209. 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. 1210. 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) by striking ``The'' in subparagraph (E)(i) and 
        inserting ``Except as provided in subparagraph (G), 
        the'', and
            (2) by inserting after subparagraph (F) the 
        following new subparagraph:
    ``(G)(i) In the case of an employer who has 25 or fewer 
employees on the first day of the plan year, the additional 
premium determined under subparagraph (E) for each participant 
shall not exceed $5 multiplied by the number of participants in 
the plan as of the close of the preceding plan year.
    ``(ii) For purposes of clause (i), whether an employer has 
25 or fewer employees on the first day of the plan year is 
determined taking into consideration all of the employees of 
all members of the contributing sponsor's controlled group. In 
the case of a plan maintained by 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.

                Subtitle B--Enhancing Fairness for Women

SEC. 1221. CATCHUP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.

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

``For taxable years beginning in:          The applicable percentage is:
        2001............................................     10 percent 
        2002............................................     20 percent 
        2003............................................     30 percent 
        2004............................................     40 percent 
        2005 and thereafter.............................     50 percent.

            ``(3) Treatment of contributions.--In the case of 
        any contribution to a plan under paragraph (1)--
                    ``(A) such contribution shall not, with 
                respect to the year in which the contribution 
                is made--
                            ``(i) be subject to any otherwise 
                        applicable limitation contained in 
                        section 402(g), 402(h), 403(b), 404(a), 
                        404(h), 408, 415, or 457, or
                            ``(ii) be taken into account in 
                        applying such limitations to other 
                        contributions or benefits under such 
                        plan or any other such plan, and
                    ``(B) such plan shall not be treated as 
                failing to meet the requirements of section 
                401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 
                401(k)(12), 401(m), 403(b)(12), 408(k), 408(p), 
                408B, 410(b), or 416 by reason of the making of 
                (or the right to make) such contribution.
            ``(4) Eligible participant.--For purposes of this 
        subsection, the term `eligible participant' means, with 
        respect to any plan year, a participant in a plan--
                    ``(A) who has attained the age of 50 before 
                the close of the plan year, and
                    ``(B) with respect to whom no other 
                elective deferrals may (without regard to this 
                subsection) be made to the plan for the plan 
                year by reason of the application of any 
                limitation or other restriction described in 
                paragraph (3) or contained in the terms of the 
                plan.
            ``(5) Other definitions and rules.--For purposes of 
        this subsection--
                    ``(A) Applicable dollar amount.--The term 
                `applicable dollar amount' means, with respect 
                to any year, the amount in effect under section 
                402(g)(1)(B), 408(p)(2)(E)(i), or 
                457(e)(15)(A), whichever is applicable to an 
                applicable employer plan, for such year.
                    ``(B) Applicable employer plan.--The term 
                `applicable employer plan' means--
                            ``(i) an employees' trust described 
                        in section 401(a) which is exempt from 
                        tax under section 501(a),
                            ``(ii) a plan under which amounts 
                        are contributed by an individual's 
                        employer for an annuity contract 
                        described in section 403(b),
                            ``(iii) an eligible deferred 
                        compensation plan under section 457 of 
                        an eligible employer as defined in 
                        section 457(e)(1)(A), and
                            ``(iv) an arrangement meeting the 
                        requirements of section 408 (k) or (p).
                    ``(C) Elective deferral.--The term 
                `elective deferral' has the meaning given such 
                term by subsection (u)(2)(C).
                    ``(D) Exception for section 457 plans.--
                This subsection shall not apply to an 
                applicable employer plan described in 
                subparagraph (B)(iii) for any year to which 
                section 457(b)(3) applies.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to contributions in taxable years beginning after 
December 31, 2000.

SEC. 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 before the enactment of the Taxpayer 
                Refund and Relief Act of 1999)''.
                    (B) Section 404(a)(10)(B) is amended by 
                striking ``, the exclusion allowance under 
                section 403(b)(2),''.
                    (C) Section 415(a)(2) is amended by 
                striking ``, and the amount of the contribution 
                for such portion shall reduce the exclusion 
                allowance as provided in section 403(b)(2)''.
                    (D) Section 415(c)(3) is amended by adding 
                at the end the following new subparagraph:
                    ``(E) Annuity contracts.--In the case of an 
                annuity contract described in section 403(b), 
                the term `participant's compensation' means the 
                participant's includible compensation 
                determined under section 403(b)(3).''.
                    (E) Section 415(c) is amended by striking 
                paragraph (4).
                    (F) Section 415(c)(7) is amended to read as 
                follows:
            ``(7) Certain contributions by church plans not 
        treated as exceeding limit.--
                    ``(A) In general.--Notwithstanding any 
                other provision of this subsection, at the 
                election of a participant who is an employee of 
                a church or a convention or association of 
                churches, including an organization described 
                in section 414(e)(3)(B)(ii), contributions and 
                other additions for an annuity contract or 
                retirement income account described in section 
                403(b) with respect to such participant, when 
                expressed as an annual addition to such 
                participant's account, shall be treated as not 
                exceeding the limitation of paragraph (1) if 
                such annual addition is not in excess of 
                $10,000.
                    ``(B) $40,000 aggregate limitation.--The 
                total amount of additions with respect to any 
                participant which may be taken into account for 
                purposes of this subparagraph for all years may 
                not exceed $40,000.
                    ``(C) Annual addition.--For purposes of 
                this paragraph, the term `annual addition' has 
                the meaning given such term by paragraph 
                (2).''.
                    (G) Subparagraph (B) of section 402(g)(7) 
                (as redesignated by section 1201) is amended by 
                inserting before the period at the end the 
                following: ``(as in effect before the enactment 
                of the Taxpayer Refund and Relief 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.
            (3) Modification of 403(b) exclusion allowance to 
        conform to 415 modification.--The Secretary of the 
        Treasury shall modify the regulations regarding the 
        exclusion allowance under section 403(b)(2) of the 
        Internal Revenue Code of 1986 to render void the 
        requirement that contributions to a defined benefit 
        pension plan be treated as previously excluded amounts 
        for purposes of the exclusion allowance. For taxable 
        years beginning after December 31, 1999, such 
        regulations shall be applied as if such requirement 
        were void.
    (c) Deferred Compensation Plans of State and Local 
Governments and Tax-Exempt Organizations.--
            (1) In general.--Subparagraph (B) of section 
        457(b)(2) (relating to salary limitation on eligible 
        deferred compensation plans) is amended by striking 
        ``33\1/3\ percent'' and inserting ``100 percent''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to years beginning after 
        December 31, 2000.

SEC. 1223. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

    (a) Amendments to 1986 Code.--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):

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

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

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

    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        contributions for plan years beginning after December 
        31, 2000.
            (2) Collective bargaining agreements.--In the case 
        of a plan maintained pursuant to 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 on behalf of 
        employees covered by any such agreement for plan years 
        beginning before the earlier of--
                    (A) the later of--
                            (i) the date on which the last of 
                        such collective bargaining agreements 
                        terminates (determined without regard 
                        to any extension thereof on or after 
                        such date of 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) by striking ``clause 
                        (iii)(III)'' in subclause (I) and 
                        inserting ``clause (ii)(III)'',
                            (iii) by striking ``the date on 
                        which the employee would have attained 
                        the age 70\1/2\,'' in subclause (I) and 
                        inserting ``April 1 of the calendar 
                        year following the calendar year in 
                        which the spouse attains 70\1/2\,'', 
                        and
                            (iv) by striking ``the 
                        distributions to such spouse begin,'' 
                        in subclause (II) and inserting ``his 
                        entire interest has been distributed to 
                        him,''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to years beginning after 
        December 31, 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.

SEC. 1226. MODIFICATION OF SAFE HARBOR RELIEF FOR HARDSHIP WITHDRAWALS 
                    FROM CASH OR DEFERRED ARRANGEMENTS.

    (a) In General.--The Secretary of the Treasury shall revise 
the regulations relating to hardship distributions under 
section 401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 
1986 to provide that the period an employee is prohibited from 
making elective and employee contributions in order for a 
distribution to be deemed necessary to satisfy financial need 
shall be equal to 6 months.
    (b) Effective Date.--The revised regulations under 
subsection (a) shall apply to years beginning after December 
31, 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' means an eligible retirement 
                plan described in clause (iii), (iv), (v), or 
                (vi) of section 402(c)(8)(B).''.
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 403(b) is amended by 
        striking ``section 408(d)(3)(A)(iii)'' and inserting 
        ``section 408(d)(3)(A)(ii)''.
            (2) Clause (i) of section 408(d)(3)(D) is amended 
        by striking ``(i), (ii), or (iii)'' and inserting ``(i) 
        or (ii)''.
            (3) Subparagraph (G) of section 408(d)(3) is 
        amended to read as follows:
                    ``(G) Simple retirement accounts.--In the 
                case of any payment or distribution out of a 
                simple retirement account (as defined in 
                subsection (p)) to which section 72(t)(6) 
                applies, this paragraph shall not apply unless 
                such payment or distribution is paid into 
                another simple retirement account.''.
    (c) Effective Date; Special Rule.--
            (1) Effective date.--The amendments made by this 
        section shall apply to distributions after December 31, 
        2000.
            (2) Special rule.--Notwithstanding any other 
        provision of law, subsections (h)(3) and (h)(5) of 
        section 1122 of the Tax Reform Act of 1986 shall not 
        apply to any distribution from an eligible retirement 
        plan (as defined in clause (iii) or (iv) of section 
        402(c)(8)(B) of the Internal Revenue Code of 1986) on 
        behalf of an individual if there was a rollover to such 
        plan on behalf of such individual which is permitted 
        solely by reason of the amendments made by this 
        section.

SEC. 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), as amended by section 1233, 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) Amendment to internal revenue code of 1986.--
        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 clause 
                                (iii) to receive any 
                                distribution to which the 
                                participant or beneficiary is 
                                entitled under the transferee 
                                plan in the form of a single 
                                sum distribution.
                            ``(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) Amendment to erisa.--Section 204(g) of the 
        Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1054(g)) is amended by adding at the end the 
        following:
    ``(4)(A) A defined contribution plan (in this subparagraph 
referred to as the `transferee plan') shall not be treated as 
failing to meet the requirements of this subsection merely 
because the transferee plan does not provide some or all of the 
forms of distribution previously available under another 
defined contribution plan (in this subparagraph referred to as 
the `transferor plan') to the extent that--
            ``(i) the forms of distribution previously 
        available under the transferor plan applied to the 
        account of a participant or beneficiary under the 
        transferor plan that was transferred from the 
        transferor plan to the transferee plan pursuant to a 
        direct transfer rather than pursuant to a distribution 
        from the transferor plan;
            ``(ii) the terms of both the transferor plan and 
        the transferee plan authorize the transfer described in 
        clause (i);
            ``(iii) the transfer described in clause (i) was 
        made pursuant to a voluntary election by the 
        participant or beneficiary whose account was 
        transferred to the transferee plan;
            ``(iv) the election described in clause (iii) was 
        made after the participant or beneficiary received a 
        notice describing the consequences of making the 
        election;
            ``(v) if the transferor plan provides for an 
        annuity as the normal form of distribution under the 
        plan in accordance with section 205, 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 205(c)(2); and
            ``(vi) the transferee plan allows the participant 
        or beneficiary described in clause (iii) to receive any 
        distribution to which the participant or beneficiary is 
        entitled under the transferee plan in the form of a 
        single sum distribution.
    ``(B) Subparagraph (A) shall apply to plan mergers and 
other transactions having the effect of a direct transfer, 
including consolidations of benefits attributable to different 
employers within a multiple employer plan.
    ``(5) 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 paragraph 
shall not apply to the elimination of a form of distribution 
with respect to any participant unless--
            ``(A) a single sum payment is available to such 
        participant at the same time or times as the form of 
        distribution being eliminated; and
            ``(B) such single sum payment is based on the same 
        or greater portion of the participant's account as the 
        form of distribution being eliminated.''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to years beginning after 
        December 31, 2000.
    (b) Regulations.--
            (1) Amendment to internal revenue code of 1986.--
        The last sentence of paragraph (6)(B) of section 411(d) 
        (relating to accrued benefit not to be decreased by 
        amendment) is amended to read as follows: ``The 
        Secretary shall by regulations provide that this 
        subparagraph shall not apply to any plan amendment that 
        does not adversely affect the rights of participants in 
        a material manner.''.
            (2) Amendment to erisa.--The last sentence of 
        section 204(g)(2) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1054(g)(2)) is amended 
        to read as follows: ``The Secretary of the Treasury 
        shall by regulations provide that this paragraph shall 
        not apply to any plan amendment that does not adversely 
        affect the rights of participants in a material 
        manner.''.
            (3) 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 and section 204(g) of the 
        Employee Retirement Income Security Act of 1974, 
        including the regulations required by the amendments 
        made by this subsection. 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 (16) the following new 
        paragraph:
            ``(17) Trustee-to-trustee transfers to purchase 
        permissive service credit.--No amount shall be 
        includible in gross income by reason of a direct 
        trustee-to-trustee transfer to a defined benefit 
        governmental plan (as defined in section 414(d)) if 
        such transfer is--
                    ``(A) for the purchase of permissive 
                service credit (as defined in section 
                415(n)(3)(A)) under such plan, or
                    ``(B) a repayment to which section 415 does 
                not apply by reason of subsection (k)(3) 
                thereof.''.
            (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)(17))''.
    (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) Qualified Plans.--
            (1) Amendment to internal revenue code of 1986.--
        Section 411(a)(11) (relating to restrictions on certain 
        mandatory distributions) is amended by adding at the 
        end the following:
                    ``(D) Special rule for rollover 
                contributions.--A plan shall not fail to meet 
                the requirements of this paragraph if, under 
                the terms of the plan, the present value of the 
                nonforfeitable accrued benefit is determined 
                without regard to that portion of such benefit 
                which is attributable to rollover contributions 
                (and earnings allocable thereto). For purposes 
                of this subparagraph, the term `rollover 
                contributions' means any rollover contribution 
                under sections 402(c), 403(a)(4), 403(b)(8), 
                408(d)(3)(A)(ii), and 457(e)(16).''.
            (2) Amendment to erisa.--Section 203(e) of the 
        Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1053(c)) is amended by adding at the end the 
        following:
    ``(4) A plan shall not fail to meet the requirements of 
this subsection if, under the terms of the plan, the present 
value of the nonforfeitable accrued benefit is determined 
without regard to that portion of such benefit which is 
attributable to rollover contributions (and earnings allocable 
thereto). For purposes of this subparagraph, the term `rollover 
contributions' means any rollover contribution under sections 
402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) 
of the Internal Revenue Code of 1986.''.
    (b) Eligible Deferred Compensation Plans.--Clause (i) of 
section 457(e)(9)(A) is amended by striking ``such amount'' and 
inserting ``the portion of such amount which is not 
attributable to rollover contributions (as defined in section 
411(a)(11)(D))''.
    (c) Effective Date.--The amendments made by this section 
shall apply to distributions after December 31, 2000.

SEC. 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 amendments.--
                    (A) So much of paragraph (9) of section 
                457(e) as precedes subparagraph (A) is amended 
                to read as follows:
            ``(9) Benefits of tax exempt organization plans not 
        treated as made available by reason of certain 
        elections, etc.--In the case of an eligible deferred 
        compensation plan of an employer described in 
        subsection (e)(1)(B)--''.
                    (B) Section 457(d) is amended by adding at 
                the end the following new paragraph:
            ``(3) Special rule for government plan.--An 
        eligible deferred compensation plan of an employer 
        described in subsection (e)(1)(A) shall not be treated 
        as failing to meet the requirements of this subsection 
        solely by reason of making a distribution described in 
        subsection (e)(9)(A).''
    (c) Effective Date.--The amendments made by this section 
shall apply to distributions after December 31, 2000.

       Subtitle D--Strengthening Pension Security and Enforcement

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

    (a) Amendment to Internal Revenue Code of 1986.--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 beginning iThe applicable percentage is--
            2001..............................................      160 
            2002..............................................      165 
            2003..............................................   170.''.

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

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

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

SEC. 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) Amendment to 1986 Code.--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. Such term 
        shall not include a governmental plan (within the 
        meaning of section 414(d)) or a church plan (within the 
        meaning of section 414(e)) with respect to which the 
        election provided by section 410(d) has not been 
        made.''.
    (b) Amendment to ERISA.--Section 204(h) of the Employee 
Retirement Income Security Act or 1974 (29 U.S.C. 1054(h)) is 
amended by adding at the end the following new paragraph:
    ``(3)(A) A plan to which paragraph (1) applies shall not be 
treated as meeting the requirements of such paragraph unless, 
in addition to any notice required to be provided to an 
individual or organization under such paragraph, the plan 
administrator provides the notice described in subparagraph 
(B).
    ``(B) The notice required by subparagraph (A) shall be 
written in a manner calculated to be understood by the average 
plan participant and shall provide sufficient information (as 
determined in accordance with regulations prescribed by the 
Secretary of the Treasury) to allow individuals to understand 
the effect of the plan amendment.
    ``(C) Except as provided in regulations prescribed by the 
Secretary of the Treasury, the notice required by subparagraph 
(A) shall be provided within a reasonable time before the 
effective date of the plan amendment.
    ``(D) A plan shall not be treated as failing to meet the 
requirements of subparagraph (A) merely because notice is 
provided before the adoption of the plan amendment if no 
material modification of the amendment occurs before the 
amendment is adopted.''.
    (c) 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.''.

    (d) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to plan amendments taking effect on 
        or after the date of the enactment of this Act.
            (2) Transition.--Until such time as the Secretary 
        of the Treasury issues regulations under sections 
        4980F(e)(2) and (3) of the Internal Revenue Code of 
        1986 and section 204(h)(3) of the Employee Retirement 
        Income Security Act of 1974 (as added by the amendments 
        made by this section), a plan shall be treated as 
        meeting the requirements of such sections if it makes a 
        good faith effort to comply with such requirements.
            (3) Special 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.

SEC. 1246. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBUTIONS TO 401(K) 
                    PLANS.

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

SEC. 1247. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

    (a) Compensation Limit.--Paragraph (11) of section 415(b) 
(relating to limitation for defined benefit plans) is amended 
to read as follows:
            ``(11) Special limitation rule for governmental and 
        multiemployer plans.--In the case of a governmental 
        plan (as defined in section 414(d)) or a multiemployer 
        plan (as defined in section 414(f)), subparagraph (B) 
        of paragraph (1) shall not apply.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to years beginning after December 31, 2000.

                Subtitle E--Reducing Regulatory Burdens

SEC. 1251. 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 subclause.
                                    ``(II) Regulations.--Clause 
                                (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) Amendments to ERISA.--Paragraph (9) of section 302(c) 
of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1053(c)) is amended--
            (1) by inserting ``(A)'' after ``(9)'', and
            (2) by adding at the end the following:
    ``(B)(i) Except as provided in clause (ii), 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)(I) 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 subclause.
    ``(II) Clause (i) shall not apply to the extent that more 
frequent valuations are required under the regulations under 
subparagraph (A).
    ``(iii) Information under clause (i) shall, in accordance 
with regulations, be actuarially adjusted to reflect 
significant differences in participants.
    ``(iv) An election under this subparagraph, once made, 
shall be irrevocable without the consent of the Secretary of 
the Treasury.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to plan years beginning after December 31, 2000.

SEC. 1252. 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. 1253. 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, 1999.

SEC. 1254. EMPLOYEES OF TAX-EXEMPT ENTITIES.

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

SEC. 1255. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT 
                    ADVICE.

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

SEC. 1256. REPORTING SIMPLIFICATION.

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

SEC. 1257. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

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

SEC. 1258. 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. 1259. MODIFICATION OF EXCLUSION FOR EMPLOYER PROVIDED TRANSIT 
                    PASSES.

    (a) In General.--Section 132(f)(3) (relating to cash 
reimbursements) is amended by striking the last sentence.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1999.

SEC. 1260. 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. 1261. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF 
                    BUSINESS RULES.

    (a) Nondiscrimination.--
            (1) In general.--The Secretary of the Treasury 
        shall, by regulation, provide that a plan shall be 
        deemed to satisfy the requirements of section 401(a)(4) 
        of the Internal Revenue Code of 1986 if such plan 
        satisfies the facts and circumstances test under 
        section 401(a)(4) of such Code, as in effect before 
        January 1, 1994, but only if--
                    (A) the plan satisfies conditions 
                prescribed by the Secretary to appropriately 
                limit the availability of such test, and
                    (B) the plan is submitted to the Secretary 
                for a determination of whether it satisfies 
                such test.
        Subparagraph (B) shall only apply to the extent 
        provided by the Secretary.
            (2) Effective dates.--
                    (A) Regulations.--The regulation required 
                by paragraph (1) shall apply to years beginning 
                after December 31, 2000.
                    (B) Conditions of availability.--Any 
                condition of availability prescribed by the 
                Secretary under paragraph (1)(A) shall not 
                apply before the first year beginning not less 
                than 120 days after the date on which such 
                condition is prescribed.
    (b) Coverage Test.--
            (1) In general.--Section 410(b)(1) (relating to 
        minimum coverage requirements) is amended by adding at 
        the end the following:
                    ``(D) In the case that the plan fails to 
                meet the requirements of subparagraphs (A), (B) 
                and (C), the plan--
                            ``(i) satisfies subparagraph (B), 
                        as in effect immediately before the 
                        enactment of the Tax Reform Act of 
                        1986,
                            ``(ii) is submitted to the 
                        Secretary for a determination of 
                        whether it satisfies the requirement 
                        described in clause (i), and
                            ``(iii) satisfies conditions 
                        prescribed by the Secretary by 
                        regulation that appropriately limit the 
                        availability of this subparagraph.
                Clause (ii) shall apply only to the extent 
                provided by the Secretary.''.
            (2) Effective dates.--
                    (A) In general.--The amendment made by 
                paragraph (1) shall apply to years beginning 
                after December 31, 2000.
                    (B) Conditions of availability.--Any 
                condition of availability prescribed by the 
                Secretary under regulations prescribed by the 
                Secretary under section 410(b)(1)(D) of the 
                Internal Revenue Code of 1986 shall not apply 
                before the first year beginning not less than 
                120 days after the date on which such condition 
                is prescribed.
    (c) Line of Business Rules.--The Secretary of the Treasury 
shall, on or before December 31, 2000, modify the existing 
regulations issued under section 414(r) of the Internal Revenue 
Code of 1986 in order to expand (to the extent that the 
Secretary determines appropriate) the ability of a pension plan 
to demonstrate compliance with the line of business 
requirements based upon the facts and circumstances surrounding 
the design and operation of the plan, even though the plan is 
unable to satisfy the mechanical tests currently used to 
determine compliance.

SEC. 1262. EXTENSION TO INTERNATIONAL ORGANIZATIONS OF MORATORIUM ON 
                    APPLICATION OF CERTAIN NONDISCRIMINATION RULES 
                    APPLICABLE TO STATE AND LOCAL PLANS.

    (a) In General.--Subparagraph (G) of section 401(a)(5), 
subparagraph (H) of section 401(a)(26), subparagraph (G) of 
section 401(k)(3), and paragraph (2) of section 1505(d) of the 
Taxpayer Relief Act of 1997 are each amended by inserting ``or 
by an international organization which is described in section 
414(d)'' after ``or instrumentality thereof)''.
    (b) Conforming Amendments.--
            (1) The headings for subparagraph (G) of section 
        401(a)(5) and subparagraph (H) of section 401(a)(26) 
        are each amended by inserting ``and international 
        organization'' after ``governmental''.
            (2) Subparagraph (G) of section 401(k)(3) is 
        amended by inserting ``State and local governmental and 
        international organization plans.--'' after ``(G)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

                      Subtitle F--Plan Amendments

SEC. 1271. 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.

                  TITLE XIII--MISCELLANEOUS PROVISIONS

         Subtitle A--Provisions Primarily Affecting Individuals

SEC. 1301. 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.''.

SEC. 1302. EXPANSION OF DC HOMEBUYER TAX CREDIT.

    (a) Expansion of Income Limitation.--Section 1400C(b)(1) 
(relating to limitation based on modified adjusted gross 
income) is amended--
            (1) by striking ``$110,000'' in subparagraph (A)(i) 
        and inserting ``$140,000'', and
            (2) by inserting ``($40,000 in the case of a joint 
        return)'' after ``$20,000'' in subparagraph (B).
    (b) Effective Date.--The amendments made by this section 
shall apply to purchases on or after the date of the enactment 
of this Act.

SEC. 1303. NO FEDERAL INCOME TAX ON AMOUNTS AND LANDS RECEIVED BY 
                    HOLOCAUST VICTIMS OR THEIR HEIRS.

    (a) In General.--For purposes of the Internal Revenue Code 
of 1986, gross income shall not include--
            (1) any amount received by an individual (or any 
        heir of the individual)--
                    (A) from the Swiss Humanitarian Fund 
                established by the Government of Switzerland or 
                from any similar fund established by any 
                foreign country, or
                    (B) as a result of the settlement of the 
                action entitled ``In re Holocaust Victims' 
                Asset Litigation'', (E.D. NY), C.A. No. 96-
                4849, or as a result of any similar action; and
            (2) the value of any land (including structures 
        thereon) recovered by an individual (or any heir of the 
        individual) from a government of a foreign country as a 
        result of a settlement of a claim arising out of the 
        confiscation of such land in connection with the 
        Holocaust.
    (b) Effective Date.--This section shall apply to any amount 
received on or after the date of the enactment of this Act.

         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.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        December 31, 2000.
            (2) Losses of recent nonlife affiliates.--The 
        amendment made by subsection (b)(1) shall apply to 
        taxable years beginning after December 31, 2005.
    (d) No Carryback Before January 1, 2006.--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, 2006.
    (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 the Internal 
Revenue Code of 1986 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 the enactment 
of this Act).

SEC. 1316. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER SECTION 
                    355.

    (a) In General.--Section 355(b) (defining active conduct of 
a trade or business) is amended by adding at the end the 
following new paragraph:
            ``(3) Special rules relating to active business 
        requirement.--
                    ``(A) In general.--For purposes of 
                determining whether a corporation meets the 
                requirement of paragraph (2)(A), all members of 
                such corporation's separate affiliated group 
                shall be treated as 1 corporation. For purposes 
                of the preceding sentence, a corporation's 
                separate affiliated group is the affiliated 
                group which would be determined under section 
                1504(a) if such corporation were the common 
                parent and section 1504(b) did not apply.
                    ``(B) Control.--For purposes of paragraph 
                (2)(D), all distributee corporations which are 
                members of the same affiliated group (as 
                defined in section 1504(a) without regard to 
                section 1504(b)) shall be treated as 1 
                distributee corporation.''.
    (b) Conforming Amendments.--
            (1) Subparagraph (A) of section 355(b)(2) is 
        amended to read as follows:
                    ``(A) it is engaged in the active conduct 
                of a trade or business,''.
            (2) Section 355(b)(2) is amended by striking the 
        last sentence.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to distributions after the date of 
        the enactment of this Act.
            (2) Transition rule.--The amendments made by this 
        section shall not apply to any distribution pursuant to 
        a transaction which is--
                    (A) made pursuant to an agreement which was 
                binding on such date and at all times 
                thereafter,
                    (B) described in a ruling request submitted 
                to the Internal Revenue Service on or before 
                such date, or
                    (C) described on or before such date in a 
                public announcement or in a filing with the 
                Securities and Exchange Commission.
            (3) Election to have amendments apply.--Paragraph 
        (2) shall not apply if the distributing corporation 
        elects not to have such paragraph apply to 
        distributions of such corporation. Any such election, 
        once made, shall be irrevocable.

SEC. 1317. EXPANSION OF EXEMPTION FROM PERSONAL HOLDING COMPANY TAX FOR 
                    LENDING OR FINANCE COMPANIES.

    (a) In General.--Paragraph (6) of section 542(c) (defining 
personal holding company) is amended--
            (1) by striking ``rents,'' in subparagraph (B), and
            (2) by adding ``and'' at the end of subparagraph 
        (B),
            (3) by striking subparagraph (C), and
            (4) by redesignating subparagraph (D) as 
        subparagraph (C).
    (b) Exception for Lending or Finance Companies Determined 
on Affiliated Group Basis.--Subsection (d) of section 542 is 
amended by striking paragraphs (1) and (2) and inserting the 
following new paragraphs:
            ``(1) Lending or finance business defined.-- For 
        purposes of subsection (c)(6), the term `lending or 
        finance business' means a business of--
                    ``(A) making loans,
                    ``(B) purchasing or discounting accounts 
                receivable, notes, or installment obligations,
                    ``(C) engaging in leasing (including 
                entering into leases and purchasing, servicing, 
                and disposing of leases and leased assets),
                    ``(D) rendering services or making 
                facilities available in the ordinary course of 
                a lending or finance business.
                    ``(E) rendering services or making 
                facilities available in connection with 
                activities described in subparagraphs (A), (B), 
                and (C) carried on by the corporation rendering 
                services or making facilities available, or
                    ``(F) rendering services or making 
                facilities available to another corporation 
                which is engaged in the lending or finance 
                business (within the meaning of this 
                paragraph), if such services or facilities are 
                related to the lending or finance business 
                (within such meaning) of such other corporation 
                and such other corporation and the corporation 
                rendering services or making facilities 
                available are members of the same affiliated 
                group (as defined in section 1504).
            ``(2) Exception determined on an affiliated group 
        basis.--In the case of a lending or finance company 
        which is a member of an affiliated group (as defined in 
        section 1504), such company shall be treated as meeting 
        the requirements of subsection (c)(6) if such group 
        (determined by taking into account only members of such 
        group which are engaged in a lending or finance 
        business) meets such requirements.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after December 31, 1999.

SEC. 1318. EXTENSION OF EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

    (a) Expansion of Qualified Contaminated Site.--Section 
198(c) is amended to read as follows:
    ``(c) Qualified Contaminated Site.--For purposes of this 
section--
            ``(1) In general.--The term `qualified contaminated 
        site' means any area--
                    ``(A) which is held by the taxpayer for use 
                in a trade or business or for the production of 
                income, or which is property described in 
                section 1221(1) in the hands of the taxpayer, 
                and
                    ``(B) at or on which there has been a 
                release (or threat of release) or disposal of 
                any hazardous substance.
            ``(2) National priorities listed sites not 
        included.--Such term shall not include any site which 
        is on, or proposed for, the national priorities list 
        under section 105(a)(8)(B) of the Comprehensive 
        Environmental Response, Compensation, and Liability Act 
        of 1980 (as in effect on the date of the enactment of 
        this section).
            ``(3) Taxpayer must receive statement from state 
        environmental agency.--An area shall be treated as a 
        qualified contaminated site with respect to 
        expenditures paid or incurred during any taxable year 
        only if the taxpayer receives a statement from the 
        appropriate agency of the State in which such area is 
        located that such area meets the requirement of 
        paragraph (1)(B).
            ``(4) Appropriate state agency.--For purposes of 
        paragraph (2), the chief executive officer of each 
        State may, in consultation with the Administrator of 
        the Environmental Protection Agency, designate the 
        appropriate State environmental agency within 60 days 
        of the date of the enactment of this section. If the 
        chief executive officer of a State has not designated 
        an appropriate State environmental agency within such 
        60-day period, the appropriate environmental agency for 
        such State shall be designated by the Administrator of 
        the Environmental Protection Agency.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to expenditures paid or incurred after December 31, 
1999.

            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.
    ``(e) Separate Accounting if Superfund Reauthorized.--
            ``(1) In general.--If a Federal law is enacted 
        after September 30, 1999, which authorizes expenditures 
        out of the Environmental Remediation Trust Fund for 
        purposes of carrying out provisions of CERCLA not 
        described in subsection (c)(1)(A), this section shall 
        be applied as if such Fund consisted of 2 accounts: a 
        Superfund Account and a Leaking Underground Storage 
        Tank Account.
            ``(2) Amounts in accounts.--
                    ``(A) Leaking underground storage tank 
                account.--The Leaking Underground Storage Tank 
                Account--
                            ``(i) shall consist of amounts 
                        which would have been appropriated or 
                        credited to the Leaking Underground 
                        Storage Tank Trust Fund but for the 
                        amendments made by section 1321 of the 
                        Taxpayer Refund and Relief Act of 1999, and
                            ``(ii) shall be available, as 
                        provided in appropriation Acts, for the 
                        purposes for which the Leaking 
                        Underground Storage Tank Trust Fund was 
                        available (as in effect on the day 
                        before the date of the enactment of 
                        such amendments).
                    ``(B) Superfund account.--The Superfund 
                Account--
                            ``(i) shall consist of amounts 
                        which would have been appropriated or 
                        credited to the Hazardous Substance 
                        Superfund but for such amendments, and
                            ``(ii) shall be available, as 
                        provided in appropriation Acts, for the 
                        purposes for which the Hazardous 
                        Substance Superfund was available (as 
                        so in effect).
            ``(3) Opening balances.--
                    ``(A) Leaking underground storage tank 
                account.--The balance in the Leaking 
                Underground Storage Tank Account as of the date 
                of the enactment of the Federal law referred to 
                in paragraph (1) shall be the sum of--
                            ``(i) the amount which bears the 
                        same ratio to the balance in such Trust 
                        Fund as of such date, bears to the sum 
                        of the balances (as of the close of 
                        September 30, 1999) in Leaking 
                        Underground Storage Tank Trust Fund and 
                        the Hazardous Substance Superfund, and
                            ``(ii) the aggregate amount 
                        appropriated to the Environmental 
                        Remediation Trust Fund after September 
                        30, 1999, by reason of taxes received 
                        in the Treasury.
                    ``(B) Superfund account.--The balance in 
                the Superfund Account as of the date of the 
                enactment of the Federal law referred to in 
                paragraph (1) shall be the excess of the 
                balance in such Trust Fund as of such date over 
                the balance of the Leaking Underground Storage 
                Tank Account determined under subparagraph (A).
            ``(4) Special transfer rule.--If the balance in the 
        Environmental Remediation Trust Fund as of the date of 
        the enactment of the Federal law referred to in 
        paragraph (1) is less than the required balance for the 
        Leaking Underground Storage Tank Account, amounts 
        otherwise required to be deposited in the Superfund 
        Account shall be reduced (to the extent of the 
        shortfall) and deposited into the Leaking Underground 
        Storage Tank Account.''.
    (b) Conforming Amendments.--
            (1) Subsections (c) and (e) 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) Repeal.--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) Modification of Transfer to Aquatic Resources Trust 
Fund.--Section 9503(b)(4)(D) is amended--
            (1) by striking ``11.5 cents'' in clause (i) and 
        inserting ``11.7 cents'',
            (2) by striking ``13 cents'' in clause (ii) and 
        inserting ``13.2 cents'', and
            (3) by striking ``13.5 cents'' in clause (iii) and 
        inserting ``13.7 cents''.
    (c) Effective Date.--The amendments made by this section 
shall take effect 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.

SEC. 1325. EXEMPTION FROM TICKET TAXES FOR CERTAIN TRANSPORTATION 
                    PROVIDED BY SMALL SEAPLANES.

    (a) In General.--Section 4281 (relating to small aircraft 
on nonestablished lines) is amended to read as follows:

``SEC. 4281. SMALL AIRCRAFT.

    ``The taxes imposed by sections 4261 and 4271 shall not 
apply to--
            ``(1) transportation by an aircraft having a 
        maximum certificated takeoff weight of 6,000 pounds or 
        less, except when such aircraft is operated on an 
        established line, and
            ``(2) transportation by a seaplane having a maximum 
        certificated takeoff weight of 6,000 pounds or less 
        with respect to any segment consisting of a takeoff 
        from, and a landing on, water.
For purposes of the preceding sentence, the term `maximum 
certificated takeoff weight' means the maximum such weight 
contained in the type certificate or airworthiness 
certificate.''.
    (b) Clerical Amendment.--The table of sections for part III 
of subchapter C of chapter 33 is amended by striking ``on 
nonestablished lines'' in the item relating to section 4281.
    (c) Effective Date.--The amendments made by this section 
shall apply to amounts paid for transportation beginning after 
December 31, 1999, but shall not apply to any amount paid on or 
before such date with respect to taxes imposed by sections 4261 
and 4271 of the Internal Revenue Code of 1986.

SEC. 1326. MODIFICATION OF RURAL AIRPORT DEFINITION.

    (a) In General.--Clause (ii) of section 4261(e)(1)(B) 
(defining rural airport) is amended by striking the period at 
the end of subclause (II) and inserting ``, or'', and by adding 
at the end the following new subclause:
                                    ``(III) is not connected by 
                                paved roads to another 
                                airport.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to calendar years beginning after 1999.

                      Subtitle D--Other Provisions

SEC. 1331. TAX-EXEMPT FINANCING OF QUALIFIED HIGHWAY INFRASTRUCTURE 
                    CONSTRUCTION.

    (a) Treatment as Exempt Facility Bond.--A bond described in 
subsection (b) shall be treated as described in section 
141(e)(1)(A) of the Internal Revenue Code of 1986, except 
that--
            (1) section 146 of such Code shall not apply to 
        such bond, and
            (2) section 147(c)(1) of such Code shall be applied 
        by substituting ``any portion of'' for ``25 percent or 
        more''.
    (b) Bond Described.--
            (1) In general.--A bond is described in this 
        subsection if such bond is issued after December 31, 
        1999, as part of an issue--
                    (A) 95 percent or more of the net proceeds 
                of which are to be used to provide a qualified 
                highway infrastructure project, and
                    (B) to which there has been allocated a 
                portion of the allocation to the project under 
                paragraph (2)(C)(ii) which is equal to the 
                aggregate face amount of bonds to be issued as 
                part of such issue.
            (2) Qualified highway infrastructure projects.--
                    (A) In general.--For purposes of paragraph 
                (1), the term ``qualified highway 
                infrastructure project'' means a project--
                            (i) for the construction or 
                        reconstruction of a highway, and
                            (ii) designated under subparagraph 
                        (B) as an eligible pilot project.
                    (B) Eligible pilot project.--
                            (i) In general.--The Secretary of 
                        Transportation, in consultation with 
                        the Secretary of the Treasury, shall 
                        select not more than 15 highway 
                        infrastructure projects to be pilot 
                        projects eligible for tax-exempt 
                        financing.
                            (ii) Eligibility criteria.--In 
                        determining the criteria necessary for 
                        the eligibility of pilot projects, the 
                        Secretary of Transportation shall 
                        include the following:
                                    (I) The project must serve 
                                the general public.
                                    (II) The project is 
                                necessary to evaluate the 
                                potential of the private 
                                sector's participation in the 
                                provision of the highway 
                                infrastructure of the United 
                                States.
                                    (III) The project must be 
                                located on publicly-owned 
                                rights-of-way.
                                    (IV) The project must be 
                                publicly owned or the ownership 
                                of the highway constructed or 
                                reconstructed under the project 
                                must revert to the public.
                                    (V) The project must be 
                                consistent with a 
                                transportation plan developed 
                                pursuant to section 134(g) or 
                                135(e) of title 23, United 
                                States Code.
                    (C) Aggregate face amount of tax-exempt 
                financing.--
                            (i) In general.--The aggregate face 
                        amount of bonds issued pursuant to this 
                        section shall not exceed 
                        $15,000,000,000, determined without 
                        regard to any bond the proceeds of 
                        which are used exclusively to refund 
                        (other than to advance refund) a bond 
                        issued pursuant to this section (or a 
                        bond which is a part of a series of 
                        refundings of a bond so issued) if the 
                        amount of the refunding bond does not 
                        exceed the outstanding amount of the 
                        refunded bond.
                            (ii) Allocation.--The Secretary of 
                        Transportation, in consultation with 
                        the Secretary of the Treasury, shall 
                        allocate the amount described in clause 
                        (i) among the eligible pilot projects 
                        designated under subparagraph (B).
                            (iii) Reallocation.--If any portion 
                        of an allocation under clause (ii) is 
                        unused on the date which is 3 years 
                        after such allocation, the Secretary of 
                        Transportation, in consultation with 
                        the Secretary of the Treasury, may 
                        reallocate such portion among the 
                        remaining eligible pilot projects.

SEC. 1332. 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) on or 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. 1333. INCREASE IN THRESHOLD FOR JOINT COMMITTEE REPORTS ON REFUNDS 
                    AND CREDITS.

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

SEC. 1334. CREDIT FOR CLINICAL TESTING RESEARCH EXPENSES ATTRIBUTABLE 
                    TO CERTAIN QUALIFIED ACADEMIC INSTITUTIONS 
                    INCLUDING TEACHING HOSPITALS.

    (a) In General.--Subpart D of part IV of subchapter A of 
chapter 1 (relating to business related credits) is amended by 
inserting after section 41 the following:

``SEC. 41A. CREDIT FOR MEDICAL INNOVATION EXPENSES.

    ``(a) General Rule.--For purposes of section 38, the 
medical innovation credit determined under this section for the 
taxable year shall be an amount equal to 40 percent of the 
excess (if any) of--
            ``(1) the qualified medical innovation expenses for 
        the taxable year, over
            ``(2) the medical innovation base period amount.
    ``(b) Qualified Medical Innovation Expenses.--For purposes 
of this section--
            ``(1) In general.--The term `qualified medical 
        innovation expenses' means the amounts which are paid 
        or incurred by the taxpayer during the taxable year 
        directly or indirectly to any qualified academic 
        institution for clinical testing research activities.
            ``(2) Clinical testing research activities.--
                    ``(A) In general.--The term `clinical 
                testing research activities' means human 
                clinical testing conducted at any qualified 
                academic institution in the development of any 
                product, which occurs before--
                            ``(i) the date on which an 
                        application with respect to such 
                        product is approved under section 
                        505(b), 506, or 507 of the Federal 
                        Food, Drug, and Cosmetic Act (as in 
                        effect on the date of the enactment of 
                        this section),
                            ``(ii) the date on which a license 
                        for such product is issued under 
                        section 351 of the Public Health 
                        Service Act (as so in effect), or
                            ``(iii) the date classification or 
                        approval of such product which is a 
                        device intended for human use is given 
                        under section 513, 514, or 515 of the 
                        Federal Food, Drug, and Cosmetic Act 
                        (as so in effect).
                    ``(B) Product.--The term `product' means 
                any drug, biologic, or medical device.
            ``(3) Qualified academic institution.--The term 
        `qualified academic institution' means any of the 
        following institutions:
                    ``(A) Educational institution.--A qualified 
                organization described in section 
                170(b)(1)(A)(iii) which is owned by, or 
                affiliated with, an institution of higher 
                education (as defined in section 3304(f)).
                    ``(B) Teaching hospital.--A teaching 
                hospital which--
                            ``(i) is publicly supported or 
                        owned by an organization described in 
                        section 501(c)(3), and
                            ``(ii) is affiliated with an 
                        organization meeting the requirements 
                        of subparagraph (A).
                    ``(C) Foundation.--A medical research 
                organization described in section 501(c)(3) 
                (other than a private foundation) which is 
                affiliated with, or owned by--
                            ``(i) an organization meeting the 
                        requirements of subparagraph (A), or
                            ``(ii) a teaching hospital meeting 
                        the requirements of subparagraph (B).
                    ``(D) Charitable research hospital.--A 
                hospital that is designated as a cancer center 
                by the National Cancer Institute.
            ``(4) Exclusion for amounts funded by grants, 
        etc.--The term `qualified medical innovation expenses' 
        shall not include any amount to the extent such amount 
        is funded by any grant, contract, or otherwise by 
        another person (or any governmental entity).
    ``(c) Medical Innovation Base Period Amount.--For purposes 
of this section, the term `medical innovation base period 
amount' means the average annual qualified medical innovation 
expenses paid by the taxpayer during the 3-taxable year period 
ending with the taxable year immediately preceding the first 
taxable year of the taxpayer beginning after December 31, 1998.
    ``(d) Special Rules.--
            ``(1) Limitation on foreign testing.--No credit 
        shall be allowed under this section with respect to any 
        clinical testing research activities conducted outside 
        the United States.
            ``(2) Certain rules made applicable.--Rules similar 
        to the rules of subsections (f) and (g) of section 41 
        shall apply for purposes of this section.
            ``(3) Election.--This section shall apply to any 
        taxpayer for any taxable year only if such taxpayer 
        elects to have this section apply for such taxable 
        year.
            ``(4) Coordination with credit for increasing 
        research expenditures and with credit for clinical 
        testing expenses for certain drugs for rare diseases.--
        Any qualified medical innovation expense for a taxable 
        year to which an election under this section applies 
        shall not be taken into account for purposes of 
        determining the credit allowable under section 41 or 
        45C for such taxable year.''.
    (b) Credit To Be Part of General Business Credit.--
            (1) In general.--Section 38(b) (relating to current 
        year business credits) is amended by striking ``plus'' 
        at the end of paragraph (11), by striking the period at 
        the end of paragraph (12) and inserting ``, plus'', and 
        by adding at the end the following:
            ``(13) the medical innovation expenses credit 
        determined under section 41A(a).''.
            (2) Transition rule.--Section 39(d) is amended by 
        adding at the end the following new paragraph:
            ``(9) No carryback of section 41a credit before 
        enactment.--No portion of the unused business credit 
        for any taxable year which is attributable to the 
        medical innovation credit determined under section 41A 
        may be carried back to a taxable year beginning before 
        January 1, 1999.''.
    (c) Denial of Double Benefit.--Section 280C is amended by 
adding at the end the following new subsection:
    ``(d) Credit for Increasing Medical Innovation Expenses.--
            ``(1) In general.--No deduction shall be allowed 
        for that portion of the qualified medical innovation 
        expenses (as defined in section 41A(b)) otherwise 
        allowable as a deduction for the taxable year which is 
        equal to the amount of the credit determined for such 
        taxable year under section 41A(a).
            ``(2) Certain rules to apply.--Rules similar to the 
        rules of paragraphs (2), (3), and (4) of subsection (c) 
        shall apply for purposes of this subsection.''.
    (d) Deduction for Unused Portion of Credit.--Section 196(c) 
(defining qualified business credits) is amended by 
redesignating paragraphs (5) through (8) as paragraphs (6) 
through (9), respectively, and by inserting after paragraph (4) 
the following new paragraph:
            ``(5) the medical innovation expenses credit 
        determined under section 41A(a) (other than such credit 
        determined under the rules of section 280C(d)(2)),''.
    (e) Clerical Amendment.--The table of sections for subpart 
D of part IV of subchapter A of chapter 1 is amended by adding 
after the item relating to section 41 the following:

        ``Sec. 41A. Credit for medical innovation expenses.''.

    (f) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1998.

SEC. 1335. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITHOUT 
                    REDUCING PATRONAGE DIVIDENDS.

    (a) In General.--Subsection (a) of section 1388 (relating 
to patronage dividend defined) is amended by adding at the end 
the following: ``For purposes of paragraph (3), net earnings 
shall not be reduced by amounts paid during the year as 
dividends on capital stock or other proprietary capital 
interests of the organization to the extent that the articles 
of incorporation or bylaws of such organization or other 
contract with patrons provide that such dividends are in 
addition to amounts otherwise payable to patrons which are 
derived from business done with or for patrons during the 
taxable year.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to distributions in taxable years beginning after 
the date of the enactment of this Act.

                    Subtitle E--Tax Court Provisions

SEC. 1341. 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. 1342. 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. 1343. 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.

              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) Effective Date.--The amendments made by this section 
shall apply to individuals who begin work for the employer 
after June 30, 1999.

SEC. 1405. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING 
                    ELECTRICITY FROM CERTAIN RENEWABLE RESOURCES.

    (a) Extension and Modification of Placed-in-Service 
Rules.--Paragraph (3) of section 45(c) is amended to read as 
follows:
            ``(3) Qualified facility.--
                    ``(A) Wind facility.--In the case of a 
                facility using wind to produce electricity, the 
                term `qualified facility' means any facility 
                owned by the taxpayer which is originally 
                placed in service after December 31, 1993, and 
                before July 1, 2003.
                    ``(B) Closed-loop biomass facility.--In the 
                case of a facility using closed-loop biomass to 
                produce electricity, the term `qualified 
                facility' means any facility owned by the 
                taxpayer which is originally placed in service 
                after December 31, 1992, and before July 1, 
                2003.
                    ``(C) Poultry waste facility.--In the case 
                of a facility using poultry waste to produce 
                electricity, the term `qualified facility' 
                means any facility of the taxpayer which is 
                originally placed in service after December 31, 
                1999, and before July 1, 2003.''.
    (b) Expansion of Qualified Energy Resources.--
            (1) In general.--Section 45(c)(1) (defining 
        qualified energy resources) 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) poultry waste.''.
            (2) Definition.--Section 45(c) is amended by adding 
        at the end the following new paragraph:
            ``(4) Poultry waste.--The term `poultry waste' 
        means poultry manure and litter, including wood 
        shavings, straw, rice hulls, and other bedding material 
        for the disposition of manure.''.
    (c) Special Rules.--Section 45(d) (relating to definitions 
and special rules) is amended by adding at the end the 
following new paragraphs:
            ``(6) Credit eligibility in the case of government-
        owned facilities using poultry waste.--In the case of a 
        facility using poultry waste to produce electricity and 
        owned by a governmental unit, the person eligible for 
        the credit under subsection (a) is the lessor or the 
        operator of such facility.
            ``(7) Credit not to apply to electricity sold to 
        utilities under certain contracts.--
                    ``(A) In general.--The credit determined 
                under subsection (a) shall not apply to 
                electricity--
                            ``(i) produced at a qualified 
                        facility described in paragraph (3)(A) 
                        which is placed in service by the 
                        taxpayer after June 30, 1999, and
                            ``(ii) sold to a utility pursuant 
                        to a contract originally entered into 
                        before January 1, 1987 (whether or not 
                        amended or restated after that date).
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply if--
                            ``(i) the prices for energy and 
                        capacity from such facility are 
                        established pursuant to an amendment to 
                        the contract referred to in 
                        subparagraph (A)(ii);
                            ``(ii) such amendment provides that 
                        the prices set forth in the contract 
                        which exceed avoided cost prices 
                        determined at the time of delivery 
                        shall apply only to annual quantities 
                        of electricity (prorated for partial 
                        years) which do not exceed the greater 
                        of--
                                    ``(I) the average annual 
                                quantity of electricity sold to 
                                the utility under the contract 
                                during calendar years 1994, 
                                1995, 1996, 1997, and 1998, or
                                    ``(II) the estimate of the 
                                annual electricity production 
                                set forth in the contract, or, 
                                if there is no such estimate, 
                                the greatest annual quantity of 
                                electricity sold to the utility 
                                under the contract in any of 
                                the calendar years 1996, 1997, 
                                or 1998; and
                            ``(iii) such amendment provides 
                        that energy and capacity in excess of 
                        the limitation in clause (ii) may be--
                                    ``(I) sold to the utility 
                                only at prices that do not 
                                exceed avoided cost prices 
                                determined at the time of 
                                delivery, or
                                    ``(II) sold to a third 
                                party subject to a mutually 
                                agreed upon advance notice to 
                                the utility.
                For purposes of this subparagraph, avoided cost 
                prices shall be determined as provided for in 
                18 CFR 292.304(d)(1) or any successor 
                regulation.''.
    (d) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

                       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 directly 
                        or indirectly 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 welfare benefits 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, 2000.

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; except that section 318(a)(3)(C) shall 
                not be applied under such rules to treat stock 
                owned by a qualified entity as being owned by a 
                person which is not a qualified entity.
                    ``(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 corporation annually 
                        increases the value of its real estate 
                        assets by at least 10 percent.
                            ``(vi) 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.--
                            ``(i) In general.--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, except that the REIT may, subject 
                        to clauses (ii), (iii), and (iv), elect 
                        to extend such period for an additional 
                        2 taxable years.
                            ``(ii) Going public transaction.--A 
                        REIT may not elect to extend the 
                        eligibility period under clause (i) 
                        unless it enters into an agreement with 
                        the Secretary 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.
                            ``(iii) Returns, interest, and 
                        notice.--
                                    ``(I) Returns.--In the 
                                event the corporation ceases to 
                                be treated as a REIT by 
                                operation of clause (ii), the 
                                corporation shall file any 
                                appropriate amended returns 
                                reflecting the change in status 
                                within 3 months of the close of 
                                the extended eligibility 
                                period.
                                    ``(II) Interest.--Interest 
                                shall be payable on any tax 
                                imposed by reason of clause 
                                (ii) for any taxable year but, 
                                unless there was a finding 
                                under subparagraph (D), no 
                                substantial underpayment 
                                penalties shall be imposed.
                                    ``(III) Notice.--The 
                                corporation shall, at the same 
                                time it files its returns under 
                                subclause (I), 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.
                                    ``(IV) Regulations.--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.
                            ``(iv) Clauses (ii) and (iii) 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 if the corporation 
                        is not a controlled entity as of the 
                        beginning of 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 
                shall 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 
        14, 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 14, 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. For purposes of 
        the preceding sentence, an entity shall be treated as 
        such a controlled entity on July 14, 1999, if it 
        becomes such an entity after such date in a 
        transaction--
                    (A) made pursuant to a written agreement 
                which was binding on such date and at all times 
                thereafter, or
                    (B) described on or before such date in a 
                filing with the Securities and Exchange 
                Commission required solely by reason of the 
                transaction.

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 without regard to 
                subsection (e) thereof),
                    ``(H) a foreign personal holding company,
                    ``(I) a foreign investment company (as 
                defined in section 1246(b)), and
                    ``(J) a REMIC.
    ``(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.--
            (1) In General.--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''.
            (2) Conforming amendments.--
                    (A) Section 101(e)(3) of the Employee 
                Retirement Income Security Act of 1974 (29 
                U.S.C. 1021(e)(3)) is amended by striking 
                ``1995'' and inserting ``2001''.
                    (B) Section 403(c)(1) of such Act (29 
                U.S.C. 1103(c)(1)) is amended by striking 
                ``1995'' and inserting ``2001''.
                    (C) Paragraph (13) of section 408(b) of 
                such Act (29 U.S.C. 1108(b)(13)) is amended--
                            (i) by striking ``in a taxable year 
                        beginning before January 1, 2001'' and 
                        inserting ``made before October 1, 
                        2009'', and
                            (ii) by striking ``1995'' and 
                        inserting ``2001''.
    (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 Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to qualified transfers occurring 
        after the date of the enactment of this Act.
            (2) Transition rule.--If the cost maintenance 
        period for any qualified transfer after the date of the 
        enactment of this Act includes any portion of a benefit 
        maintenance period for any qualified transfer on or 
        before such date, the amendments made by subsection (b) 
        shall not apply to such portion of the cost maintenance 
        period (and such portion shall be treated as a benefit 
        maintenance period).

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. 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. 1511. RESTRICTION ON USE OF REAL ESTATE INVESTMENT TRUSTS TO AVOID 
                    ESTIMATED TAX PAYMENT REQUIREMENTS.

    (a) In General.--Subsection (e) of section 6655 (relating 
to estimated tax by corporations) is amended by adding at the 
end the following new paragraph:
            ``(5) Treatment of certain reit dividends.--
                    ``(A) In general.--Any dividend received 
                from a closely held real estate investment 
                trust by any person which owns (after 
                application of subsections (d)(5) and (l)(3)(B) 
                of section 856) 10 percent or more (by vote or 
                value) of the stock or beneficial interests in 
                the trust shall be taken into account in 
                computing annualized income installments under 
                paragraph (2) in a manner similar to the manner 
                under which partnership income inclusions are 
                taken into account.
                    ``(B) Closely held reit.--For purposes of 
                subparagraph (A), the term `closely held real 
                estate investment trust' means a real estate 
                investment trust with respect to which 5 or 
                fewer persons own (after application of 
                subsections (d)(5) and (l)(3)(B) of section 
                856) 50 percent or more (by vote or value) of 
                the stock or beneficial interests in the 
                trust.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to estimated tax payments due on or after September 
15, 1999.

SEC. 1512. MODIFICATION OF ANTI-ABUSE RULES RELATED TO ASSUMPTION OF 
                    LIABILITY.

    (a) In General.--Section 357(b)(1) (relating to tax 
avoidance purpose) is amended--
            (1) by striking ``the principal purpose'' and 
        inserting ``a principal purpose'', and
            (2) by striking ``on the exchange'' in subparagraph 
        (A).
    (b) Effective Date.--The amendments made by this section 
shall apply to assumptions of liability after July 14, 1999.

SEC. 1513. ALLOCATION OF BASIS ON TRANSFERS OF INTANGIBLES IN CERTAIN 
                    NONRECOGNITION TRANSACTIONS.

    (a) Transfers to Corporations.--Section 351 (relating to 
transfer to corporation controlled by transferor) is amended by 
redesignating subsection (h) as subsection (i) and by inserting 
after subsection (g) the following new subsection:
    ``(h) Treatment of Transfers of Intangible Property.--
            ``(1) Transfers of less than all substantial 
        rights.
                    ``(A) In general.--A transfer of an 
                interest in intangible property (as defined in 
                section 936(h)(3)(B)) shall be treated under 
                this section as a transfer of property even if 
                the transfer is of less than all of the 
                substantial rights of the transferor in the 
                property.
                    ``(B) Allocation of basis.--In the case of 
                a transfer of less than all of the substantial 
                rights of the transferor in the intangible 
                property, the transferor's basis immediately 
                before the transfer shall be allocated among 
                the rights retained by the transferor and the 
                rights transferred on the basis of their 
                respective fair market values.
            ``(2) Nonrecognition not to apply to intangible 
        property developed for transferee.--This section shall 
        not apply to a transfer of intangible property 
        developed by the transferor or any related person if 
        such development was pursuant to an arrangement with 
        the transferee.''.
    (b) Transfers to Partnerships.--Subsection (d) of section 
721 is amended to read as follows:
    ``(d) Transfers of Intangible Property.--
            ``(1) In general.--Rules similar to the rules of 
        section 351(h) shall apply for purposes of this 
        section.
            ``(2) Transfers to foreign partnerships.--For 
        regulatory authority to treat intangibles transferred 
        to a partnership as sold, see section 367(d)(3).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to transfers on or after the date of the enactment 
of this Act.

SEC. 1514. DISTRIBUTIONS TO A CORPORATE PARTNER OF STOCK IN ANOTHER 
                    CORPORATION.

    (a) In General.--Section 732 (relating to basis of 
distributed property other than money) is amended by adding at 
the end the following new subsection:
    ``(f) Corresponding Adjustment to Basis of Assets of a 
Distributed Corporation Controlled by a Corporate Partner.--
            ``(1) In general.--If--
                    ``(A) a corporation (hereafter in this 
                subsection referred to as the `corporate 
                partner') receives a distribution from a 
                partnership of stock in another corporation 
                (hereafter in this subsection referred to as 
                the `distributed corporation'),
                    ``(B) the corporate partner has control of 
                the distributed corporation immediately after 
                the distribution or at any time thereafter, and
                    ``(C) the partnership's adjusted basis in 
                such stock immediately before the distribution 
                exceeded the corporate partner's adjusted basis 
                in such stock immediately after the 
                distribution,
        then an amount equal to such excess shall be applied to 
        reduce (in accordance with subsection (c)) the basis of 
        property held by the distributed corporation at such 
        time (or, if the corporate partner does not control the 
        distributed corporation at such time, at the time the 
        corporate partner first has such control).
            ``(2) Exception for certain distributions before 
        control acquired.--Paragraph (1) shall not apply to any 
        distribution of stock in the distributed corporation 
        if--
                    ``(A) the corporate partner does not have 
                control of such corporation immediately after 
                such distribution, and
                    ``(B) the corporate partner establishes to 
                the satisfaction of the Secretary that such 
                distribution was not part of a plan or 
                arrangement to acquire control of the 
                distributed corporation.
            ``(3) Limitations on basis reduction.--
                    ``(A) In general.--The amount of the 
                reduction under paragraph (1) shall not exceed 
                the amount by which the sum of the aggregate 
                adjusted bases of the property and the amount 
                of money of the distributed corporation exceeds 
                the corporate partner's adjusted basis in the 
                stock of the distributed corporation.
                    ``(B) Reduction not to exceed adjusted 
                basis of property.--No reduction under 
                paragraph (1) in the basis of any property 
                shall exceed the adjusted basis of such 
                property (determined without regard to such 
                reduction).
            ``(4) Gain recognition where reduction limited.--If 
        the amount of any reduction under paragraph (1) 
        (determined after the application of paragraph (3)(A)) 
        exceeds the aggregate adjusted bases of the property of 
        the distributed corporation--
                    ``(A) such excess shall be recognized by 
                the corporate partner as long-term capital 
                gain, and
                    ``(B) the corporate partner's adjusted 
                basis in the stock of the distributed 
                corporation shall be increased by such excess.
            ``(5) Control.--For purposes of this subsection, 
        the term `control' means ownership of stock meeting the 
        requirements of section 1504(a)(2).
            ``(6) Indirect distributions.--For purposes of 
        paragraph (1), if a corporation acquires (other than in 
        a distribution from a partnership) stock the basis of 
        which is determined (by reason of being distributed 
        from a partnership) in whole or in part by reference to 
        subsection (a)(2) or (b), the corporation shall be 
        treated as receiving a distribution of such stock from 
        a partnership.
            ``(7) Special rule for stock in controlled 
        corporation.--If the property held by a distributed 
        corporation is stock in a corporation which the 
        distributed corporation controls, this subsection shall 
        be applied to reduce the basis of the property of such 
        controlled corporation. This subsection shall be 
        reapplied to any property of any controlled corporation 
        which is stock in a corporation which it controls.
            ``(8) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary to carry out the 
        purposes of this subsection, including regulations to 
        avoid double counting and to prevent the abuse of such 
        purposes.''.
    (b) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendment made by this section shall apply to 
        distributions made after July 14, 1999.
            (2) Partnerships in existence on July 14, 1999.--In 
        the case of a corporation which is a partner in a 
        partnership as of July 14, 1999, the amendment made by 
        this section shall apply to distributions made to such 
        partner from such partnership after the date of the 
        enactment of this Act.

SEC. 1515. PROHIBITED ALLOCATIONS OF S CORPORATION STOCK HELD BY AN 
                    ESOP.

    (a) In General.--Section 409 (relating to qualifications 
for tax credit employee stock ownership plans) is amended by 
redesignating subsection (p) as subsection (q) and by inserting 
after subsection (o) the following new subsection:
    ``(p) Prohibited Allocation of Securities in an S 
Corporation.--
            ``(1) In general.--An employee stock ownership plan 
        holding employer securities consisting of stock in an S 
        corporation shall provide that no portion of the assets 
        of the plan attributable to (or allocable in lieu of) 
        such employer securities may, during a nonallocation 
        year, accrue (or be allocated directly or indirectly 
        under any plan of the employer meeting the requirements 
        of section 401(a)) for the benefit of any disqualified 
        individual.
            ``(2) Failure to meet requirements.--If a plan 
        fails to meet the requirements of paragraph (1)--
                    ``(A) the plan shall be treated as having 
                distributed to any disqualified individual the 
                amount allocated to the account of such 
                individual in violation of paragraph (1) at the 
                time of such allocation,
                    ``(B) the provisions of section 4979A shall 
                apply, and
                    ``(C) the statutory period for the 
                assessment of any tax imposed by section 4979A 
                shall not expire before the date which is 3 
                years from the later of--
                            ``(i) the allocation of employer 
                        securities resulting in the failure 
                        under paragraph (1) giving rise to such 
                        tax, or
                            ``(ii) the date on which the 
                        Secretary is notified of such failure.
            ``(3) Nonallocation year.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `nonallocation 
                year' means any plan year of an employee stock 
                ownership plan if, at any time during such plan 
                year--
                            ``(i) such plan holds employer 
                        securities consisting of stock in an S 
                        corporation, and
                            ``(ii) disqualified individuals own 
                        at least 50 percent of the number of 
                        outstanding shares of stock in such S 
                        corporation.
                    ``(B) Attribution rules.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The rules of 
                        section 318(a) shall apply for purposes 
                        of determining ownership, except that--
                                    ``(I) in applying paragraph 
                                (1) thereof, the members of an 
                                individual's family shall 
                                include members of the family 
                                described in paragraph (4)(D), 
                                and
                                    ``(II) paragraph (4) 
                                thereof shall not apply.
                            ``(ii) Deemed-owned shares.--
                        Notwithstanding the employee trust 
                        exception in section 318(a)(2)(B)(i), 
                        disqualified individuals shall be 
                        treated as owning deemed-owned shares.
            ``(4) Disqualified individual.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `disqualified 
                individual' means any individual who is a 
                participant or beneficiary under the employee 
                stock ownership plan if--
                            ``(i) the aggregate number of 
                        deemed-owned shares of such individual 
                        and the members of the individual's 
                        family is at least 20 percent of the 
                        number of outstanding shares of stock 
                        in the S corporation constituting 
                        employer securities of such plan, or
                            ``(ii) if such individual is not 
                        described in clause (i), the number of 
                        deemed-owned shares of such individual 
                        is at least 10 percent of the number of 
                        outstanding shares of stock in such 
                        corporation.
                    ``(B) Treatment of family members.--In the 
                case of a disqualified individual described in 
                subparagraph (A)(i), any member of the 
                individual's family with deemed-owned shares 
                shall be treated as a disqualified individual 
                if not otherwise a disqualified individual 
                under subparagraph (A).
                    ``(C) Deemed-owned shares.--For purposes of 
                this paragraph--
                            ``(i) In general.--The term 
                        `deemed-owned shares' means, with 
                        respect to any participant or 
                        beneficiary under the employee stock 
                        ownership plan--
                                    ``(I) the stock in the S 
                                corporation constituting 
                                employer securities of such 
                                plan which is allocated to such 
                                participant or beneficiary 
                                under the plan, and
                                    ``(II) such participant's 
                                or beneficiary's share of the 
                                stock in such corporation which 
                                is held by such trust but which 
                                is not allocated under the plan 
                                to employees.
                            ``(ii) Individual's share of 
                        unallocated stock.--For purposes of 
                        clause (i)(II), an individual's share 
                        of unallocated S corporation stock held 
                        by the trust is the amount of the 
                        unallocated stock which would be 
                        allocated to such individual if the 
                        unallocated stock were allocated to 
                        individuals in the same proportions as 
                        the most recent stock allocation under 
                        the plan.
                    ``(D) Member of family.--For purposes of 
                this paragraph, the term `member of the family' 
                means, with respect to any individual--
                            ``(i) the spouse of the individual,
                            ``(ii) an ancestor or lineal 
                        descendant of the individual or the 
                        individual's spouse,
                            ``(iii) a brother or sister of the 
                        individual or the individual's spouse 
                        and any lineal descendant of the 
                        brother or sister, and
                            ``(iv) the spouse of any person 
                        described in clause (ii) or (iii).
            ``(5) Definitions.--For purposes of this 
        subsection--
                    ``(A) Employee stock ownership plan.--The 
                term `employee stock ownership plan' has the 
                meaning given such term by section 4975(e)(7).
                    ``(B) Employer securities.--The term 
                `employer security' has the meaning given such 
                term by section 409(l).
            ``(6) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary to carry out the 
        purposes of this subsection, including regulations 
        providing for the treatment of any stock option, 
        restricted stock, stock appreciation right, phantom 
        stock unit, performance unit, or similar instrument 
        granted by an S corporation as stock or not stock.''.
    (b) Excise Tax.--
            (1) In general.--Section 4979A(b) (defining 
        prohibited allocation) is amended by striking ``and'' 
        at the end of paragraph (1), by striking the period at 
        the end of paragraph (2) and inserting ``, and'', and 
        by adding at the end the following new paragraph:
            ``(3) any allocation of employer securities which 
        violates the provisions of section 409(p).''.
            (2) Liability.--Section 4979A(c) (defining 
        liability for tax) is amended by adding at the end the 
        following new sentence: ``In the case of a prohibited 
        allocation described in subsection (b)(3), such tax 
        shall be paid by the S corporation the stock in which 
        was allocated in violation of section 409(p).''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to plan years beginning after 
        December 31, 2000.
            (2) Exception for certain plans.--In the case of 
        any--
                    (A) employee stock ownership plan 
                established after July 14, 1999, or
                    (B) employee stock ownership plan 
                established on or before such date if employer 
                securities held by the plan consist of stock in 
                a corporation with respect to which an election 
                under section 1362(a) of the Internal Revenue 
                Code of 1986 is not in effect on such date,
        the amendments made by this section shall apply to plan 
        years ending after July 14, 1999.

                 TITLE XVI--COMPLIANCE WITH BUDGET ACT

SEC. 1601. COMPLIANCE WITH BUDGET ACT.

    (a) In General.--Except as provided in subsection (b), all 
provisions of, and amendments made by, this Act which are in 
effect on September 30, 2009, shall cease to apply as of the 
close of September 30, 2009.
    (b) Sunset for Certain Provisions.--The amendments made by 
sections 101, 111, 121, 201, 202, 211, 214, and 1221 of this 
Act shall not apply to any taxable year beginning after 
December 31, 2008.
    And the Senate agrees to the same.
                For consideration of the House bill, and the 
                Senate amendment, and modifications committed 
                to conference:
                                   Bill Archer.
                                   Dick Armey.
                                   Philip M. Crane.
                                   Wm. Thomas.
                As additional conferees for consideration of 
                sections 313, 315-16, 318, 325, 335, 338, 341-
                42, 344-45, 351, 362-63, 365, 369, 371, 381, 
                1261, 1305, and 1406 of the Senate amendment, 
                and modifications committed to conference:
                                   Bill Goodling.
                                   John Boehner.
                                 Managers on the Part of the House.

                                   Wm. V. Roth, Jr.
                                   Trent Lott.
                                Managers on the Part of the Senate.
       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

      The managers on the part of the House and the Senate at 
the conference on the disagreeing votes of the two Houses on 
the amendment of the Senate to the bill (H.R. 2488) to provide 
for reconciliation pursuant to sections 105 and 211 of the 
concurrent resolution on the budget for fiscal year 2000, 
submit the following joint statement to the House and the 
Senate in explanation of the effect of the action agreed upon 
by the managers and recommended in the accompanying conference 
report:
      The Senate amendment struck all of the House bill after 
the enacting clause and inserted a substitute text.
      The House recedes from its disagreement to the amendment 
of the Senate with an amendment that is a substitute for the 
House bill and the Senate amendment. The differences between 
the House bill, the Senate amendment, and the substitute agreed 
to in conference are noted below, except for clerical 
corrections, conforming changes made necessary by agreements 
reached by the conferees, and minor drafting and clerical 
changes.

                  I. BROAD-BASED AND FAMILY TAX RELIEF


  A. Reduction in Individual Income Tax Rates and Expansion of Lowest 
Individual Regular Income Tax Rate Bracket (sec. 101 of the House bill, 
  secs. 101 and 102 of the Senate amendment 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 divided 
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.

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 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 amount in excess of 
$175,000. The lower capital gains rates applicable to the 
regular tax also apply for purposes of the AMT.

                               House Bill


Individual regular tax rates

      The House bill reduces the regular income tax rates by 10 
percent over a 10-year period (2000-2009). Specifically, each 
rate is reduced by 1.0 percent for taxable years beginning in 
2001-2003, 2.5 percent for taxable years beginning in 2004, 5 
percent for taxable years beginning in 2005-2007, 7.5 percent 
for taxable years beginning in 2008, and 10 percent for taxable 
years beginning in 2009 and thereafter. The tax rates will be 
rounded up in 2001, rounded down in 2002 and 2003 and rounded 
up in 2004 and thereafter, annually to the nearest one-tenth of 
a percent. This rate reduction does not apply to the capital 
gains tax rates. However, a separate provision of the House 
bill would reduce individual capital gains rates.

Individual AMT

      The House bill reduces the individual AMT tax rates by a 
total of 10 percent over a 10-year period (2000-2009). 
Specifically, the individual AMT tax rates are reduced by 1.0 
percent for taxable years beginning in 2001-2003, 2.5 percent 
for taxable years beginning in 2004, 5 percent for taxable 
years beginning in 2005-2007, 7.5 percent for taxable years 
beginning in 2008, and 10 percent for taxable years beginning 
in 2009 and thereafter. The rates will be rounded annually to 
the nearest one-tenth of a percent, like the regular income tax 
rates.

Effective date

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

                            Senate Amendment


Individual regular income tax rates

      The Senate amendment reduces the lowest individual 
regular income tax rate from 15 percent to 14 percent. This 
rate reduction does not apply to the capital gains tax rates.
      The Senate amendment also phases in an increase in the 
size of the 14-percent rate bracket. Specifically, the 
amendment increases the size of the otherwise applicable 14-
percent rate bracket by $2,000 ($4,000 for a married couple 
filing a joint return) in 2006, and by $2,500 ($5,000 for a 
married couple filing a joint return) in 2007 and thereafter. 
The $2,500/$5,000 amounts in 2007 and thereafter are the total 
increase and are not in addition to the $2,000/$4,000 amounts 
in 2006. These amounts are indexed for inflation beginning in 
2008.

Individual AMT

      The Senate amendment does not contain a provision 
relating to AMT tax rates. A separate provision would make 
permanent the present-law provision to allow the nonrefundable 
personal credits fully against the AMT and to allow personal 
exemptions against the AMT.

Effective date

      The Senate amendment provision reducing the tax rate from 
15 percent to 14 percent is effective for taxable years 
beginning after December 31, 2000. The provision increasing the 
size of the 14-percent rate bracket is effective for taxable 
years beginning after December 31, 2005.

                          Conference Agreement


Individual regular income tax rates

      The conference agreement reduces the individual regular 
income tax rates as follows: (1) from 15 percent to 14 percent; 
(2) from 28 percent to 27 percent; (3) from 31 percent to 30 
percent; (4) from 36 percent to 35 percent; and (5) from 39.6 
percent to 38.6 percent. These rate reductions do not apply to 
the capital gains tax rates. The reduction of the 15-percent 
rate to a 14-percent rate is phased-in over three years; (1) 
14.5 percent in 2001 and 2002; and (2) 14 percent in 2003 and 
thereafter. Therefore, the 14-percent rate applies to taxable 
years beginning after December 31, 2002. The reductions in the 
other rates (both regular and AMT) are effective for taxable 
years beginning after December 31, 2004.
      The conference agreement also widens the lowest 
(currently 15 percent) regular income tax rate brackets for 
both singles and head of households by $3,000 for taxable years 
beginning after December 31, 2005. For taxable years beginning 
after December 31, 2006, the $3,000 amounts are indexed for 
inflation.

Individual AMT

      The conference agreement reduces the AMT rates as 
follows; (1) from 26 percent to 25 percent, and (2) from 28-
percent rate to 27 percent. The lower capital gains rates 
applicable to the regular tax also apply for purposes of the 
AMT.

Effective date

      The reduction of the 15-percent rate to a 14-percent rate 
is effective for taxable years beginning after December 31, 
2000. The reductions in the other rates (both regular and AMT) 
are effective for taxable years beginning after December 31, 
2004. The widening of the lowest applicable rate bracket for 
single and head of household returns is effective for taxable 
years beginning after December 31, 2005.

 B. Marriage Penalty Relief Provisions Relating to the Rate Structure 
 and Standard Deduction Amounts (sec. 111 of the House bill, secs. 201 
  and 209 of the Senate amendment and secs. 63 and 6013A 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: (1) $7,200 for married couples filing a joint return; (2) 
$6,250 for head of household returns; (3) $4,300 for single 
returns; and (4) $3,600 for married couples filing separate 
returns. Therefore in 1999, the basic standard deduction for 
joint returns is 1.674 times the basic standard deduction for 
single returns.

                               House Bill


Basic standard deduction

      The House 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 House bill provision is fully 
effective, (i.e., the basic standard deduction for a married 
couple will be twice the basic standard deduction for a 
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 House bill provision is effective 
for taxable years beginning after December 31, 2000.

Separate calculations

      No provision.

                            Senate Amendment


Basic standard deduction

      The Senate amendment 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 eight years 
beginning in 2001 by increasing the standard deduction for a 
married couple filing a joint return to: (1) 1.671 times the 
standard deduction for an unmarried individual in 2001; (2) 
1.700 times the standard deduction for an unmarried individual 
in 2002; (3) 1.727 times the standard deduction for an 
unmarried individual in 2003; (4) 1.837 times the standard 
deduction for an unmarried individual in 2004; (5) 1.951 times 
the standard deduction for an unmarried individual in 2005; (6) 
1.953 times the standard deduction for an unmarried individual 
in 2006; and (7) 1.973 times the standard deduction for an 
unmarried taxpayer in 2007. Therefore, the Senate amendment 
provision is fully effective, (i.e., the basic standard 
deduction for a married couple will be twice the basic standard 
deduction for aunmarried individual) for taxable years 
beginning after December 31, 2007. 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 Senate amendment provision is 
effective for taxable years beginning after December 31, 2000.

Separate calculations

      Under the Senate amendment, married taxpayers have the 
option to calculate separate taxable income for each spouse and 
to be taxed as two single individuals on the same return. The 
tax due is calculated by applying the tax rates for single 
individuals to the separate taxable incomes. Under the Senate 
amendment, both spouses must elect to either use a standard 
deduction or to itemize their deductions. Thus, one spouse is 
not permitted to itemize deductions while the other spouse 
claims a standard deduction. If a married couple elects to 
compute taxable income separately and claim the standard 
deduction, the applicable standard deduction for each spouse is 
the standard deduction for single individuals. Under the Senate 
amendment, once tax liability is calculated on a separate 
basis, all tax credits and payments of tax are applied as if 
the couple is filing a joint return.
      Income from the performance of services (e.g., wages, 
salaries, and pensions) are treated as the income of the spouse 
who performed the services. Income from property is divided 
between the spouses in accordance with their respective 
ownership rights in such property. Jointly owned assets are 
divided evenly.
      Deductions generally are allocated to the spouse treated 
as having the income to which the deduction relates. Special 
rules apply for certain deductions. The deduction for 
contributions to an individual retirement arrangement are 
allocated to the spouse for whom the contribution is made. The 
deduction for alimony is allocated to the spouse who has the 
liability to pay the alimony. The deduction for contributions 
to medical savings accounts is allocated to the spouse with 
respect to whose employment or self employment the account 
relates.
      Each spouse is entitled to claim one personal exemption. 
Exemptions for dependents are allocated based on each spouse's 
relative income.
      All credits are determined as if the spouses had filed a 
joint return. The credit amounts are then applied against the 
combined tax liability of the couple as calculated under this 
provision.
      For purposes of determining the alternative minimum tax 
imposed by section 55, the tentative minimum tax shall be the 
tax which would be computed as if the spouses had filed a joint 
return, and the regular tax shall be the tax liability computed 
under section 6013A.
      The Secretary of the Treasury is directed to prescribe 
such regulations as may be necessary or appropriate to carry 
out the provision.
      Effective date.--The Senate amendment provision is 
effective for taxable years beginning after December 31, 2004.

                          Conference Agreement


Basic standard deduction

      The conference agreement increases the basic standard 
deduction for a married couple filing a joint return to twice 
the basic standard deduction for an unmarried individual. This 
increase is phased-in over five years beginning in 2001 by 
increasing the standard deduction for a married couple filing a 
joint return to: (1) 1.728 times the standard deduction for an 
unmarried individual in 2001; (2) 1.801 times the standard 
deduction for an unmarried individual in 2002; (3) 1.870 times 
the standard deduction for an unmarried individual in 2003; (4) 
1.935 times the standard deduction for an unmarried individual 
in 2004; and 2.000 times the standard deduction for an 
unmarried individual in 2005. Therefore, the provision is fully 
effective, (i.e., the basic standard deduction for a married 
couple will be twice the basic standard deduction for a 
unmarried individual) for taxable years beginning after 
December 31, 2004. 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.

Width of 15-percent rate bracket for a married couple filing a joint 
        return

      The conference agreement increases the size of the lowest 
(currently, 15 percent) regular income tax rate bracket for a 
married couple filing a joint return to twice the size of the 
corresponding rate bracket for an unmarried individual. This 
increase is phased-in over four years beginning in 2005 by 
increasing the lowest regular income tax rate bracket for a 
married couple filing a joint return to: (1) 1.737 times the 
lowest regular income tax rate bracket for an unmarried 
individual in 2005; (2) 1.761 times the lowest regular income 
tax rate bracket for an unmarried individual in 2006; (3) 1.881 
times the lowest regular income tax rate bracket for an 
unmarried individual in 2007; and (4) 2.000 times the lowest 
regular income tax rate bracket for an unmarried individual in 
2008. Therefore, this provision is fully effective, (i.e., the 
size of the lowest regular income tax rate bracket for a 
married couple filing a joint return will be twice the size of 
the lowest regular income tax rate bracket for an unmarried 
individual) for taxable years beginning after December 31, 
2007.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2004.

Separate calculations

      The conference agreement does not include the Senate 
amendment provision.

 C. Marriage Penalty Relief Relating to the Earned Income Credit (sec. 
          202 of the Senate amendment and sec. 32 of the Code)


                              Present Law

      Certain eligible low-income workers are entitled to claim 
a refundable earned income credit (``EIC'') on their income tax 
return. A refundable credit is a credit that not only reduces 
an individual's tax liability but allows refunds to the 
individual in excess of income tax liability. The amount of the 
credit an eligible individual may claim depends upon whether 
the individual has one, more than one, or no qualifying 
children, and is determined by multiplying the credit rate by 
the individual's earned income up to an earned income amount. 
In the case of a married individual who files a joint return 
with his or her spouse, the income for purposes of these tests 
is the combined income of the couple. The maximum amount of the 
credit is the product of the credit rate and the earned income 
amount. The credit is phased out above certain income levels. 
For individuals with earned income (or modified AGI, if 
greater) in excess of the beginning of the phase-out range, the 
maximum credit amount is reduced by the phase-out rate 
multiplied by the earned income (or modified AGI, if greater) 
in excess of the beginning of the phase-out range. For 
individuals with earned income (or modified AGI, if greater) in 
excess of the end of the phase-out range, no credit is allowed.
      The parameters of the credit for 1999 are provided in the 
following table.

                 EARNED INCOME CREDIT PARAMETERS (1999)
------------------------------------------------------------------------
                                   Two or more      One           No
                                    qualifying   qualifying   qualifying
                                     children      child       children
------------------------------------------------------------------------
Credit rate (percent)............        40.00        34.00         7.65
Earned income amount.............       $9,540       $6,800       $4,530
Maximum credit...................       $3,816       $2,312         $347
Phase-out begins.................      $12,460      $12,460       $5,670
Phase-out rate (percent).........        21.06        15.98         7.65
Phase-out ends...................      $30,580      $26,928      $10,200
------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment increases the beginning point of the 
phase out of the EIC for married couples filing a joint return 
by $2,000. Because the rate of the phase out is not changed by 
the provision, the end-point of the phase-out ranges is also 
increased by $2,000. The effect of the increase in the 
beginning point of the phase-out is to increase the EIC for 
taxpayers in the phase-out range by an amount up to $2,000 
times the phase-out rate. For example, for couples with two or 
more qualifying children, the maximum increase in the EIC as a 
result of the proposal would be $2,000 times 21.06 percent, or 
$421.20. The provision also expands the universe of taxpayers 
eligible for the EIC. Specifically, the $2,000 increase in the 
end of the phase-out range makes taxpayers with earnings up to 
$2,000 beyond the present-law phase-out range newly eligible 
for the credit. Beginning in 2006, the $2,000 amount is indexed 
for inflation.
      Effective date.--The Senate amendment provision is 
effective for taxable years beginning after December 31, 2004.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
with a modification to the effective date. The provision is 
effective for taxable years beginning after December 31, 2005.

D. Individual Alternative Minimum Tax Provisions (sec. 121 of the House 
 bill, secs. 206 and 1134 of the Senate amendment, and secs. 26 and 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.\2\
---------------------------------------------------------------------------
        \2\ 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. \3\
---------------------------------------------------------------------------
        \3\ 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. \4\
---------------------------------------------------------------------------
        \4\ 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.

                               House Bill

      The House bill allows an individual to offset the entire 
regular tax liability (without regard to the minimum tax) by 
the personal nonrefundable credits, and also repeals the 
provision reducing the refundable child credit by the AMT.
      The House bill phases out the individual AMT. For taxable 
years beginning in 2005, only 80 percent of the full AMT 
liability will be imposed. That percentage will be reduced to 
70 percent in 2006, 60 percent in 2007, 50 percent in 2008, and 
the AMT will be fully repealed for taxable years beginning 
after 2008.
      Under the House bill, 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).
      Effective date.--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, 2004. The repeal 
of the AMT and the provision relating to the use of AMT credits 
apply to taxable years beginning after December 31, 2008.

                            Senate Amendment

      The Senate amendment follows the House bill in the 
treatment of personal credits under the AMT.
      The Senate amendment allows the personal exemption in 
computing AMT (except for $300 per exemption).
      Effective date.--The provisions relating to the personal 
credits are effective for taxable years beginning after 
December 31, 1998. The provision relating to the personal 
exemption applies to taxable years beginning after December 31, 
2005.

                          Conference Agreement

      The conference agreement follows the House bill, except 
that the AMT is repealed for taxable years beginning after 
December 31, 2007.

 E. Expand the Exclusion from Income for Certain Foster Care Payments 
(sec. 1301 of the House bill sec. 203 of the Senate amendment and sec. 
                            131 of the Code)


                              Present Law

      Generally, a foster care provider may exclude qualified 
foster care payments, (including difficulty of care payments) 
from gross income if certain requirements are satisfied.\5\ 
First, such payments must be paid to the foster care providers 
by either (1) a State or political subdivision of a State; or 
(2) a tax-exempt placement agency. Second, the payments, 
including difficulty of care payments, must be paid to the 
foster care provider for the care of a ``qualified foster 
individual'' in the foster care provider's home. A qualified 
foster individual is an individual living in a foster care 
family home in which the individual was placed by: (1) an 
agency of the State or a political subdivision of a State; or 
(2) a tax-exempt placement agency if such individual was under 
the age of 19 at the time of placement. Third, the exclusion of 
foster care payments generally applies to qualified foster care 
payments for five or fewer foster care individuals over the age 
of 19 in a foster home. In the case of difficulty of care 
payments, the exclusion applies to payments for ten or fewer 
foster care individuals under the age of 19 in a foster home 
and to payments for five or fewer foster care individuals at 
least age 19 in a foster home.
---------------------------------------------------------------------------
        \5\ A difficulty of care payment is a payment designated by the 
person making such payment as compensation for providing the additional 
care of a qualified foster care individual which is required by reason 
of a physical, mental, or emotional handicap of such individual and 
with respect to which the State has determined that there is a need for 
additional compensation.
---------------------------------------------------------------------------

                               House Bill

      The House bill makes two principal modifications to the 
exclusion for qualified foster care payments. First, the House 
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. For these 
purposes, a qualified foster care placement agency is defined 
as any placement agency which is licensed or certified by: (1) 
a State or political subdivision of a State; or (2) an entity 
designated by a State or political subdivision thereof, for the 
foster care program of such State or political subdivision to 
make payments to providers of foster care.
      The House 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).
      Effective date.--The House bill provision is effective 
for taxable years beginning after December 31, 1999.

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

   F. Increase and Expand the Dependent Care Credit (sec. 204 of the 
               Senate amendment and sec. 21 of the Code)


                              Present Law


In general

      A taxpayer who maintains a household which includes one 
or more qualifying individuals may claim a nonrefundable credit 
against income tax liability for up to 30 percent of a limited 
amount of employment-related dependent care expenses. Eligible 
employment-related expenses are limited to $2,400 if there is 
one qualifying individual or $4,800 if there are two or more 
qualifying individuals. Generally, a qualifying individual is a 
dependent under the age of 13 or a physically or mentally 
incapacitated dependent or spouse. No credit is allowed for any 
qualifying individual unless a valid taxpayer identification 
number (``TIN'') has been provided for that individual. A 
taxpayer is treated as maintaining a household for a period if 
the taxpayer (or the taxpayer's spouse, if married) provides 
more than one-half the cost of maintaining the household for 
that period. In the case of married taxpayers, the credit is 
not available unless they file a joint return.
      Employment-related dependent care expenses are expenses 
for the care of a qualifying individual incurred to enable the 
taxpayer to be gainfully employed, other than expenses incurred 
for an overnight camp. For example, amounts paid for the 
services of a housekeeper generally qualify if such services 
are performed at least partly for the benefit of a qualifying 
individual; amounts paid for a chauffeur or gardener do not 
qualify.
      Expenses that may be taken into account in computing the 
credit generally may not exceed an individual's earned income 
or, in the case of married taxpayers, the earned income of the 
spouse with the lesser earnings. Thus, if one spouse has no 
earned income, generally no credit is allowed.
      The 30-percent credit rate is reduced, but not below 20 
percent, by 1 percentage point for each $2,000 (or fraction 
thereof) of adjusted gross income (``AGI'') above $10,000.

Interaction with employer-provided dependent care assistance

      For purposes of the dependent care credit, the maximum 
amounts of employment-related expenses ($2,400/$4,800) are 
reduced to the extent that the taxpayer has received employer-
provided dependent care assistance that is excludable from 
gross income (sec. 129). The exclusion for dependent care 
assistance is limited to $5,000 per year and does not vary with 
the number of children.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment makes three changes to the dependent 
care tax credit. First, the maximum credit percentage is 
increased from 30 percent to 40 percent for taxpayers with AGI 
of $30,000 or less. The 40-percent credit rate is phased-down 
by one percentage point for each $1,000 of AGI, or fraction 
thereof, between $30,001 and $49,000. The credit percentage is 
20 percent for taxpayers with AGI of $49,001 or greater. 
Second, beginning in 2001, the maximum amount of eligible 
employment-related expenses ($2,400/$4,800) is indexed for 
inflation. Finally, the Senate amendment extends up to $960 of 
additional credit ($1,920 for two or more qualifying 
dependents) to taxpayers with qualifying dependents under the 
age of one. This additional credit, computed as the applicable 
credit rate times $200 of deemed expenses per month ($400 of 
deemed expenses per month for two or more qualifying 
dependents), is available regardless of whether the taxpayer 
actually incurred any out-of-pocket child care expenses.
      The present-law reduction of the dependent care credit 
for employer-provided dependent care assistance is not changed.
      Effective date.--The Senate amendment provision is 
effective for taxable years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
with two modifications to the effective date. First, the 
maximum credit percentage will be 35 percent for taxable years 
beginning in 2001 through 2005, and 40 percent for taxable 
years beginning after 2005. Second, the extension of the credit 
to taxpayers with qualifying dependents under the age of one 
will be effective for taxable years beginning after 2005.
      The present-law reduction of the dependent care credit 
for employer-provided dependent care assistance is not changed.

G. Tax Credit for Employer-Provided Child Care Facilities (sec. 205 of 
           the Senate amendment and new sec. 45D of the Code)


                              Present Law

      Generally, present law does not provide a tax credit to 
employers for supporting child care or child care resource and 
referral services.\6\ An employer, however, may be able to 
claim such expenses as deductions for ordinary and necessary 
business expenses. Alternatively, the employer may be required 
to capitalize the expenses and claim depreciation deductions 
over time.
---------------------------------------------------------------------------
        \6\ An employer may claim the welfare-to-work tax credit on the 
eligible wages of certain long-term family assistance recipients. For 
purposes of the welfare-to-work credit, eligible wages includes amounts 
paid by the employer for dependent care assistance.
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment


Employer tax credit for supporting employee child care

      Under the Senate amendment, taxpayers receive a tax 
credit equal to 25 percent of qualified expenses for employee 
child care. These expenses include costs incurred: (1) to 
acquire, construct, rehabilitate or expand property that is to 
be used as part of the taxpayer's qualified child care 
facility; (2) for the operation of the taxpayer's qualified 
child care facility, including the costs of training and 
continuing education for employees of the child care facility; 
or (3) under a contract with a qualified child care facility to 
provide child care services to employees of the taxpayer. To be 
a qualified child care facility, the principal use of the 
facility must be for child care, and the facility must be duly 
licensed by the State agency with jurisdiction over its 
operations. Also, if the facility is owned or operated by the 
taxpayer, at least 30 percent of the children enrolled in the 
center (based on an annual average or the enrollment measured 
at the beginning of each month) must be children of the 
taxpayer's employees. If a taxpayer opens a new facility, it 
must meet the 30-percent employee enrollment requirement within 
two years of commencing operations. If a new facility failed to 
meet this requirement, the credit would be subject to 
recapture.
      To qualify for the credit, the taxpayer must offer child 
care services, either at its own facility or through third 
parties, on a basis that does not discriminate in favor of 
highly compensated employees.

Employer tax credit for child care resource and referral services

      Under the Senate amendment, a taxpayer is entitled to a 
tax credit equal to 10 percent of expenses incurred to provide 
employees with child care resource and referral services.

Other rules

      The maximum total credit that may be claimed by a 
taxpayer under the Senate amendment can not exceed $150,000 per 
year. Any amounts for which the taxpayer may otherwise claim a 
tax deduction are reduced by the amount of these credits. 
Similarly, if the credits are taken for expenses of acquiring, 
constructing, rehabilitating, or expanding a facility, the 
taxpayer's basis in the facility is reduced by the amount of 
the credits.

Effective date

      The credits are effective for taxable years beginning 
after December 31, 2000.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

H. Extension and Expansion of the Adoption Tax Credit (sec. 210 of the 
               Senate amendment and sec. 23 of the Code)


                              Present Law

      Taxpayers are entitled to a maximum nonrefundable credit 
against income tax liability of $5,000 per child for qualified 
adoption expenses paid or incurred by the taxpayer (sec. 23). 
In the case of a special needs adoption, the maximum credit 
amount is $6,000 ($5,000 in the case of a foreign special needs 
adoption). A special needs child is a child who the State has 
determined: (1) cannot or should not be returned to the home of 
the birth parents, and (2) has a specific factor or condition 
because of which the child cannot be placed with adoptive 
parents without adoption assistance. The adoption of a child 
who is not a citizen or a resident of the United States is a 
foreign adoption.
      Qualified adoption expenses are reasonable and necessary 
adoption fees, court costs, attorneys' fees, and other expenses 
that are directly related to the legal adoption of an eligible 
child. All reasonable and necessary expenses required by a 
State as a condition of adoption are qualified adoption 
expenses. Otherwise qualified adoption expenses paid or 
incurred in one taxable year are not taken into account for 
purposes of the credit until the next taxable year unless the 
expenses are paid or incurred in the year the adoption becomes 
final.
      An eligible child is an individual (1) who has not 
attained age 18 or (2) who is physically or mentally incapable 
of caring for himself or herself. After December 31, 2001, the 
credit will be available only for domestic special needs 
adoptions. No credit is allowed for expenses incurred (1) in 
violation of State or Federal law, (2) in carrying out any 
surrogate parenting arrangement, (3) in connection with the 
adoption of a child of the taxpayer's spouse, (4) that are 
reimbursed under an employer adoption assistance program or 
otherwise, or (5) for a foreign adoption that is not finalized.
      The credit is phased out ratably for taxpayers with 
modified AGI above $75,000, and is fully phased out at $115,000 
of modified AGI. For these purposes modified AGI is computed by 
increasing the taxpayer's AGI by the amount otherwise excluded 
from gross income under Code sections 911, 931, or 933.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment makes three changes to the adoption 
credit. First, it provides that the maximum credit for domestic 
special needs adoptions is increased to $10,000 from $6,000. 
Second, taxpayers making a domestic special needs adoption are 
deemed to have paid or incurred $10,000 of qualified expenses 
in all cases. Third, the sunset for non-special needs adoptions 
is repealed.
      Effective date.--The Senate amendment provision is 
effective for taxable years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement makes two changes to the 
adoption credit. First, it provides that the maximum credit for 
special needs adoptions is increased to $10,000 from $6,000. 
Second, taxpayers making a special needs adoption are deemed to 
have paid or incurred $10,000 of qualified expenses in all 
cases. The conference agreement does not change the present-law 
sunset of the adoption credit for non-special needs adoptions.
      Effective date.--The conference agreement provision is 
effective for taxable years beginning after December 31, 2000.

            II. SAVINGS AND INVESTMENT TAX RELIEF PROVISIONS


A. Partial Exclusion for Interest and Dividends (sec. 201 of the House 
                   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.

                               House Bill

      The House 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.\7\ This exclusion is phased-in over five years. The 
maximum exclusion from income is $50 of combined interest and 
dividends ($100 for married couples filing a joint return) for 
taxable years beginning in 2001 and 2002. The maximum exclusion 
from income is $100 of combined interest and dividends ($200 
for married couples filing a joint return) for taxable years 
beginning in 2003 and 2004. 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, 2004. The amount of the combined interest and 
dividends excluded under the House bill 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).
---------------------------------------------------------------------------
        \7\ 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 the House bill 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 the House bill 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 the House bill does not affect the computation of 
the foreign tax credit.
      The exclusion under the House bill 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 IRS is encouraged 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 House bill provision is effective 
for taxable years beginning after December 31, 2000.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the House bill 
provision.

 B. Individual Capital Gains (sec. 202 of the House bill, sec. 207 of 
       the Senate amendment, and secs. 1(h) and 1022 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. In determining gain or loss, no adjustment 
is allowed for inflation.
      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''),\8\ the 
net short-term capital loss for the taxable year, and any long-
term capital loss carryover to the taxable year.
---------------------------------------------------------------------------
        \8\ 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.

                               House Bill

      The House 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.\9\
---------------------------------------------------------------------------
        \9\ 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 bill 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.

                            Senate Amendment

      The Senate amendment allows an individual a deduction for 
up to $1,000 of net capital gain. Collectible gain and loss is 
taxed as short-term capital gain or loss.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2005.

                          Conference Agreement


Rates

      The conference agreement follows the House bill, except 
that the rates on adjusted net capital gain are reduced to 8 
and 18 percent respectively, and the rate on unrecaptured 
section 1250 gain is reduced to 23 percent.
      Effective date.--The reduced rates apply to taxable years 
beginning after December 31, 1998.

Indexing

      The conference agreement also generally provides for an 
inflation adjustment to (i.e., indexing of) the adjusted basis 
of certain assets (called ``indexed assets'') held more than 
one year for purposes of determining gain (but not loss) upon a 
sale or other disposition of such assets by a taxpayer other 
than a C corporation. Assets held by trusts, estates, S 
corporations, regulated investment companies (``RICs''), real 
estate investment trusts (``REITs''), and partnerships are 
eligible for indexing, to the extent gain on such assets is 
taken into account by taxpayers other than C corporations.
      Assets eligible for the inflation adjustment generally 
include common (but not preferred) stock of C corporations and 
tangible property that are capital assets or property used in a 
trade or business. A personal residence does not qualify for 
indexing.
      The inflation adjustment under the provision would be 
computed by multiplying the taxpayer's adjusted basis in the 
indexed asset by an inflation adjustment percentage. The 
inflation adjustment percentage would be the percentage by 
which the GDP deflator for the last calendar quarter ending 
before the disposition exceeds the GDP deflator for the last 
calendar quarter ending before the asset was acquired by the 
taxpayer. The inflation adjustment percentage will be rounded 
to the nearest one-tenth of a percent. No adjustment will be 
made if the inflation adjustment is one or less.
      In the case of a RIC or a REIT, the indexing adjustments 
generally apply in computing the taxable income and the 
earnings and profits of the RIC or REIT. The indexing 
adjustments, however, are not applicable in determining whether 
a corporation qualifies as a RIC or REIT.
      In the case of shares held in a RIC or REIT, partial 
indexing generally is provided by the provision based on the 
ratio of the value of indexed assets held by the entity to the 
value of all its assets. The ratio of indexed assets to total 
assets will be determined quarterly (for RICs, the quarterly 
ratio would be based on a three-month average). If the ratio of 
indexed assets to total assets exceeds 80 percent in any 
quarter, full indexing of the shares will be allowed for that 
quarter. If less than 20 percent of the assets are indexed 
assets in any quarter, no indexing will be allowed for that 
quarter for the shares. Partnership interests held by a RIC or 
REIT will be subject to a look-through test for purposes of 
determining whether, and to what degree, the shares in the RIC 
or REIT are indexed.
      A return of capital distribution by a RIC or REIT 
generally will be treated by a shareholder as allocable to 
stock acquired by the shareholder in the order in which the 
stock was acquired.
      Stock in an S corporation or an interest in a partnership 
or common trust fund is not an indexed asset. Under the 
provision, the individual owner receives the benefit of the 
indexing adjustment when the S corporation, partnership, or 
common trust fund disposes of indexed assets. Under the 
provision, any inflation adjustments at the entity level flows 
through to the holders and result in a corresponding increase 
in the basis of the holder's interest in the entity. Where a 
partnership has a section 754 election in effect, a partner 
transferring his interest in the partnership is entitled to any 
indexing adjustment that has accrued at the partnership level 
with respect to the partner and the transferee partner is 
entitled to the benefits of indexing for inflation occurring 
after the transfer.
      The indexing adjustment is disregarded in determining any 
loss on the sale of an interest in a partnership, S corporation 
or common trust fund.
      Common stock of a foreign corporation generally is an 
indexed asset if the stock is regularly traded on an 
established securities market. Indexed assets, however, do not 
include stock in a foreign investment company, a passive 
foreign investment company (including a qualified electing 
fund), a foreign personal holding company, or, in the hands of 
a shareholder who meets the requirements of section 1248(a)(2) 
(generally pertaining to 10-percent shareholders of controlled 
foreign corporations), any other foreign corporation. An 
American Depository Receipt (ADR) for common stock in a foreign 
corporation is treated as common stock in the foreign 
corporation and, therefore, the basis in an ADR for common 
stock generallywill be indexed.
      No indexing is provided for improvements or contributions 
to capital if the aggregate amount of the improvements or 
contributions to capital during the taxable year with respect 
to the property or stock is less than $1,000. If the aggregate 
amount of such improvements or contributions to capital is 
$1,000 or more, each addition is treated as a separate asset 
acquired at the close of the taxable year.
      No indexing adjustment is allowed during any period 
during which there is a substantial diminution of the 
taxpayer's risk of loss from holding the indexed asset by 
reason of any transaction entered into by the taxpayer, or a 
related party.
      In the case of a short sale of an indexed asset with a 
short sale period in excess of one year, the proposal requires 
that the amount realized be indexed for inflation for the short 
sale period.
      The provision does not index the basis of property for 
sales or dispositions between related persons, except to the 
extent the adjusted basis of property in the hands of the 
transferee is a substituted basis (e.g., gifts).
      Under the provision, indexing reduces the amount of 
ordinary gain that would be recognized in cases where a 
corporation is treated as a collapsible corporation (under sec. 
341) with respect to a distribution or sale of stock.
      Effective date.--The indexing provision applies to assets 
the holding period for which begins after December 31, 1999. An 
individual holding an indexed asset on January 1, 2000, may 
elect to treat the indexed asset as having been sold on such 
date for its fair market value, and having been reacquired for 
that value. If an election is made, any gain is recognized (and 
any loss disallowed).

   C. Apply Capital Gain Rates to Capital Gains Earned by Designated 
Settlement Funds (sec. 203 of the House 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).

                               House Bill

      Under the House 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.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

 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 House 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.

                               House Bill

      Under the House 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 House 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 House bill provision is effective 
for sales or exchanges of principal residences after the date 
of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

E. Clarify the Tax Treatment of Income and Losses on Derivatives (sec. 
205 of the House bill, sec. 1306 of the Senate amendment, 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, (4) certain copyrights 
(or similar property), and (5) 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).
      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).

                               House Bill

      The House 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. In defining a hedging transaction, the House 
bill 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).
      Effective date.--The house bill 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.

                            Senate Amendment

      The Senate amendment generally follows the House bill 
except that the Senate amendment makes one modification to the 
definition of a hedging transaction. In addition to managing 
certain risks with respect to ordinary property held (or to be 
held) or certain liabilities incurred (or to be incurred), the 
Senate amendment provides that the definition of a hedging 
transaction includes a transaction entered into primarily to 
manage such other risks as the Secretary may prescribe in 
regulations.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

F. Treatment of Loss on Worthless Stock of Subsidiary (sec. 206 of the 
               House 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)).

                               House Bill

      Under the House 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.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

G. Individual Retirement Arrangements (``IRAs'') (sec. 113 of the House 
 bill, secs. 301-303, 305, and 321 of the Senate amendment, and secs. 
                    219, 408, and 408A of the Code)


                              Present Law


In general

      There are two general types of individual retirement 
arrangements (``IRAs'') under present law: traditional IRAs, to 
which both deductible and nondeductible contributions may be 
made, and Roth IRAs. The Federal income tax rules regarding 
each type of IRA (and IRA contribution) differ.

Traditional IRAs

      Under present law, an individual may make deductible 
contributions to an IRA up to the lesser of $2,000 or the 
individual's compensation if neither the individual nor the 
individual's spouse is an active participant in an employer-
sponsored retirement plan. In the case of a married couple, 
deductible IRA contributions of up to $2,000 can be made for 
each spouse (including, for example, a homemaker who does not 
work outside the home), if the combined compensation of both 
spouses is at least equal to the contributed amount. If the 
individual (or the individual's spouse) is an active 
participant in an employer-sponsored retirement plan, the 
$2,000 deduction limit is phased out for taxpayers with 
adjusted gross income (``AGI'') over certain levels for the 
taxable year.
      The AGI phase-out limits for taxpayers who are active 
participants in employer-sponsored plans are as follows.

Single Taxpayers

        Taxable years beginning in:                      Phase-out range
1998....................................................  $30,000-40,000
1999....................................................   31,000-41,000
2000....................................................   32,000-42,000
2001....................................................   33,000-43,000
2002....................................................   34,000-44,000
2003....................................................   40,000-50,000
2004....................................................   45,000-55,000
2005 and thereafter.....................................   50,000-60,000

Joint Returns

        Taxable years beginning in:                      Phase-out range
1998....................................................  $50,000-60,000
1999....................................................   51,000-61,000
2000....................................................   52,000-62,000
2001....................................................   53,000-63,000
2002....................................................   54,000-64,000
2003....................................................   60,000-70,000
2004....................................................   65,000-75,000
2005....................................................   70,000-80,000
2006....................................................   75,000-85,000
2007 and thereafter.....................................  80,000-100,000

      If the individual is not an active participant in an 
employer-sponsored retirement plan, but the individual's spouse 
is, the $2,000 deduction limit is phased out for taxpayers with 
AGI between $150,000 and $160,000.
      To the extent an individual cannot or does not make 
deductible contributions to an IRA or contributions to a Roth 
IRA, the individual may make nondeductible contributions to a 
traditional IRA.
      Amounts held in a traditional IRA are includible in 
income when withdrawn (except to the extent the withdrawal is a 
return of nondeductible contributions). Includible amounts 
withdrawn prior to attainment of age 59\1/2\ are subject to an 
additional 10-percent early withdrawal tax, unless the 
withdrawal is due to death or disability, is made in the form 
of certain periodic payments, is used to pay medical expenses 
in excess of 7.5 percent of AGI, is used to purchase health 
insurance of an unemployed individual, is used for education 
expenses, or is used for first-time homebuyer expenses of up to 
$10,000.

Roth IRAs

      Individuals with AGI below certain levels may make 
nondeductible contributions to a Roth IRA. The maximum annual 
contribution that may be made to a Roth IRA is the lesser of 
$2,000 or the individual's compensation for the year. The 
contribution limit is reduced to the extent an individual makes 
contributions to any other IRA for the same taxable year. As 
under the rules relating to IRAs generally, a contribution of 
up to $2,000 for each spouse may be made to a Roth IRA provided 
the combined compensation of the spouses is at least equal to 
the contributed amount. The maximum annual contribution that 
can be made to a Roth IRA is phased out for single individuals 
with AGI between $95,000 and $110,000 and for joint filers with 
AGI between $150,000 and $160,000.
      Taxpayers with modified AGI of $100,000 or less generally 
may convert a traditional IRA into an Roth IRA. The amount 
converted is includible in income as if a withdrawal had been 
made, except that the 10-percent early withdrawal tax does not 
apply and, if the conversion occurred in 1998, the income 
inclusion may be spread ratably over 4 years. Married taxpayers 
who file separate returns cannot convert a traditional IRA into 
a Roth IRA.
      Amounts held in a Roth IRA that are withdrawn as a 
qualified distribution are not includible in income, nor 
subject to the additional 10-percent tax on early withdrawals. 
A qualified distribution is a distribution that (1) is made 
after the 5-taxable year period beginning with the first 
taxable year for which the individual made a contribution to a 
Roth IRA, and (2) which is made after attainment of age 59\1/
2\, on account of death or disability, or is made for first-
time homebuyer expenses of up to $10,000.
      Distributions from a Roth IRA that are not qualified 
distributions are includible in income to the extent 
attributable to earnings, and subject to the 10-percent early 
withdrawal tax (unless an exception applies).\10\ The same 
exceptions to the early withdrawal tax that apply to IRAs apply 
to Roth IRAs.
---------------------------------------------------------------------------
        \10\ Early distribution of converted amounts may also 
accelerate income inclusion of converted amounts that are taxable under 
the 4-year rule applicable to 1998 conversions.
---------------------------------------------------------------------------

IRA investments

      In general, IRAs may not invest in collectibles. Under 
one exception to this rule, IRAs may invest in certain gold, 
silver, and platinum coins and coins issued under the laws of 
any State.

                               House Bill

      The House bill increases the AGI limit on conversions of 
traditional IRAs to Roth IRAs to $160,000 for joint filers.
      Effective date.--The House bill is effective for years 
beginning after December 31, 1999.

                            Senate Amendment


Increase in annual contribution limits

      The Senate amendment provision increases the maximum 
annual dollar contribution limit for IRA contributions in 
$1,000 annual increments, beginning in 2001, until the limit 
reaches $5,000 in 2003. Thereafter, the limit is indexed for 
inflation in $100 increments.

Additional catch-up contributions

      The Senate amendment increases the IRA maximum 
contribution limit for individuals who have attained age 50 
before the end of the taxable year. The otherwise maximum 
dollar contribution limit (before application of the AGI phase-
out limits) for such an individual is increased by the 
applicable percentage. The applicable percentage is 10 percent 
in 2001, and increases by 10 percentage points until the 
applicable percent is 50 in 2005 and thereafter.

Increase in AGI limits for deductible IRA contributions

      Under the Senate amendment provision, the AGI phase-out 
limits for active participants in an employer-sponsored plan is 
increased by $2,000 ($4,000 in the case of married taxpayers 
filing a joint return) in 2008 and by $2,500 ($5,000 in the 
case of married taxpayers filing a joint return) in 2009. Thus, 
the phase-out limits are as follows for taxable years beginning 
in 2008-2009.

Single Returns

        Taxable years beginning in:                      Phase-out range
2008....................................................  $52,000-62,000
2009....................................................   54,500-64,500

Joint Returns

        Taxable years beginning in:                      Phase-out range
2008.................................................... $84,000-104,000
2009....................................................  89,000-109,000

      The present-law income phase-out range for an individual 
who is not an active participant, but whose spouse is, remains 
at $150,000 to $160,000.

AGI limits for Roth IRAs

      The provision repeals the Roth IRA contribution AGI 
phase-out limits. The provision also increases the AGI limit on 
conversions of traditional IRAs to Roth IRAs to $1 million 
($500,000 in the case of a married taxpayer filing a separate 
return).

IRA investments in coins

      The provision allows IRAs to invest in any coin certified 
by a recognized grading service and traded on a nationally 
recognized electronic network, or listed by a recognized 
wholesale reporting service and which (1) is or was at any time 
legal tender in the United States, or (2) issued under the laws 
of any State. Such coins must be in the physical possession of 
the IRA trustee or custodian.

Deemed IRAs under employer plans

      If a qualified retirement plan or a section 403(b) 
annuity permits employees to make voluntary employee 
contributions to a separate account or annuity that (1) is 
established under the qualified plan or section 403(b) annuity, 
and (2) meets the requirements applicable to either traditional 
IRAs (sec. 408) or Roth IRAs (sec. 408A), the separate account 
or annuity will be deemed a traditional IRA or a Roth IRA, as 
applicable. The deemed IRA, and contributions thereto, will not 
be subject to the Code rules pertaining to qualified plans or 
section 403(b) annuities, as applicable. In addition, the 
deemed IRA, and contributions thereto, will not be taken into 
account in applying these rules to any other contributions 
under the qualified plan or section 403(b) annuity. The deemed 
IRA, and contributions thereto, will be subject to the 
exclusive benefit and fiduciary rules of ERISA, but will not be 
subject to the ERISA reporting and disclosure, participation, 
vesting, funding, and enforcement requirements that apply to 
pension plans.

Effective date

      The Senate amendment provision generally is effective for 
taxable years beginning after December 31, 2000. The increase 
in the AGI limits for deductible IRA contributions is effective 
for taxable years beginning after December 31, 2007. The 
provision increasing the AGI limit for conversions to Roth IRAs 
is effective for taxable years beginning after December 31, 
2002. The provision relating to IRA investment in coins is 
effective for taxable years beginning after December 31, 1999. 
The provision relating to deemed IRAs is effective for plan 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with modifications.

Increase in annual contribution limits

      Under the conference agreement, the maximum IRA 
contribution limit is increased from $2,000 as follows: $3,000 
in 2001-2003; $4,000 in 2004-2005; $5,000 in 2006-2008, with 
indexing thereafter.

Additional catch-up contributions

      The conference agreement follows the Senate amendment.

Increase in AGI limits for deductible IRA contributions

      The conference agreement does not include the Senate 
amendment.

AGI limits for Roth IRAs

      The conference agreement increases the AGI phase-out 
limits for Roth IRAs to $200,000-$210,000 for joint filers and 
to $100,000-$110,000 for all other filers.
      The conference agreement increases the Roth IRA AGI 
conversion limit to $200,000 for joint filers ($100,000 for all 
other filers).

IRA investments in coins

      The conference agreement does not include the Senate 
amendment.

Deemed IRAs under employer plans

      The conference agreement follows the Senate amendment.

Effective date

      The conference agreement generally is effective for years 
beginning after December 31, 2000. The provisions increasing 
the AGI phase-out limits for Roth IRAs and the Roth IRA AGI 
conversion limit are effective for years beginning after 
December 31, 2002.

H. Creation of Individual Development Accounts (sec. 304 of the Senate 
               amendment, and new sec. 530A of the Code)


Present Law

      There are no tax benefits to encourage financial 
institutions to match savings of low-income individuals.

House Bill

      No provision.

                            Senate Amendment


In general

      The Senate amendment creates individual development 
accounts (``IDAs'') to which eligible individuals can 
contribute. In addition, the Senate amendment provides a tax 
credit for certain matching contributions made to an IDA by the 
financial institution maintaining the IDA. Eligible individuals 
are individuals who are: (1) at least 18 years of age; (2) a 
citizen or legal resident of the United States; and (3) a 
member of a household eligible for the earned income credit, 
Temporary Assistance for Needy Families (``TANF''), or with 
family gross income of 60 percent or less of area median gross 
income and net worth of $10,000 or less.

Contributions to an IDA by eligible individuals

      Only eligible individuals are allowed to contribute to an 
IDA. Contributions to IDAs by individuals are not deductible, 
and earnings on such contributions are includible in income. 
The maximum contribution that can be made to an IDA for a 
taxable year is the lesser of (1) $350 or (2) the individual's 
taxable compensation for the year. A special rule would allow 
contributions of up to $350 for each spouse in a married couple 
if the total compensation of the spouses is at least equal to 
the amount contributed.

Matching contributions

      The Senate amendment provides a tax credit to financial 
institutions that make matching contributions to IDAs of 
individuals.\11\ The tax credit equals 85 percent of matching 
contributions, rounded up to the nearest $10, up to a maximum 
annual credit of $300 per eligible individual. The credit is 
available in each year that a matching contribution is made.
---------------------------------------------------------------------------
        \11\ Matching contributions (and earnings) are accounted for 
separately from individual IDA contributions (and earnings).
---------------------------------------------------------------------------
      Matching contributions (and earnings thereon) are not 
includible in the gross income of the eligible individual.
      If an individual withdraws his or her own IDA 
contributions (or earnings thereon) for a purpose other than a 
qualified purpose, the matching contribution attributable to 
such individual contribution is forfeited.\12\ Matching 
contributions may be withdrawn only in a qualified purpose 
distribution.
---------------------------------------------------------------------------
        \12\ The financial institution is to use forfeited amounts to 
make other matching contributions. No credit is provided with respect 
to such reallocated contributions.
---------------------------------------------------------------------------
    A qualified purpose distribution is a distribution (1) that 
is made after the individual has completed an economic literacy 
course, (2) that is made by the financial institution directly 
to the person to whom the funds are to (or to another IDA) and 
(3) is used for (a) certain educational expenses, (b) first-
time homebuyer expenses, and (c) business start-up expenses.

Effect on means-tested programs

      Any amounts in the IDA are not to be taken into account 
for certain Federal means-tested programs.

Effective date

      The provision is effective for contributions to IDAs and 
matching contributions made with respect to such IDAs after 
December 31, 2000, and before January 1, 2006.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

          III. BUSINESS INVESTMENT AND JOB CERTAIN PROVISIONS


 A. Alternative Tax for Corporate Capital Gains (sec. 301 of the House 
                    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.

                               House Bill

      Under the House bill, an alternative tax rate of 30 
percent applies to the net capital gain of a corporation if 
that tax is lower than the corporation's regular tax.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 2004.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not contain the provision 
in the House bill.

 B. Corporate Alternative Minimum Tax (sec. 302(a) of the House bill, 
   sec. 1103 of the Senate amendment and secs. 53 and 56 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 that 
$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.

                               House Bill

      For taxable years beginning in 2005, 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, 40 and 50 percent, 
respectively, for 2006, 2007 and 2008. 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 2008, 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 dates.--The provision allowing the AMT credit 
to be offset a portion of the minimum tax applies to taxable 
years beginning after December 31, 2004.
      The provision repealing the AMT applies to taxable years 
beginning after December 31, 2008.

                            Senate Amendment

      The Senate amendment allows a corporation with long-term 
AMT credits to use the AMT credit to offset a portion of its 
tentative minimum tax. The portion so allowed is the least of: 
(1) the amount of the corporation's long-term minimum tax 
credit; (2) 50 percent of the corporation's tentative minimum 
tax; or (3) the amount by which the corporation's tentative 
minimum tax exceeds its regular tax for the taxable year.
      Under the amendment, an AMT credit is a long-term minimum 
tax credit if the credit is attributable to the adjusted net 
minimum tax of the corporation for a taxable year that began 
after 1986 and ended before the fifth taxable year immediately 
preceding the taxable year for which the determination is being 
made.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 2003.

                          Conference Agreement

      The conference agreement allows a corporation to increase 
the use of minimum tax credits to the extent of the lesser of 
50 percent of the tentative minimum tax for the taxable year or 
the excess (if any) of the tentative minimum tax over the 
regular tax for the taxable year.
      The conference agreement also allows a corporation to use 
AMT net operating loss deductions to offset 100 percent (rather 
than 90 percent) of the AMTI.
      Effective dates.--The credit provision applies to taxable 
years beginning after December 31, 2004. The net operating 
deduction provision applies to taxable years beginning after 
December 31, 2001.

C. Repeal of Limitation of Foreign Tax Credit Under Alternative Minimum 
 Tax (sec. 302(b) of the House bill, sec. 907 of the Senate amendment, 
                        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.\13\ 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)).
---------------------------------------------------------------------------
        \13\ 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.
---------------------------------------------------------------------------
    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 from 
foreign sources, 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).

                               House Bill

      The House 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.

                           Senate Amendment 

      The Senate amendment is the same as the House bill, with 
a modification to the effective date.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2004.

                          Conference Agreement

      The conference agreement follows the House bill.

                  IV. EDUCATION TAX RELIEF PROVISIONS


  A. Student Loan Interest Deduction (secs. 112 and 406 of the House 
   bill, sec. 401 of the Senate amendment, 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.\14\ The deduction is phased out ratably for 
individual taxpayers with modified adjusted gross income 
(``AGI'') of $40,000-$55,000 and $60,000-$75,000 for joint 
returns. The income ranges will be indexed for inflation after 
2002.
---------------------------------------------------------------------------
        \14\ The maximum allowable deduction for 1998 was $1,000.
---------------------------------------------------------------------------

                              House Bill 

      The House 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. The House bill also 
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 House bill generally is effective 
for taxable years beginning after December 31, 1999. The House 
bill provision repealing the 60-month limit on deductible 
student loan interest is effective for interest paid on 
qualified education loans after December 31, 1999.

                           Senate Amendment 

      The Senate amendment is the same as the House bill, 
except that it increases the beginning point of the income 
phaseout for the student loan interest deduction for individual 
taxpayers from $40,000 to $50,000 and does not double the 
phaseout range for joint filers. Like the House bill, the 
Senate amendment increases the beginning point of the income 
phaseout for taxpayers filing joint returns to twice the 
beginning point of the income phaseouts applicable to single 
taxpayers.
      Effective date.--The Senate amendment generally is 
effective generally for taxable years ending after December 31, 
1999. The Senate amendment provision repealing the 60-month 
limit on deductible student loan interest is effective for 
interest paid on qualified education loans after December 31, 
1999, in taxable years ending after such date.

                         Conference Agreement 

      The conference agreement follows the Senate amendment, 
with the modification that the beginning point of the income 
phaseout for individual taxpayers is $45,000. Thus, beginning 
in 2000, the deduction will be phased out ratably for 
individual taxpayers with modified AGI of $45,000 to $60,000 
and for taxpayers filing joint returns with modified AGI of 
$90,000-$105,000.

 B. Expand Education Savings Accounts (sec. 401 of the House 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.\15\ 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.\16\ 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.
---------------------------------------------------------------------------
        \15\ Education IRAs generally are not subject to Federal income 
tax, but are subject to the unrelated business income tax (``UBIT'') 
imposed by section 511.
        \16\ 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.
---------------------------------------------------------------------------

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.\17\
---------------------------------------------------------------------------
        \17\ No reduction of qualified higher education expenses is 
required, however, for a gift, bequest, devise, or inheritance.
---------------------------------------------------------------------------
      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.

                               House Bill


Annual contribution limit

      The House bill increases the annual education IRA 
contribution limit to $2,000. Thus, in years beginning after 
2000, 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.

Qualified expenses

      The House 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, 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.\18\ ``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.
---------------------------------------------------------------------------
        \18\ 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 House 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).\19\ The House 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 House bill does not change the definition of ``qualified 
higher education expenses'' with respect to expenses for room 
and board.
---------------------------------------------------------------------------
        \19\ ``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 House 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 House 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 House bill, in the case of 
a special needsbeneficiary, a deemed distribution of any 
balance in an education IRA will not occur when the beneficiary reaches 
age 30.

Contributions by persons other than individuals

      The House 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. 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).

Contributions permitted until April 15

      Under the House 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. 
\20\ The House 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.
---------------------------------------------------------------------------
        \20\ 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.
---------------------------------------------------------------------------

Coordination with HOPE and Lifetime Learning credits

      For distributions made after December 31, 2000, the House 
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.

Coordination with qualified tuition programs

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

Effective date

      The House bill provisions modifying education IRAs 
generally are effective for taxable years beginning after 
December 31, 2000. The House bill 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 
House bill provision changing the name of education IRAs to 
Education Savings Accounts is effective on the date of 
enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

   C. Allow Tax-free Distributions From State and Private Education 
Programs (sec. 402 of the House bill, sec. 402 of the Senate amendment, 
                       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,\21\ as well as certain room and board 
expenses for any period during which the student is at least a 
half-time student.
---------------------------------------------------------------------------
        \21\ ``Eligible educational institutions'' are defined the same 
for purposes of education IRAs 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. \22\
---------------------------------------------------------------------------
        \22\ 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. \23\ 
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.
---------------------------------------------------------------------------
        \23\ 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).

                               House Bill


Qualified tuition program

      The House 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 (as 
described in section 529(b)(1)(A)(i)), but will not be able to 
make contributions to a savings account plan (described in 
section 529(b)(1)(A)(ii)).

Exclusion from gross income

      Under the House 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 theextent 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 House 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.

Definition of qualified higher education expenses

      Under the House 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 educational 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). \24\ The House 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.
---------------------------------------------------------------------------
        \24\ The conferees intend that, with respect to a distribution 
made from a qualified tuition program that does not exceed the 
allowance for books and supplies determined for purposes of Federal 
financial assistance by the eligible educational institution where the 
beneficiary is enrolled, Treasury regulations will provide that 
beneficiaries need not substantiate actual purchases of books, 
supplies, and equipment.
---------------------------------------------------------------------------

Rollovers for benefit of same beneficiary

      The House 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 House 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 House bill 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 House bill provision allowing an exclusion from gross 
income for certain distributions is effective for distributions 
made in taxable years beginning after December 31, 2003. The 
House bill provision coordinating distributions from qualified 
tuition programs with the HOPE and Lifetime Learning credits is 
effective for distributions made after December 31, 2000. The 
House bill provision modifying the definition of qualified 
higher education expenses is effective for amounts paid for 
education furnished after December 31, 1999. The House bill 
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.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that it provides for coordination of the HOPE credit or 
Lifetime Learning credit with distributions from education 
individual retirement accounts (``education IRAs'') (in 
addition to distributions from qualified tuition plans) as long 
as the distributions are not used for the same expenses for 
which a credit was claimed. The Senate amendment also provides 
that the section may be cited as the ``Collegiate Learning and 
Student Savings (CLASS) Act.''
      Effective date.--The Senate amendment 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, 1999. 
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, 1999. In the case of a qualified tuition program 
established and maintained by an entity other than a State or 
agency or instrumentality thereof, the Senate amendment 
provision allowing an exclusion from gross income for certain 
distributions is effective for distributions made in taxable 
years beginning after December 31, 2003. The Senate amendment 
provision coordinating distributions from qualified tuition 
programs and education IRAs with the HOPE and Lifetime Learning 
credits is effective for distributions made after December 31, 
1999. The Senate amendment provision modifying the definition 
of qualified higher education expenses is effective for amounts 
paid for courses beginning after December 31, 1999. The 
provisions allowing rollovers for the same beneficiary and 
including first cousins as a member of the family is effective 
for taxable years beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
except that the provision coordinating the HOPE and Lifetime 
Learning credits with distributions from education IRAs is not 
included because this provision is included in the conference 
agreement provision for education IRAs.

    D. 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 House bill and the Senate 
                  amendment 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.

                               House Bill

      The House 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 House 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 House 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.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that it does not extend the exclusion from gross income 
to the NIH Scholarship Program or State-sponsored health 
scholarship programs.

                          Conference Agreement

      The conference agreement follows the House bill.

E. Exclusion for Employer-Provided Educational Assistance (sec. 404 of 
             the Senate amendment and sec. 127 of the Code)


                              Present Law

      Educational expenses paid by an employer for its 
employees are generally deductible to the employer.
      Employer-paid educational expenses are excludable from 
the gross income and wages of an employee if provided under a 
section 127 educational assistance plan or if the expenses 
qualify as a working condition fringe benefit under section 
132. Section 127 provides an exclusion of $5,250 annually for 
employer-provided educational assistance. The exclusion does 
not apply to graduate courses. The exclusion for employer-
provided educational assistance expires with respect to courses 
beginning on or after June 1, 2000.
      In order for the exclusion to apply, certain requirements 
must be satisfied. The educational assistance must be provided 
pursuant to a separate written plan of the employer. The 
educational assistance program must not discriminate in favor 
of highly compensated employees. In addition, not more than 5 
percent of the amounts paid or incurred by the employer during 
the year for educational assistance under a qualified 
educational assistance plan can be provided for the class of 
individuals consisting of more than 5-percent owners of the 
employer (and their spouses and dependents).
      Educational expenses that do not qualify for the section 
127 exclusion may be excludable from income as a working 
condition fringe benefit.\25\ In general, education qualifies 
as a working condition fringe benefit if the employee could 
have deducted the education expenses under section 162 if the 
employee paid for the education. In general, education expenses 
are deductible by an individual under section 162 if the 
education (1) maintains or improves a skill required in a trade 
or business currently engaged in by the taxpayer, or (2) meets 
the express requirements of the taxpayer's employer, applicable 
law or regulations imposed as a condition of continued 
employment. However, education expenses are generally not 
deductible if they relate to certain minimum educational 
requirements or to education or training that enables a 
taxpayer to begin working in a new trade or business.\26\
---------------------------------------------------------------------------
        \25\ These rules also apply in the event that section 127 
expires and is not reinstated.
        \26\ In the case of an employee, education expenses (if not 
reimbursed by the employer) may be claimed as an itemized deduction 
only if such expenses, along with other miscellaneous deductions, 
exceed 2 percent of the taxpayer's AGI. The 2-percent floor limitation 
is disregarded in determining whether an item is excludable as a 
working condition fringe benefit.
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      The provision extends the exclusion for employer-provided 
educational assistance through 2003, thus, the exclusion is not 
available with respect to courses beginning after December 31, 
2003. The provision also extends the exclusion to graduate 
education, effective for courses beginning on or after January 
1, 2000, and before January 1, 2004.
      Effective date.--The provision is generally effective on 
the date of enactment.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
with respect to the extension of the exclusion as applied to 
undergraduate education, but does not include the extension of 
the exclusion to graduate education.

F. Liberalize Tax-Exempt Financing Rules for Public School Construction 
     (secs. 404-405 of the House bill, secs. 405-407 of the Senate 
          amendment, and secs. 103, 148, and 149 of the Code)


                              Present Law

            Tax-exempt bonds

In general

      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.
      Interest on bonds that nominally are issued by States or 
local governments, but the proceeds of which are used (directly 
or indirectly) by a private person and payment of which is 
derived from funds of such a private person is taxable unless 
the purpose of the borrowing is approved specifically in the 
Code or in a non-Code provision of a revenue Act. These bonds 
are called ``private activity bonds.'' The term ``private 
person'' includes the Federal Government and all other 
individuals and entities other than States or local 
governments.

Private activities eligible for financing with tax-exempt private 
        activity bonds

      The Code includes several exceptions permitting States or 
local governments to act as conduits providing tax-exempt 
financing for private activities. Both capital expenditures and 
limited working capital expenditures of charitable 
organizations described in section 501(c)(3) of the Code--
including elementary, secondary, and post-secondary schools--
may be financed with tax-exempt private activity bonds 
(``qualified 501(c)(3) bonds'').
      In most cases, the volume of tax-exempt private activity 
bonds is restricted by aggregate annual limits imposed on bonds 
issued by issuers within each State. These annual volume limits 
equal $50 per resident of the State, or $150 million if 
greater. The annual State private activity bond volume limits 
are scheduled to increase to the greater of $75 per resident of 
the State or $225 million in calendar year 2007. The increase 
will be phased in ratably beginning in calendar year 2003. This 
increase was enacted by the Tax and Trade Relief Extension Act 
of 1998. Qualified 501(c)(3) bonds are among the tax-exempt 
private activity bonds that are not subject to these volume 
limits.
      Private activity tax-exempt bonds may not be used to 
finance schools owned or operated by private, for-profit 
businesses.

Arbitrage restrictions on tax-exempt bonds

      The Federal income tax does not apply to 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, investment 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.

Restriction on Federal guarantees of tax-exempt bonds

      Unlike interest on State or local government bonds, 
interest on Federal debt (e.g., Treasury bills) is taxable. 
Generally, interest on State and local government bonds that 
are Federally guaranteed does not qualify for tax-exemption. 
This restriction was enacted in 1984. The 1984 legislation 
included exceptions for housing bonds and for certain other 
Federal insurance programs that were in existence when the 
restriction was enacted.
            Qualified zone academy bonds
      As an alternative to traditional tax-exempt bonds, 
certain States and local governments are given the authority to 
issue ``qualified zone academy bonds.'' Under present law, a 
total of$400 million of qualified zone academy bonds may be 
issued in each of 1998 and 1999. The $400 million aggregate bond 
authority is allocated each year to the States according to their 
respective populations of individuals below the poverty line. Each 
State, in turn, allocates the credit to qualified zone academies within 
such State. A State may carry over any unused allocation into 
subsequent years.

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

                               House Bill

      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 public school construction expenditures.
      Effective date.--The provision is effective for bonds 
issued in calendar years beginning after December 31, 1999.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

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

2. Liberalize construction bond expenditure rule for governmental bonds 
        for public schools

                               House Bill

      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.
12 months.................................  At least 10 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).



      Effective date.--The provision applies to bonds issued in 
calendar years beginning after 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.

3. Allow issuance of tax-exempt private activity bonds for public 
        school facilities

                               House Bill

      No provision.

                            Senate Amendment

      The private activities for which tax-exempt bonds may be 
issued are expanded to include elementary and secondary public 
school facilities which are owned by private, for-profit 
corporations pursuant to public-private partnership agreements 
with a State or local educational agency. The term school 
facility includes school buildings and functionally related and 
subordinate land (including stadiums or other athletic 
facilities primarily used for school events) and depreciable 
personal property used in the school facility. The school 
facilities for which these bonds are issued must be operated by 
a public educational agency as part of a system of public 
schools.
      A public-private partnership agreement is defined as an 
arrangement pursuant to which the for-profit corporate party 
constructs, rehabilitates, refurbishes or equips a school 
facility. The agreement must provide that, at the end of the 
contract term, ownership of the bond-financed property is 
transferred to the public school agency party to the agreement 
for no additional consideration.
      Issuance of these bonds is subject to a separate annual 
per-State volume limit equal to the greater of $10 per resident 
($5 million, if greater) in lieu of the present-law State 
private activity bond volume limits. As with the present-law 
State private activity bond volume limits, States decide how to 
allocate the bond authority to State and local government 
agencies. Bond authority that is unused in the year in which it 
arises may be carried forward for up to three years for public 
school projects under rules similar to the carryforward rules 
of the present-law private activity bond volume limits.
      Effective date.--The provision applies to bonds issued 
after December 31, 1999.

                          Conference Agreement

      The conference does not include the Senate amendment 
provision.

4. Permit limited Federal guarantees of school construction bonds by 
        the Federal Housing Finance Board

                               House Bill

      No provision.

                            Senate Amendment

      The Federal Housing Finance Board is permitted to 
authorize the regional Federal Home Loan Banks in its system to 
guarantee limited amounts of public school bonds. Eligible 
bonds are governmental bonds with respect to which 95 percent 
of more of the proceeds are used for public school 
construction. The aggregate amount of bonds which may be 
guaranteed by all such Banks pursuant to this provision is $500 
million per year.
      Effective date.--The provision will become effective upon 
enactment (after the date of enactment of the amendment) of 
legislation authorizing the Federal Housing Finance Board and 
Federal Home Loan Banks to provide the guarantees.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

G. Expansion of Deduction for Computer Donations to Schools (sec. 1124 
        of the Senate amendment and sec. 170(e)(6) of the Code)


                              Present Law

      The maximum charitable contribution deduction that may be 
claimed by a corporation for any one taxable year is limited to 
10 percent of the corporation's taxable income for that year 
(disregarding charitable contributions and with certain other 
modifications) (sec. 170(b)(2)). Corporations also are subject 
to certain limitations based on the type of property 
contributed. In the case of a charitable contribution of short-
term gain property, inventory, or other ordinary income 
property, the amount of the deduction generally is limited to 
the taxpayer's basis (generally, cost) in the property. 
However, special rules in the Code provide an augmented 
deduction for certain corporate contributions. Under these 
special rules, the amount of the augmented deduction is equal 
to the lesser of (1) the basis of the donated property plus 
one-half of the amount of ordinary income that would have been 
realized if the property had been sold, or (2) twice basis.
      Section 170(e)(6) allows corporate taxpayers an augmented 
deduction for qualified contributions of computer technology 
and equipment (i.e., computer software, computer or peripheral 
equipment, and fiber optic cable related to computer use) to be 
used within the United States for educational purposes in 
grades K-12. Eligible donees are: (1) any educational 
organization that normally maintains a regular faculty and 
curriculum and has a regularly enrolled body of pupils in 
attendance at the place where its educational activities are 
regularly carried on; and (2) tax-exempt charitable 
organizations that are organized primarily for purposes of 
supporting elementary and secondary education. A private 
foundation also is an eligible donee, provided that, within 30 
days after receipt of the contribution, the private foundation 
contributes the property to an eligible donee described above.
      Qualified contributions are limited to gifts made no 
later than two years after the date the taxpayer acquired or 
substantially completed the construction of the donated 
property. In addition, the original use of the donated property 
must commence with the donor or the donee. Accordingly, 
qualified contributions generally are limited to property that 
is no more than two years old. Such donated property could be 
computer technology or equipment that is inventory or 
depreciable trade or business property in the hands of the 
donor.
      Donee organizations are not permitted to transfer the 
donated property for money or services (e.g., a donee 
organization cannot sell the computers). However, a donee 
organization may transfer the donated property in furtherance 
of its exempt purposes and be reimbursed for shipping, 
installation, and transfer costs. For example, if a corporation 
contributes computers to a charity that subsequently 
distributes the computers to several elementary schools in a 
given area, the charity could be reimbursed by the elementary 
schools for shipping, transfer, and installation costs.
      The special treatment applies only to donations made by C 
corporations; S corporations, personal holding companies, and 
service organizations are not eligible donors.
      The provision is scheduled to expire for contributions 
made in taxable years beginning after December 31, 2000.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment makes the augmented deduction of 
section 170(e)(6) available for gifts made no later than three 
years after the date the taxpayer acquired or substantially 
completed the construction of the donated property. The Senate 
amendment also modifies the current-law original use 
requirement (i.e., the original use of the donated property 
must be the donor or the donee) by making the deduction 
available to donors who reacquire computers prior to donation. 
Thus, a corporation would be permitted to donate computers that 
were traded in or returned to them under a lease program.
      Effective date.--The Senate amendment is effective for 
contributions made in taxable years ending after the date of 
enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment provision.

 H. Credit for Computer Donations to Schools and Senior Centers (sec. 
       1125 of the Senate amendment and new sec. 45E of the Code)


                              Present Law

      The maximum charitable contribution deduction that may be 
claimed by a corporation for any one taxable year is limited to 
10 percent of the corporation's taxable income for that year 
(disregarding charitable contributions and with certain other 
modifications) (sec. 170(b)(2)). Corporations also are subject 
to certain limitations based on the type of property 
contributed. In the case of a charitable contribution of short-
term gain property, inventory, or other ordinary income 
property, the amount of the deduction generally is limited to 
the taxpayer's basis (generally, cost) in the property. 
However, special rules in the Code provide an augmented 
deduction for certain corporate contributions. Under these 
special rules, the amount of the augmented deduction is equal 
to the lesser of (1) the basis of the donated property plus 
one-half of the amount of ordinary income that would have been 
realized if the property had been sold, or (2) twice basis.
      Section 170(e)(6) allows corporate taxpayers an augmented 
deduction for qualified contributions of computer technology 
and equipment (i.e., computer software, computer or peripheral 
equipment, and fiber optic cable related to computer use) to be 
used within the United States for educational purposes in 
grades K-12. Qualified contributions are limited to gifts made 
no later than two years after the date the taxpayer acquired or 
substantially completed the construction of the donated 
property. In addition, the original use of the donated property 
must commence with the donor or the donee. Eligible donees are: 
(1) any educational organization that normally maintains a 
regular faculty and curriculum and has a regularly enrolled 
body of pupils in attendance at the place where its educational 
activities are regularly carried on; and (2) tax-exempt 
charitable organizations that are organized primarily for 
purposes of supporting elementary and secondary education. A 
private foundation also is an eligible donee, provided that, 
within 30 days after receipt of the contribution, the private 
foundation contributes the property to an eligible donee 
described above.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment permits businesses to claim a tax 
credit in lieu of the augmented deduction for qualified 
contributions of computer technology and equipment, as defined 
undersection 170(e)(6)(B).\27\ In addition, the Senate 
amendment allows businesses to claim a credit for contributions of 
computer technology or equipment to multipurpose senior centers (as 
defined by reference to the Older Americans Act of 1965) for use by 
individuals who are at least 60 years old to improve job skills in 
computers.
---------------------------------------------------------------------------
        \27\ In addition, the Senate amendment provides that the term 
``qualified computer contribution,'' for purposes of the computer 
donation credit, includes a computer only if the computer software that 
serves as the computer's operating system has been lawfully installed.
---------------------------------------------------------------------------
      The credit is equal to 30 percent of the amount 
calculated for purposes of determining the augmented deduction 
under section 170(e)(6)(A) (i.e., the lesser of the basis of 
the donated property plus one-half of the amount of ordinary 
income that would have been realized if the property had been 
sold, or twice basis). If the donee is a qualified educational 
organization or senior center located in an empowerment zone, 
enterprise community, or Indian reservation (as defined in sec. 
168(j)(6)), the proposed credit would be equal to 50 percent of 
the amount calculated for purposes of determining the augmented 
deduction under section 170(e)(6)(A). No deduction is allowed 
for the portion of computer donations made during a taxable 
year that is equal to the amount of the credit claimed during 
the year.
      Effective date.--The Senate amendment provision providing 
a 30-percent credit for qualified computer donations is 
effective for contributions made in taxable years beginning one 
year after the date of enactment and before taxable years 
beginning on or after the date which is three years after the 
date of enactment. The Senate amendment provision providing a 
50-percent credit for qualified computer donations to eligible 
recipients in empowerment zones, enterprise communities, and 
Indian reservations is effective for contributions made during 
taxable years beginning after the date of enactment and before 
taxable years beginning on or after the date which is three 
years after the date of enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

I. Two-Percent Floor Not To Apply to Professional Development Expenses 
of Teachers (sec. 1123 of the Senate amendment and sec. 67 of the Code)


                              Present Law

      In general, taxpayers are not permitted to deduct 
education expenses. However, employees may deduct the cost of 
certain work-related education. For costs to be deductible, the 
education must either be required by the taxpayer's employer or 
by law to retain taxpayer's current job or be necessary to 
maintain or improve skills required in the taxpayer's current 
job. Expenses incurred for education that is necessary to meet 
minimum education requirements of an employee's present trade 
or business or that can qualify an employee for a new trade or 
business are not deductible.
      An employee is allowed to deduct work-related education 
and other business expenses only to the extent such expenses 
(together with other miscellaneous itemized deductions) exceed 
2 percent of the taxpayer's adjusted gross income.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment provides that qualified professional 
development expenses incurred by an elementary or secondary 
school teacher (including instructors, aides, counselors and 
principals) with respect to certain courses of instruction 
would not be subject to the 2-percent floor on miscellaneous 
itemized deductions. Qualified professional development 
expenses are expenses for tuition, fees, books, supplies, 
equipment, and transportation required for enrollment or 
attendance in a qualified course of instruction, provided that 
such expenses are otherwise deductible under present law. A 
qualified course of instruction means a professional conference 
or a course of instruction at an institution of higher 
education (as defined in sec. 481 of the Higher Education Act 
of 1965), and which is part of a program of professional 
development that is approved and certified by the appropriate 
local educational agency as furthering the individual's 
teaching skills.
      Additionally, the 2-percent floor would not apply to 
incidental expenses paid by an eligible teacher in an amount 
not greater than $125 for any taxable year for books, supplies 
and equipment related to instruction, teaching, or other 
educational job-related activities of the teacher. The 
exception to the 2-percent for incidental expenses would also 
apply to homeschooling if the requirements of applicable State 
or local law are met with respect to the homeschooling.
      Effective date.--Taxable years beginning after December 
31, 2000, and ending on or before December 31, 2004.

                          Conference Agreement

      The conference agreement follows the Senate amendment 
with modifications. The conference agreement provides an 
exception to the 2-percent floor for the qualified professional 
development expenses of eligible teachers, not to exceed $1,000 
per year. The conference agreement does not provide an 
exception to the 2-percent floor for job-related incidental 
expenses.

 J. Exclusion for Education Benefits Provided by Employers to Children 
  of Employees (sec. 404 of the Senate amendment and sec. 117 of the 
                                 Code)


                              Present Law

      If certain requirements are satisfied, employer-paid 
educational expenses are excludable from the gross income and 
wages of an employee if provided under a section 127 
educational assistance plan or if the expenses qualify as a 
working condition fringe benefit under section 132. Section 127 
provides an exclusion of $5,250 annually for employer-provided 
educational assistance. The exclusion does not apply to 
graduate courses. The exclusion for employer-provided 
educational assistance expires with respect to courses 
beginning on or after June 1, 2000. These exclusions do not 
apply with respect to education provided to an individual other 
than the employee.
      Section 117 provides that, if certain conditions are 
satisfied, a qualified scholarship is excludable from the gross 
income of an individual who is a candidate for a degree.

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment provides that educational benefits 
provided to children of employees are excludable from gross 
income as a scholarship, regardless of whether the child is a 
candidate for a degree program. Any such benefits must be in 
addition to any other compensation payable to the employee. The 
exclusion does not apply to any amount provided to a child of 
an individual who owns more than 5 percent of the employer.
      The maximum amount excludable for a taxable year with 
respect to a child of an employee may not exceed $2,000. In 
addition, the maximum amount excludable from an employee's 
income for a year under the provision may not exceed the excess 
of the amount excludable under section 127 ($5,250) over the 
amount excluded from the employee's income under section 127 
for that year.
      Effective date.--The provision is effective for taxable 
years beginning after the date of enactment.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

   K. Credit for Interest on Higher Education Loans (sec. 208 of the 
             Senate amendment and new sec. 25B 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.\28\ The deduction is phased out ratably for 
individual taxpayers with modified adjusted gross income 
(``AGI'') of $40,000-$55,000 and $60,000-$75,000 for joint 
returns. The income ranges will be indexed for inflation after 
2002.
---------------------------------------------------------------------------
        \28\ The maximum allowable deduction for 1998 was $1,000.
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      Under the Senate amendment, certain individuals who have 
paid interest on qualified education loans may claim a tax 
credit for such interest expenses, up to a maximum credit of 
$1,500 per year. The credit is allowed only with respect to 
interest paid on a qualified education loan during the first 60 
months in which interest payments are required. A qualified 
education loan is defined in the same manner as for the 
deduction for student loan interest under section 221. No 
credit is allowed to an individual if that individual is 
claimed as a dependent on another taxpayer's return for the 
taxable year. In addition, no credit is allowed for any amount 
taken into account for any deduction under chapter 1 of the 
Code.
      The credit is phased out ratably for individual taxpayers 
with modified AGI of $50,000-$70,000 ($80,000-$100,000 for 
joint returns). The income phase-out ranges will be indexed for 
inflation after the year 2005, rounded to the closest multiple 
of $50.
      Effective date.--The Senate amendment is effective for 
interest due and paid after December 31, 2004, on any qualified 
education loan.

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

                  V. HEALTH CARE TAX RELIEF PROVISIONS


A. Above-the-Line Deduction for Health Insurance Expenses (sec. 501 of 
 the House bill and the Senate amendment 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.

                               House Bill

      The House bill 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.\29\ 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.
---------------------------------------------------------------------------
        \29\ 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.\30\ 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.\31\ 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.
---------------------------------------------------------------------------
        \30\ This rule is applied separately with respect to qualified 
long-term care insurance.
        \31\ Excludable employer contributions to a health flexible 
spending arrangement or medical savings account (including salary 
reduction contributions) are also considered amounts paid by the 
employer for health insurance that constitutes medical care. Salary 
reduction contributions are not considered to be amounts paid by the 
employee.
---------------------------------------------------------------------------
      The deduction is not available to individuals enrolled in 
Medicare, Medicaid, the Federal Employees Health Benefit 
Program (``FEHBP''),\32\ 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.
---------------------------------------------------------------------------
        \32\ 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.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that the deductible percentage of health care insurance 
expenses is as follows: 25 percent in 2001, 2002, and 2003; 50 
percent in 2004 and 2005; and 100 percent in 2006 and 
thereafter.
      In addition, under the Senate amendment, the deduction is 
not available with respect to insurance providing coverage for 
accidents, disability, dental care, vision care or a specific 
disease or making payments of a fixed amount per day (or other 
period) on account of hospitalization. Such insurance and 
employer payments for such insurance are not taken into account 
in determining whether the employee pays more than half the 
cost of the health insurance.
      Effective date.--Same as the House bill.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with modifications to the deductible percentage.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2001.

 B. Provisions Relating to Long-Term Care Insurance (secs. 501 and 502 
of the House bill, secs. 501 and 502 of the Senate amendment and secs. 
               105 and 125 and new sec. 222 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.\33\
---------------------------------------------------------------------------
        \33\ 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.

                               House Bill


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.\34\ The deductible percentage is: 25 percent in 
2001, 2002, and 2003; 50 percent in 2004 and 2005; and 100 
percent in 2006 and thereafter.
---------------------------------------------------------------------------
        \34\ 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.\35\ 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.
---------------------------------------------------------------------------
        \35\ This rule is applied separately with respect to health 
insurance.
---------------------------------------------------------------------------

Long-term care insurance provided through a cafeteria plan

      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.\36\
---------------------------------------------------------------------------
        \36\ 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.

                            Senate Amendment


Deduction for qualified long-term care insurance expenses

      The provision is the same as the House bill, with the 
following modification. Under the Senate amendment, the 
percentage deduction for qualified long-term care insurance 
expenses is as follows: 25 percent in 2001, 2002, and 2003; 50 
percent in 2004 and 2005; and 100 percent in 2006 and 
thereafter.

Long-term care insurance provided through a cafeteria plan

      The Senate amendment is the same as the House bill, with 
the modification that qualified long-term care insurance is 
treated as a qualified benefit under the cafeteria plan rules 
only to theextent that such insurance is treated as a medical 
expense under the itemized deduction for medical expenses (i.e., only 
to the extent of the premium limitations under sec. 213).

Effective date

      The Senate amendment is the same as the House bill.

                          Conference Agreement


Deduction for qualified long-term care insurance expenses

      The conference agreement follows the Senate amendment, 
with modifications to the deductible percentage.
      As under the Senate amendment, the 50-percent rule is 
applied separately to health insurance and qualified long-term 
care insurance. For example, suppose an employee participates 
in a health insurance plan of the employer and that the 
employer pays for 100 percent of the cost of the coverage. The 
employee also participates in an employer-sponsored qualified 
long-term care insurance plan, and the employer pays for 10 
percent of the cost of the qualified long-term care insurance. 
The employee pays for the remaining 90 percent of the long-term 
care insurance premium on an after-tax basis. The employee is 
not entitled to the deduction for health insurance expenses, 
but may deduct the 90 percent of the long-term care insurance 
premium she pays on an after-tax basis (subject to the premium 
limitations contained in section 213).

Long-term care insurance provided through a cafeteria plan

      The conference agreement follows the Senate amendment. 
Under the conference agreement, as under the Senate amendment, 
the qualified long-term care insurance may only be offered 
under a cafeteria plan to the extent the cost of such insurance 
does not exceed the premium limitations contained in section 
213.

Effective date

      The provision is effective with respect to years 
beginning after December 31, 2001.

  C. Extend Availability of Medical Savings Accounts (sec. 503 of the 
                  House bill and sec. 220 of the Code)


                              Present Law


In general

      Within limits, contributions to a medical savings account 
(``MSA'') \37\ 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.
---------------------------------------------------------------------------
        \37\ 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. \38\ 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.
---------------------------------------------------------------------------
        \38\ 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.\39\ 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.
---------------------------------------------------------------------------
        \39\ 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.\40\ 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.\41\ 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.
---------------------------------------------------------------------------
        \40\ This exclusion does not apply to expenses that are 
reimbursed by insurance or otherwise.
        \41\ 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.
---------------------------------------------------------------------------
      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.\42\ However, if 
the threshold level is exceeded in a year, previously uninsured 
individuals is 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.
---------------------------------------------------------------------------
        \42\ Permitted coverage, as described above, does not 
constitute coverage under a health insurance plan for this purpose.
---------------------------------------------------------------------------
    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 made any MSA contributions for any year to 
an MSA on behalf of employees or (2) at least 20 percent of the 
employees covered under a high deductible plan made MSA 
contributions of at least $100 in the year 2000.
      Self-employed individuals who made contributions to an 
MSA during the period 1997-2000 also may continue to make 
contributions after 2000.

                               House Bill


Eligible individuals and cap on MSAs

      The House bill expands availability of MSAs to include 
all employees covered under a high deductible plan of an 
employer. Self-employed individuals continue to be eligible to 
contribute to an MSA.
      The House bill also eliminates the cap on the number of 
taxpayers that can benefit annually from MSA contributions.

Definition of high deductible plan and limits on contributions

      The provision modifies the definition of a high 
deductible plan by decreasing the lower threshold for the 
annual deductible. Thus, under the provision, a high deductible 
plan means a plan with an annual deductible of at least $1,000 
and not more than $2,300 (indexed) in the case of individual 
coverage and at least $2,000 and not more than $4,600 (indexed) 
in the case of family coverage. The limits on out-of-pocket 
expenses is the same as under present law.
      The provision increases the amount of deductible (or 
excludable) contributions to an MSA to 100 percent of the 
deductible under the high deductible plan. The provision also 
allows an individual to make deductible contributions to an MSA 
even if the individual's employer also made contributions. The 
provision provides that MSAs may be offered as part of a 
cafeteria plan. The total contributions to MSAs on behalf on an 
individual for a year may not exceed 100 percent of the 
deductible under the high deductible plan.

End of MSA pilot program

      The provision makes MSAs permanent.

Effective date

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

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement does not include the House bill 
provision.

D. Additional Personal Exemption for Caretakers (sec. 504 of the House 
    bill, sec. 503 of the Senate amendment and sec. 151 of the Code)


                              Present Law

      Present law does not provide an additional personal 
exemption based solely on the custodial care of parents or 
grandparents. However, taxpayers with dependent parents 
generally are able to claim a personal exemption for each of 
these dependents, if they satisfy five tests: (1) a member of 
household or relationship test; (2) a citizenship test; (3) a 
joint return test; (4) a gross income test; and (5) a support 
test. The taxpayer is also required to list each dependent's 
tax identification number (the ``TIN'') on the tax return.
      The total amount of personal exemptions is subtracted 
(along with certain other items) from adjusted gross income 
(``AGI'') in arriving at taxable income. The amount of each 
personal exemption is $2,750 for 1999, and is adjusted annually 
for inflation. For 1999, the total amount of the personal 
exemptions is phased out for taxpayers with AGI in excess of 
$126,600 for single taxpayers, $158,300 for heads of household, 
and $189,950 for married couples filing joint returns. For 
1999, the point at which a taxpayer's personal exemptions are 
completely phased out is $249,100 for single taxpayers, 
$280,800 for heads of households, and $312,450 for married 
couples filing joint returns.

                               House Bill

      The House 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 an individual who: (1) 
satisfies a relationship test, (2) satisfies a residency test, 
(3) satisfies an identification test, and (4) has been 
certified as having long-term care needs. The individual 
satisfies the relationship test if the individual was the 
father or mother of: (a) the taxpayer, (b) the taxpayer's 
spouse, or (c) a former spouse of the taxpayer. A stepfather, 
stepmother, and ancestors of the father or mother are treated 
as a father or mother for these purposes.
      An individual satisfies the residency test if the 
individual had the same principal place of abode as the 
taxpayer for the taxpayer's entire taxable year.
      An individual satisfies the identification test if the 
individual's name and taxpayer identification number (``TIN'') 
is included on the taxpayer's return for the taxable year.
      In order to be a qualified individual, an individual must 
be certified before the due date of the return for the taxable 
year (without extensions) by a licensed physician as having 
long-term care needs for period which is at least 180 
consecutive days and a portion of which occurs withinthe 
taxable year. The certification must be made no more than 39\1/2\ 
months before the due date for the return (or within such other period 
as the Secretary has prescribed).
      Under the provision, an individual has long-term care 
needs if the individual is unable to perform at least 2 
activities of daily living (``ADLs'') without substantial 
assistance from another individual, due to a loss of functional 
capacity. As with the present-law rules relating to long- term 
care, ADLs are: (1) eating; (2) toileting; (3) transferring; 
(4) bathing; (5) dressing; and (6) continence. Substantial 
assistance includes hands-on assistance (that is, the physical 
assistance of another person without which the individual is 
unable to perform the ADL) and stand-by assistance (that is, 
the presence of another person within arm's reach of the 
individual that is necessary to prevent, by physical 
intervention, injury to the individual when performing the 
ADL).
      As an alternative to the 2-ADL test described above, an 
individual is considered to have long-term care needs if he or 
she (1) requires substantial supervision for at least 6 months 
to be protected from threats to health and safety due to severe 
cognitive impairment and (2) is unable for at least 6 months to 
perform at least one or more ADLs or to engage in age 
appropriate activities as determined under regulations 
prescribed by the Secretary of the Treasury in consultation 
with the Secretary of Health and Human Services.
      The House bill provides that a taxpayer is treated as 
maintaining a household for any period only if over one-half of 
the cost of maintaining the household for such period is 
furnished by such taxpayer or, if such taxpayer is married, by 
such taxpayer and the taxpayer's spouse. The House bill also 
provides that taxpayers who are married at the end of the 
taxable year must file a joint return to receive the credit 
unless they lived apart from their respective spouse for the 
last six months of the taxable year and the individual claiming 
the credit (1) maintained as his or her home a household for 
the qualified person for the entire taxable year and (2) 
furnished over one-half of the cost of maintaining that 
household in that taxable year. Finally, the House bill 
provides that a taxpayer legally separated from his or her 
spouse under a decree of divorce or of separate maintenance 
will not be considered married for purposes of this provision.
      Effective date.--The House bill provision is effective 
for taxable years beginning after December 31, 1999.

                            Senate Amendment

      Same as House bill.

                          Conference Agreement

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

E. Expand Human Clinical Trials Expenses Qualifying for the Orphan Drug 
    Tax Credit (sec. 505 of the House bill and sec. 45C of the Code)


                              Present Law

      Taxpayers may claim a 50-percent credit for expenses 
related to human clinical testing of drugs for the treatment of 
certain rare diseases and conditions, generally those that 
afflict less than 200,000 persons in the United States. 
Qualifying expenses are those paid or incurred by the taxpayer 
after the date on which the drug is designated as a potential 
treatment for a rare disease or disorder by the Food and Drug 
Administration (``FDA'') in accordance with the section 526 of 
the Federal Food, Drug, and Cosmetic Act.

                               House Bill

      The House bill expands qualifying expenses to include 
those expenses related to human clinical testing incurred after 
the date on which the taxpayer files an application with the 
FDA for designation of the drug under section 526 of the 
Federal Food, Drug, and Cosmetic Act as a potential treatment 
for a rare disease or disorder. As under present law, the 
credit may only be claimed for such expenses related to drugs 
designated as a potential treatment for a rare disease or 
disorder by the FDA in accordance with section 526 of such Act.
      Effective date.--The provision would be effective for 
expenditures paid or incurred after December 31, 1999.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill.
      Effective date.--The provision would be effective for 
expenditures paid or incurred after December 31, 1999.

F. Add Certain Vaccines Against Streptococcus Pneumoniae to the List of 
  Taxable Vaccines; Reduce Vaccine Excise Tax (sec. 506 of the House 
 bill, sec. 504 of the Senate amendment and secs. 4131 and 4132 of the 
                                 Code)


                              Present Law

      A manufacturer's excise tax is imposed at the rate of 75 
cents per dose (sec. 4131) on the following vaccines 
recommended for routine administration to children: diphtheria, 
pertussis, tetanus, measles, mumps, rubella, polio, HIB 
(haemophilus influenza type B), hepatitis B, varicella (chicken 
pox), and rotavirus gastroenteritis. The tax applied to any 
vaccine that is a combination of vaccine components equals 75 
cents times the number of components in the combined vaccine.
      Amounts equal to net revenues from this excise tax are 
deposited in the Vaccine Injury Compensation Trust Fund 
(``Vaccine Trust Fund'') to finance compensation awards under 
the Federal Vaccine Injury Compensation Program for individuals 
who suffer certain injuries following administration of the 
taxable vaccines. This program provides a substitute Federal, 
``no fault'' insurance system for the State-law tort and 
private liability insurance systems otherwise applicable to 
vaccine manufacturers and physicians. All persons immunized 
after September 30, 1988, with covered vaccines must pursue 
compensation under this Federal program before bringing civil 
tort actions under State law.

                               House Bill

      The House bill adds any conjugate vaccine against 
streptococcus pneumoniae to the list of taxable vaccines.
      In addition, the House bill directs the General 
Accounting Office (``GAO'') to report to the House Committee on 
Ways and Means and the Senate Committee on Finance on the 
operation and management of expenditures from the Vaccine Trust 
Fund and to advise the Committees on the adequacy of the 
Vaccine Trust Fund to meet future claims under the Federal 
Vaccine Injury Compensation Program.
      The GAO is directed to report its findings to the House 
Committee on Ways and Means and the Senate Committee on Finance 
not later than December 31, 1999.
      Effective date.--The provision is effective for vaccine 
purchases beginning on the day after the date on which the 
Centers for Disease Control make final recommendation for 
routine administration of conjugated streptococcus pneumonia 
vaccines to children.

                            Senate Amendment

      The Senate amendment is identical to the House bill in 
adding any conjugate vaccine against streptococcus pneumoniae 
to the list of taxable vaccines.
      The Senate amendment also reduces the rate of tax 
applicable to all taxable vaccines from 75 cents per dose to 25 
cents per dose for sales of vaccines after December 31, 2004.
      The Senate amendment also changes the effective date 
enacted in Public Law 105-277 and certain other conforming 
amendments to expenditure purposes to enable certain payments 
to be made from the Trust Fund.
      In addition, the Senate amendment is identical to the 
House bill in directing the General Accounting Office (``GAO'') 
to report to the House Committee on Ways and Means and the 
Senate Committee on Finance on the operation and management of 
expenditures from the Vaccine Trust Fund and to advise the 
Committees on the adequacy of the Vaccine Trust Fund to meet 
future claims under the Federal Vaccine Injury Compensation 
Program, except that the GAO is directed to report its findings 
to the House Committee on Ways and Means and the Senate 
Committee on Finance within one year of the date of enactment.
      Effective date.--The provision is effective for vaccine 
purchases beginning on the day after the date on which the 
Centers for Disease Control make final recommendation for 
routine administration of conjugated streptococcus pneumonia 
vaccines to children. The addition of conjugate streptococcus 
pneumoniae vaccines to the list of taxable vaccines is 
contingent upon the inclusion in this legislation of the 
modifications to Public Law 105-277.
      The provision to reduce the rate of tax to 25 cents per 
dose would be effective for sales after December 31, 2004. No 
floor stocks refunds would be permitted for vaccines held on 
December 31, 2004. For the purpose of determining the amount of 
refund of tax on a vaccine returned to the manufacturer or 
importer, for vaccines returned after August 31, 2004 and 
before January 1, 2005, the amount of tax assumed to have been 
paid on the initial purchase of the returned vaccine is not to 
exceed $0.25 per dose. The reduction in the rate of tax is 
contingent upon the inclusion in this legislation of the 
modifications to Public Law 105-277.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment in adding any conjugate vaccine against 
streptococcus pneumoniae to the list of taxable vaccines. In 
addition, the conference agreement follows the House bill and 
the Senate amendment by changing the effective date enacted in 
Public Law 105-277 and certain other conforming amendments to 
expenditure purposes to enable certain payments to be made from 
the Trust Fund.
      The conference agreement also reduces the rate of tax 
applicable to all taxable vaccines from 75 cents per dose to 50 
cents per dose for sales of vaccines after December 31, 2004.
      In addition, the conferees direct the General Accounting 
Office (``GAO'') to report to the House Committee on Ways and 
Means and the Senate Committee on Finance on the operation and 
management of expenditures from the Vaccine Trust Fund and to 
advise the Committees on the adequacy of the Vaccine Trust Fund 
to meet future claims under the Federal Vaccine Injury 
Compensation Program.
      Within its report, to the greatest extent possible, the 
conferees would like to see a thorough statistical report of 
the number of claims submitted annually, the number of claims 
settled annually, and the value of settlements. The conferees 
would like to learn about the statistical distribution of 
settlements, including the mean and median values of 
settlements, and the extent to which the value of settlements 
varies with an injury attributed to an identifiable vaccine. 
The conferees also would like to learn about the settlement 
process, including a statistical distribution of the amount of 
time required from the initial filing of a claim to a final 
resolution.
      The Code provides that certain administrative expenses 
may be charged to the Vaccine Trust Fund. The conferees intend 
that the GAO report include an analysis of the overhead and 
administrative expenses charged to the Vaccine Trust Fund.
      The conferees request that the GAO report its findings to 
the House Committee on Ways and Means and the Senate Committee 
on Finance not later than December 31, 1999.
      Effective date.--The provision is effective for vaccine 
purchases beginning on the day after the date on which the 
Centers for Disease Control make final recommendation for 
routine administration of conjugated streptococcus pneumonia 
vaccines to children. No floor stocks tax is to be collected 
for amounts held for sale on that date. For sales on or before 
the date on which the Centers for Disease Control make final 
recommendation for routine administration of conjugate 
streptococcus pneumonia vaccines to children for which delivery 
is made after such date, the delivery date is deemed to be the 
sale date. The addition of conjugate streptococcus pneumoniae 
vaccines to the list of taxable vaccines is contingent upon the 
inclusion in this legislation of the modifications to Public 
Law 105-277.
      The provision to reduce the rate of tax to 50 cents per 
dose would be effective for sales after December 31, 2004. No 
floor stocks refunds would be permitted for vaccines held on 
December 31, 2004. For the purpose of determining the amount of 
refund of tax on a vaccine returned to the manufacturer or 
importer, for vac