Report text available as:

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

107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    107-251

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



 
               ECONOMIC SECURITY AND RECOVERY ACT OF 2001

                                _______
                                

October 17, 2001.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 3090]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3090) to provide tax incentives for economic 
recovery, having considered the same, reports favorably thereon 
with an amendment and recommends that the bill as amended do 
pass.

                                CONTENTS

                              ----------                              
                                                                   Page
  I. Summary and Background..........................................17
          A. Purpose and Summary.................................    17
          B. Background and Need for Legislation.................    18
          C. Legislative History.................................    19
 II. Explanation of the Bill.........................................19
     Title I: Business Provisions....................................19
          A. Special Depreciation Allowance for Certain Property 
              (sec. 101 of the bill and sec. 168 and sec. 280F of 
              the Code)..........................................    19
          B. Temporary Increase in Section 179 Expensing (sec. 
              102 of the bill and sec. 179 of the Code)..........    21
          C. Repeal Corporate Alternative Minimum Tax (sec. 103 
              of the bill and sec. 55 of the Code)...............    22
          D. Temporary Extension of the Net Operating Loss 
              Carryback Period (sec. 104 of the bill and secs. 
              172 and 56 of the Code)............................    25
          E. Treatment of Leasehold Improvements (sec. 105 of the 
              bill and sec. 168 of the Code).....................    26
     Title II: Individual Provisions.................................28
          A. Accelerate the 25-Percent Rate Bracket to 2002 (sec. 
              201(a) of the bill and sec. 1 of the Code).........    28
          B. Alternative Minimum Tax Exemption for Individuals 
              (sec. 201(b) of the bill and sec. 55 of the Code)..    29
          C. Simplify Individual Capital Gains Rates (sec. 202 of 
              the bill and sec. 1(h) of the Code)................    30
          D. Increase Deduction of Capital Losses of Individuals 
              Against Ordinary Income (sec. 203 of the bill and 
              sec. 1211 of the Code).............................    32
          E. Expand Exception From Early Withdrawal Tax For 
              Health Insurance Expenses Of Unemployed Individuals 
              (Sec. 204 of the bill and sec. 72(t) of the Code)..    32
     Title III: Extensions of Expiring Provisions....................34
          A. Two-Year Extension of Provisions Expiring in 2001...    34
              1. Extend Alternative Minimum Tax Relief for 
                  Individuals (sec. 301 of the bill and sec. 26 
                  of the Code)...................................    34
              2. Extend Credit for Purchase of Electric Vehicles 
                  (sec. 302 of the bill and secs. 30 and 280F of 
                  the Code)......................................    35
              3. Extend Section 45 Credit for Production of 
                  Electricity from Wind, Closed Loop Biomass, and 
                  Poultry Litter (sec. 303 of the bill and sec. 
                  45 of the Code)................................    36
              4. Extend the Work Opportunity Tax Credit (sec. 304 
                  of the bill and sec. 51 of the Code)...........    37
              5. Extend the Welfare-To-Work Tax Credit (sec. 305 
                  of the bill and sec. 51A of the Code)..........    38
              6. Extend Deduction for Qualified Clean-Fuel 
                  Vehicle Property and Qualified Clean-Fuel 
                  Vehicle Refueling Property (sec. 306 of the 
                  bill and secs. 179A and 280F of the Code)......    39
              7. Taxable Income Limit on Percentage Depletion for 
                  Marginal Production (sec. 307 of the bill and 
                  sec. 613A of the Code).........................    40
              8. Extension of Authority to Issue Qualified Zone 
                  Academy Bonds (sec. 308 of the bill and sec. 
                  1397E of the Code).............................    41
              9. Extension of Increased Coverover Payments to 
                  Puerto Rico and the Virgin Islands (sec. 309 of 
                  the bill and sec. 7652 of the Code)............    43
              10. Tax on Failure to Comply with Mental Health 
                  Parity Requirements (sec. 310 of the bill and 
                  sec. 9812 of the Code).........................    43
              11. Delay in Effective Date of Requirement for 
                  Approved Diesel or Kerosene Terminal (sec. 311 
                  of the bill and sec. 4101 of the Code).........    44
          B. One-Year Extension of Provision Expiring in 2002....    45
              1. Extension of Archer Medical Savings Accounts 
                  (``MSAs'') (sec. 321 of the bill and sec. 220 
                  of the Code)...................................    45
          C. Permanent Extension.................................    48
              1. Extend Exceptions under Subpart F for Active 
                  Financing Income (sec. 331 of the bill and 
                  secs. 953 and 954 of the Code).................    48
          D. Other Provisions....................................    51
              1. Discharge of Indebtedness of an S Corporation 
                  (sec. 341 of the bill and sec. 108 of the Code)    51
              2. Limitation on Use of Non-Accrual Experience 
                  Method of Accounting (sec. 342 of the bill and 
                  sec. 448 of the Code)..........................    53
     Title IV--Supplemental Rebate; Other Provisions.................55
          A. Supplemental Rebate (sec. 401 of the bill and sec. 
              6428 of the Code)..................................    55
          B. Special Reed Act Transfer in Fiscal Year 2002 (sec. 
              402 of the bill)...................................    56
              1. Repeal of Certain Provisions Added by the 
                  Balanced Budget Act of 1997....................    56
              2. Special Transfer in Fiscal Year 2002............    57
              3. Limitations on Transfers........................    60
              4. Technical Amendments............................    60
              5. Regulations.....................................    61
     Title V--Health Care Assistance For The Unemployed..............61
          A. Health Care Assistance for the Unemployed...........    61
     III. Votes of the Committee.....................................62
     IV. Budget Effects of the Bill..................................64
          A. Committee Estimate of Budgetary Effects.............    64
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    68
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    68
     V. Other Matters To Be Discussed Under the Rules of the House...74
          A. Committee Oversight Findings and Recommendations....    74
          B. Statement of General Performance Goals and 
              Objectives.........................................    74
          C. Constitutional Authority Statement..................    75
          D. Information Relating to Unfunded Mandates...........    75
          E. Applicability of House Rule XXI 5(b)................    75
          F. Tax Complexity Analysis.............................    75
              1. Special Depreciation Allowance for Certain 
                  Property (sec. 101 of the bill)................    76
              2. Accelerate the 25-Percent Rate Bracket to 2002 
                  (sec. 201(a) of the bill)......................    77
              3. Simplify Individual Capital Gains Rates (sec. 
                  202 of the bill)...............................    77
              4. Supplemental Rebate (sec. 401 of the bill)......    78
 VI. Changes in Existing Law Made by the Bill, as Reported...........83
VII. Dissenting Views...............................................137

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; ETC.

  (a) Short Title.--This Act may be cited as the ``Economic Security 
and Recovery Act of 2001''.
  (b) References to Internal Revenue Code of 1986.--Except as otherwise 
expressly provided, whenever in this Act an amendment or repeal is 
expressed in terms of an amendment to, or repeal of, a section or other 
provision, the reference shall be considered to be made to a section or 
other provision of the Internal Revenue Code of 1986.
  (c) Table of Contents.--

Sec. 1. Short title; etc.

                      TITLE I--BUSINESS PROVISIONS

Sec. 101. Special depreciation allowance for certain property acquired 
after September 10, 2001, and before September 11, 2004.
Sec. 102. Temporary increase in expensing under section 179.
Sec. 103. Repeal of alternative minimum tax on corporations.
Sec. 104. Carryback of certain net operating losses allowed for 5 
years.
Sec. 105. Recovery period for depreciation of certain leasehold 
improvements.

                    TITLE II--INDIVIDUAL PROVISIONS

Sec. 201. Acceleration of 25 percent individual income tax rate.
Sec. 202. Repeal of 5-year holding period requirement for reduced 
individual capital gains rates.
Sec. 203. Temporary increase in deduction for capital losses of 
taxpayers other than corporations.
Sec. 204. Temporary expansion of penalty-free retirement plan 
distributions for health insurance premiums of unemployed individuals.

          TITLE III--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS

                    Subtitle A--Two-Year Extensions

Sec. 301. Allowance of nonrefundable personal credits against regular 
and minimum tax liability.
Sec. 302. Credit for qualified electric vehicles.
Sec. 303. Credit for electricity produced from renewable resources.
Sec. 304. Work opportunity credit.
Sec. 305. Welfare-to-work credit.
Sec. 306. Deduction for clean-fuel vehicles and certain refueling 
property.
Sec. 307. Taxable income limit on percentage depletion for oil and 
natural gas produced from marginal properties.
Sec. 308. Qualified zone academy bonds.
Sec. 309. Cover over of tax on distilled spirits.
Sec. 310. Parity in the application of certain limits to mental health 
benefits.
Sec. 311. Delay in effective date of requirement for approved diesel or 
kerosene terminals.

                    Subtitle B--One-Year Extensions

Sec. 321. One-year extension of availability of medical savings 
accounts.

                    Subtitle C--Permanent Extensions

Sec. 331. Subpart F exemption for active financing.

                      Subtitle D--Other Provisions

Sec. 341. Excluded cancellation of indebtedness income of S corporation 
not to result in adjustment to basis of stock of shareholders.
Sec. 342. Limitation on use of nonaccrual experience method of 
accounting.

            TITLE IV--SUPPLEMENTAL REBATE; OTHER PROVISIONS

Sec. 401. Supplemental rebate.
Sec. 402. Special Reed Act transfer in fiscal year 2002.

           TITLE V--HEALTH CARE ASSISTANCE FOR THE UNEMPLOYED

Sec. 501. Health care assistance for the unemployed.

                      TITLE I--BUSINESS PROVISIONS

SEC. 101. SPECIAL DEPRECIATION ALLOWANCE FOR CERTAIN PROPERTY ACQUIRED 
                    AFTER SEPTEMBER 10, 2001, AND BEFORE SEPTEMBER 11, 
                    2004.

  (a) In General.--Section 168 (relating to accelerated cost recovery 
system) is amended by adding at the end the following new subsection:
  ``(k) Special Allowance for Certain Property Acquired After September 
10, 2001, and Before September 11, 2004.--
          ``(1) Additional allowance.--In the case of any qualified 
        property--
                  ``(A) the depreciation deduction provided by section 
                167(a) for the taxable year in which such property is 
                placed in service shall include an allowance equal to 
                30 percent of the adjusted basis of the qualified 
                property, and
                  ``(B) the adjusted basis of the qualified property 
                shall be reduced by the amount of such deduction before 
                computing the amount otherwise allowable as a 
                depreciation deduction under this chapter for such 
                taxable year and any subsequent taxable year.
          ``(2) Qualified property.--For purposes of this subsection--
                  ``(A) In general.--The term `qualified property' 
                means property--
                          ``(i)(I) to which this section applies which 
                        has a recovery period of 20 years or less or 
                        which is water utility property, or
                          ``(II) which is computer software (as defined 
                        in section 167(f)(1)(B)) for which a deduction 
                        is allowable under section 167(a) without 
                        regard to this subsection,
                          ``(ii) the original use of which commences 
                        with the taxpayer after September 10, 2001,
                          ``(iii) which is--
                                  ``(I) acquired by the taxpayer after 
                                September 10, 2001, and before 
                                September 11, 2004, but only if no 
                                written binding contract for the 
                                acquisition was in effect before 
                                September 11, 2001, or
                                  ``(II) acquired by the taxpayer 
                                pursuant to a written binding contract 
                                which was entered into after September 
                                10, 2001, and before September 11, 
                                2004, and
                          ``(iv) which is placed in service by the 
                        taxpayer before January 1, 2005.
                  ``(B) Exceptions.--
                          ``(i) Alternative depreciation property.--The 
                        term `qualified property' shall not include any 
                        property to which the alternative depreciation 
                        system under subsection (g) applies, 
                        determined--
                                  ``(I) without regard to paragraph (7) 
                                of subsection (g) (relating to election 
                                to have system apply), and
                                  ``(II) after application of section 
                                280F(b) (relating to listed property 
                                with limited business use).
                          ``(ii) Election out.--If a taxpayer makes an 
                        election under this clause with respect to any 
                        class of property for any taxable year, this 
                        subsection shall not apply to all property in 
                        such class placed in service during such 
                        taxable year.
                          ``(iii) Repaired or reconstructed property.--
                        Except as otherwise provided in regulations, 
                        the term `qualified property' shall not include 
                        any repaired or reconstructed property.
                          ``(iv) Qualified leasehold improvement 
                        property.--The term `qualified property' shall 
                        not include any qualified leasehold improvement 
                        property (as defined in section 168(e)(6)).
                  ``(C) Special rules relating to original use.--
                          ``(i) Self-constructed property.--In the case 
                        of a taxpayer manufacturing, constructing, or 
                        producing property for the taxpayer's own use, 
                        the requirements of clause (iii) of 
                        subparagraph (A) shall be treated as met if the 
                        taxpayer begins manufacturing, constructing, or 
                        producing the property after September 10, 
                        2001, and before September 11, 2004.
                          ``(ii) Sale-leasebacks.--For purposes of 
                        subparagraph (A)(ii), if property--
                                  ``(I) is originally placed in service 
                                after September 10, 2001, by a person, 
                                and sold and leased back by such person 
                                within 3 months after the date such 
                                property was originally placed in 
                                service,
                        such property shall be treated as originally 
                        placed in service not earlier than the date on 
                        which such property is used under the leaseback 
                        referred to in subclause (II).
                  ``(D) Coordination with section 280f.--For purposes 
                of section 280F--
                          ``(i) Automobiles.--In the case of a 
                        passenger automobile (as defined in section 
                        280F(d)(5)) which is qualified property, the 
                        Secretary shall increase the limitation under 
                        section 280F(a)(1)(A)(i) by $4,600.
                          ``(ii) Listed property.--The deduction 
                        allowable under paragraph (1) shall be taken 
                        into account in computing any recapture amount 
                        under section 280F(b)(2).''
  (b) Allowance Against Alternative Minimum Tax.--
          (1) In general.--Section 56(a)(1)(A) (relating to 
        depreciation adjustment for alternative minimum tax) is amended 
        by adding at the end the following new clause:
                          ``(iii) Additional allowance for certain 
                        property acquired after september 10, 2001, and 
                        before september 11, 2004.--The deduction under 
                        section 168(k) shall be allowed.''
          (2) Conforming amendment.--Clause (i) of section 56(a)(1)(A) 
        is amended by striking ``clause (ii)'' both places it appears 
        and inserting ``clauses (ii) and (iii)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to property placed in service after September 10, 2001, in taxable 
years ending after such date.

SEC. 102. TEMPORARY INCREASE IN EXPENSING UNDER SECTION 179.

  (a) In General.--The table contained in section 179(b)(1) (relating 
to dollar limitation) is amended to read as follows:

        ``If the taxable year
                                                         The applicable
          begins in:
                                                             amount is:
                  2001...............................          $24,000 
                  2002 or 2003.......................          $35,000 
                  2004 or thereafter.................        $25,000.''
  (b) Temporary Increase in Amount of Property Triggering Phaseout of 
Maximum Benefit.--Paragraph (2) of section 179(b) is amended by 
inserting before the period ``($325,000 in the case of taxable years 
beginning during 2002 or 2003)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 103. REPEAL OF ALTERNATIVE MINIMUM TAX ON CORPORATIONS.

  (a) In General.--So much of section 55 as precedes subsection (b)(2) 
is amended to read as follows:

``SEC. 55. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN 
                    CORPORATIONS.

  ``(a) In General.--In the case of a taxpayer other than a 
corporation, there is hereby imposed (in addition to any other tax 
imposed by this subtitle) a tax equal to the excess (if any) of--
          ``(1) the tentative minimum tax for the taxable year, over
          ``(2) the regular tax for the taxable year.
  ``(b) Tentative Minimum Tax.--For purposes of this part--
          ``(1) Amount of tentative tax.--
                  ``(A) In general.--The tentative minimum tax for the 
                taxable year is the sum of--
                          ``(i) 26 percent of so much of the taxable 
                        excess as does not exceed $175,000, plus
                          ``(ii) 28 percent of so much of the taxable 
                        excess as exceeds $175,000.
                The amount determined under the preceding sentence 
                shall be reduced by the alternative minimum tax foreign 
                tax credit for the taxable year.
                  ``(B) Taxable excess.--For purposes of this 
                subsection, the term `taxable excess' means so much of 
                the alternative minimum taxable income for the taxable 
                year as exceeds the exemption amount.
                  ``(C) Married individual filing separate return.--In 
                the case of a married individual filing a separate 
                return, clause (i) shall be applied by substituting 
                `$87,500' for `$175,000' each place it appears. For 
                purposes of the preceding sentence, marital status 
                shall be determined under section 7703.''
  (b) Conforming Amendments.--
          (1) Paragraph (3) of section 55(b) is amended by striking 
        ``paragraph (1)(A)(i)'' and inserting ``paragraph (1)(A)''.
          (2) Paragraph (1) of section 55(c) is amended by striking ``, 
        the section 936 credit allowable under section 27(b), and the 
        Puerto Rico economic activity credit under section 30A''.
          (3)(A) Paragraph (1) of section 55(d) is amended by--
                  (i) by striking ``for taxpayers other than 
                corporations'' in the heading, and
                  (ii) by striking ``In the case of a taxpayer other 
                than a corporation, the'' and inserting ``The''.
          (B) Section 55(d) is amended by striking paragraph (2) and by 
        redesignating paragraph (3) as paragraph (2).
          (C) Subparagraph (A) of section 55(d)(2), as so redesignated 
        is amended by striking ``or (2)''.
          (4) Section 55 is amended by striking subsection (e).
          (5)(A) The designation and heading for subsection (a) of 
        section 56 is amended to read as follows:
  ``(a) General Rules.--''.
          (B) Paragraph (1) of section 56(a) is amended by striking 
        subparagraph (D).
          (C) Paragraph (6) of section 56(a) is amended--
                  (i) by striking ``paragraph (2) or subsection 
                (b)(2)'' and inserting ``paragraph (2) or (9)'', and
                  (ii) by striking ``or (5), or subsection (b)(2)'' and 
                inserting ``(5), or (9)''.
          (6)(A) Subsection (b) of section 56 is amended by striking so 
        much of such subsection as precedes paragraph (1) and by 
        redesignating paragraphs (1), (2), and (3) as paragraphs (8), 
        (9), and (10), respectively, of subsection (a).
          (B) Paragraph (9) of section 56(a), as so redesignated, is 
        amended by striking subparagraph (C) and by redesignating 
        subparagraph (D) as subparagraph (C).
          (7) Section 56 is amended by striking subsections (c) and (g) 
        and by redesignating subsections (d) and (e) as subsections (b) 
        and (c), respectively.
          (8) Subparagraph (E) of section 57(a)(2) is amended--
                  (A) by striking ``for independent producers'' in the 
                heading, and
                  (B) by striking clause (i) and inserting the 
                following new clause:
                          ``(i) In general.--This paragraph shall not 
                        apply to any taxable year beginning after 
                        December 31, 1992.''
          (9) Subsection (a) of section 58 is amended by striking 
        paragraph (3) and by redesignating paragraph (4) as paragraph 
        (3).
          (10)(A) Section 59 is amended by striking subsections (b) and 
        (f) and by redesignating subsections (c), (d), (e), (g), (h), 
        (i), and (j) as subsections (b), (c), (d), (e), (f), (g), and 
        (h), respectively.
          (B) Paragraph (2) of section 59(d), as so redesignated, is 
        amended by striking ``(determined without regard to section 
        291)''.
          (C) Sections 173(b), 174(f)(2), 263(c), 263A(c)(6), 616(e), 
        617(i), and 1016(a)(20) are each amended by striking ``59(e)'' 
        each place it appears and inserting ``59(d)''.
          (11) Subsection (d) of section 11 is amended by striking 
        ``the taxes imposed by subsection (a) and section 55'' and 
        inserting ``the tax imposed by subsection (a)''.
          (12) Section 12 is amended by striking paragraph (7).
          (13) Paragraph (6) of section 29(b) is amended to read as 
        follows:
          ``(6) Application with other credits.--The credit allowed by 
        subsection (a) for any taxable year shall not exceed the excess 
        (if any) of the regular tax for the taxable year reduced by the 
        sum of the credits allowable under subpart A and section 27. In 
        the case of a taxpayer other than a corporation, such excess 
        shall be further reduced (but not below zero) by the tentative 
        minimum tax for the taxable year.''
          (14) Paragraph (3) of section 30(b) is amended to read as 
        follows:
          ``(3) Application with other credits.--The credit allowed by 
        subsection (a) for any taxable year shall not exceed the excess 
        (if any) of the regular tax for the taxable year reduced by the 
        sum of the credits allowable under subpart A and sections 27 
        and 29. In the case of a taxpayer other than a corporation, 
        such excess shall be further reduced (but not below zero) by 
        the tentative minimum tax for the taxable year.''
          (15)(A) Paragraph (1) of section 38(c) is amended to read as 
        follows:
          ``(1) In general.--
                  ``(A) Corporations.--In the case of a corporation, 
                the credit allowed under subsection (a) for any taxable 
                year shall not exceed the excess (if any) of the 
                taxpayer's net income tax over 25 percent of so much of 
                the taxpayer's net regular tax liability as exceeds 
                $25,000.
                  ``(B) Taxpayers other than corporations.--In the case 
                of a taxpayer other than a corporation, the credit 
                allowed under subsection (a) for any taxable year shall 
                not exceed the excess (if any) of the taxpayer's net 
                income tax over the greater of--
                          ``(i) the tentative minimum tax for the 
                        taxable year, or
                          ``(ii) 25 percent of so much of the 
                        taxpayer's net regular tax liability as exceeds 
                        $25,000.
                  ``(C) Definitions.--For purposes of this paragraph--
                          ``(i) the term `net income tax' means the sum 
                        of the regular tax liability and the tax 
                        imposed by section 55, reduced by the credits 
                        allowable under subparts A and B of this part, 
                        and
                          ``(ii) the term `net regular tax liability' 
                        means the regular tax liability reduced by the 
                        sum of the credits allowable under subparts A 
                        and B of this part.''
          (B) Clause (ii) of section 38(c)(2)(A) is amended to read as 
        follows:
                          ``(ii) for purposes of applying paragraph (1) 
                        to such credit--
                                  ``(I) the applicable limitation under 
                                paragraph (1) (as modified by subclause 
                                (II) in the case of a taxpayer other 
                                than a corporation) shall be reduced by 
                                the credit allowed under subsection (a) 
                                for the taxable year (other than the 
                                empowerment zone employment credit), 
                                and
                                  ``(II) in the case of a taxpayer 
                                other than a corporation, 75 percent of 
                                the tentative minimum tax shall be 
                                substituted for the tentative minimum 
                                tax under subparagraph (B)(i) 
                                thereof.''
          (C) Paragraph (3) of section 38(c) is amended by striking 
        ``subparagraph (B) of'' each place it appears.
          (16)(A) Subclause (I) of section 53(d)(1)(B)(ii) is amended 
        by striking ``subsection (b)(1)'' and inserting ``subsection 
        (a)(8)''.
          (B) Clause (iv) of section 53(d)(1)(B) is hereby repealed.
          (17)(A) Part VII of subchapter A of chapter 1 is hereby 
        repealed.
          (B) The table of parts for subchapter A of chapter 1 is 
        amended by striking the item relating to part VII.
          (C) Paragraph (2) of section 26(b) is amended by striking 
        subparagraph (B) and by redesignating the succeeding 
        subparagraphs accordingly.
          (D) Subsection (c) of section 30A is amended by striking 
        paragraph (1) and redesignating the succeeding paragraphs 
        accordingly.
          (E) Subsection (a) of section 164 is amended by striking 
        paragraph (5).
          (F) Subsection (a) of section 275 is amended by striking 
        ``Paragraph (1) shall not apply to the tax imposed by section 
        59A.''
          (G) Paragraph (1) of section 882(a) is amended by striking 
        ``59A,''.
          (H) Paragraph (3) of section 936(a) is amended by striking 
        subparagraph (A) and redesignating the succeeding subparagraphs 
        accordingly.
          (I) Subsection (a) of section 1561 is amended by adding 
        ``and'' at the end of paragraph (2), by striking ``, and'' at 
        the end of paragraph (3) and inserting a period, and by 
        striking paragraph (4).
          (J) Subparagraph (A) of section 6425(c)(1) is amended by 
        adding ``plus'' at the end of clause (i), by striking ``plus'' 
        at the end of clause (ii) and inserting ``over'', and by 
        striking clause (iii).
          (18) Section 382(l) (relating to limitation on net operating 
        loss carryforwards and certain built-in losses following 
        ownership change) is amended by striking paragraph (7) and by 
        redesignating paragraph (8) as paragraph (7).
          (19) Paragraph (2) of section 815(c) (relating to 
        distributions to shareholders from pre-1984 policyholders 
        surplus account) is amended by striking the last sentence.
          (20) Section 847 (relating to special estimated tax payments) 
        is amended--
                  (A) in paragraph (9), by striking the last sentence; 
                and
                  (B) in paragraph (10), by inserting ``and'' at the 
                end of subparagraph (A) and by striking subparagraph 
                (B) and redesignating subparagraph (C) as subparagraph 
                (B).
          (21) Section 848 (relating to capitalization of certain 
        policy acquisition expenses) is amended by striking subsection 
        (i) and by redesignating subsection (j) as subsection (i).
          (22) Paragraph (1) of section 882(a) (relating to tax on 
        income of foreign corporations connected with United States 
        business) is amended by striking ``55,''.
          (23) Paragraph (1) of section 962(a) (relating to election by 
        individuals to be subject to tax at corporate rates) is amended 
        by striking ``sections 11 and 55'' and inserting ``section 
        11''.
          (24) Subsection (a) of section 1561 (relating to limitations 
        on certain multiple tax benefits in the case of certain 
        controlled corporations) is amended by striking the last 
        sentence.
          (25) Subparagraph (A) of section 6425(c)(1) (defining income 
        tax liability), as amended by paragraph (17) is amended to read 
        as follows:
                  ``(A) the tax imposed by section 11 or 1201(a), or 
                subchapter L of chapter 1, whichever is applicable, 
                over''.
          (26)(A) Paragraph (2) of section 6655(e) is amended--
                  (i) by striking ``, alternative minimum taxable 
                income, and modified alternative minimum taxable 
                income'' each place it appears in subparagraphs (A) and 
                (B)(i), and
                  (ii) by striking clause (iii) of subparagraph (B).
          (B) Subparagraph (A) of section 6655(g)(1) (relating to 
        failure by corporation to pay estimated income tax), is amended 
        to read as follows:
                  ``(A) the sum of--
                          ``(i) the tax imposed by section 11 or 
                        1201(a), or subchapter L of chapter 1, 
                        whichever applies, plus
                          ``(ii) the tax imposed by section 887, 
                        over''.
          (27) The table of sections for part VI of subchapter A of 
        chapter 1 is amended by striking the item relating to section 
        55 and inserting the following new item:

                              ``Sec. 55. Alternative minimum tax for 
                                        taxpayers other than 
                                        corporations.''
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2000.
  (d) Refund of Unused Minimum Tax Credit.--
          (1) In general.--In the case of a corporation--
                  (A) section 53(c) of the Internal Revenue Code of 
                1986 shall not apply to such corporation's first 
                taxable year beginning after December 31, 2000, and
                  (B) for purposes of such Code (other than section 53 
                of such Code), the credit allowed by section 53 of such 
                Code for such first taxable year shall be treated as if 
                it were allowed by subpart C of part IV of subchapter A 
                of chapter 1 of such Code (relating to refundable 
                credits).
          (2) Special rules relating to carrybacks.--In the case of a 
        carryback of a corporation from a taxable year beginning after 
        December 31, 2000, to a taxable year beginning before January 
        1, 2001--
                  (A) the tax imposed by section 55 of such Code shall 
                not be increased or decreased by reason of such a 
                carryback,
                  (B) tentative minimum tax shall not be increased or 
                decreased by reason of such a carryback for purposes of 
                determining the amount of any credit other than the 
                credit allowed by section 38, and
                  (C) the amount of such a carryback which is taken 
                into account in determining tentative minimum tax for 
                purposes of section 38(c) shall be the amount of such 
                carryback which is taken into account in determining 
                regular tax liability.

SEC. 104. CARRYBACK OF CERTAIN NET OPERATING LOSSES ALLOWED FOR 5 
                    YEARS.

  (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) In the case of a taxpayer which has a net 
                operating loss for any taxable year ending after 
                September 10, 2001, and before September 11, 2004, 
                subparagraph (A)(i) shall be applied by substituting 
                `5' for `2' and subparagraph (F) shall not apply.''.
  (b) Election To Disregard 5-Year Carryback.--Section 172 (relating to 
net operating loss deduction) is amended by redesignating subsection 
(j) as subsection (k) and by inserting after subsection (i) the 
following new subsection:
  ``(j) Election To Disregard 5-Year Carryback for Certain Net 
Operating Losses.--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). Such election shall be made in such manner as may 
be prescribed by the Secretary and shall be made by the due date 
(including extensions of time) for filing the taxpayer's return for the 
taxable year of the net operating loss. Such election, once made for 
any taxable year, shall be irrevocable for such taxable year.''.
  (c) Temporary Suspension of 90 Percent Limit on Certain NOL 
Carrybacks.--Subparagraph (A) of section 56(b)(1) (relating to general 
rule defining alternative tax net operating loss deduction), as amended 
by section 103, is amended to read as follows:
                  ``(A) the amount of such deduction shall not exceed 
                the sum of--
                          ``(i) the lesser of--
                                  ``(I) the amount of such deduction 
                                attributable to net operating losses 
                                (other than the deduction attributable 
                                to carrybacks described in clause 
                                (ii)(I)), or
                                  ``(II) 90 percent of alternate 
                                minimum taxable income determined 
                                without regard to such deduction, plus
                          ``(ii) the lesser of--
                                  ``(I) the amount of such deduction 
                                attributable to carrybacks of net 
                                operating losses for taxable years 
                                ending after September 10, 2001, and 
                                before September 11, 2004, or
                                  ``(II) alternate minimum taxable 
                                income determined without regard to 
                                such deduction reduced by the amount 
                                determined under clause (i), and''.
  (d) Effective Date.--The amendments made by this section shall apply 
to net operating losses for taxable years ending after September 10, 
2001.

SEC. 105. RECOVERY PERIOD FOR DEPRECIATION OF CERTAIN LEASEHOLD 
                    IMPROVEMENTS.

  (a) 15-Year Recovery Period.--Subparagraph (E) of section 168(e)(3) 
(relating to 15-year property) is amended by striking ``and'' at the 
end of clause (ii), by striking the period at the end of clause (iii) 
and inserting ``, and'', and by adding at the end the following new 
clause:
                          ``(iv) any qualified leasehold improvement 
                        property.''.
  (b) Qualified Leasehold Improvement Property.--Subsection (e) of 
section 168 is amended by adding at the end the following new 
paragraph:
          ``(6) Qualified leasehold improvement property.--
                  ``(A) In general.--The term `qualified leasehold 
                improvement property' means any improvement to an 
                interior portion of a building which is nonresidential 
                real property if--
                          ``(i) such improvement is made under or 
                        pursuant to a lease (as defined in subsection 
                        (h)(7))--
                                  ``(I) by the lessee (or any 
                                sublessee) of such portion, or
                                  ``(II) by the lessor of such portion,
                          ``(ii) such portion is to be occupied 
                        exclusively by the lessee (or any sublessee) of 
                        such portion, and
                          ``(iii) such improvement is placed in service 
                        more than 3 years after the date the building 
                        was first placed in service.
                  ``(B) Certain improvements not included.--Such term 
                shall not include any improvement for which the 
                expenditure is attributable to--
                          ``(i) the enlargement of the building,
                          ``(ii) any elevator or escalator,
                          ``(iii) any structural component benefiting a 
                        common area, and
                          ``(iv) the internal structural framework of 
                        the building.
                  ``(C) Definitions and special rules.--For purposes of 
                this paragraph--
                          ``(i) Commitment to lease treated as lease.--
                        A commitment to enter into a lease shall be 
                        treated as a lease, and the parties to such 
                        commitment shall be treated as lessor and 
                        lessee, respectively.
                          ``(ii) Related persons.--A lease between 
                        related persons shall not be considered a 
                        lease. For purposes of the preceding sentence, 
                        the term `related persons' means--
                                  ``(I) members of an affiliated group 
                                (as defined in section 1504), and
                                  ``(II) persons having a relationship 
                                described in subsection (b) of section 
                                267; except that, for purposes of this 
                                clause, the phrase `80 percent or more' 
                                shall be substituted for the phrase 
                                `more than 50 percent' each place it 
                                appears in such subsection.
                  ``(D) Improvements made by lessor.--
                          ``(i) In general.--In the case of an 
                        improvement made by the person who was the 
                        lessor of such improvement when such 
                        improvement was placed in service, such 
                        improvement shall be qualified leasehold 
                        improvement property (if at all) only so long 
                        as such improvement is held by such person.
                          ``(ii) Exception for changes in form of 
                        business.--Property shall not cease to be 
                        qualified leasehold improvement property under 
                        clause (i) by reason of--
                                  ``(I) death,
                                  ``(II) a transaction to which section 
                                381(a) applies, or
                                  ``(III) a mere change in the form of 
                                conducting the trade or business so 
                                long as the property is retained in 
                                such trade or business as qualified 
                                leasehold improvement property and the 
                                taxpayer retains a substantial interest 
                                in such trade or business.''
  (c) Requirement To Use Straight Line Method.--Paragraph (3) of 
section 168(b) is amended by adding at the end the following new 
subparagraph:
                  ``(G) Qualified leasehold improvement property 
                described in subsection (e)(6).''.
  (d) Alternative System.--The table contained in section 168(g)(3)(B) 
is amended by adding at the end the following new item:

  ``(E)(iv)..........................................         15''.    
  (e) Effective Date.--The amendments made by this section shall apply 
to qualified leasehold improvement property placed in service after 
September 10, 2001.

                    TITLE II--INDIVIDUAL PROVISIONS

SEC. 201. ACCELERATION OF 25 PERCENT INDIVIDUAL INCOME TAX RATE.

  (a) In General.--The table contained in paragraph (2) of section 1(i) 
(relating to reductions in rates after June 30, 2001) is amended--
          (1) by striking ``27.0%'' and inserting ``25.0%'', and
          (2) by striking ``26.0%'' and inserting ``25.0%''.
  (b) Reduction Not To Increase Minimum Tax.--
          (1) Subparagraph (A) of section 55(d)(1) is amended by 
        striking ``($49,000 in the case of taxable years beginning in 
        2001, 2002, 2003, and 2004)'' and inserting ``($49,000 in the 
        case of taxable years beginning in 2001, $52,200 in the case of 
        taxable years beginning in 2002 or 2003, and $50,700 in the 
        case of taxable years beginning in 2004)''.
          (2) Subparagraph (B) of section 55(d)(1) is amended by 
        striking ``($35,750 in the case of taxable years beginning in 
        2001, 2002, 2003, and 2004)'' and inserting ``($35,750 in the 
        case of taxable years beginning in 2001, $37,350 in the case of 
        taxable years beginning in 2002 or 2003, and $36,600 in the 
        case of taxable years beginning in 2004)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.
  (d) Section 15 Not To Apply.--No amendment made by this section shall 
be treated as a change in a rate of tax for purposes of section 15 of 
the Internal Revenue Code of 1986.

SEC. 202. REPEAL OF 5-YEAR HOLDING PERIOD REQUIREMENT FOR REDUCED 
                    INDIVIDUAL CAPITAL GAINS 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.
  (b) Conforming Amendments.--
          (1) Subsection (e) of section 311 of the Taxpayer Relief Act 
        of 1997 is repealed.
          (2) Section 1(h) is amended--
                  (A) by striking paragraphs (2) and (9),
                  (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 by striking the 
        last sentence and by striking ``42 percent'' and inserting ``28 
        percent''.
  (c) Transitional Rules for Taxable Years Which Include October 12, 
2001.--For purposes of applying section 1(h) of the Internal Revenue 
Code of 1986 in the case of a taxable year which includes October 12, 
2001--
          (1) The amount of tax determined under subparagraph (B) of 
        section 1(h)(1) of such Code shall be the sum of--
                  (A) 8 percent of the lesser of--
                          (i) the sum of--
                                  (I) the net capital gain taking into 
                                account only gain or loss properly 
                                taken into account for the portion of 
                                the taxable year on or after October 
                                12, (determined without regard to 
                                collectibles gain or loss, gain 
                                described in section (1)(h)(6)(A)(i) of 
                                such Code, and section 1202 gain), and
                                  (II) the qualified 5-year gain (as 
                                defined in section 1(h)(9) of the 
                                Internal Revenue Code of 1986, as in 
                                effect on the day before the date of 
                                the enactment of this Act) properly 
                                taken into account for the portion of 
                                the taxable year before October 12, 
                                2001, or
                          (ii) the amount on which a tax is determined 
                        under such subparagraph (without regard to this 
                        subsection), plus
                  (B) 10 percent of the excess (if any) of--
                          (i) the amount on which a tax is determined 
                        under such subparagraph (without regard to this 
                        subsection), over
                          (ii) the amount on which a tax is determined 
                        under subparagraph (A).
          (2) The amount of tax determined under subparagraph (C) of 
        section (1)(h)(1) of such Code shall be the sum of--
                  (A) 18 percent of the lesser of--
                          (i) the excess (if any) of the amount of net 
                        capital gain determined under subparagraph 
                        (A)(i)(I) of paragraph (1) of this subsection 
                        over the amount on which a tax is determined 
                        under subparagraph (A) of paragraph (1) of this 
                        subsection, or
                          (ii) the amount on which a tax is determined 
                        under such subparagraph (C) (without regard to 
                        this subsection), plus
                  (B) 20 percent of the excess (if any) of--
                          (i) the amount on which a tax is determined 
                        under such subparagraph (C) (without regard to 
                        this subsection), over
                          (ii) the amount on which a tax is determined 
                        under subparagraph (A) of this paragraph.
          (3) For purposes of applying section 55(b)(3) of such Code, 
        rules similar to the rules of paragraphs (1) and (2) of this 
        subsection shall apply.
          (4) In applying this subsection with respect to any pass-thru 
        entity, the determination of when gains and loss are properly 
        taken into account shall be made at the entity level.
          (5) Terms used in this subsection which are also used in 
        section 1(h) of such Code shall have the respective meanings 
        that such terms have in such section.
  (d) Effective Dates.--
          (1) In general.--Except as otherwise provided by this 
        subsection, the amendments made by this section shall apply to 
        taxable years ending on or after October 12, 2001.
          (2) Withholding.--The amendment made by subsection (a)(2)(C) 
        shall apply to amounts paid after the date of the enactment of 
        this Act.
          (3) Election to recognize gain on assests held on january 1, 
        2001.--The repeal made by subsection (b)(1) shall take effect 
        as if included in section 311 of the Taxpayer Relief Act of 
        1997, and the Internal Revenue Code of 1986 shall be applied 
        and administered as if subsection (e) of such section 311 had 
        never been enacted.
          (4) Small business stock.--The amendments made by subsection 
        (b)(4) shall apply to dispositions on or after October 12, 
        2001.

SEC. 203. TEMPORARY INCREASE IN DEDUCTION FOR CAPITAL LOSSES OF 
                    TAXPAYERS OTHER THAN CORPORATIONS.

  (a) In General.--Subsection (b) of section 1211 (relating to 
limitation on capital losses for taxpayers other than corporations) is 
amended by adding at the end the following flush sentence:
``Paragraph (1) shall be applied by substituting `$4,000' for `$3,000' 
and `$2,000' for `$1,500' in the case of taxable years beginning in 
2001, and by substituting `$5,000' for `$3,000' and `$2,500' for 
`$1,500' in the case of taxable years beginning in 2002.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to taxable years beginning after December 31, 2000.

SEC. 204. TEMPORARY EXPANSION OF PENALTY-FREE RETIREMENT PLAN 
                    DISTRIBUTIONS FOR HEALTH INSURANCE PREMIUMS OF 
                    UNEMPLOYED INDIVIDUALS.

  (a) In General.--Subparagraph (D) of section 72(t)(2) is amended by 
adding at the end the following new clause:
                          ``(iv) Special rules for individuals 
                        receiving unemployment compensation after 
                        september 10, 2001, and before january 1, 
                        2003.--In the case of an individual who 
                        receives unemployment compensation for 4 
                        consecutive weeks after September 10, 2001, and 
                        before January 1, 2003--
                                  ``(I) clause (i) shall apply to 
                                distributions from all qualified 
                                retirement plans (as defined in section 
                                4974(c)), and
                                  ``(II) such 4 consecutive weeks shall 
                                be substituted for the 12 consecutive 
                                weeks referred to in subclause (I) of 
                                clause (i).''
  (b) Effective Date.--The amendment made by this section shall apply 
to distributions after the date of the enactment of this Act.

          TITLE III--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS

                    Subtitle A--Two-Year Extensions

SEC. 301. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR 
                    AND MINIMUM TAX LIABILITY.

  (a) In General.--Paragraph (2) of section 26(a) is amended--
          (1) by striking ``rule for 2000 and 2001.--'' and inserting 
        ``rule for 2000, 2001, 2002, and 2003.--'', and
          (2) by striking ``during 2000 or 2001,'' and inserting 
        ``during 2000, 2001, 2002, or 2003,''.
  (b) Conforming Amendments.--
          (1) Section 904(h) is amended by striking ``during 2000 or 
        2001'' and inserting ``during 2000, 2001, 2002, or 2003''.
          (2) The amendments made by sections 201(b), 202(f), and 
        618(f) of the Economic Growth and Tax Relief Reconciliation Act 
        of 2001 shall not apply to taxable years beginning during 2002 
        and 2003.
  (c) Technical Correction.--Section 24(d)(1)(B) is amended by striking 
``amount of credit allowed by this section'' and inserting ``aggregate 
amount of credits allowed by this subpart''.
  (d) Effective Dates.--
          (1) The amendments made by subsections (a) and (b) shall 
        apply to taxable years beginning after December 31, 2001.
          (2) The amendment made by subsection (c) shall apply to 
        taxable years beginning after December 31, 2000.

SEC. 302. CREDIT FOR QUALIFIED ELECTRIC VEHICLES.

  (a) In General.--Section 30 is amended--
          (1) in subsection (b)(2)--
                  (A) by striking ``December 31, 2001,'' and inserting 
                ``December 31, 2003,'', and
                  (B) in subparagraphs (A), (B), and (C), by striking 
                ``2002'', ``2003'', and ``2004'', respectively, and 
                inserting ``2004'', ``2005'', and ``2006'', 
                respectively, and
          (2) in subsection (e), by striking ``December 31, 2004'' and 
        inserting ``December 31, 2006''.
  (b) Conforming Amendments.--
          (1) Subparagraph (C) of section 280F(a)(1) is amended by 
        adding at the end the following new clause
                          ``(iii) Application of subparagraph.--This 
                        subparagraph shall apply to property placed in 
                        service after August 5, 1997, and before 
                        January 1, 2007.''.
          (2) Subsection (b) of section 971 of the Taxpayer Relief Act 
        of 1997 is amended by striking ``and before January 1, 2005''.
  (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 303. CREDIT FOR ELECTRICITY PRODUCED FROM RENEWABLE RESOURCES.

  (a) In General.--Subparagraphs (A), (B), and (C) of section 45(c)(3) 
are each amended by striking ``2002'' and inserting ``2004''.
  (b) Effective Date.--The amendments made by subsection (a) shall take 
effect on the date of the enactment of this Act.

SEC. 304. WORK OPPORTUNITY CREDIT.

  (a) In General.--Subparagraph (B) of section 51(c)(4) is amended by 
striking ``2001'' and inserting ``2003''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to individuals who begin work for the employer after December 31, 2001.

SEC. 305. WELFARE-TO-WORK CREDIT.

  (a) In General.--Subsection (f) of section 51A is amended by striking 
``2001'' and inserting ``2003''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to individuals who begin work for the employer after December 31, 2001.

SEC. 306. DEDUCTION FOR CLEAN-FUEL VEHICLES AND CERTAIN REFUELING 
                    PROPERTY.

  (a) In General.--Section 179A is amended--
          (1) in subsection (b)(1)(B)--
                  (A) by striking ``December 31, 2001,'' and inserting 
                ``December 31, 2003,'', and
                  (B) in clauses (i), (ii), and (iii), by striking 
                ``2002'', ``2003'', and ``2004'', respectively, and 
                inserting ``2004'', ``2005'', and ``2006'', 
                respectively, and
          (2) in subsection (f), by striking ``December 31, 2004'' and 
        inserting ``December 31, 2006''.
  (b) Effective Date.--The amendments made by subsection (a) shall take 
effect on the date of the enactment of this Act.

SEC. 307. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR OIL AND 
                    NATURAL GAS PRODUCED FROM MARGINAL PROPERTIES.

  (a) In General.--Subparagraph (H) of section 613A(c)(6) is amended by 
striking ``2002'' and inserting ``2004''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to taxable years beginning after December 31, 2001.

SEC. 308. QUALIFIED ZONE ACADEMY BONDS.

  (a) In General.--Paragraph (1) of section 1397E(e) is amended by 
striking ``2000, and 2001'' and inserting ``2000, 2001, 2002, and 
2003''.
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on the date of the enactment of this Act.

SEC. 309. COVER OVER OF TAX ON DISTILLED SPIRITS.

  (a) In General.--Paragraph (1) of section 7652(f) is amended by 
striking ``January 1, 2002'' and inserting ``January 1, 2004''.
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on the date of the enactment of this Act.

SEC. 310. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH 
                    BENEFITS.

  (a) In General.--Subsection (f) of section 9812 is amended by 
striking ``2001'' and inserting ``2003''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to plan years beginning after December 31, 2001.

SEC. 311. DELAY IN EFFECTIVE DATE OF REQUIREMENT FOR APPROVED DIESEL OR 
                    KEROSENE TERMINALS.

  Paragraph (2) of section 1032(f) of the Taxpayer Relief Act of 1997 
(Public Law 105-34) is amended by striking ``January 1, 2002'' and 
inserting ``January 1, 2004''.

                    Subtitle B--One-Year Extensions

SEC. 321. ONE-YEAR EXTENSION OF AVAILABILITY OF MEDICAL SAVINGS 
                    ACCOUNTS.

  (a) In General.--Paragraphs (2) and (3)(B) of section 220(i) 
(defining cut-off year) are each amended by striking ``2002'' each 
place it appears and inserting ``2003''.
  (b) Conforming Amendments.--
          (1) Paragraph (2) of section 220(j) is amended by striking 
        ``1998, 1999, or 2001'' each place it appears and inserting 
        ``1998, 1999, 2001, or 2002''.
          (2) Subparagraph (A) of section 220(j)(4) is amended by 
        striking ``and 2001'' and inserting ``2001, and 2002''.
  (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

                    Subtitle C--Permanent Extensions

SEC. 331. SUBPART F EXEMPTION FOR ACTIVE FINANCING.

  (a) In General.--
          (1) Section 953(e)(10) is amended--
                  (A) by striking ``, and before January 1, 2002,'', 
                and
                  (B) by striking the second sentence.
          (2) Section 954(h)(9) is amended by striking ``, and before 
        January 1, 2002,''.
  (b) Life Insurance and Annuity Contracts.--
          (1) In General.--Subparagraph (B) of section 954(i)(4) is 
        amended to read as follows:
                  ``(B) Life insurance and annuity contracts.--
                          ``(i) In general.--Except as provided in 
                        clause (ii), the amount of the reserve of a 
                        qualifying insurance company or qualifying 
                        insurance company branch for any life insurance 
                        or annuity contract shall be equal to the 
                        greater of--
                                  ``(I) the net surrender value of such 
                                contract (as defined in section 
                                807(e)(1)(A)), or
                                  ``(II) the reserve determined under 
                                paragraph (5).
                          ``(ii) Ruling request.--The amount of the 
                        reserve under clause (i) shall be the foreign 
                        statement reserve for the contract (less any 
                        catastrophe, deficiency, equalization, or 
                        similar reserves), if, pursuant to a ruling 
                        request submitted by the taxpayer, the 
                        Secretary determines that the factors taken 
                        into account in determining the foreign 
                        statement reserve provide an appropriate means 
                        of measuring income.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

                      Subtitle D--Other Provisions

SEC. 341. EXCLUDED CANCELLATION OF INDEBTEDNESS INCOME OF S CORPORATION 
                    NOT TO RESULT IN ADJUSTMENT TO BASIS OF STOCK OF 
                    SHAREHOLDERS.

  (a) In General.--Subparagraph (A) of section 108(d)(7) (relating to 
certain provisions to be applied at corporate level) is amended by 
inserting before the period ``, including by not taking into account 
under section 1366(a) any amount excluded under subsection (a) of this 
section''.
  (b) Effective Date.--The amendment made by this section shall apply 
to discharges of indebtedness after October 11, 2001, in taxable years 
ending after such date.

SEC. 342. LIMITATION ON USE OF NONACCRUAL EXPERIENCE METHOD OF 
                    ACCOUNTING.

  (a) In General.--Paragraph (5) of section 448(d) is amended to read 
as follows:
          ``(5) Special rule for certain services.--
                  ``(A) In general.--In the case of any person using an 
                accrual method of accounting with respect to amounts to 
                be received for the performance of services by such 
                person, such person shall not be required to accrue any 
                portion of such amounts which (on the basis of such 
                person's experience) will not be collected if--
                          ``(i) such services are in fields referred to 
                        in paragraph (2)(A), or
                          ``(ii) such person meets the gross receipts 
                        test of subsection (c) for all prior taxable 
                        years.
                  ``(B) Exception.--This paragraph shall not apply to 
                any amount if interest is required to be paid on such 
                amount or there is any penalty for failure to timely 
                pay such amount.
                  ``(C) Regulations.--The Secretary shall prescribe 
                regulations to permit taxpayers to determine amounts 
                referred to in subparagraph (A) using computations or 
                formulas which, based on experience, accurately reflect 
                the amount of income that will not be collected by such 
                person. A taxpayer may adopt, or request consent of the 
                Secretary to change to, a computation or formula that 
                clearly reflects the taxpayer's experience. A request 
                under the preceding sentence shall be approved only if 
                such computation or formula clearly reflects the 
                taxpayer's experience.''.
  (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 of 4 years (or if less, the 
                number of taxable years that the taxpayer used the 
                method permitted under section 448(d)(5) of such Code 
                as in effect before the date of the enactment of this 
                Act) beginning with such first taxable year.

            TITLE IV--SUPPLEMENTAL REBATE; OTHER PROVISIONS

SEC. 401. SUPPLEMENTAL REBATE.

  (a) In General.--Section 6428 (relating to acceleration of 10 percent 
income tax rate bracket benefit for 2001) is amended by adding at the 
end the following new subsection:
  ``(f) Supplemental Rebate.--
          ``(1) In general.--Each individual who was an eligible 
        individual for such individual's first taxable year beginning 
        in 2000 and who, before October 16, 2001, filed a return of tax 
        imposed by subtitle A for such taxable year shall be treated as 
        having made a payment against the tax imposed by chapter 1 for 
        such first taxable year in an amount equal to the supplemental 
        refund amount for such taxable year.
          ``(2) Supplemental refund amount.--For purposes of this 
        subsection, the supplemental refund amount is an amount equal 
        to the excess (if any) of--
                  ``(A)(i) $600 in the case of taxpayers to whom 
                section 1(a) applies,
                  ``(ii) $500 in the case of taxpayers to whom section 
                1(b) applies, and
                  ``(iii) $300 in the case of taxpayers to whom 
                subsections (c) or (d) of section 1 applies, over
                  ``(B) the taxpayer's advance refund amount under 
                subsection (e).
          ``(3) Timing of payments.--In the case of any overpayment 
        attributable to this subsection, the Secretary shall, subject 
        to the provisions of this title, refund or credit such 
        overpayment as rapidly as possible.
          ``(4) No interest.--No interest shall be allowed on any 
        overpayment attributable to this subsection.''
  (b) Conforming Amendments.--
          (1) Subparagraph (A) of section 6428(d)(1) is amended by 
        striking ``subsection (e)'' and inserting ``subsections (e) and 
        (f)''.
          (2) Subparagraph (B) of section 6428(d)(1) is amended by 
        striking ``subsection (e)'' and inserting ``subsection (e) or 
        (f)''.
          (3) Paragraph (3) of section 6428(e) is amended by striking 
        ``December 31, 2001'' and inserting ``the date of the enactment 
        of the Economic Security and Recovery Act of 2001''.
  (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 402. SPECIAL REED ACT TRANSFER IN FISCAL YEAR 2002.

  (a) Repeal of Certain Provisions Added by the Balanced Budget Act of 
1997.--
          (1) In general.--The following provisions of section 903 of 
        the Social Security Act (42 U.S.C. 1103) are repealed:
                  (A) Paragraph (3) of subsection (a).
                  (B) The last sentence of subsection (c)(2).
          (2) Savings provision.--Any amounts transferred before the 
        date of enactment of this Act under the provision repealed by 
        paragraph (1)(A) shall remain subject to section 903 of the 
        Social Security Act, as last in effect before such date of 
        enactment.
  (b) Special Transfer in Fiscal Year 2002.--Section 903 of the Social 
Security Act is amended by adding at the end the following:

                 ``Special Transfer in Fiscal Year 2002

  ``(d)(1) The Secretary of the Treasury shall transfer (as of the date 
determined under paragraph (5)(A)) from the Federal unemployment 
account to the account of each State in the Unemployment Trust Fund the 
amount determined with respect to such State under paragraph (2).
  ``(2) The amount to be transferred under this subsection to a State 
account shall (as determined by the Secretary of Labor and certified by 
such Secretary to the Secretary of the Treasury) be equal to--
          ``(A) the amount which would have been required to have been 
        transferred under this section to such account at the beginning 
        of fiscal year 2002 if section 402(a)(1) of the Economic 
        Security and Recovery Act of 2001 had been enacted before the 
        close of fiscal year 2001, minus
          ``(B) the amount which was in fact transferred under this 
        section to such account at the beginning of fiscal year 2002.
  ``(3)(A) Except as provided in paragraph (4), amounts transferred to 
a State account pursuant to this subsection may be used only in the 
payment of cash benefits--
          ``(i) to individuals with respect to their unemployment, and
          ``(ii) which are allowable under subparagraph (B) or (C).
  ``(B)(i) At the option of the State, cash benefits under this 
paragraph may include amounts which shall be payable as regular or 
additional compensation for individuals eligible for regular 
compensation under the unemployment compensation law of such State.
  ``(ii) Any additional compensation under clause (i) may not be taken 
into account for purposes of any determination relating to the amount 
of any extended compensation for which an individual might be eligible.
  ``(C)(i) At the option of the State, cash benefits under this 
paragraph may include amounts which shall be payable to 1 or more 
categories of individuals not otherwise eligible for regular 
compensation under the unemployment compensation law of such State.
  ``(ii) The benefits paid under this subparagraph to any individual 
may not, for any period of unemployment, exceed the maximum amount of 
regular compensation authorized under the unemployment compensation law 
of such State for that same period, plus any additional benefits 
(described in subparagraph (B)(i)) which could have been paid with 
respect to that amount.
  ``(D) Amounts transferred to a State account under this subsection 
may be used in the payment of cash benefits to individuals only for 
weeks of unemployment--
          ``(i) beginning after the date of enactment of this 
        subsection, and
          ``(ii) ending on or before March 11, 2003.
  ``(4) Amounts transferred to a State account under this subsection 
may be used for the administration of its unemployment compensation law 
and public employment offices (including in connection with benefits 
described in paragraph (3) and any recipients thereof), subject to the 
same conditions as set forth in subsection (c)(2) (excluding 
subparagraph (B) thereof, and deeming the reference to `subsections (a) 
and (b)' in subparagraph (D) thereof to include this subsection).
  ``(5) Transfers under this subsection--
          ``(A) shall be made on such date as the Secretary of Labor 
        (in consultation with the Secretary of the Treasury) shall 
        determine, but in no event later than 10 days after the date of 
        enactment of this subsection, and
          ``(B) may, notwithstanding any other provision of this 
        subsection, be made only to the extent that they do not to 
        exceed--
                  ``(i) the balance in the Federal unemployment account 
                as of the date determined under subparagraph (A), or
                  ``(ii) the total amount that was transferred under 
                this section to the Federal unemployment account at the 
                beginning of fiscal year 2002,
        whichever is less.''
  (c) Limitations on Transfers.--Section 903(b) of the Social Security 
Act shall apply to transfers under section 903(d) of such Act (as 
amended by this section). For purposes of the preceding sentence, such 
section 903(b) shall be deemed to be amended as follows:
          (1) By substituting ``the transfer date described in 
        subsection (d)(5)(A)'' for ``October 1 of any fiscal year''.
          (2) By substituting ``remain in the Federal unemployment 
        account'' for ``be transferred to the Federal unemployment 
        account as of the beginning of such October 1''.
          (3) By substituting ``fiscal year 2002 (after the transfer 
        date described in subsection (d)(5)(A))'' for ``the fiscal year 
        beginning on such October 1''.
          (4) By substituting ``under subsection (d)'' for ``as of 
        October 1 of such fiscal year''.
          (5) By substituting ``(as of the close of fiscal year 2002)'' 
        for ``(as of the close of such fiscal year)''.
  (d) Technical Amendments.--(1) Sections 3304(a)(4)(B) and 3306(f)(2) 
of the Internal Revenue Code of 1986 are amended by inserting ``or 
903(d)(4)'' before ``of the Social Security Act''.
  (2) Section 303(a)(5) of the Social Security Act is amended in the 
second proviso by inserting ``or 903(d)(4)'' after ``903(c)(2)''.
  (e) Regulations.--The Secretary of Labor may prescribe any operating 
instructions or regulations necessary to carry out this section and the 
amendments made by this section.

           TITLE V--HEALTH CARE ASSISTANCE FOR THE UNEMPLOYED

SEC. 501. HEALTH CARE ASSISTANCE FOR THE UNEMPLOYED.

  Title XX of the Social Security Act (42 U.S.C. 1397-1397f) is amended 
by adding at the end the following:

``SEC. 2008. GRANTS FOR HEALTH CARE ASSISTANCE FOR THE UNEMPLOYED.

  ``(a) Funding.--For purposes of section 2003, the amount specified in 
section 2003(c) for fiscal year 2002 is increased by $3,000,000,000.
  ``(b) Use of Funds.--Notwithstanding any other provision of this 
title, to the extent that an amount paid to a State under section 2002 
is attributable to funds made available by reason of subsection (a) of 
this section--
          ``(1) the State shall use the amount to assist an unemployed 
        individual who is not eligible for Federal health coverage to 
        purchase health care coverage for the individual or any member 
        of the family of the individual who is not so eligible; and
          ``(2) the amount--
                  ``(A) shall be used to supplement, not supplant, any 
                other Federal, State, or local funds that are used for 
                the provision of health care coverage; and
                  ``(B) may not be included in determining the amount 
                of non-Federal contributions required under any 
                program.
  ``(c) Definitions.--In this section:
          ``(1) Unemployed individual.--The term `unemployed 
        individual' means an individual who--
                  ``(A) is without a job (determined in accordance with 
                the criteria used by the Bureau of Labor Statistics of 
                the Department of Labor in defining individuals as 
                unemployed);
                  ``(B) is seeking and available for work; and
                  ``(C) has or had a benefit year (within the meaning 
                of section 205 of the Federal-State Extended 
                Unemployment Compensation Act of 1970) beginning on or 
                after January 1, 2001.
          ``(2) Federal health coverage.--
                  ``(A) In general.--Subject to subparagraph (B), the 
                term `Federal health coverage' means coverage under any 
                medical care program described in--
                          ``(i) title XVIII, XIX, or XXI of this Act 
                        (other than under section 1928);
                          ``(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 (other than coverage which is comparable 
                        to continuation coverage under section 4980B of 
                        the Internal Revenue Code of 1986); or
                          ``(v) the Indian Health Care Improvement Act.
                  ``(B) Special rule.--Such term does not include 
                coverage under a qualified long-term care insurance 
                contract.''.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 3090, as amended (the ``Economic Security 
and Recovery Act of 2001''), provides tax incentives for 
economic recovery.
    The bill provides net tax reductions and outlays of over 
$159.4 billion over fiscal years 2002-2011. The bill will 
provide tax relief for businesses and individuals that will 
stimulate many sectors of the economy.
    The bill allows an additional first-year depreciation 
deduction for certain qualified property and increases the 
maximum amount that may be deducted under section 179. The bill 
provides a 15-year life for leasehold improvements. The bill 
temporarily extends the general net operating loss carryback 
period to five years. The bill also repeals the corporate 
alternative minimum tax. The bill extends permanently the 
present-law temporary exceptions from subpart F foreign 
personal holding company income, foreign base company services 
income, and insurance income for certain income that is derived 
in the active conduct of a banking, financing or similar 
business, or in the conduct of an insurance business.
    The bill provides a rebate for certain individuals who 
filed a tax return for 2000. The bill accelerates the 25-
percent individual income tax rate and increases the 
alternative minimum tax exemption amount for individuals. The 
bill also increases the deduction of capital losses of 
individuals that may offset ordinary income. The bill 
eliminates the 5-year holding period for reduced individual 
capital gains rates. The bill also expands the exception to the 
early withdrawal tax for IRA distributions used for health 
insurance for unemployed individuals.
    The bill provides a two-year extension of provisions 
expiring in 2001, including: alternative minimum tax relief for 
individuals; the work opportunity tax credit; the welfare-to-
work tax credit; the tax credit for production of electricity 
from wind, closed loop biomass, and poultry litter; suspension 
of taxable income limit on percentage depletion for marginal 
production; authority to issue qualified zone academy bonds; 
increased carryover payments to Puerto Rico and the Virgin 
Islands; suspension of the effective date of the diesel fuel 
and kerosene dying mandate; the deduction for qualified clean-
fuel vehicle property and qualified clean-fuel vehicle 
refueling property; the credit for purchase of electric 
vehicles; and the tax on failures to comply with mental health 
parity requirements. The bill also extends the Archer MSA 
program for one year.
    The bill limits the use of the non-accrual experience 
method of accounting. The bill also provides that income from 
the discharge of indebtedness of an S corporation that is 
excluded from the S corporation's income does not increase a 
shareholder's stock basis. These provisions provide revenue 
offsets for the economic stimulus provisions of the bill and 
also improve the operation of the Federal income tax system by 
closing loopholes and achieving a more accurate measurement of 
income in those situations affected by the provisions.
    The bill repeals a provision of the 1997 Balanced Budget 
Act which limited distributions of surplus Federal unemployment 
trust funds to the States. Approximately $9 billion will be 
available to States. The bill increases by $3 billion, in 
fiscal year 2002 only, funding for the Social Services Block 
Grant Program to assist States in providing health care 
coverage for unemployed workers and their families who do not 
have health care coverage.

                 B. Background and Need for Legislation

    The terrorist attacks of September 11, 2001 have affected 
the United States in numerous ways. In addition to the 
tremendous number of lives lost, the September 11, 2001 attacks 
have caused adverse effects to the U.S. economy. Thousands of 
Americans have lost jobs. Consumer confidence and investor 
confidence are low. The Committee believes that it is necessary 
to spur economic growth and job creation and help struggling 
business and unemployed workers. The provisions approved by the 
Committee will stimulate and strengthen the economy.

                         C. Legislative History


                            COMMITTEE ACTION

    The Committee on Ways and Means marked up the provisions of 
the bill on October 12, 2001, and reported the provisions, as 
amended, on October 12, 2001, by a rollcall vote of 23 yeas and 
14 nays, with a quorum present.

                      II. EXPLANATION OF THE BILL


                      TITLE I: BUSINESS PROVISIONS


A. Special Depreciation Allowance for Certain Property (Sec. 101 of the 
              Bill and Sec. 168 and Sec. 280F of the Code)


                              Present Law

Depreciation deductions

    A taxpayer is allowed to recover, through annual 
depreciation deductions, the cost of certain property used in a 
trade or business or for the production of income. The amount 
of the depreciation deduction allowed with respect to tangible 
property for a taxable year is determined under the modified 
accelerated cost recovery system (``MACRS''). Under MACRS, 
different types of property generally are assigned applicable 
recovery periods and depreciation methods. The recovery periods 
applicable to most tangible personal property (generally 
tangible property other than residential rental property and 
nonresidential real property) range from 3 to 25 years. The 
depreciation methods generally applicable to tangible personal 
property are the 200-percent and 150-percent declining balance 
methods, switching to the straight-line method for the taxable 
year in which the depreciation deduction would be maximized.
    Section 280F limits the annual depreciation deductions with 
respect to passenger automobiles to specified dollar amounts, 
indexed for inflation.
    Section 167(f)(1) provides that capitalized computer 
software costs, other than computer software to which section 
197 applies, are recovered ratably over 36 months.

Expensing election

    In lieu of depreciation, a taxpayer with a sufficiently 
small amount of annual investment may elect to deduct up to 
$24,000 (for taxable years beginning in 2001 or 2002) of the 
cost of qualifying property placed in service for the taxable 
year (sec. 179). This amount is increased to $25,000 for 
taxable years beginning in 2003 and thereafter. In general, 
qualifying property is defined as depreciable tangible personal 
property that is purchased for use in the active conduct of a 
trade or business. The $24,000 ($25,000 for taxable years 
beginning in 2003 and thereafter) amount is reduced (but not 
below zero) by the amount by which the cost of qualifying 
property placed in service during the taxable year exceeds 
$200,000. In addition, the amount eligible to be expensed for a 
taxable year may not exceed the taxable income for a taxable 
year that is derived from the active conduct of a trade or 
business (determined without regard to this provision). Any 
amount that is not allowed as a deduction because of the 
taxable income limitation may be carried forward to succeeding 
taxable years (subject to similar limitations). No general 
business credit under section 38 shall be allowed with respect 
to any amount for which a deduction is allowed under section 
179.

                           Reasons for Change

    The Committee believes that allowing additional first-year 
depreciation will accelerate purchases of equipment, promote 
capital investment, modernization, and growth, and will help to 
spur an economic recovery.

                        Explanation of Provision

    The provision allows an additional first-year depreciation 
deduction equal to 30 percent of the adjusted basis of certain 
qualified property that is placed in service before January 1, 
2005. The additional depreciation deduction is allowed for both 
regular tax and alternative minimum tax purposes for the 
taxable year in which the property is placed in service.\1\ The 
basis of the property and the depreciation allowances in the 
year of purchase and later years is appropriately adjusted to 
reflect the additional first-year depreciation deduction. A 
taxpayer is allowed to elect out of the additional first-year 
depreciation for any class of property for any taxable year.
---------------------------------------------------------------------------
    \1\ The additional depreciation deduction is subject to the general 
rules regarding whether an item is deductible under section 162 or 
subject to capitalization under section 263 or section 263A.
---------------------------------------------------------------------------
    Property qualifies for the additional first-year 
depreciation deduction if the property is (1) property to which 
MACRS applies with a recovery period of 20 years or less other 
than leasehold improvements, (2) water utility property as 
defined in section 168(e)(5), or (3) computer software other 
than computer software covered by section 197. In order to be 
qualified property, the original use \2\ of the property must 
commence with the taxpayer on or after September 11, 2001.\3\ A 
special rule precludes the additional first-year depreciation 
deduction for property that is required to be depreciated under 
the alternative depreciation system of MACRS.
---------------------------------------------------------------------------
    \2\ The term ``original use'' means the first use to which the 
property is put, whether or not such use corresponds to the use of such 
property by the taxpayer. Except as otherwise provided in Treasury 
Regulations, repaired or reconstructed property is not qualified 
property.
    \3\ A special rule applies in the case of certain leased property. 
In the case of any property that is originally placed in service by a 
person and that is sold to the taxpayer and leased back to such person 
by the taxpayer within three months after the date that the property 
was placed in service, the property is treated as originally placed in 
service by the taxpayer not earlier than the date that the property is 
used under the leaseback.
---------------------------------------------------------------------------
    In addition, property qualifies only if acquired by the 
taxpayer (1) after September 10, 2001 and before September 11, 
2004, and no binding written contract for the acquisition is in 
effect before September 11, 2001 or (2) pursuant to a binding 
written contract which was entered into after September 10, 
2001, and before September 11, 2004. Finally, property that is 
manufactured, constructed, or produced by the taxpayer for use 
by the taxpayer qualifies if the taxpayer begins the 
manufacture, construction, or production of the property after 
September 10, 2001, and before September 11, 2004 (and all 
other requirements are met). Property that is manufactured, 
constructed, or produced for the taxpayer by another person 
under a contract that is entered into prior to the manufacture, 
construction, or production of the property is considered to be 
manufactured, constructed, or produced by the taxpayer.
    The limitation on the amount of depreciation deductions 
allowed with respect to certain passenger automobiles (sec. 
280F of the Code) is increased in the first year by $4,600 for 
automobiles that qualify (and do not elect out of the increased 
first year deduction).
    The following examples illustrate the operation of the 
provision.
    Example 1.--Assume that on March 1, 2002, a calendar year 
taxpayer acquires and places in service qualified property that 
costs $1 million. Under the provision, the taxpayer is allowed 
an additional first-year depreciation deduction of $300,000. 
The remaining $700,000 of adjusted basis is to be recovered in 
2002 and subsequent years pursuant to the depreciation rules of 
present law.
    Example 2.--Assume that on March 1, 2002, a calendar year 
taxpayer acquires and places in service qualified property that 
costs $50,000. In addition, assume that the property qualifies 
for the expensing election under section 179. Under the 
provision, the taxpayer is first allowed a $35,000 deduction 
under section 179.\4\ The taxpayer then is allowed an 
additional first-year depreciation deduction of $4,500 based on 
$15,000 ($50,000 original cost less the section 179 deduction 
of $35,000) of adjusted basis. Finally, the remaining adjusted 
basis of $11,500 ($15,000 adjusted basis less $4,500 additional 
first-year depreciation) is to be recovered in 2002 and 
subsequent years pursuant to the depreciation rules of present 
law.
---------------------------------------------------------------------------
    \4\ A subsequent provision in the bill temporarily increases the 
amount deductible under section 179 to $35,000.
---------------------------------------------------------------------------

                             Effective Date

    The provision applies to property placed in service after 
September 10, 2001.

 B. Temporary Increase in Section 179 Expensing (Sec. 102 of the Bill 
                       and Sec. 179 of the Code)


                              Present Law

    Present law provides that, in lieu of depreciation, a 
taxpayer with a sufficiently small amount of annual investment 
may elect to deduct up to $24,000 (for taxable years beginning 
in 2001 or 2002) of the cost of qualifying property placed in 
service for the taxable year (sec. 179). This amount is 
increased to $25,000 of the cost of qualified property placed 
in service for taxable years beginning in 2003 and thereafter. 
In general, qualifying property is defined as depreciable 
tangible personal property that is purchased for use in the 
active conduct of a trade or business. The $24,000 ($25,000 for 
taxable years beginning in 2003 and thereafter) amount is 
reduced (but not below zero) by the amount by which the cost of 
qualifying property placed in service during the taxable year 
exceeds $200,000. In addition, the amount eligible to be 
expensed for a taxable year may not exceed the taxable income 
for a taxable year that is derived from the active conduct of a 
trade or business (determined without regard to this 
provision). Any amount that is not allowed as a deduction 
because of the taxable income limitation may be carried forward 
to succeeding taxable years (subject to similar limitations). 
No general business credit under section 38 is allowed with 
respect to any amount for which a deduction is allowed under 
section 179.

                           Reasons for Change

    The Committee believes that increasing the number of small 
businesses eligible for immediate expensing and increasing the 
amount allowed to be expensed will provide an incentive for 
eligible businesses to increase their investment in capital 
assets, thus promoting economic growth for small businesses.

                        Explanation of Provision

    The provision provides that the maximum dollar amount that 
may be deducted under section 179 is increased to $35,000 for 
property placed in service in taxable years beginning after 
December 31, 2001, and before January 1, 2004.\5\ The provision 
increases the present law $200,000 limit to $325,000. Thus, 
under the provision the $35,000 amount is reduced by the amount 
by which the cost of qualifying property placed in service 
exceeds $325,000. As under present law, no general business 
credit under section 38 is allowed with respect to any amount 
for which a deduction is allowed under section 179. For taxable 
years beginning after December 31, 2003, present law applies 
(i.e., up to a $25,000 deduction that is reduced by the amount 
of qualifying property placed in service by the taxpayer that 
exceeds $200,000).
---------------------------------------------------------------------------
    \5\ As a result of the increased deduction, the maximum dollar 
amount that may be deducted by an enterprise zone business or a renewal 
community business is increased to $70,000 for taxable years beginning 
after December 31, 2001, and before January 1, 2004. See sec. 1397A and 
sec. 1400J.
---------------------------------------------------------------------------

                             Effective Date

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

 C. Repeal Corporate Alternative Minimum Tax (Sec. 103 of the Bill and 
                          Sec. 55 of the Code)


                              Present Law

In general

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

Preference items in computing AMTI

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

Adjustments in computing AMTI

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

                           Reasons for Change

    The Committee believes that the corporate AMT inhibits 
capital formation and business enterprise, and is 
administratively complex. During an economic slowdown, 
corporations are more likely to be liable for the AMT because 
their income is low relative to their investment in plant and 
equipment. Therefore, the bill repeals the corporate AMT.

                        Explanation of Provision

    The provision repeals the corporate AMT.
    The provision makes the AMT credit for corporations 
refundable.\6\ Thus, a corporation will be able to obtain a 
refund of its entire AMT credit for the first taxable year 
beginning after December 31, 2000 (to the extent the credit is 
in excess of tax liability).
---------------------------------------------------------------------------
    \6\ Because the AMT credit will be refunded in the corporation's 
first taxable year beginning after December 31, 2000, the computation 
of the AMT, and the computation of the tentative minimum tax for 
purposes of the credits allowed by sections 29 and 30, will not take 
into account any carrybacks from taxable years beginning after that 
date.
    In computing the tentative minimum tax for purposes of computing 
the AMT credit for a taxable year beginning before 2001, carrybacks 
from taxable years beginning after 2000 likewise will not be taken into 
account. To the extent the AMT credit is reduced in a prior taxable 
year as a result of this rule, the AMT credit will be allowed or 
refunded in a later taxable year. Under the rules relating to the 
computation of interest resulting from carrybacks, any resulting 
decreases and increases in the AMT credit in differing taxable years 
resulting from a post-2000 carryback should offset each other.
    In computing the general business credit for a taxable year 
beginning before 2001, the tentative minimum tax will be computing 
using the same amount of carryback from taxable years beginning after 
2000 as used for purposes of computing the regular tax.
---------------------------------------------------------------------------

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 2000.

D. Temporary Extension of the Net Operating Loss Carryback Period (Sec. 
           104 of the Bill and Secs. 172 and 56 of the Code)


                              Present Law

    A net operating loss (``NOL'') is, generally, the amount by 
which a taxpayer's allowable deductions exceed the taxpayer's 
gross income. An NOL that is carried back may be deducted from 
gross income in the carryback year, thereby resulting in a 
refund of Federal income tax for the carryback year. Similarly, 
an NOL that is carried forward may be deducted from gross 
income in a carryforward year, thus reducing the Federal income 
tax liability for the carryforward year.
    In general, an NOL may be carried back two years and 
carried forward 20 years to offset taxable income in such 
years. Different rules apply with respect to NOLs arising in 
certain circumstances. For example, a three-year carryback 
applies with respect to NOLs (1) arising from casualty or theft 
losses of individuals, or (2) attributable to Presidentially 
declared disasters for taxpayers engaged in a farming business 
or a small business. A five-year carryback period applies to 
NOLs from a farming loss (regardless of whether the loss was 
incurred in a Presidentially declared disaster area). Special 
rules also apply to real estate investment trusts (no 
carryback), specified liability losses (10-year carryback), and 
excess interest losses (no carryback).
    The alternative minimum tax rules provide that a taxpayer's 
NOL deduction cannot reduce the taxpayer's alternative minimum 
taxable income (``AMTI'') by more than 90 percent of the AMTI.

                           Reasons for Change

    The NOL carryback and carryforward rules allow taxpayers to 
smooth out swings in business income (and Federal income taxes 
thereon) that result from business cycle fluctuations and 
unexpected financial losses. The current uncertain economic 
conditions have resulted in many taxpayers incurring unexpected 
financial losses. A temporary extension of the NOL carryback 
period will provide taxpayers in all sectors of the economy who 
experience such losses the ability to increase their cash flow 
through the refund of income taxes paid in prior years. The 
provision will free up funds that can be used for capital 
investment or other expenses that will provide stimulus to the 
economy.

                        Explanation of Provision

    The provision temporarily extends the general NOL carryback 
period to five years (from two years) for NOLs arising in 
taxable years ending on or after September 11, 2001, and ending 
before September 11, 2004. In addition, the five-year carryback 
period applies to NOLs from these years that qualify under 
present law for a three-year carryback period (i.e., NOLs 
arising from casualty or theft losses of individuals or 
attributable to certain Presidentially declared disaster 
areas).
    The provision also allows an NOL deduction attributable to 
these taxable years to offset 100 percent of a taxpayer's AMTI 
in a carryback year.\7\
---------------------------------------------------------------------------
    \7\ Section 172(b)(2) should be appropriately applied in computing 
AMTI to take proper account of the order that the NOL carryovers and 
carrybacks are used as a result of this provision. See section 
56(d)(1)(B)(ii).
---------------------------------------------------------------------------
    A taxpayer can elect to forgo the five-year carryback 
period. The election to forgo the five-year carryback period is 
made in the manner prescribed by the Secretary of the Treasury 
and must be made by the due date of the return (including 
extensions) for the year of the loss. The election is 
irrevocable. If a taxpayer elects to forgo the five-year 
carryback period, then the losses are subject to the rules that 
otherwise would apply under section 172 absent the provision.

                             Effective Date

    The provision is effective for NOLs arising in taxable 
years ending on or after September 11, 2001, and before 
September 11, 2004.

 E. Treatment of Leasehold Improvements (Sec. 105 of the Bill and Sec. 
                            168 of the Code)


                              present law

Depreciation of leasehold improvements

    Depreciation allowances for property used in a trade or 
business generally are determined under the modified 
Accelerated Cost Recovery System (``MACRS'') of section 168. 
Depreciation allowances for improvements made on leased 
property are determined under MACRS, even if the MACRS recovery 
period assigned to the property is longer than the term of the 
lease (sec. 168(i)(8)).\8\ This rule applies regardless whether 
the lessor or lessee places the leasehold improvements in 
service.\9\ If a leasehold improvement constitutes an addition 
or improvement to nonresidential real property already placed 
in service, the improvement is depreciated using the straight-
line method over a 39-year recovery period, beginning in the 
month the addition or improvement was placed in service (secs. 
168(b)(3), (c)(1), (d)(2), and (i)(6)).\10\
---------------------------------------------------------------------------
    \8\ The Tax Reform Act of 1986 modified the Accelerated Cost 
Recovery System (``ACRS'') to institute MACRS. Prior to the adoption of 
ACRS by the Economic Recovery Act of 1981, taxpayers were allowed to 
depreciate the various components of a building as separate assets with 
separate useful lives. The use of component depreciation was repealed 
upon the adoption of ACRS. The Tax Reform Act of 1986 also denied the 
use of component depreciation under MARCS.
    \9\ Former Code sections 168(f)(6) and 178 provided that in certain 
circumstances, a lessee could recover the cost of leasehold 
improvements made over the remaining term of the lease. These 
provisions were repealed by the Tax Reform Act of 1986.
    \10\ If the improvement is characterized as tangible personal 
property, ACRS or MARCS depreciation is calculated using the shorter 
recovery periods and accelerated methods applicable to such property. 
The determination of whether certain improvements are characterized as 
tangible personal property or as nonresidential real property often 
depends on whether or not the improvements constitute a ``structural 
component'' of a building (as defined by Treas. Reg. sec. 1.48-
1(e)(1)). See, for example, Metro National Corp., 52 TCM 1440 (1987); 
King Radio Corp., 486 F.2d 1091 (10th Cir., 1973); Mallinckrodt, Inc., 
778 F.2d 402 (8th Cir., 1985) (with respect various leasehold 
improvements).
---------------------------------------------------------------------------

Treatment of dispositions of leasehold improvements

    A lessor of leased property that disposes of a leasehold 
improvement which was made by the lessor for the lessee of the 
property may take the adjusted basis of the improvement into 
account for purposes of determining gain or loss if the 
improvement is irrevocably disposed of or abandoned by the 
lessor at the termination of the lease.\11\ This rule conforms 
the treatment of lessors and lessees with respect to leasehold 
improvements disposed of at the end of a term of lease. For 
purposes of applying this rule, it is expected that a lessor 
must be able to separately account for the adjusted basis of 
the leasehold improvement that is irrevocably disposed of or 
abandoned. This rule does not apply to the extent section 280B 
applies to the demolition of a structure, a portion of which 
may include leasehold improvements.\12\
---------------------------------------------------------------------------
    \11\ The conference report describing this provision mistakenly 
states that the provision applies to improvements that are irrevocably 
disposed of or abandoned by the lessee (rather than the lessor) at the 
termination of the lease.
    \12\ Undere present law, section 280B denies a deduction for any 
loss sustained on the demolition of any structure.
---------------------------------------------------------------------------

                           reasons for change

    The Committee believes that costs of certain leasehold 
improvements should not be recovered beyond the term of the 
lease to the extent that the costs do not provide a future 
benefit beyond that term. Although lease terms differ, the 
Committee believes that lease terms for commercial real estate 
typically are shorter than the present-law 39-year recovery 
period. In the interests of simplicity and administrability, a 
uniform period for recovery of leasehold improvements is 
desirable. The Committee bill therefore shortens the recovery 
period for leasehold improvements to 15 years.

                        explanation of provision

    The provision provides that 15-year property for purposes 
of the depreciation rules of section 168 includes qualified 
leasehold improvement property. The straight line method is 
required to be used with respect to qualified leasehold 
improvement property.
    Qualified leasehold improvement property is any improvement 
to an interior portion of a building that is nonresidential 
real property, provided certain requirements are met. The 
improvement must be made under or pursuant to a lease either by 
the lessee (or sublessee) of that portion of the building, or 
by the lessor of that portion of the building. That portion of 
the building is to be occupied exclusively by the lessee (or 
any sublessee). The improvement must be placed in service more 
than three years after the date the building was first placed 
in service.
    Qualified leasehold improvement property does not include 
any improvement for which the expenditure is attributable to 
the enlargement of the building, any elevator or escalator, any 
structural component benefiting a common area, or the internal 
structural framework of the building.
    A 15-year period is specified as the class life of 
qualified leasehold improvement property for purposes of the 
alternative depreciation system. Therefore, the general rule 
that the class life for nonresidential real and residential 
rental property is 40 years does not apply to qualified 
leasehold improvement property.
    For purposes of the provision, a commitment to enter into a 
lease is treated as a lease, and the parties to the commitment 
are treated as lessor and lessee. A lease between related 
persons is not considered a lease for this purpose.
    Under the provision, an improvement made by the person who 
was the lessor of the improvement when it was placed in service 
generally is treated as qualified leasehold improvement 
property only so long as the improvement is held by that 
person. Exceptions are provided under this rule in the case of 
certain changes in the form of business. Under these 
exceptions, property does not cease to be qualified leasehold 
improvement property under the provision by reason of (1) 
death, (2) a transaction to which section 381 (relating to 
carryovers in certain corporate acquisitions) applies, or (3) a 
mere change in the form of conducting the trade or business so 
long as the property is retained in the business as qualified 
leasehold improvement property and the taxpayer retains a 
substantial interest in the business.
    Qualified leasehold improvement property is not eligible 
for the 30 percent expensing provided under a separate 
provision of the bill.

                             effective date

    The provision is effective for qualified leasehold 
improvement property placed in service on or after September 
11, 2001.

                    TITLE II: INDIVIDUAL PROVISIONS


 A. Accelerate the 25-Percent Rate Bracket to 2002 (Sec. 201(a) of the 
                      Bill and Sec. 1 of the Code)


                              present law

    The Economic Growth and Tax Relief Reconciliation Act of 
2001 (``EGTRRA'') reduced the prior-law 28-percent individual 
regular income tax rate to 25 percent. This rate reduction is 
phased-in over six years. The rate is 27 percent for taxable 
years beginning in calendar years 2001-2003,\13\ 26 percent for 
taxable years beginning in calendar years 2004-2005, and 25 
percent for taxable years beginning in calendar years 2006 and 
thereafter.
---------------------------------------------------------------------------
    \13\ A blended rate of 27.5 percent applies in 2001 because of the 
July 1, 2001 effective date of EGTRRA.
---------------------------------------------------------------------------

                           reasons for change

    The Committee believes that this stimulus package should 
contain provisions targeted at both businesses and individuals. 
Further, the Committee believes that the acceleration of the 
rate reduction of the 28-percent individual regular income tax 
rate provided in EGTRRA is an appropriate element of this 
fiscal stimulus tax package. Accelerating the decrease in the 
28-percent rate bracket will allow taxpayers to keep more of 
their own money starting in 2002 and provide additional funds 
for needed consumer purchases. In addition, accelerating the 
rate reduction will increase the after-tax rate of return for 
many small businesses. Thus, the Committee believes that 
acceleration of the rate reduction will stimulate the economy 
by increasing consumer confidence and spending and spurring 
economic activity.

                       explanation of provisions

    The bill provides that the 25-percent rate is effective for 
taxable years beginning in calendar years 2002 and thereafter.

                             effective date

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

 B. Alternative Minimum Tax Exemption for Individuals (Sec. 201(b) of 
                   the Bill and Sec. 55 of the Code)


                              present law

    The alternative minimum tax is the amount by which the 
tentative minimum tax exceeds the regular income tax. An 
individual's tentative minimum tax is an amount equal to (1) 26 
percent of the first $175,000 ($87,500 in the case of a married 
individual filing a separate return) of alternative minimum 
taxable income (``AMTI'') in excess of a phased-out exemption 
amount and (2) 28 percent of the remaining AMTI. The maximum 
tax rates on net capital gain used in computing the tentative 
minimum tax are the same as under the regular tax. AMTI is the 
individual's taxable income adjusted to take account of 
specified preferences and adjustments. The exemption amounts 
are: (1) $45,000 ($49,000 in taxable years beginning before 
2005) in the case of married individuals filing a joint return 
and surviving spouses; (2) $33,750 ($35,750 in taxable years 
beginning before 2005) in the case of other unmarried 
individuals; (3) $22,500 ($24,500 in taxable years beginning 
before 2005) in the case of married individuals filing a 
separate return; and (4) $22,500 in the case of an estate or 
trust. The exemption amounts are phased out by an amount equal 
to 25 percent of the amount by which the individual's AMTI 
exceeds (1) $150,000 in the case of married individuals filing 
a joint return and surviving spouses, (2) $112,500 in the case 
of other unmarried individuals, and (3) $75,000 in the case of 
married individuals filing separate returns or an estate or a 
trust. These amounts are not indexed for inflation.

                           reasons for change

    The Committee believes that an adjustment to the AMT 
exemption amount is necessary to allow the bill's acceleration 
in the 25-percent rate bracket to have full effect. Without an 
adjustment, the AMT would reduce the benefit of the rate 
reduction for many individuals, thereby reducing the 
stimulative effect of the rate reduction.

                        explanation of provision

    The provision increases the AMT exemption amount of 
individuals for taxable years beginning in 2002, 2003, and 
2004.
    For 2002 and 2003, the $49,000 exemption amount is 
increased by $3,200; the $35,750 exemption amount is increased 
by $1,600; and the $24,500 exemption amount is increased by 
$1,600.
    For 2004, the $49,000 exemption amount is increased by 
$1,700; the $35,750 exemption amount is increased by $850; and 
the $24,500 exemption amount is increased by $850.

                             effective date

    The provision is effective for taxable years beginning 
after December 31, 2001 and before January 1, 2005.

 C. Simplify Individual Capital Gains Rates (Sec. 202 of the Bill and 
                         Sec. 1(h) 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 a capital 
asset, any gain generally is included in income. Any 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.
    Capital losses generally are deductible in full against 
capital gains. In addition, individual taxpayers may deduct 
capital losses against up to $3,000 of ordinary income in each 
year. Any remaining unused capital losses may be carried 
forward indefinitely to another taxable year.
    A capital asset generally means any property except (1) 
inventory, stock in trade, or property held primarily for sale 
to customers in the ordinary course of the taxpayer's trade or 
business, (2) depreciable or real property used in the 
taxpayer's trade or business, (3) specified literary or 
artistic property, (4) business accounts or notes receivable, 
(5) certain U.S. publications, (6) certain commodity derivative 
financial instruments, (7) hedging transactions, and (8) 
business supplies. 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 a 15-percent 
rate 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 that 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), an amount of 
gain equal to the amount of gain excluded from gross income 
under section 1202 (relating to certain small business 
stock),\14\ the net short-term capital loss for the taxable 
year, and any long-term capital loss carryover to the taxable 
year.
---------------------------------------------------------------------------
    \14\ 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, 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. Any amount of unrecaptured section 
1250 gain or 28-percent rate gain otherwise taxed at a 15-
percent rate is taxed at the 15-percent rate.
    Any gain from the sale or exchange of property held more 
than five years which would otherwise be taxed at the 10-
percent rate is 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 is 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 on that date for an amount equal to 
its fair market value, and having been reacquired for an amount 
equal to such value.

                           Reasons for Change

    The bill simplifies the capital gain rates by eliminating 
the 5-year holding period so that the 8- and 18-percent rates 
are effective for assets held more than one year, and the 10- 
and 20-percent rates will no longer apply.

                        Explanation of Provision

    The provision reduces the 10- and 20-percent rates on the 
adjusted net capital gain to 8 and 18 percent, respectively. 
These lower rates apply to both the regular tax and the 
alternative minimum tax.
    The provision repeals the special rules for certain gain 
from property held more than 5 years, and repeals the election 
to recognize gain on property held on January 1, 2001. The 
lower rates apply to assets held more than one year.

                             Effective Date

    The provision applies to taxable years of individual 
taxpayers ending on or after October 12, 2001.
    For taxable years of individual taxpayers that include 
October 12, 2001, 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 October 12, 2001. 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 (without regard to the taxable year of the entity).

D. Increase Deduction of Capital Losses of Individuals Against Ordinary 
        Income (Sec. 203 of the Bill and Sec. 1211 of the Code)


                              Present Law

    Capital losses of individuals are deductible in full 
against capital gains. In addition, individual taxpayers may 
deduct capital losses against up to $3,000 ($1,500 in the case 
of married individuals filing a separate return) of ordinary 
income in each taxable year. Any remaining unused capital 
losses may be carried forward indefinitely to future taxable 
years.

                           Reasons for Change

    The Committee believes that the limitation on the 
deductibility of capital losses should be raised.

                        Explanation of Provision

    The amount of capital losses of individuals that may offset 
ordinary income is increased from $3,000 to $4,000 in taxable 
years beginning in 2001 and to $5,000 in taxable years 
beginning in 2002. For married individuals filing a separate 
return, the increases are from $1,500 to $2,000 and $2,500 
respectively.

                             Effective Date

    The provision applies to taxable years beginning in 2001 
and 2002.

  E. Expand Exception From Early Withdrawal Tax for Health Insurance 
Expenses of Unemployed Individuals (Sec. 204 of the Bill and Sec. 72(t) 
                              of the Code)


                              Present Law

    A distribution from an individual retirement account 
(``IRA'') or an employer-sponsored retirement plan generally is 
includible in gross income in the year it is paid under the 
rules relating to taxation of annuities, unless the amount 
distributed represents the individual's investment in the 
contract (i.e., basis). Special rules apply in the case of Roth 
IRAs, distributions that are rolled over into another tax-
favored retirement plan, distributions of employer securities, 
and certain other situations.
    Taxable distributions made from an IRA or from certain 
employer-sponsored retirement plans before age 59\1/2\, death, 
or disability generally are subject to an additional 10-percent 
income tax. Besides IRAs, the early withdrawal tax applies to 
distributions from a qualified retirement plan (including a 
section 401(k) plan), a qualified annuity plan, or a tax-
deferred annuity plan (``section 403(b) plan''). However, 
exceptions apply to the early withdrawal tax, depending in part 
on the specific type of arrangement from which the distribution 
is made and the purpose for which the distribution is used.
    The 10-percent early withdrawal tax does not apply to IRA 
distributions to an unemployed individual after separation from 
employment to the extent the distributions do not exceed the 
amount paid during the year for health insurance for the 
individual and the individual's spouse and dependents. This 
exception applies if the individual (including a self-employed 
individual) has received unemployment compensation under 
Federal or State law for at least 12 consecutive weeks and if 
the distribution is made in the year such unemployment 
compensation is received or the following year. If a self-
employed individual is not eligible for unemployment 
compensation under applicable law, then, to the extent provided 
in regulations, a self-employed individual is treated as having 
received unemployment compensation for at least 12 weeks if the 
individual would have received unemployment compensation but 
for the fact that the individual was self-employed.
    The exception to the early withdrawal tax ceases to apply 
if the individual has been reemployed for at least 60 days.

                           Reasons for Change

    The Committee understands that individuals who lose their 
jobs as a result of the current economic downturn may face 
unexpected health insurance costs. The Committee believes that 
it is appropriate to provide a temporary exception to the early 
withdrawal tax for individuals who withdraw retirement funds in 
order to pay for health insurance.

                        Explanation of Provision

    The provision temporarily expands the present-law exception 
to the early withdrawal tax for IRA distributions used for 
health insurance for unemployed individuals. Under the 
provision, the exception applies to distributions made after 
separation from employment to individuals who receive 
unemployment compensation for four consecutive weeks during the 
period from September 11, 2001 to December 31, 2002. As under 
present law, the exception applies to the extent distributions 
do not exceed the amount paid during the year for health 
insurance for the individual and the individual's spouse and 
dependents. As under present law, the exception can apply to 
distributions made in the year following the year in which the 
unemployment compensation is received, but does not apply to 
distributions made after the individual has been reemployed for 
at least 60 days.
    Under the provision, the exception applies also to 
distributions from a qualified retirement plan (including a 
section 401(k) plan), a qualified annuity plan, or a section 
403(b) plan, provided the requirements for the exception are 
otherwise met.

                             Effective Date

    The provision is effective for distributions made after the 
date of enactment.

              TITLE III: EXTENSIONS OF EXPIRING PROVISIONS


          A. Two-Year Extension of Provisions Expiring in 2001


1. Extend Alternative Minimum Tax Relief for Individuals (sec. 301 of 
        the bill and sec. 26 of the Code)

                              present law

    Present law provides for certain nonrefundable personal tax 
credits (i.e., the dependent care credit, the credit for the 
elderly and disabled, the adoption credit, the child tax 
credit\15\, the credit for interest on certain home mortgages, 
the HOPE Scholarship and Lifetime Learning credits, the IRA 
credit, and the D.C. homebuyer's credit). For taxable years 
beginning after 2001, these credits (other than the adoption 
credit, child credit and IRA credit) are allowed only to the 
extent that the individual's regular income tax liability 
exceeds the individual's tentative minimum tax, determined 
without regard to the minimum tax foreign tax credit. The 
adoption credit, child credit, and IRA credit are allowed to 
the full extent of the individual's regular tax and alternative 
minimum tax.
---------------------------------------------------------------------------
    \15\ A portion of the child credit may be refundable.
---------------------------------------------------------------------------
    For taxable years beginning in 2001, all the nonrefundable 
personal credits are allowed to the extent of the full amount 
of the individual's regular tax and alternative minimum tax.
    The alternative minimum tax is the amount by which the 
tentative minimum tax exceeds the regular income tax. An 
individual's tentative minimum tax is an amount equal to (1) 26 
percent of the first $175,000 ($87,500 in the case of a married 
individual filing a separate return) of alternative minimum 
taxable income (``AMTI'') in excess of a phased-out exemption 
amount and (2) 28 percent of the remaining AMTI. The maximum 
tax rates on net capital gain used in computing the tentative 
minimum tax are the same as under the regular tax. AMTI is the 
individual's taxable income adjusted to take account of 
specified preferences and adjustments. The exemption amounts 
are: (1) $45,000 ($49,000 in taxable years beginning before 
2005) in the case of married individuals filing a joint return 
and surviving spouses; (2) $33,750 ($35,750 in taxable years 
beginning before 2005) in the case of other unmarried 
individuals; (3) $22,500 ($24,500 in taxable years beginning 
before 2005) in the case of married individuals filing a 
separate return; and (4) $22,500 in the case of an estate or 
trust.\16\ The exemption amounts are phased out by an amount 
equal to 25 percent of the amount by which the individual's 
AMTI exceeds (1) $150,000 in the case of married individuals 
filing a joint return and surviving spouses, (2) $112,500 in 
the case of other unmarried individuals, and (3) $75,000 in the 
case of married individuals filing separate returns or an 
estate or a trust. These amounts are not indexed for inflation.
---------------------------------------------------------------------------
    \16\ Section 202(b) of the bill increases certain of the exemption 
amounts.
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee believes that the nonrefundable personal 
credits should be useable without limitation by reason of the 
alternative minimum tax. This will result in significant 
simplification.

                        Explanation of Provision

    The provision allows an individual to offset the entire 
regular tax liability and alternative minimum tax liability by 
the personal nonrefundable credits in 2002 and 2003.

                             effective Date

    The provision is effective for taxable years beginning in 
2002 and 2003.

2. Extend Credit for Purchase of Electric Vehicles (sec. 302 of the 
        bill and secs. 30 and 280F of the Code)

    A 10-percent tax credit is provided for the cost of a 
qualified electric vehicle, up to a maximum credit of $4,000 
(sec. 30). A qualified electric vehicle is a motor vehicle that 
is powered primarily by an electric motor drawing current from 
rechargeable batteries, fuel cells, or other portable sources 
of electrical current, the original use of which commences with 
the taxpayer, and that is acquired for the use by the taxpayer 
and not for resale. The full amount of the credit is available 
for purchases prior to 2002. The credit phases down in the 
years 2002 through 2004, and is unavailable for purchases after 
December 31, 2004.\17\
---------------------------------------------------------------------------
    \17\ The amount the taxpayer may claim as a depreciation deduction 
for any passenger automobile is limited (sec. 280F). In the case of a 
passenger vehicle designed to be propelled primarily by electricity and 
built by an original equipment manufactgurer, the otherwise applicable 
limitation amounts are tripled. These exceptions from sec. 280F apply 
to vehicles placed in service prior to January 1, 2005.
---------------------------------------------------------------------------

                           reasons for Change

    The Committee believes that continued economic incentive is 
warranted to increase the presence of electric vehicles on the 
nation's roadways.

                        explanation of provision

    The bill defers the phase down of the credit by two years. 
Taxpayers may claim the full amount of the credit for qualified 
purchases made in 2002 and 2003. Under the bill, the phase down 
of the credit value commences in 2004 and the credit is 
unavailable for purchases after December 31, 2006. A conforming 
modification is made to section 280F.

                             effective date

    The provision is effective on the date of enactment.

3. Extend Section 45 Credit for Production of Electricity from Wind, 
        Closed Loop Biomass, and Poultry Litter (sec. 303 of the bill 
        and sec. 45 of the Code)

                              present law

    An income tax credit is allowed for the production of 
electricity from either qualified wind energy, qualified 
``closed-loop'' biomass, or qualified poultry waste facilities 
(sec. 45).
    The credit applies to electricity produced by a wind energy 
facility placed in service after December 31, 1993, and before 
January 1, 2002, to electricity produced by a closed-loop 
biomass facility placed in service after December 31, 1992, and 
before January 1, 2002, and to a poultry waste facility placed 
in service after December 31, 1999, and before January 1, 2002. 
The credit is allowable for production during the 10-year 
period after a facility is originally placed in service. In 
order to claim the credit, a taxpayer must own the facility and 
sell the electricity produced by the facility to an unrelated 
party. In the case of a poultry waste facility, the taxpayer 
may claim the credit as a lessee/operator of a facility owned 
by a governmental unit.
    Closed-loop biomass is plant matter, where the plants are 
grown for the sole purpose of being used to generate 
electricity. It does not include waste materials (including, 
but not limited to, scrap wood, manure, and municipal or 
agricultural waste). The credit also is not available to 
taxpayers who use standing timber to produce electricity. 
Poultry waste means poultry manure and litter, including wood 
shavings, straw, rice hulls, and other bedding material for the 
disposition of manure.
    The credit for electricity produced from wind, closed-loop 
biomass, or poultry waste is a component of the general 
business credit (sec. 38(b)(8)). The credit, when combined with 
all other components of the general business credit, generally 
may not exceed for any taxable year the excess of the 
taxpayer's net income tax over the greater of (1) 25 percent of 
net regular tax liability above $25,000, or (2) the tentative 
minimum tax. For credits arising in taxable years beginning 
after December 31, 1997, an unused general business credit 
generally may be carried back one year and carried forward 20 
years (sec. 39). To coordinate the carryback with the period of 
application for this credit, the credit for electricity 
produced from closed-loop biomass facilities may not be carried 
back to a tax year ending before 1993 and the credit for 
electricity produced from wind energy may not be carried back 
to a tax year ending before 1994 (sec. 39).

                           reasons for change

    The Committee believes that continued economic incentive is 
warranted to increase the presence of these more 
environmentally friendly generation sources in the nation's 
electricity grid.

                        explanation of provision

    The bill extends the placed in service date for qualified 
facilities by two years to include those facilities placed in 
service prior to January 1, 2004.

                             effective date

    The provision is effective on the date of enactment.

4. Extend the Work Opportunity Tax Credit (sec. 304 of the bill and 
        sec. 51 of the Code)

                              present law

In general

    The work opportunity tax credit (``WOTC'') is available on 
an elective basis for employers hiring individuals from one or 
more of eight targeted groups. The credit equals 40 percent (25 
percent for employment of less than 400 hours) of qualified 
wages. Generally, qualified wages are wages attributable to 
service rendered by a member of a targeted group during the 
one-year period beginning with the day the individual began 
work for the employer.
    The maximum credit per employee is $2,400 (40 percent of 
the first $6,000 of qualified first-year wages). With respect 
to qualified summer youth employees, the maximum credit is 
$1,200 (40 percent of the first $3,000 of qualified first-year 
wages).
    For purposes of the credit, wages are generally defined as 
under the Federal Unemployment Tax Act, without regard to the 
dollar cap.

Targeted groups eligible for the credit

    The eight targeted groups are: (1) families eligible to 
receive benefits under the Temporary Assistance for Needy 
Families (``TANF'') Program; (2) high-risk youth; (3) qualified 
ex-felons; (4) vocational rehabilitation referrals; (5) 
qualified summer youth employees; (6) qualified veterans; (7) 
families receiving food stamps; and (8) persons receiving 
certain Supplemental Security Income (``SSI'') benefits.
    The employer's deduction for wages is reduced by the amount 
of the credit.

Expiration date

    The credit is effective for wages paid or incurred to a 
qualified individual who begins work for an employer before 
January 1, 2002.

                           reasons for change

    The Committee believes that a temporary extension of this 
credit will allow the Congress and the Treasury and Labor 
Departments to continue to monitor the effectiveness of the 
credit.

                        explanation of provision

    The bill extends the work opportunity tax credit for two 
years (through December 31, 2003).

                             effective date

    The provision is effective for wages paid or incurred to a 
qualified individual who begins work for an employer on or 
after January 1, 2002, and before January 1, 2004.

5. Extend the Welfare-To-Work Tax Credit (sec. 305 of the bill and sec. 
        51A of the Code)

                              present law

In general

    The welfare-to-work tax credit is available on an elective 
basis for employers for the first $20,000 of eligible wages 
paid to qualified long-term family assistance recipients during 
the first two years of employment. The credit is 35 percent of 
the first $10,000 of eligible wages in the first year of 
employment and 50 percent of the first $10,000 of eligible 
wages in the second year of employment. The maximum credit is 
$8,500 per qualified employee.
    Qualified long-term family assistance recipients are: (1) 
members of a family that has received family assistance for at 
least 18 consecutive months ending on the hiring date; (2) 
members of a family that has received family assistance for a 
total of at least 18 months (whether or not consecutive) after 
the date of enactment of this credit if they are hired within 2 
years after the date that the 18-month total is reached; and 
(3) members of a family that is no longer eligible for family 
assistance because of either Federal or State time limits, if 
they are hired within two years after the Federal or State time 
limits made the family ineligible for family assistance. Family 
assistance means benefits under the Temporary Assistance to 
Needy Families (``TANF'') program.
    For purposes of the credit, wages are generally defined 
under the Federal Unemployment Tax Act, without regard to the 
dollar amount. In addition, wages include the following: (1) 
educational assistance excludable under a section 127 program; 
(2) the value of excludable health plan coverage but not more 
than the applicable premium defined under section 4980B(f)(4); 
and (3) dependent care assistance excludable under section 129.
    The employer's deduction for wages is reduced by the amount 
of the credit.

Expiration date

    The welfare to work credit is effective for wages paid or 
incurred to a qualified individual who begins work for an 
employer before January 1, 2002.

                           reasons for change

    The Committee believes that the welfare-to-work credit 
should be temporarily extended to provide the Congress and 
Treasury and Labor Departments a better opportunity to assess 
the operation and effectiveness of the credit in meeting its 
goals. These goals are: (1) to provide an incentive to hire 
long-term welfare recipients; (2) to promote the transition 
from welfare to work by increasing access to employment for 
these individuals; and (3) to encourage employers to provide 
these individuals with training, health coverage, dependent 
care and ultimately better job attachment.

                        explanation of provision

    The bill extends the welfare to work credit for two years 
(through December 31, 2003).

                             effective date

    The provision is effective for wages paid or incurred to a 
qualified individual who begins work for an employer on or 
after January 1, 2002, and before January 1, 2004.

6. Extend Deduction for Qualified Clean-Fuel Vehicle Property and 
        Qualified Clean-Fuel Vehicle Refueling Property (sec. 306 of 
        the bill and secs. 179A and 280F of the Code)

    Certain costs of qualified clean-fuel vehicle property and 
clean-fuel vehicle refueling property may be expensed and 
deducted when such property is placed in service (sec. 
179A).\18\ Qualified clean-fuel vehicle property includes motor 
vehicles that use certain clean-burning fuels (natural gas, 
liquefied natural gas, liquefied petroleum gas, hydrogen, 
electricity and any other fuel at least 85 percent of which is 
methanol, ethanol, any other alcohol or ether). The maximum 
amount of the deduction is $50,000 for a truck or van with a 
gross vehicle weight over 26,000 pounds or a bus with seating 
capacities of at least 20 adults; $5,000 in the case of a truck 
or van with a gross vehicle weight between 10,000 and 26,000 
pounds; and $2,000 in the case of any other motor vehicle. 
Qualified electric vehicles do not qualify for the clean-fuel 
vehicle deduction.
---------------------------------------------------------------------------
    \18\ The amount the taxpayer may claim as a depreciation deduction 
for any passenger automobile is limited (sec. 280F). In the case of a 
qualified clean-burning fuel vehicle, the limitation of sec. 280F 
applies only to that portion of the vehicle's cost not represented by 
the installed qualified clean-burning fuel property. The taxpayer may 
claim an amount otherwise allowable as a depreciation deduction on the 
installed qualified clean-burning fuel property, without regard to the 
limitation. These exceptions from sec. 280F apply to vehicles placed in 
service prior to January 1, 2005.
---------------------------------------------------------------------------
    Clean-fuel vehicle refueling property comprises property 
for the storage or dispensing of a clean-burning fuel, if the 
storage or dispensing is the point at which the fuel is 
delivered into the fuel tank of a motor vehicle. Clean-fuel 
vehicle refueling property also includes property for the 
recharging of electric vehicles, but only if the property is 
located at a point where the electric vehicle is recharged. Up 
to $100,000 of such property at each location owned by the 
taxpayer may be expensed with respect to that location.
    The deduction for clean-fuel vehicle property phases down 
in the years 2002 through 2004, and is unavailable for 
purchases after December 31, 2004. The deduction for clean-fuel 
vehicle refueling property is unavailable for property placed 
in service after December 31, 2004.

                           reasons for change

    The Committee believes that continued economic incentive is 
warranted to increase the presence of alternative fuel vehicles 
in the market.

                        explanation of provision

    The bill defers the phase down of the deduction for clean-
fuel vehicle property by two years. Taxpayers may claim the 
full amount of the deduction for qualified vehicles placed in 
service in 2002 and 2003. Under the bill, the phase down of the 
deduction for clean-fuel vehicles commences in 2004 and the 
deduction is unavailable for purchases after December 31, 2006. 
A conforming modification is made to section 280F.
    The provision extends the placed in service date for clean-
fuel vehicle refueling property by one year. The deduction for 
clean-fuel vehicle refueling property is available for property 
placed in service prior to January 1, 2007.

                             Effective date

    The provision is effective on the date of enactment.

7. Taxable Income Limit on Percentage Depletion for Marginal Production 
        (sec. 307 of the bill and sec. 613A of the Code)

                              Present Law

In general

    Depletion, like depreciation, is a form of capital cost 
recovery. In both cases, the taxpayer is allowed a deduction in 
recognition of the fact that an asset--in the case of depletion 
for oil or gas interests, the mineral reserve itself--is being 
expended in order to produce income. Certain costs incurred 
prior to drilling an oil or gas property are recovered through 
the depletion deduction. These include costs of acquiring the 
lease or other interest in the property and geological and 
geophysical costs (in advance of actual drilling). Depletion is 
available to any person having an economic interest in a 
producing property.
    Two methods of depletion are allowable under the Code: (1) 
the cost depletion method, and (2) the percentage depletion 
method (secs. 611-613). Under the cost depletion method, the 
taxpayer deducts that portion of the adjusted basis of the 
depletable property which is equal to the ratio of units sold 
from that property during the taxable year to the number of 
units remaining as of the end of taxable year plus the number 
of units sold during the taxable year. Thus, the amount 
recovered under cost depletion may never exceed the taxpayer's 
basis in the property.
    Under the percentage depletion method, generally, 15 
percent of the taxpayer's gross income from an oil- or gas-
producing property is allowed as a deduction in each taxable 
year (sec. 613A(c)). The amount deducted generally may not 
exceed 100 percent of the net income from that property in any 
year (the ``net-income limitation'') (sec. 613(a)). The 
Taxpayer Relief Act of 1997 suspended the 100- percent-of-net-
income limitation for production from marginal wells for 
taxable years beginning after December 31, 1997, and before 
January 1, 2000. The limitation subsequently was extended to 
include taxable years beginning before January 1, 2002. 
Additionally, the percentage depletion deduction for all oil 
and gas properties may not exceed 65 percent of the taxpayer's 
overall taxable income (determined before such deduction and 
adjusted for certain loss carrybacks and trust distributions) 
(sec. 613A(d)(1)).\19\ Because percentage depletion, unlike 
cost depletion, is computed without regard to the taxpayer's 
basis in the depletable property, cumulative depletion 
deductions may be greater than the amount expended by the 
taxpayer to acquire or develop the property.
---------------------------------------------------------------------------
    \19\ Amounts disallowed as a result of this rule may be carried 
forward and deducted in subsequent taxable years, subject to the 65-
percent taxable income limitation for those years.
---------------------------------------------------------------------------
    A taxpayer is required to determine the depletion deduction 
for each oil or gas property under both the percentage 
depletion method (if the taxpayer is entitled to use this 
method) and the cost depletion method. If the cost depletion 
deduction is larger, the taxpayer must utilize that method for 
the taxable year in question (sec. 613(a)).

Limitation of oil and gas percentage depletion to independent producers 
        and royalty owners

    Generally, only independent producers and royalty owners 
(as contrasted to integrated oil companies) are allowed to 
claim percentage depletion. Percentage depletion for eligible 
taxpayers is allowed only with respect to up to 1,000 barrels 
of average daily production of domestic crude oil or an 
equivalent amount of domestic natural gas (sec. 613A(c)). For 
producers of both oil and natural gas, this limitation applies 
on a combined basis.
    In addition to the independent producer and royalty owner 
exception, certain sales of natural gas under a fixed contract 
in effect on February 1, 1975, and certain natural gas from 
geopressured brine, are eligible for percentage depletion, at 
rates of 22 percent and 10 percent, respectively. These 
exceptions apply without regard to the 1,000-barrel-per-day 
limitation and regardless of whether the producer is an 
independent producer or an integrated oil company.

                           reasons for change

    The Committee notes that oil is, and will continue to be, 
vital to the American economy. The Committee believes that 
extension of the current waiver of the 100-percent-of-income-
limit will contribute to investment in domestic oil and gas 
production.

                        explanation of provision

    The provision extends the period when the 100-percent net-
income limit is suspended to include taxable years beginning 
after December 31, 2001 and before January 1, 2004.

                             effective date

    The provision is effective on the date of enactment.

8. Extension of Authority to Issue Qualified Zone Academy Bonds (sec. 
        308 of the bill and sec. 1397E of the Code)

                              Present Law

Tax-exempt bonds

    Interest on State and local governmental bonds generally is 
excluded from gross income for Federal income tax purposes if 
the proceeds of the bonds are used to finance direct activities 
of these governmental units or if the bonds are repaid with 
revenues of the governmental units. Activities that can be 
financed with these tax-exempt bonds include the financing of 
public schools (sec. 103).

Qualified zone academy bonds

    As an alternative to traditional tax-exempt bonds, States 
and local governments are given the authority to issue 
``qualified zone academy bonds'' (``QZABs'') (sec. 1397E). A 
total of $400 million of qualified zone academy bonds may be 
issued annually in calendar years 1998 through 2001. The $400 
million aggregate bond cap 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 
authority to qualified zone academies within such State.
    Financial institutions that hold qualified zone academy 
bonds are entitled to a nonrefundable tax credit in an amount 
equal to a credit rate multiplied by the face amount of the 
bond. A taxpayer holding a qualified zone academy bond on the 
credit allowance date is entitled to a credit. The credit is 
includable in gross income (as if it were a taxable interest 
payment on the bond), and may be claimed against regular income 
tax and AMT liability.
    The Treasury Department sets the credit rate at a rate 
estimated to allow issuance of qualified zone academy bonds 
without discount and without interest cost to the issuer. The 
maximum term of the bond is determined by the Treasury 
Department, so that the present value of the obligation to 
repay the bond is 50 percent of the face value of the bond.
    ``Qualified zone academy bonds'' are defined as any bond 
issued by a State or local government, provided that (1) at 
least 95 percent of the proceeds are used for the purpose of 
renovating, providing equipment to, developing course materials 
for use at, or training teachers and other school personnel in 
a ``qualified zone academy'' and (2) private entities have 
promised to contribute to the qualified zone academy certain 
equipment, technical assistance or training, employee services, 
or other property or services with a value equal to at least 10 
percent of the bond proceeds.
    A school is a ``qualified zone academy'' if (1) the school 
is a public school that provides education and training below 
the college level, (2) the school operates a special academic 
program in cooperation with businesses to enhance the academic 
curriculum and increase graduation and employment rates, and 
(3) either (a) the school is located in an empowerment zones 
enterprise community designated under the Code, or (b) it is 
reasonably expected that at least 35 percent of the students at 
the school will be eligible for free or reduced-cost lunches 
under the school lunch program established under the National 
School Lunch Act.

                           Reasons for Change

    The Committee believes that extension of authority to issue 
qualified zone academy bonds is appropriate in light of the 
educational needs that exist today.

                        Explanation of Provision

    The provision authorizes issuance of up to $400 million of 
qualified zone academy bonds annually in calendar years 2002 
and 2003.

                             Effective Date

    The provision is effective on the date of enactment.

9. Extension of Increased Coverover Payments to Puerto Rico and the 
        Virgin Islands (sec. 309 of the bill and sec. 7652 of the Code)

                              Present Law

    A $13.50 per proof gallon \20\ excise tax is imposed on 
distilled spirits produced in, or imported or brought into, the 
United States. The excise tax does not apply to distilled 
spirits that are exported from the United States or to 
distilled spirits that are consumed in U.S. possessions (e.g., 
Puerto Rico and the Virgin Islands).
---------------------------------------------------------------------------
    \20\ A proof gallon is a liquid gallon consisting of 50 percent 
alcohol.
---------------------------------------------------------------------------
    The Code provides for coverover (payment) of $13.25 per 
proof gallon of the excise tax imposed on rum imported (or 
brought) into the United States (without regard to the country 
of origin) to Puerto Rico and the Virgin Islands during the 
period July 1, 1999 through December 31, 2001. Effective on 
January 1, 2002, the coverover rate is scheduled to return to 
its permanent level of $10.50 per proof gallon.
    Amounts covered over to Puerto Rico and the Virgin Islands 
are deposited into the treasuries of the two possessions for 
use as those possessions determine.

                           Reasons for Change

    The Committee believes that extension of the increased 
coverover rate to Puerto Rico and the Virgin Islands will 
contribute to economic stability in those possessions.

                        Explanation of Provision

    The provision extends the $13.25-per-proof-gallon coverover 
rate for two additional years, through December 31, 2003.
    The Committee is aware that Puerto Rico currently allocates 
a portion of the coverover payments it receives to the Puerto 
Rico Conservation Trust. The Committee believes it is 
appropriate that this allocation continue through the period 
when the $13.25-per-proof-gallon rate is extended.

                             Effective Date

    The provision is effective on the date of enactment.

10. Tax on Failure to Comply with Mental Health Parity Requirements 
        (sec. 310 of the bill and sec. 9812 of the Code)

                               Prior Law

    The Mental Health Parity Act of 1996 amended ERISA and the 
Public Health Service Act to provide that group health plans 
that provide both medical and surgical benefits and mental 
health benefits cannot impose aggregate lifetime or annual 
dollar limits on mental health benefits that are not imposed on 
substantially all medical and surgical benefits. The provisions 
of the Mental Health Parity Act are effective with respect to 
plan years beginning on or after January 1, 1998, but do not 
apply to benefits for services furnished on or after September 
30, 2001.
    The Taxpayer Relief Act of 1997 added to the Internal 
Revenue Code the requirements imposed under the Mental Health 
Parity Act, and imposed an excise tax on group health plans 
that fail to meet the requirements. The excise tax is equal to 
$100 per day during the period of noncompliance and is imposed 
on the employer sponsoring the plan if the plan fails to meet 
the requirements. The maximum tax that can be imposed during a 
taxable year cannot exceed the lesser of 10 percent of the 
employer's group health plan expenses for the prior year or 
$500,000. No tax is imposed if the Secretary determines that 
the employer did not know, and exercising reasonable diligence 
would not have known, that the failure existed.
    The excise tax is applicable with respect to plan years 
beginning on or after January 1, 1998, and expired with respect 
to benefits for services provided on or after September 30, 
2001.

                           Reasons for Change

    The Committee believes it appropriate to provide an 
extension of the mental health parity provisions.

                        Explanation of Provision

    The excise tax on failures to comply with mental health 
parity requirements is extended for two years.

                             Effective Date

    The provision is effective with respect to plan years 
beginning on or after January 1, 2002, and would not apply to 
benefits for services furnished on or after January 1, 2004.

11. Delay in Effective Date of Requirement for Approved Diesel or 
        Kerosene Terminal (sec. 311 of the bill and sec. 4101 of the 
        Code)

                              Present Law

    Excise taxes are imposed on highway motor fuels, including 
gasoline, diesel fuel, and kerosene, to finance the Highway 
Trust Fund programs. Subject to limited exceptions, these taxes 
are imposed on all such fuels when they are removed from 
registered pipeline or barge terminal facilities, with any tax-
exemptions being accomplished by means of refunds to consumers 
of the fuel.\21\ One such exception allows removal of diesel 
fuel or kerosene without payment of tax if the fuel is destined 
for a nontaxable use (e.g., use as heating oil) and is 
indelibly dyed.
---------------------------------------------------------------------------
    \21\ Tax is imposed before that point if the motor fuel is 
transferred (other than in bulk) from a refinery or if the fuel is sold 
to an unregistered party while still held in the refinery or bulk 
distribution system (e.g., in a pipeline or terminal facility).
---------------------------------------------------------------------------
    Terminal facilities are not permitted to receive and store 
non-tax-paid motor fuels unless they are registered with the 
Internal Revenue Service. Under present law, a prerequisite to 
registration is that if the terminal offers for sale diesel 
fuel, it must offer both dyed and undyed diesel fuel. 
Similarly, if the terminal offers for sale kerosene, it must 
offer both dyed and undyed kerosene. This ``dyed-fuel mandate'' 
was enacted in 1997, to be effective on July 1, 1998. 
Subsequently, the effective date was delayed until July 1, 
2000, and later until January 1, 2002.

                           Reasons for Change

    When the rules governing taxation of kerosene used as a 
highway motor fuel were enacted in 1997, the Congress was 
concerned that dyed kerosene and diesel fuel (destined for 
nontaxable uses) might be unavailable in markets where those 
fuels were commonly used (e.g., as heating oil). To ensure 
availability of untaxed, dyed fuels for those uses, the 
Congress included a requirement that terminals offer both dyed 
and undyed kerosene and diesel fuel (if they offered the fuels 
for sale at all) as a condition of receiving untaxed fuels. 
Since that time, markets have provided dyed kerosene and diesel 
fuel for nontaxable uses where there is a demand for them. The 
Committee believes a further delay in this registration 
requirement is appropriate to allow a more complete evaluation 
of whether the requirement should be repealed or implemented.

                        Explanation of Provision

    The effective date of the diesel fuel and kerosene dyeing 
mandate is delayed for two additional years, until January 1, 
2004.

                             Effective Date

    The provision is effective on the date of enactment.

          B. One-Year Extension of Provision Expiring in 2002


1. Extension of Archer Medical Savings Accounts (``MSAs'') (sec. 321 of 
        the bill and sec. 220 of the Code)

                              Present Law

In general

    Within limits, contributions to an Archer medical savings 
account (``MSA'') are deductible in determining adjusted gross 
income 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 Archer MSA are not currently taxable. Distributions from 
an Archer 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.

Eligible individuals

    Archer MSAs are available to employees covered under an 
employer-sponsored high deductible plan of a small employer and 
self-employed individuals covered under a high deductible 
health plan.\22\ 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. 
An individual is not eligible for an Archer MSA if they are 
covered under any other health plan in addition to the high 
deductible plan.
---------------------------------------------------------------------------
    \22\ 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.
---------------------------------------------------------------------------

Tax treatment of and limits on contributions

    Individual contributions to an Archer 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. 
In the case of an employee, contributions can be made to an 
Archer MSA either by the individual or by the individual's 
employer.
    The maximum annual contribution that can be made to an 
Archer 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.

Definition of high deductible plan

    A high deductible plan is a health plan with an annual 
deductible of at least $1,600 and no more than $2,400 in the 
case of individual coverage and at least $3,200 and no more 
than $4,800 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 $3,200 in the 
case of individual coverage and no more than $5,850 in the case 
of family coverage.\23\ 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.
---------------------------------------------------------------------------
    \23\ These dollar amounts are for 2001. These amounts are indexed 
for inflation in $50 increments.
---------------------------------------------------------------------------

Taxation of distributions

    Distributions from an Archer MSA for the medical expenses 
of the individual and his or her spouse or dependents generally 
are excludable from income.\24\ However, in any year for which 
a contribution is made to an Archer MSA, withdrawals from an 
Archer 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.\25\ 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.
---------------------------------------------------------------------------
    \24\ This exclusion does not apply to expenses that are reimbursed 
by insurance or otherwise.
    \25\ The exclusion still applies to expenses for continuation 
coverage or coverage while the individual is receiving unemployment 
compensation, even for an individual who is not an eligible individual.
---------------------------------------------------------------------------
    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 Archer MSAs

    The number of taxpayers benefiting annually from an Archer 
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 pilot period 
1997-2002, only those individuals who (1) made an Archer MSA 
contribution or had an employer Archer MSA contribution for the 
year or a preceding year (i.e., are active Archer MSA 
participants) or (2) are employed by a participating employer, 
those individuals are eligible for an Archer MSA contribution. 
In determining whether the threshold for any year has been 
exceeded, Archer 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.\26\ However, if the threshold 
level is exceeded in a year, previously uninsured individuals 
are subject to the same restriction on contributions in 
succeeding years as other individuals. That is, they would not 
be eligible for an Archer MSA contribution for a year following 
a cut-off year unless they are an active Archer MSA participant 
(i.e., had an Archer MSA contribution for the year or a 
preceding year) or are employed by a participating employer.
---------------------------------------------------------------------------
    \26\ Permitted coverage, as described above, does not constitute 
coverage under a health insurance plan for this purpose.
---------------------------------------------------------------------------
    The number of Archer MSAs established has not exceeded the 
threshold level.

End of Archer MSA pilot program

    After 2002, no new contributions may be made to Archer MSAs 
except by or on behalf of individuals who previously had Archer 
MSA contributions and employees who are employed by a 
participating employer. An employer is a participating employer 
if (1) the employer made any Archer MSA contributions for any 
year to an Archer MSA on behalf of employees or (2) at least 20 
percent of the employees covered under a high deductible plan 
made Archer MSA contributions of at least $100 in the year 
2001.
    Self-employed individuals who made contributions to an 
Archer MSA during the period 1997-2002 also may continue to 
make contributions after 2002.

                           Reasons for Change

    Archer MSAs were enacted to provide additional health 
insurance options and to give individuals more control over 
their health care dollars by providing incentives for 
individuals to be more cost conscious consumers of health care. 
The Committee believes that an extension of the Archer MSA 
program is appropriate in order to continue to pursue such 
objectives.

                        Explanation of Provision

    The provision extends the Archer MSA program for another 
year, through December 31, 2003.

                             Effective Date

    The provision is effective on the date of enactment.

                         C. Permanent Extension


1. Extend Exceptions under Subpart F for Active Financing Income (sec. 
        331 of the bill and secs. 953 and 954 of the Code)

                              Present Law

    Under the subpart F rules, 10-percent U.S. shareholders of 
a controlled foreign corporation (``CFC'') are subject to U.S. 
tax currently on certain income earned by the CFC, whether or 
not such income is distributed to the shareholders. The income 
subject to current inclusion under the subpart F rules 
includes, among other things, foreign personal holding company 
income and insurance income. In addition, 10-percent U.S. 
shareholders of a CFC are subject to current inclusion with 
respect to their shares of the CFC's foreign base company 
services income (i.e., income derived from services performed 
for a related person outside the country in which the CFC is 
organized).
    Foreign personal holding company income generally consists 
of the following: (1) dividends, interest, royalties, rents, 
and annuities; (2) net gains from the sale or exchange of (a) 
property that gives rise to the preceding types of income, (b) 
property that does not give rise to income, and (c) interests 
in trusts, partnerships, and REMICs; (3) net gains from 
commodities transactions; (4) net gains from foreign currency 
transactions; (5) income that is equivalent to interest; (6) 
income from notional principal contracts; and (7) payments in 
lieu of dividends.
    Insurance income subject to current inclusion under the 
subpart F rules includes any income of a CFC attributable to 
the issuing or reinsuring of any insurance or annuity contract 
in connection with risks located in a country other than the 
CFC's country of organization. Subpart F insurance income also 
includes income attributable to an insurance contract in 
connection with risks located within the CFC's country of 
organization, as the result of an arrangement under which 
another corporation receives a substantially equal amount of 
consideration for insurance of other country risks. Investment 
income of a CFC that is allocable to any insurance or annuity 
contract related to risks located outside the CFC's country of 
organization is taxable as subpart F insurance income (Prop. 
Treas. Reg. sec. 1.953-1(a)).
    Temporary exceptions from foreign personal holding company 
income, foreign base company services income, and insurance 
income apply for subpart F purposes for certain income that is 
derived in the active conduct of a banking, financing, or 
similar business, or in the conduct of an insurance business 
(so-called ``active financing income'').\27\
---------------------------------------------------------------------------
    \27\ Temporary exceptions from the subpart F provisions for certain 
active financing income applied only for taxable years beginning in 
1998. Those exceptions were modified and extended for one year, 
applicable only for taxable years beginning in 1999. The Tax Relief 
Extension Act of 1999 (P.L. No. 106-170) clarified and extended the 
temporary exceptions for two years, applicable only for taxable years 
beginning after 1999 and before 2002.
---------------------------------------------------------------------------
    With respect to income derived in the active conduct of a 
banking, financing, or similar business, a CFC is required to 
be predominantly engaged in such business and to conduct 
substantial activity with respect to such business in order to 
qualify for the exceptions. In addition, certain nexus 
requirements apply, which provide that income derived by a CFC 
or a qualified business unit (``QBU'') of a CFC from 
transactions with customers is eligible for the exceptions if, 
among other things, substantially all of the activities in 
connection with such transactions are conducted directly by the 
CFC or QBU in its home country, and such income is treated as 
earned by the CFC or QBU in its home country for purposes of 
such country's tax laws. Moreover, the exceptions apply to 
income derived from certain cross border transactions, provided 
that certain requirements are met. Additional exceptions from 
foreign personal holding company income apply for certain 
income derived by a securities dealer within the meaning of 
section 475 and for gain from the sale of active financing 
assets.
    In the case of insurance, in addition to a temporary 
exception from foreign personal holding company income for 
certain income of a qualifying insurance company with respect 
to risks located within the CFC's country of creation or 
organization, certain temporary exceptions from insurance 
income and from foreign personal holding company income apply 
for certain income of a qualifying branch of a qualifying 
insurance company with respect to risks located within the home 
country of the branch, provided certain requirements are met 
under each of the exceptions. Further, additional temporary 
exceptions from insurance income and from foreign personal 
holding company income apply for certain income of certain CFCs 
or branches with respect to risks located in a country other 
than the United States, provided that the requirements for 
these exceptions are met.
    In the case of a life insurance or annuity contract, 
reserves for such contracts are determined as follows for 
purposes of these provisions. The reserves equal the greater 
of: (1) the net surrender value of the contract (as defined in 
sec. 807(e)(1)(A)), including in the case of pension plan 
contracts; or (2) the amount determined by applying the tax 
reserve method that would apply if the qualifying life 
insurance company were subject to tax under Subchapter L of the 
Code, with the following modifications. First, there is 
substituted for the applicable Federal interest rate an 
interest rate determined for the functional currency of the 
qualifying insurance company's home country, calculated (except 
as provided by the Treasury Secretary in order to address 
insufficient data and similar problems) in the same manner as 
the mid-term applicable Federal interest rate (within the 
meaning of sec. 1274(d)). Second, there is substituted for the 
prevailing State assumed rate the highest assumed interest rate 
permitted to be used for purposes of determining statement 
reserves in the foreign country for the contract. Third, in 
lieu of U.S. mortality and morbidity tables, mortality and 
morbidity tables are applied that reasonably reflect the 
current mortality and morbidity risks in the foreign country. 
Fourth, the Treasury Secretary may provide that the interest 
rate and mortality and morbidity tables of a qualifying 
insurance company may be used for one or more of its branches 
when appropriate. In no event may the reserve for any contract 
at any time exceed the foreign statement reserve for the 
contract, reduced by any catastrophe, equalization, or 
deficiency reserve or any similar reserve.
    Present law also provides a temporary exception from 
foreign personal holding company income for income from 
investment of assets equal to 10 percent of reserves 
(determined for purposes of the provision) for contracts 
regulated in the country in which sold as life insurance or 
annuity contracts. This exception does not apply to investment 
income with respect to excess surplus.

                           Reasons for Change

    In the Taxpayer Relief Act of 1997, one-year temporary 
exceptions from foreign personal holding company income were 
enacted for income from the active conduct of an insurance, 
banking, financing, or similar business.\28\ In the Tax and 
Trade Relief Extension Act of 1998, the Congress extended the 
temporary exceptions for an additional year, with certain 
modifications designed to treat various types of businesses 
with active financing income more similarly to each other than 
did the 1997 provision.\29\ In the Tax Relief Extension Act of 
1999, Congress extended the temporary extensions for an 
additional two years, as modified by the 1998 Act, and with a 
clarification relating to the application of prior law in the 
event of future non-application of the temporary 
provisions.\30\ The Committee believes that it is appropriate 
to permanently extend the temporary provisions, as modified by 
the previous legislation, with an additional modification 
relating to the determination of certain reserves for life 
insurance and annuity contracts. The Committee believes that 
the use of foreign statement reserves for exempt life insurance 
and annuity contracts may be appropriate under these exceptions 
in certain circumstances, provided IRS approval is obtained, 
based on whether such use with respect to those foreign 
contracts provides an appropriate means of measuring income for 
Federal income tax purposes.
---------------------------------------------------------------------------
    \28\ The President canceled this provision in 1997 pursuant to the 
Line Item Veto Act. On June 25, 1998, the U.S. Supreme Court held that 
the cancellation procedures set forth in the Line Item Veto Act are 
unconstitutional. Clinton v. City of New York, 524 U.S. 417 (1998).
    \29\ The Tax and Trade Relief Extension Act of 1998, Division J, 
Making Omnibus Consolidated and Emergency Supplemental Appropriations 
for Fiscal Year 1999, P.L. No. 105-277, sec. 1005 (1998).
    \30\ The Tax Relief Extension Act of 1999, P.L. No. 106-170, sec. 
503 (1999).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision extends permanently the present-law temporary 
exceptions from subpart F foreign personal holding company 
income, foreign base company services income, and insurance 
income for certain income that is derived in the active conduct 
of a banking, financing, or similar business, or in the conduct 
of an insurance business.
    The provision generally retains present law with respect to 
the determination of an insurance company's reserve for a life 
insurance or annuity contract under these exceptions. The 
provision does, however, permit a taxpayer in certain 
circumstances, subject to approval by the IRS through the 
ruling process, to establish that the reserve for such 
contracts is the amount taken into account in determining the 
foreign statement reserve for the contract (reduced by 
catastrophe, equalization, or deficiency reserve or any similar 
reserve). IRS approval is to be based on whether the method, 
the interest rate, the mortality and morbidity assumptions, and 
any other factors taken into account in determining foreign 
statement reserves (taken together or separately) provide an 
appropriate means of measuring income for Federal income tax 
purposes. In seeking a ruling, the taxpayer is required to 
provide the IRS with necessary and appropriate information as 
to the method, interest rate, mortality and morbidity 
assumptions and other assumptions under the foreign reserve 
rules so that a comparison can be made to the reserve amount 
determined by applying the tax reserve method that would apply 
if the qualifying insurance company were subject to tax under 
Subchapter L of the Code (with the modifications provided under 
present law for purposes of these exceptions). Present law 
continues to apply with respect to reserves for any life 
insurance or annuity contract for which the IRS has not 
approved the use of the foreign statement reserve. An IRS 
ruling request under this provision is subject to the present-
law provisions relating to IRS user fees.

                             Effective Date

    The provision is effective for taxable years of foreign 
corporations beginning after December 31, 2001, and for taxable 
years of U.S. shareholders with or within which such taxable 
years of such foreign corporations end.

                          D. Other Provisions


1. Discharge of Indebtedness of an S Corporation (sec. 341 of the bill 
        and sec. 108 of the Code)

                              Present Law

    In general, an S corporation is not subject to the 
corporate income tax on its items of income and loss. Instead, 
an S corporation passes through its items of income and loss to 
its shareholders. Each shareholder takes into account 
separately his or her pro rata share of these items on their 
individual income tax returns. To prevent double taxation of 
these items, each shareholder's basis in the stock of the S 
corporation is increased by the amount included in income 
(including tax-exempt income) and is decreased by the amount of 
any losses (including nondeductible losses) taken into account. 
A shareholder may deduct losses only to the extent of a 
shareholder's basis in his or her stock in the S corporation 
plus the shareholder's adjusted basis in any indebtedness of 
the corporation to the shareholder. Any loss that is disallowed 
by reason of lack of basis is ``suspended'' at the corporate 
level and is carried forward and allowed in any subsequent year 
in which the shareholder has adequate basis in the stock or 
debt.
    In general, gross income includes income from the discharge 
of indebtedness. However, income from the discharge of 
indebtedness of a taxpayer in a bankruptcy case or when the 
taxpayer is insolvent (to the extent of the insolvency) is 
excluded from income.\31\ The taxpayer is required to reduce 
tax attributes, such as net operating losses, certain 
carryovers, and basis in assets, to the extent of the excluded 
income.
---------------------------------------------------------------------------
    \31\ Special rules also apply to certain real estate debt and farm 
debt.
---------------------------------------------------------------------------
    In the case of an S corporation, the eligibility for the 
exclusion and the attribute reduction are applied at the 
corporate level. For this purpose, a shareholder's suspended 
loss is treated as a tax attribute that is reduced. Thus, if 
the S corporation is in bankruptcy or is insolvent, any income 
from the discharge of indebtedness by a creditor of the S 
corporation is excluded from the corporation's income, and the 
S corporation reduces its tax attributes (including any 
suspended losses).
    To illustrate these rules, assume that a sole shareholder 
of an S corporation has zero basis in its stock of the 
corporation. The S corporation borrows $100 from a third party 
and loses the entire $100. Because the shareholder has no basis 
in its stock, the $100 loss is ``suspended'' at the corporate 
level. If the $100 debt is forgiven when the corporation is in 
bankruptcy or is insolvent, the $100 income from the discharge 
of indebtedness is excluded from income, and the $100 
``suspended'' loss should be eliminated in order to achieve a 
tax result that is consistent with the economics of the 
transactions in that the shareholder has no economic gain or 
loss from these transactions.
    Notwithstanding the economics of the overall transaction, 
the United States Supreme Court ruled in the case of Gitlitz v. 
Commissioner \32\ that, under present law, income from the 
discharge of indebtedness of an S corporation that is excluded 
from income is treated as an item of income which increases the 
basis of a shareholder's stock in the S corporation and allows 
the suspended corporate loss to pass thru to a shareholder. 
Thus, under the decision, an S corporation shareholder is 
allowed to deduct a loss for tax purposes that it did not 
economically incur.
---------------------------------------------------------------------------
    \32\ 531 U.S. 206 (2001).
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee believes that it is inappropriate for a 
shareholder of an insolvent or bankrupt S corporation to take 
into account excluded income from the discharge of the S 
corporation's indebtedness and thereby increase the 
shareholder's adjusted basis in the stock. Under the provisions 
of the Code, an increase in the stock basis allows the 
shareholder a deduction for an amount of loss that is not 
economically borne by the shareholder.
    As a general matter, the Committee believes that where, as 
in the case of the present statute under section 108, the plain 
text of a provision of the Internal Revenue Code produces an 
ambiguity, the provision should be read as closing, not 
maintaining, a loophole that would result in an inappropriate 
reduction of tax liability.

                        Explanation of Provision

    The provision provides that income from the discharge of 
indebtedness of an S corporation that is excluded from the S 
corporation's income is not taken into account as an item of 
income by any shareholder and thus does not increase the basis 
of any shareholder's stock in the corporation.

                             Effective Date

    The provision applies to discharges of indebtedness after 
October 11, 2001.

2. Limitation on Use of Non-Accrual Experience Method of Accounting 
        (sec. 342 of the bill and sec. 448 of the Code)

                              Present Law

    An accrual method taxpayer generally must recognize income 
when all the events have occurred that fix the right to receive 
the income and the amount of the income can be determined with 
reasonable accuracy. An accrual method taxpayer may deduct the 
amount of any receivable that was previously included in income 
that becomes worthless during the year.
    Accrual method taxpayers are not required to include in 
income amounts to be received for the performance of services 
which, on the basis of experience, will not be collected (the 
``non-accrual experience method''). The availability of this 
method is conditioned on the taxpayer not charging interest or 
a penalty for failure to timely pay the amount charged.
    Generally, a cash method taxpayer is not required to 
include an amount in income until received. A taxpayer 
generally may not use the cash method if purchase, production, 
or sale of merchandise is an income producing factor. Such 
taxpayers generally are required to keep inventories and use an 
accrual method of accounting. In addition, corporations (and 
partnerships with corporate partners) generally may not use the 
cash method of accounting if their average annual gross 
receipts years exceed $5 million. An exception to this $5 
million rule is provided for qualified personal service 
corporations. A qualified personal service corporation is a 
corporation (1) substantially all of whose activities involve 
the performance of services in the fields of health, law, 
engineering, architecture, accounting, actuarial science, 
performing arts or consulting and (2) substantially all of the 
stock of which is owned by current or former employees 
performing such services, their estates or heirs. Qualified 
personal service corporations are allowed to use the cash 
method without regard to whether their average annual gross 
receipts exceed $5 million.

                           Reasons for Change

    The Committee understands that the use of the non-accrual 
experience method provides the equivalent of a bad debt 
reserve, which generally is not available to taxpayers using an 
accrual method of accounting. The Committee believes that 
accrual method taxpayers should be treated similarly, unless 
there is a strong indication that different treatment is 
necessary to clearly reflect income or to address a particular 
competitive situation.
    The Committee understands that accrual basis providers of 
qualified services (services in the fields of health, law, 
engineering, architecture, accounting, actuarial science, 
performing arts or consulting) compete on a regular basis with 
competitors using the cash method of accounting. The Committee 
believes that this competitive situation justifies the 
continued availability of the non- accrual experience method 
with respect to amounts due to be received for the performance 
of qualified services. The Committee believes that it is 
important to avoid the disparity of treatment between competing 
cash and accrual method providers of qualified services that 
could result if the non-accrual experience method were 
eliminated with regard to amounts to be received for such 
services.
    The Committee also recognizes the burdens placed on small 
businesses to comply with the complexity of the federal income 
tax code and, in this time of economic uncertainty, the 
importance of cash flow to small businesses. As such, the 
Committee believes that small business service providers using 
an accrual method of accounting should be permitted to continue 
to use the non-accrual experience method.
    In addition, the Committee believes that the formula 
contained in Temp. Reg. section 1.448-2T may not clearly 
reflect the amount of income that, based on experience, will 
not be collected for many qualified services providers, 
especially for those where significant time elapses between the 
rendering of the service and a final determination that the 
account will not be collected. Providers of qualified services 
should not be subject to a formula that requires the payments 
of taxes on receivables that will not be collected.

                        Explanation of Provision

    Under the provision, the non-accrual experience method of 
accounting is available only for amounts to be received for the 
performance of qualified services and for services provided by 
certain small businesses. Amounts to be received for all other 
services are subject to the general rule regarding inclusion in 
income. Qualified services are services in the fields of 
health, law, engineering, architecture, accounting, actuarial 
science, performing arts or consulting. As under present law, 
the availability of this method is conditioned on the taxpayer 
not charging interest or a penalty for failure to timely pay 
the amount charged.
    Under a special rule, the non-accrual experience method of 
accounting continues to be available for the performance of 
non-qualified services if the average annual gross receipts (as 
defined in sec. 448(c)) of the taxpayer (or any predecessor) 
does not exceed $5 million. The rules of paragraph (2) and (3) 
of section 448(c) (i.e., the rules regarding the aggregation of 
related taxpayers, taxpayers not in existence for the entire 
three year period, short taxable years, definition of gross 
receipts, and treatment of predecessors) apply for purposes of 
determining the average annual gross receipts test.
    The provision requires that the Secretary of the Treasury 
prescribe regulations to permit a taxpayer to use alternative 
computations or formulas if such alternative computations or 
formulas accurately reflect, based on experience, the amount of 
its year-end receivables that will not be collected. It is 
anticipated that the Secretary of the Treasury will consider 
providing safe harbors in such regulations that may be relied 
upon by taxpayers. In addition, the provision also provides 
that the Secretary of the Treasury permit taxpayers to adopt, 
or request consent of the Secretary of the Treasury to change 
to, an alternative computation or formula that clearly reflects 
the taxpayer's experience. The provision requires the Secretary 
of Treasury to approve a request provided that the alternative 
computation or formula clearly reflects the taxpayer's 
experience.

                             Effective Date

    The provision is effective for taxable years ending after 
date of enactment. Any change in the taxpayer's method of 
accounting required as a result of the limitation on the use of 
the non-accrual experience method is treated as a voluntary 
change initiated by the taxpayer with the consent of the 
Secretary of the Treasury. Any resultant section 481(a) 
adjustment is to be taken into account over a period not to 
exceed the lesser of the number of years the taxpayer has used 
the non-accrual experience method of accounting or four years 
under principles consistent with those in Rev. Proc. 99-49.\33\
---------------------------------------------------------------------------
    \33\ 1999-2C.B. 725
---------------------------------------------------------------------------

            TITLE IV--SUPPLEMENTAL REBATE; OTHER PROVISIONS


A. Supplemental Rebate (Sec. 401 of the Bill and Sec. 6428 of the Code)


                              Present Law

    The Economic Growth and Tax Relief Reconciliation Act of 
2001 provided for a rate reduction credit for 2001. The credit 
is computed in the following manner. Taxpayers would be 
entitled to a credit in tax year 2001 of 5 percent (the 
difference between the 15-percent rate and the 10-percent rate) 
of the amount of income that would have been eligible for the 
new 10-percent rate. Taxpayers may not receive this credit in 
excess of their income tax liability (determined after 
nonrefundable credits).
    Most eligible taxpayers have received this credit in the 
form of a check issued by the Department of the Treasury. The 
amount of the check was computed in the same manner as the 
credit, except that it was done on the basis of tax returns 
filed for 2000 (instead of 2001).
    On their tax returns for 2001, taxpayers will reconcile the 
amount of the credit with the check they receive in the 
following manner. They will complete a worksheet calculating 
the amount of the credit based on their 2001 tax return. They 
will then subtract from the credit the amount of the check they 
received. For many taxpayers, these two amounts would be the 
same. If, however, the result is a positive number (because, 
for example, the taxpayer paid no tax in 2000 but is paying tax 
in 2001), the taxpayer may claim that amount as a credit 
against 2001 tax liability. If, however, the result is negative 
(because, for example, the taxpayer paid tax in 2000 but owes 
no tax for 2001), the taxpayer is not required to repay that 
amount to the Treasury. Otherwise, the checks have no effect on 
tax returns filed in 2001; the amount is not includible in 
gross income and it does not otherwise reduce the amount of 
withholding. In no event may the Department of the Treasury 
issue checks after December 31, 2001. This is designed to 
prevent errors by taxpayers who might claim the full amount of 
the credit on their 2001 tax returns and file those returns 
early in 2002, at the same time the Treasury check might be 
mailed to them. Payment of the credit (or the check) is 
treated, for all purposes of the Code,\34\ as a payment of tax. 
As such, the credit or the check is subject to the refund 
offset provisions, such as those applicable to past-due child 
support under section 6402 of the Code.
---------------------------------------------------------------------------
    \34\ A special rule provides that no interest will be paid with 
respect to the checks.
---------------------------------------------------------------------------
    In general, taxpayers eligible for the credit (and the 
check) are individuals other than estates or trusts, 
nonresident aliens, or dependents. The determination of this 
status for the relevant year is made on the basis of the 
information filed on the tax return.

                           Reasons for Change

    The Committee believes that providing supplemental rebates 
will provide further stimulus to the economy.

                        Explanation of Provision

    The bill provides a new supplemental rebate. Individuals 
who filed income tax returns for 2000 \35\ (regardless of 
whether they had any income tax liability or any payroll tax 
liability) are eligible for this supplemental rebate. The 
amount of the rebate is calculated in the following manner: 
taxpayers are eligible for the maximum rebate amount for their 
filing status ($300 single or married filing separately, $500 
head of household, $600 joint filers) minus the amount (if any) 
of any previous rebate check issued. Thus, if a single person 
received $100 earlier this year as her rate reduction credit, 
she will receive an additional $200. Those who earlier received 
the full amounts for their filing status will receive nothing 
additional. It is irrelevant whether the taxpayer showed any 
amount as wages on the 2000 income tax return.
---------------------------------------------------------------------------
    \35\ Taxpayers who did not file an income tax return for 2000 but 
who do file an income tax return for 2001 will continue to be eligible 
for the rate reduction credit previously enacted, the amount of which 
is dependent upon the amount of income subject to the 10-percent rate. 
They are not, however, eligible for this supplemental rebate.
---------------------------------------------------------------------------
    Dependents and nonresident aliens are ineligible for these 
supplemental rebates (as they were for the previous rebates). 
The Committee expects that the IRS will send notices to 
affected taxpayers explaining the computation of their 
supplemental rebate amounts and how the taxpayer should 
properly complete the rebate reconciliation schedule contained 
in the tax return forms package.

                             Effective Date

    The provision is effective on the date of enactment. In 
order to prevent difficulties that could arise in the 
simultaneous administration of two rebate provisions, the 
issuance of checks under the previous rebate provision must 
cease on the date of enactment of these supplemental rebates.

B. Special Reed Act Transfer in Fiscal Year 2002 (sec. 402 of the bill)


1. Repeal of Certain Provisions Added by the Balanced Budget Act of 
        1997

                              Present Law

    When three Federal accounts in the Unemployment Trust Fund 
(UTF) reach their statutory limits at the end of a Federal 
fiscal year, any excess funds are transferred to the individual 
State accounts in the UTF. These transfers are called ``Reed 
Act'' distributions. States can use this funding for payment of 
cash benefits and administrating their unemployment 
compensation and employment services programs. The Balanced 
Budget Act of 1997 limited Reed Act transfers to States to $100 
million after each of fiscal years 1999, 2000, and 2001 and 
limited these funds' use to paying administrative expenses of 
unemployment compensation laws.

                           Reasons for Change

    The amount of excess Federal funds in the UTF as of the end 
of fiscal year 2001 was over $9.3 billion. Under current law, 
at the beginning of fiscal year 2002, $100 million was 
transferred to States under the special distribution provision 
under the Balanced Budget Act of 1997. The additional $9.2 
billion in excess funds remained in a Federal unemployment 
account. Repeal of the special distribution limitation, as 
provided under the Chairman's amendment, would result in the 
transfer of the remaining $9.2 billion in excess Federal funds 
to State accounts.
    This distribution will provide States with significant 
additional funds to address unemployment benefit needs. Funds 
will be directly transferred into State unemployment accounts, 
where they will be immediately available to support regular 
unemployment benefit payments as needed. As provided below, 
States also may use these new funds for additional unemployment 
program purposes such as providing extended benefits through 
the passage of separate State legislation.

                        Explanation of Provision

    The $100 million limit on distributions from excess Federal 
funds available at the end of fiscal year 2001 is repealed. The 
provision also repeals the limitation on the use of funds 
applied to the $100 million special distribution under the 
Balanced Budget Act of 1997. This limitation applied only to 
special distributions at the end of fiscal years 1999, 2000, 
and 2001, and with the repeal of the underlying special 
distribution provision is no longer relevant.

2. Special Transfer in Fiscal Year 2002

                              Present Law

    No provision.

                           Reason for Change

    Because of limitations imposed by the Balanced Budget Act 
of 1997, regular Reed Act distributions have not been 
transferred to States following fiscal years 1999, 2000 and 
2001. Instead, transfers were limited to a ``special 
distribution'' of $100 million per year at the beginning of 
each of the subsequent fiscal years, including fiscal year 
2002. The result has been a significant accumulation of excess 
funds in Federal accounts. Absent changes such as those 
proposed in H.R. 3090, these excess funds will remain in 
Federal accounts until regular Reed Act transfers resume at the 
beginning of fiscal year 2003 (on or about October 1, 2002).
    The purpose of Section 402 is to accelerate the transfer of 
surplus Federal unemployment funds for States to use in 
supporting unemployment benefits and services to help 
individuals return to work. Federal unemployment accounts, with 
balances totaling $39 billion at the end of fiscal year 2001, 
are more than sufficient to support current Federal 
administrative and other responsibilities under the Federal-
State unemployment compensation system. Forwarding Federal 
surplus funds will provide immediate assistance to States--
especially those with low account balances--to support rising 
benefit needs as well as demand for extended benefits, 
additional employment services, and other supports.
    H.R. 3090 is consistent with the operation of the Federal-
State unemployment compensation program dating to the 1950s, 
the Committee's longstanding interest in promoting State 
flexibility and control in deciding how best to support benefit 
needs, and the need to maintain fiscal responsibility.
    As described above, Reed Act distributions have occurred in 
various fiscal years dating to the 1950s. The 1997 Balanced 
Budget Act provision created special conditions under which 
full Reed Act transfers have not been transferred to State 
accounts in recent years. H.R. 3090 restores the longstanding 
policy of providing full Reed Act transfers to State accounts, 
effective immediately (rather than as of the start of fiscal 
year 2003 as under current law).
    Starting with the 1996 Welfare Reform Law (P.L. 104-193, 
the Personal and Work Opportunity Reconciliation Act of 1996), 
the Committee has advanced legislation encouraging greater 
State flexibility and responsibility over cash welfare, child 
care, child protection and related programs. This goal is 
consistent with the nation's Federal-State unemployment 
compensation program, under which States generally determine 
benefit eligibility and amounts; States also set and collect 
State unemployment taxes used to support regular unemployment 
compensation benefits and the State half of the Federal-State 
extended benefits program. H.R. 3090 promotes State discretion 
in determining benefit eligibility and amounts by both 
providing States additional resources and broad discretion in 
determining how best to use the added Federal funds.
    For example, some States with low current account balances 
may use the added Federal funds to support the payment of 
regular unemployment benefits, which would require no new State 
legislation. Depending on State laws and prior account 
balances, the added funds may allow States to provide regular 
benefits for additional claimants without raising State taxes 
or borrowing from the Federal loan account. Based on fiscal 
year 2001 benefit payment and recipient data, between 2 million 
and 3 million additional unemployed workers could be provided 
regular benefits based on the $9 billion in additional Federal 
funds.
    Other States may choose to provide new benefits, for 
example extended benefits for individuals who have exhausted 
their regular 26 weeks of benefits. On October 4, 2001, 
President Bush proposed providing an additional 13 weeks of 
emergency extended benefits for individuals in States that 
include a major disaster area or in which unemployment has 
increased by 30 percent or more in the wake of the September 11 
attacks. Section 402 provides States with the funds and 
flexibility to offer such benefits.
    Some States may need additional resources to provide 
employment services to assist unemployed individuals in 
returning to work or to process additional unemployment claims. 
Section 402 allows States to use transferred amounts to support 
such program purposes as well. It is noteworthy that in recent 
years States have received far less in Federal funds to assist 
in administering the unemployment compensation program than 
employers paid in Federal taxes to support such purposes. The 
Ways and Means Subcommittee on Human Resources has held a 
number of hearings in recent years on the administrative 
financing of the unemployment program (Unemployment 
Compensation and the Family and Medical Leave Act, March 9, 
2001; Unemployment Compensation Reform, February 29, 2001; 
Unemployment Compensation, September 7, 2000; HR 3684, the 
``Employment Security Financing Act of 1998,'' June 23, 1998; 
and Unemployment Insurance Issues, April 24, 1997). While 
falling short of broader administrative financing reforms in 
which the Committee remains interested, Section 402 provides 
States broad discretion and immediate Federal funds States may 
use to address employment service and administrative financing 
needs.
    Section 402 provides the above funding and flexibility 
while maintaining the interest of the Committee and the 
Congress in fiscal discipline. According to the Congressional 
Budget Office, Section 402 results in no increase in the 
deficit or decrease in the surplus over 10 years. By 
accelerating future Reed Act distributions into fiscal year 
2002, the proposal provides significant immediate assistance to 
States to support benefit and other program needs. Transfers 
provided in 2002 are offset by reductions in future transfers, 
among other program interactions.
    The Committee notes that the National Governors Association 
(NGA) has requested passage of this provision. A letter dated 
October 4, 2001 signed by Governors Don Sundquist of Tennessee 
and Frank O'Bannon of Indiana, the Chairman and Vice Chairman, 
respectively, of NGA's Committee on Human Resources, called for 
Congress to ``amend the Social Security Act to accelerate 
distribution to state accounts of the excess funds (as defined 
in the Reed Act) being held in the federal Unemployment Trust 
Fund.''

                        Explanation of Provision

    The Secretary of the Treasury will transfer excess Federal 
UTF balances as of the close of fiscal year 2001 into the 
account of each State in the UTF. Each State's share of 
distributions from the $100 million already provided at the 
beginning of fiscal year 2002 will be subtracted from the 
distribution to each State under this provision. (Thus of the 
$9.3 billion in excess Federal funds as of the end of fiscal 
year 2001, only $9.2 billion will be provided under H.R. 3090, 
reflecting the fact that $0.1 billion already has been 
forwarded to State accounts under the 1997 Balanced Budget Act 
provision.)
    Except as provided below, amounts transferred to State 
accounts may be used only in the payment of cash benefits to 
individuals with respect to unemployment under the following 
conditions:
          (1) At the option of the State, cash benefits may 
        include regular unemployment compensation or additions 
        to regular benefits. However, if additions to regular 
        benefits are provided, any additional amounts are to be 
        disregarded in determining any subsequently-provided 
        extended benefits to such individual; and
          (2) At the option of the State, cash benefits may be 
        provided to individuals not otherwise eligible for 
        regular unemployment compensation benefits under the 
        laws of the State. Such benefits may include 
        ``emergency'' extended benefits or other benefit 
        expansions. Benefits to an individual under this 
        condition may not exceed the maximum amount of regular 
        compensation available under State law for the same 
        period, plus any added benefits provided under (1) 
        above.
    Under either condition (1) or (2), amounts transferred may 
be used in the payment of cash benefits to individuals only for 
weeks of unemployment beginning after the date of enactment and 
ending on or before March 11, 2003 (i.e. within 18 months 
following the September 11, 2001 attacks).
    Other than for cash benefits, States may use amounts 
transferred to their accounts in the administration of their 
public employment laws and public employment offices, including 
for the provision of employment services needed to help 
individuals return to work.
    Transfers to State accounts are to be made by the Secretary 
of Labor no later than 10 days after enactment.

3. Limitations on Transfers

                              Present Law

    If the Secretary finds that a State is not eligible to 
receive Reed Act transfers at the beginning of a fiscal year, 
the amount available for transfer to the State instead is 
transferred to the Federal unemployment account. If the State 
becomes eligible during the following one year period, the 
amount which was available for transfer will be transferred 
from the Federal unemployment account to the State's account. 
If the State does not become eligible within one year, the 
amount remains in the Federal unemployment account for other 
uses. If any State has borrowed from the Federal unemployment 
account, any amount that would be transferred is retained and 
credited against any balance due of the State.

                           Reasons for Change

    Funds should be transferred only to States operating 
unemployment compensation programs that meet Federal 
requirements. This provision ensures that the special transfers 
in fiscal year 2002 also will meet these requirements.

                        Explanation of Provision

    This provision applies the same conditions on the timing 
and limitations on Reed Act transfers under current law to the 
special transfers that would occur in fiscal year 2002 under 
the Committee legislation.

4. Technical Amendments

                              Present Law

    No provision.

                           Reasons for Change

    Technical and conforming changes consistent with changes 
described above.

                        Explanation of Provision

    Makes conforming and technical amendments related to the 
use of funds in State unemployment accounts for expenses 
incurred by States for administration of their unemployment 
compensation laws and public employment offices.

5. Regulations

                              Present Law

    No provision.

                           Reasons for Change

    This provision authorizes the Secretary of Labor to provide 
the operating instructions necessary to ensure proper 
implementation of the changes proposed. Given the immediate 
nature of the transfers, the generally short-term nature of 
uses for transferred amounts, and likely State desire to begin 
using these funds as soon as possible to support benefit needs, 
it is anticipated that operating instructions will be provided 
by the U.S. Department of Labor as appropriate.

                        Explanation of Provision

    The Secretary of Labor may prescribe any operating 
instructions or regulations necessary to carry out this section 
and amendments made by it.

           TITLE V--HEALTH CARE ASSISTANCE FOR THE UNEMPLOYED


              A. Health Care Assistance for the Unemployed


                              Present Law

    Title XX of the Social Security Act, referred to as the 
Social Services Block Grant (SSBG), provides flexible block 
grant funds to States to assist them in delivering a wide range 
of social services to needy children and adults. A service may 
be funded in its entirety, or it can be supplemented with other 
funding sources. State and local agencies may provide the 
services or purchase them from qualified agencies, 
organizations, or individuals. States are required to report 
annually on their expenditures of SSBG funds. In fiscal year 
2001, $1.725 billion was appropriated for the SSBG program and 
was allotted to the States and Territories (Puerto Rico, Guam, 
the Virgin Islands, American Samoa, and the Northern Marianas). 
Allotments to States are by a formula based on population.

                           Reasons for Change

    The provision provides States additional funds to address 
the health care needs of unemployed workers and their families. 
Under this provision, which operates under an existing block 
grant program within the Human Resources jurisdiction of the 
Committee, States would have the flexibility to use new Federal 
funds to assist uninsured individuals in their communities. For 
example, the funds would be able to be used to defray the cost 
of private health coverage or coverage under existing State and 
local health care programs for which unemployed workers and 
their dependents would not otherwise be eligible.

                        Explanation of Provision

    Funding for the Social Services Block Grant program would 
be increased by $3 billion in fiscal year 2002. The increased 
funding would be available to States only to assist in 
providing health care coverage for unemployed workers and their 
families who do not have other Federal health care coverage. 
Funds are to supplement (not supplant) any other Federal, 
State, or local funds used for health care coverage.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 3090.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 3090, as amended, was ordered favorably 
reported by a rollcall vote of 23 yeas to 14 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X                        Mr. Rangel.......                  X
Mr. Crane......................        X                        Mr. Stark........                  X
Mr. Shaw.......................                                 Mr. Matsui.......                  X
Mrs. Johnson...................        X                        Mr. Coyne........                  X
Mr. Houghton...................        X                        Mr. Levin........                  X
Mr. Herger.....................        X                        Mr. Cardin.......                  X
Mr. McCrery....................        X                        Mr. McDermott....                  X
Mr. Camp.......................        X                        Mr. Kleczka......                  X
Mr. Ramstad....................        X                        Mr. Lewis (GA)...                  X
Mr. Nussle.....................        X                        Mr. Neal.........                  X
Mr. Johnson....................        X                        Mr. McNulty......
Ms. Dunn.......................        X                        Mr. Jefferson....
Mr. Collins....................        X                        Mr. Tanner.......                  X
Mr. Portman....................        X                        Mr. Becerra......                  X
Mr. English....................        X                        Mrs. Thurman.....                  X
Mr. Watkins....................        X                        Mr. Doggett......                  X
Mr. Hayworth...................        X                        Mr. Pomeroy......
Mr. Weller.....................        X
Mr. Hulshof....................        X
Mr. McInnis....................        X
Mr. Lewis (KY).................        X
Mr. Foley......................        X
Mr. Brady......................        X
Mr. Ryan.......................        X
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendment to 
the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. Stark, which would create a Federal 
subsidy equal to 75 percent of COBRA premiums for up to 12 
months, and would not change the underlying eligibility for 
COBRA coverage, was defeated by a rollcall vote of 16 yeas to 
25 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................                  X              Mr. Rangel.......        X
Mr. Crane......................                  X              Mr. Stark........        X
Mr. Shaw.......................                  X              Mr. Matsui.......        X
Mrs. Johnson...................                  X              Mr. Coyne........        X
Mr. Houghton...................                  X              Mr. Levin........        X
Mr. Herger.....................                  X              Mr. Cardin.......        X
Mr. McCrery....................                  X              Mr. McDermott....        X
Mr. Camp.......................                  X              Mr. Kleczka......        X
Mr. Ramstad....................                  X              Mr. Lewis (GA)...        X
Mr. Nussle.....................                  X              Mr. Neal.........        X
Mr. Johnson....................                  X              Mr. McNulty......        X
Ms. Dunn.......................        X                        Mr. Jefferson....        X
Mr. Collins....................                  X              Mr. Tanner.......                  X
Mr. Portman....................                  X              Mr. Becerra......        X
Mr. English....................                  X              Mrs. Thurman.....        X
Mr. Watkins....................                  X              Mr. Doggett......        X
Mr. Hayworth...................                  X              Mr. Pomeroy......                  X
Mr. Weller.....................                  X
Mr. Hulshof....................                  X
Mr. McInnis....................                  X
Mr. Lewis (KY).................                  X
Mr. Foley......................                  X
Mr. Brady......................                  X
Mr. Ryan.......................                  X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Messrs. Cardin and McDermott, that would 
add a new section to provide temporary unemployment 
compensation, was defeated by a rollcall vote of 18 yeas to 22 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......  ........        X   .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........  ........  ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................        X   ........  .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Kleczka, which would eliminate the 
refundable credit for corporate AMT liabilities, was defeated 
by a rollcall vote of 13 yeas to 23 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........  ........  .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......  ........  ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 3090 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2002-2006:

    ESTIMATED BUDGET EFFECTS OF THE REVENUE PROVISIONS CONTAINED IN H.R. 3090, THE ``ECONOMIC SECURITY AND RECOVERY ACT OF 2001,'' AS REPORTED BY THE
                                                               COMMITTEE ON WAYS AND MEANS
                                                    [Fiscal years 2002-2006, in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 Provision                             Effective                2002         2003         2004         2005         2006       2002-06
--------------------------------------------------------------------------------------------------------------------------------------------------------
          Cost Recovery Provisions

1. 30% expensing of the value of capital                  ppiso/a 9/11/01       -39,301      -36,125      -30,295       -6,904       22,299      -76,518
 assets with MACRS lives of 20 years or
 less and purchased software (sunset after
 36 months) \1\............................
2. Increase in section 179 expensing to                     tyba 12/31/01          -852       -1,406         -142          682          466       -1,251
 $35,000, and increase beginning point for
 phaseout to $325,000 for 24 months........
3. 15-year life leasehold improvements \2\.              lipiso/a 9/11/01           -78         -202         -369         -533         -684       -1,865
                                                                           -----------------------------------------------------------------------------
      Total of Cost Recovery Provisions....  .............................      -40,231      -37,733      -30,806        7,053       22,081      -79,634
                                                                           =============================================================================
Net Operating Loss Provision--5-Year               NOLs gi tyeo/a 9/11/01        -4,704       -3,528       -1,910        3,418        3,026       -3,699
 Carryback of Net Operating Losses and
 Waive the AMT 90% Limitation on the
 Allowance of Losses (sunset after 36
 months)...................................
Alternative Minimum Tax Provisions-Repeal                   tyba 12/31/00       -25,397          822        1,209          736          189      -22,441
 the corporate AMT and fully refund AMT
 credits \3\...............................
Deferral of Multinational Business Income                   tyba 12/31/01          -260       -1,252       -1,441       -1,659       -1,911       -6,523
 Provision--Permanently extend exceptions
 under subpart F for active financing
 income....................................

 Provisions Affecting Individual Taxpayers

1. Supplemental Rebate--Provide a rebate                              DOE       -13,733  ...........  ...........  ...........  ...........      -13,733
 ($300 individual, $600 married filing
 jointly, and $500 head-of-household) for
 individuals who filed a tax return in 2000
 other than dependents and nonresident
 aliens; rebate amount reduced by amount of
 rebate individual received under H.R. 1836
 \4\.......................................
2. Accelerate the 25% individual income tax                 tyba 12/31/01       -12,816      -18,862      -12,196       -7,685       -2,106      -53,665
 rate scheduled to go into effect in 2006
 to 2002...................................
3. Increase AMT exemption by $1,600 non-                    tyba 12/31/01          -717       -2,063       -2,315       -1,250  ...........       -6,345
 joint/$3,200 joint for 2002 and 2003, and
 $850 non-joint/$1,700 joint for 2004......
4. Increase deduction of capital losses of                  tyba 12/31/01          -840       -1,224           83           54           25       -1,903
 individuals against ordinary income from
 $3,000 to $4,000 for taxable year 2001
 only and $5,000 for taxable year 2002 only
5. Simplify individual capital gains--                    soeo/a 10/12/01          -535        1,451       -1,033       -2,420       -2,385       -4,922
 repeal mark-to-market and the 5-year
 holding period and allow adjusted net
 capital gains to qualify for the 18%/8%
 capital gains rates.......................
6. Expand the exemption from the early                              (\5\)           -13          -59          -33            1            1         -103
 withdrawal tax for health insurance
 expenses for unemployed individuals.......
                                                                           -----------------------------------------------------------------------------
      Total of Provisions Affecting          .............................      -28,654      -20,757      -15,494      -11,300       -4,465      -80,671
       Individual Taxpayers................
                                                                           =============================================================================
    Extension of Expiring Provisions and
            Technical Amendments

1. Two-year extension of provisions
 expiring in 2001:
    a. Treatment of nonrefundable personal                  tyba 12/31/01          -123         -664         -695  ...........  ...........       -1,482
     credits under the individual
     alternative minimum tax \6\...........
    b. Work opportunity tax credit.........            wpoifibwa 12/31/01           -92         -246         -247         -130          -51         -766
    c. Welfare-to-work tax credit..........            wpoifibwa 12/31/01           -27          -79          -90          -54          -23         -272
    d. Tax credit for electricity                          ppisa 12/31/01            -9          -26          -33          -34          -34         -136
     production from wind, closed-loop
     biomass, and poultry litter--
     facilities placed in service date.....
    e. Suspension of 100 percent-of-net-                    tyba 12/31/01           -27          -41          -14  ...........  ...........          -82
     income limitation on percentage
     depletion for oil and gas from
     marginal wells........................
    f. Qualified zone academy bonds........                 tyba 12/31/01         (\7\)           -2           -7          -14          -20          -43
    g. Temporary increase in limit on cover                           DOE           -65          -61          -14  ...........  ...........         -140
     over of rum excise tax revenues (from
     $10.50 to $13.25 per proof gallon) to
     Puerto Rico and the Virgin Islands \8\
    h. Suspension of requirement that                                 DOE                             Negligible Revenue Effect
     terminals selling diesel fuel and
     kerosene must sell both dyed and
     undyed fuel...........................
    i. Deductions for clean-fuel vehicles              ppisa 12/31/01 \9\            -9          -19          -18          -13            2          -57
     and refueling property................
    j. Tax credit for electric vehicles....           ppisa 12/31/01 \10\           -25          -43          -41          -34          -20         -163
    k. Tax on failure to comply with mental                 pybo/a 1/1/02                             Negligible Revenue Effect
     health parity requirements applicable
     to group health plans.................
2. One-year extension of provision expiring                           DOE   ...........        (\7\)           -2           -2           -2           -7
 in 2002-Archer medical savings accounts
 (``MSAs'')................................
3. Technical Amendments:
    a. Limit use of non-accrual experience                       tyea DOE            14           62           33           29           16          154
     method of accounting to amounts to be
     received for the performance of
     qualified professional services.......
    b. Reverse the Supreme Court's decision                   da 10/11/01            58           85           89           93           97          423
     in Gitlitz v. Commissioner (relating
     to subchapter S corporations).........
                                                                           -----------------------------------------------------------------------------
      Total of Extension of Expiring         .............................         -305       -1,034       -1,039         -159          -35       -2,571
       Provisions and Technical Amendments.
                                                                           =============================================================================
      Net total............................  .............................      -99,551      -63,482      -49,481       -1,911      -18,885     -195,539
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ A binding contract placed-in-service extension would apply in certain cases.
\2\ Provision is not eligible for the 30% expensing provision.
\3\ Includes outlay effect of $16,068 million in fiscal year 2002.
\4\ Includes outlay effect of $13,733 million in fiscal year 2002.
\5\ Effective for distributions made after the date of enactment to individuals who receive unemployment compensation for four consecutive weeks during
  the period from September 11, 2001, to December 31, 2002.
\6\ The ``Economic Growth and Tax Relief Reconciliation Act of 2001'' provides that the child tax credit and adoption tax credit are allowed for
  purposes of the alternative minimum tax for 2002 through 2010.
\7\ Loss of less than $500,000.
\8\ Estimate provided by the Congressional Budget Office.
\9\ The deduction phases down for vehicles placed in service after 12/31/03. The deductible amount is reduced by 25 percent in 2004, 50 percent in 2005,
  and 75 percent in 2006. No expensing is available after 2006.
\10\ The credit phases down for vehicles placed in service after 12/31/03. The deductible amount is reduced by 25 percent in 2004, 50 percent in 2005,
  and 75 percent in 2006. No credit is available after 2006.

Legend for ``Effective'' column: da=discharges after; DOE=date of enactment; gi-generated in; lipiso/a=leasehold improvements placed in service on or
  after; NOLs=net operating losses; ppisa=property placed in service after; ppiso=property placed in service on or after; pybo/a=plan years beginning on
  or after; soeo/a=sales or exchanges on or after; tyba=taxable years beginning after; tyeo/a=taxable years ending after; tyeo/a=taxable years ending on
  or after; wpoifibwa=wages paid or incurred for individuals beginning work after.

Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves new or increased budget authority (as detailed in 
the statement by the Congressional Budget Office (``CBO''); see 
Part IV.C., below). The Committee further states that the 
revenue reducing income tax provisions involve increased tax 
expenditures. (See amounts in table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 17, 2001.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3090, the Economic 
Security and Recovery Act of 2001.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Erin 
Whitaker.
            Sincerely,
                                            Dan L. Crippen,
                                                          Director.
    Enclosure.

H.R. 3090--Economic Security and Recovery Act of 2001

    Summary: H.R. 3090 would reduce tax receipts from 
corporations by increasing and extending certain deductions and 
exemptions and by repealing the alternative minimum tax. It 
also would provide a tax rebate to certain individual tax 
filers, accelerate the reduction of the prior-law 28 percent 
individual income tax rate of 25 percent in calendar years 2002 
and thereafter, and reduce the rate at which capital gains are 
taxed for individuals. In addition, the bill would extend 
numerous tax credits and make certain other changes.
    The Congressional Budget Office (CBO) and the Joint 
Committee on Taxation (JCT) estimate that H.R. 3090 would 
decrease governmental receipts by $69.7 billion in 2002, by 
$164.7 billion over the 2002-2006 period, and by $128.2 billion 
over the 2002-2011 period. In addition, the bill would increase 
direct spending by $31.5 billion in 2002 and $2.7 billion in 
203. In total, H.R. 3090 would reduce projected total surpluses 
by an estimated $162 billion over the 2002-2011 period. Because 
the bill would affect receipts and direct spending, pay-as-you-
go procedures would apply.
    The review of H.R. 3090 by JCT and CBO identified no 
intergovernmental mandates as defined in the Unfunded Mandates 
Reform Act (UMRA). CBO reviewed four sections of the bill 
(sections 103, 310, 402, and 501), two of which would provide 
benefits to state governments: one by accelerating transfers of 
funds to state accounts for unemployment compensation benefits, 
and another by providing grants to states for health insurance 
assistance to unemployed individuals.
    JCT has determined that the provisions that limit use of 
the non-accrual experience method of accounting and that alter 
the treatment of discharge of indebtedness of an S corporation 
contain private-sector mandates. CBO has determined that 
section 301 of the bill, which extends the provisions of the 
Mental Health Parity Act, contains a private-sector mandate. 
CBO and JCT estimate that the direct cost of the private-sector 
mandates in the bill would exceed the annual threshold 
established by UMRA ($113 million in 2001, adjusted for 
inflation) in each of the years that the mandates would be 
effective.

Major provisions

    Title I, entitled Business Provisions, would:
           Allow taxpayers to deduct an additional 30 
        percent of the value of certain qualifying capital 
        assets and software in the first year if such property 
        is placed in service before January 1, 2005;
           Increase the maximum dollar amount that may 
        be deducted on qualifying property in lieu of 
        depreciation from $24,000 ($25,000 in taxable years 
        beginning after 2003) to $35,000 for property placed in 
        service after December 31, 2001, and before January 1, 
        2004, and increase the beginning point at which such 
        treatment is phased out to $325,000 before January 1, 
        2004;
           Allow taxpayers to depreciate certain 
        improvements to leasehold property over 15 years;
           Extend to five years the period in which 
        taxpayers may carry back net operating losses in 
        taxable years arising on or after September 11, 2001, 
        and ending before September 11, 2004;
           Repeal the corporate Alternative Minimum Tax 
        (AMT) and make the AMT credit refundable; and
           Extend permanently the deferral of certain 
        active financing income of multinational business.
    Title II, entitled Individual Provisions, would:
           Accelerate the reduction of the prior-law 28 
        percent individual income tax rate to 25 percent in 
        calendar year 2002 and thereafter;
           Increase the AMT exemption amount for 
        individuals for taxable years beginning after December 
        31, 2001, and before January 1, 2005;
           Increase the deduction of capital losses of 
        individuals against ordinary income from $3,000 to 
        $4,000 for taxable year 2001, and to $5,000 for taxable 
        year 2002;
           Reduce the tax rates on the adjusted net 
        capital gain of an individual from 20 percent and 10 
        percent to 18 percent and 8 percent, respectively, and 
        repeal the special rules for certain gain from property 
        held more than five years; and
           Expand the exception of the tax on early 
        withdrawal of IRA distributions to distribution used 
        for health insurance by unemployed individuals if those 
        distributions were made by individuals between 
        September 11, 2001, and December 31, 2002.
    Title III, entitled Extensions of Certain Expiring 
Provisions, would:
           Allow an individual to offset all regular 
        tax liability and AMT liability by personal 
        nonrefundable credits in 2002 and 2003;
           Extend several tax credits for two years, 
        including the work opportunity tax credit and the 
        welfare-to-work tax credit;
           Allow new contributions to be made to Archer 
        medical savings accounts through December 31, 2003, for 
        those individuals who would no longer be able to 
        contribute under current law;
           Extend the Mental Health Parity Act of 1996, 
        which expired September 30, 2001, for an additional 2 
        years;
           Limit the use of the experience method of 
        accounting; and
           Provide that income from the discharge of 
        indebtedness of an S corporation not be taken into 
        account as an item of income by any shareholder.
    Title IV, entitled Supplemental Rebate; Other Provisions, 
would:
           Provide an additional rebate to those 
        taxpayers who filed income tax returns for 2000 if they 
        were eligible for rebates under the Economic Growth and 
        Tax Relief Reconciliation Act of 2001 (EGTRRA) and did 
        not receive the maximum rebate amount under the act; 
        and
           Accelerate transfers from the federal 
        unemployment accounts to the state accounts in the 
        unemployment trust fund.
    Title V, entitled Health Care Assistance for the 
Unemployed, would increase by $3 billion Social Services Block 
Grants to states for health care assistance for the unemployed.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3090 is shown in the following table. 
Most of the budgetary effects of the legislation are reductions 
in revenues. However, enacting the bill also would increase 
outlays by making the AMT credit refundable and by providing 
additional rebates to some taxpayers who were eligible for 
rebates under EGTRRA. Enacting H.R. 3090 also would increase 
outlays by accelerating transfers from the federal unemployment 
accounts to the state accounts in the unemployment trust fund. 
In addition, outlays would result from new grants to states for 
health insurance coverage for the unemployed. The spending 
effects of this legislation would fall within budget functions 
500 (education, training, employment, and social services), 600 
(income security), and 800 (general government).

Basis of estimate

            Revenues
    All the estimates for the revenue provisions, with the 
exception of the provision relating to unemployment trust fund 
revenues (detailed in the direct-spending section) and the 
provision relating to the extension of the Mental Health Parity 
Act of 1996 (detailed in the discussion of the private-sector 
impact), were provided by the JCT.
    Of the provisions estimated by the JCT, four provisions 
would comprise the majority of the changes in revenues if H.R. 
3090 were enacted. The provisions that allow taxpayers to 
deduct an additional 30 percent of the value of certain assets, 
repeal the alternative minimum tax, extend permanently the 
deferral of certain active financing income of multinational 
businesses, and accelerate the reduction of the prior-law 28 
percent individual income tax rate to 25 percent in calendar 
year 2002 would, if enacted, reduce revenues by an estimated 
$61.7 billion in 2002, $143.1 billion over the 2002-2006 
period, and $100.9 billion over the 2002-2011 period.
            Direct spending
    Allow Corporations to Treat Alternative Minimum Tax Credits 
as Refundable. Under current law, if a corporation is subject 
to the AMT in any year, the amount of the AMT is allowed as a 
credit against income in any subsequent taxable year if the 
regular tax liability exceeds a certain amount. Under H.R. 
3090, if the AMT credit exceeded the taxpayer's 2001 tax 
liability, the taxpayer would receive the excess as a refund. 
CBO considers that excess to be an outlay. CBO expects that all 
refunds of the credit--totaling $16.1 billion--would be made in 
2002, and that there would be no future outlays for this 
purpose as the AMT would be repealed under the bill.

                                     ESTIMATED BUDGETARY IMPACT OF H.R. 3090
----------------------------------------------------------------------------------------------------------------
                                                             By fiscal year, in millions of dollars--
                                                ----------------------------------------------------------------
                                                     2002         2003         2004         2005         2006
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Title I: Business Provisions...................      -54,981      -42,502      -33,822        9,957       25,296
Title II: Individual Provisions................      -14,204      -18,694      -13,179      -10,050       -4,465
Title III: Extensions of Certain Expiring               -490       -2,295       -2,490       -1,818       -1,946
 Provisions....................................
Title IV: Supplemental Rebate; Other Provisions           -0          100          300          300          300
                                                ----------------------------------------------------------------
      Total Changes in Revenues................      -69,675      -63,391      -49,191       -1,611       19,185
          On-Budget............................      -69,670      -63,383      -49,188       -1,611       19,185
          Off-Budget...........................           -5           -8           -3            0            0
                                           CHANGES IN DIRECT SPENDING

Outlays for Refundable AMT Credit..............       16,068            0            0            0            0
Outlays for Supplemental Rebate................       13,733            0            0            0            0
Accelerated Transfer to State Unemployment               700          700            0            0            0
 Trust Fund \1\................................
Increase in Social Services Block Grant........        1,000        2,000            0            0            0
                                                ----------------------------------------------------------------
      Total Changes in Direct Spending Outlays.       31,501        2,700            0            0            0
Net Increase or Decrease (-) in the Budget          -101,176      -66,091      -49,191        1,611       19,185
 Surplus.......................................
----------------------------------------------------------------------------------------------------------------
\1\ Under more realistic assumptions about likely unemployment in the near term, CBO would expect the increase
  in outlays to be greater in the short term--totaling about $4.5 billion in fiscal years 2002 and 2003.
  However, this increase in spending would be completely offset by revenue increases and by reduced spending in
  the following seven fiscal years.

Sources: Joint Committee on Taxation and Congressional Budget Office.

    Supplemental Rebate. The bill would provide an additional 
rebate to those taxpayers who filed a tax return for 2000 and 
were eligible for payment under the advance refund mechanism in 
EGTRRA but who did not receive the maximum amount ($300 for 
individual taxpayers or married taxpayers filing separately, 
$500 for taxpayers filing as heads of households, and $600 for 
married taxpayers filing jointly). Under normal budgetary 
procedures, the amount of a rebate or refundable tax credit 
that exceeds an individual's tax liabilities is considered a 
form of spending, rather than an offset to revenues. This 
supplemental rebate falls in spending category because, under 
current law, taxpayers have received (in 2001) or will receive 
(in 2002) credits allowed under EGTTRA at least up to the 
amounts of their 2001 tax liabilities. Thus, the supplemental 
rebates represent amounts in excess of individuals' tax 
liabilities for 2001 and should be classified as outlays.
    JCT estimates that the additional refunds will total about 
$13.7 billion. CBO expects that all outlays would be made in 
fiscal year 2002.
    Transfers from Federal Unemployment Accounts. Section 402 
of the bill would accelerate transfers from the federal 
unemployment accounts to the state accounts in the unemployment 
trust fund. CBO estimates that roughly $40 billion of these 
transfers could be anticipated over the 2002-2011 period under 
provisions of current law. The bill would provide for the 
immediate transfer of $9.3 billion from federal accounts to the 
state accounts in the unemployment trust fund, amounts that the 
states otherwise would receive during the 2003-2005 period. 
States would be allowed to spend those funds on unemployment 
compensation or on administrative costs associated with 
unemployment and employment services.
    CBO expects that states would spend a portion of these 
funds in fiscal years 2002 and 2003. Under the economic 
assumptions underlying the budget resolution, the additional 
outlays are estimated to total $1.4 billion over the next two 
years. If unemployment rates were to approach 6.0 percent in 
2002, CBO estimates the additional spending would be somewhat 
higher--about $4.5 billion--during the 2002-2003 period. 
However, over the longer run, this additional spending would be 
completely offset by increases in state revenues and by some 
reductions in spending. The offsets in future years occur 
because the reserve ratios in the state trust funds (the amount 
of funds kept on hand to pay future benefits) are assumed to 
remain in balance. Therefore, increased spending in the short 
term would be offset by decreased spending or increased 
revenues in the longer term. Thus, speeding up the transfer 
would have no net cost over the 2002-2011 period.
    Health Care Coverage for the Unemployed. Section 501 would 
increase the amount of the Social Services Block Grant by $3 
billion in 2002 to provide health care coverage for the 
unemployed. The money would be allocated to states based on 
their population. States could use the money to provide health 
coverage for individuals (or family members of such 
individuals) who qualify for unemployment benefits in calendar 
year 2001 or later, and are not otherwise eligible for federal 
health coverage.
    CBO expects that it would take several months for states to 
establish eligibility criteria and delivery mechanisms for the 
new services. CBO projects that $1 billion would be spent in 
2002 and $2 billion in 2003.
    Pay-as-you-go-considerations: The net changes in outlays 
and governmental receipts that are subject to pay-as-you-go 
procedures are shown in the following table. For the purposes 
of enforcing pay-as-you-go procedures, only the effects in the 
current year and the succeeding four years are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   By fiscal year, in millions of dollars--
                                                    ----------------------------------------------------------------------------------------------------
                                                        2002        2003        2004        2005      2006     2007     2008    2009    2010      2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts................................     -69,665     -63,381     -49,191     -1,611   19,185   15,841   11,762   7,160   2,804     -1,043
Changes in outlays.................................      31,501       2,700           0          0        0        0        0       0       0          0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Impact on State, local, and tribal governments: H.R. 3090 
contains no intergovernmental mandates as defined in the 
Unfunded Mandates Reform Act (UMRA). Two of the provisions 
reviewed by CBO would provide benefits to state governments.
    Section 402 of the bill would accelerate transfers from 
federal accounts in the unemployment trust fund to state 
unemployment compensation accounts. States would be able to use 
these additional funds, estimated to total $9.3 billion, for 
the payment of regular unemployment benefits as established in 
state laws or for the payment of new benefits established at 
the option of the state through March 11, 2003.
    Section 501 of the bill would provide $3 billion to states 
through the Social Services Block Grant program to help 
unemployed individuals acquire health care coverage. The funds 
could not be used to supplant any other federal, state, or 
local funds that are used for health care coverage. In order to 
be eligible for assistance, an individual could not be eligible 
for any other federal health coverage.
    Impact on the private sector: CBO and JCT estimate that the 
cost of the private-sector mandates in the bill would exceed 
the annual threshold established by UMRA ($113 million in 2001, 
adjusted for inflation) in each of the years that the mandates 
would be effective.
    Mental Health Parity. Section 310 would extend the 
provisions of the Mental Health Parity Act of 1996, which 
expired on September 30, 2001, for an additional two years. 
That act prohibited group health plans that provide both 
medical and surgical benefits and mental health benefits from 
imposing aggregate lifetime limits or annual limits for 
coverage of mental health benefits that are different from 
those used for medical and surgical benefits. CBO estimates 
that the direct cost of the private-sector mandate in section 
310 would be $270 million in fiscal year 2002 and $400 million 
in fiscal year 2003.
    CBO estimates that the provision, if enacted, would 
increase premiums for group health insurance by an average of 
0.1 percent, before accounting for the responses of health 
plans, employers, and workers to the higher premiums under the 
bill. CBO assumes that 60 percent of the potential impact of 
the mandate would be offset by behavioral responses, such as 
reductions in the number of employers offering insurance to 
their employees and in the number of employees enrolling in 
employer-sponsored insurance, changes in the types of heath 
plans that are offered, and reductions in the scope or 
generosity of health insurance benefits. The remaining 40 
percent of the potential increase in costs, or about 0.04 
percent of group health insurance premiums, would occur in the 
form of increased outlays for health insurance. Those costs 
would be passed through to employees of private firms, reducing 
both their taxable compensation and other fringe benefits. CBO 
estimates that the resulting reduction in taxable income would 
be $76 million in calendar year 2002 and $85 million in 
calendar year 2003.
    Those reductions in workers' taxable compensation would 
lead to lower federal tax revenues. CBO estimates that, as a 
result of the mental health parity provisions, federal tax 
revenues would fall by $20 million in fiscal year 2002, by $30 
million in 2003, and by $10 million in 2004 if H.R. 3090 were 
enacted. Social Security payroll taxes, which are off-budget, 
would account for about 30 percent of the total.
    Other Mandates. Section 341 of the bill would provide that 
income from the discharge of indebtedness of an S corporation 
that is excluded from the S corporation's income is not taken 
into account as an item of income by any shareholder and thus 
does not increase the basis of any shareholder's stock in the 
corporation.
    Under Section 342, the experience method of accounting 
would be available only for amounts to be received for the 
performance of qualified services and for services provided by 
certain small businesses.
    JCT estimates that those private-sector mandates in the 
bill would exceed the annual threshold established by UMRA 
($113 million in 2001, adjusted for inflation) in each of the 
years that the mandates would be effective.
    Estimate prepared by: Federal Revenues: Erin Whitaker and 
Alexis Ahlstrom. Transfer to State Unemployment Trust Funds: 
Christi Hawley Sadoti. Health Care Coverage for the Unemployed: 
Sheila Dacey. Impact on State, Local, and Tribal Governments: 
Leo Lex. Impact on the Private Sector: Jen Bullard Bowman.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis; Robert A. Sunshine, Assistant 
Director for Budget Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE 


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review of any conditions or circumstances that may 
indicate the necessity or desirability of enacting new or 
additional legislation within its jurisdiction that the 
Committee determined that there is a need for tax legislation 
and legislation relating to unemployment to aid in providing 
economic security and recovery in light of the events of 
September 11, 2001, and the current state of the U.S. economy.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the performance goals and 
objectives of that part of the tax provisions in this 
legislation that authorize funding (i.e., providing 
supplemental rebates and repeal of the corporate alternative 
minimum tax) are to stimulate the economy and increase consumer 
confidence by providing additional cash to taxpayers. In 
addition, the provisions of the bill relating to transferring 
Federal unemployment and health funds to the States will assist 
unemployed workers and their dependents.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises * * * ``), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the following provisions 
of the bill contain Federal private sector mandates: (1) limit 
use of the non-accrual method of accounting; and (2) discharge 
of indebtedness of an S corporation. The costs required to 
comply with each of these private sector mandates generally are 
no greater than the estimated budget effects of the provision 
as reflected in Part IV.A., above. These provisions provide 
revenue offsets for the economic stimulus provisions of the 
bill and also improve the operation of the Federal income tax 
system by resulting in a more accurate measurement of income in 
those situations affected by the provision.
    The Committee has determined that the bill does not impose 
a Federal intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    The following tax complexity analysis is provided pursuant 
to section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998, which requires the staff of the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service (``IRS'') and the Treasury Department) to 
provide a complexity analysis of tax legislation reported by 
the House Committee on Ways and Means, the Senate Committee on 
Finance, or a Conference Report containing tax provisions. The 
complexity analysis is required to report on the complexity and 
administrative issues raised by provisions that directly or 
indirectly amend the Internal Revenue Code and that have 
widespread applicability to individuals or small businesses. 
For each such provision identified by the staff of the Joint 
Committee on Taxation, a summary description of the provision 
is provided along with an estimate of the number and type of 
affected taxpayers, and a discussion regarding the relevant 
complexity and administrative issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and the Treasury 
Department regarding each of the provisions included in the 
complexity analysis, including a discussion of the likely 
effect on IRS forms and any expected impact on the IRS.

1. Special Depreciation Allowance for Certain Property (sec. 101 of the 
        bill)

Summary description of provision

    The bill allows an additional first-year depreciation 
deduction equal to 30 percent of the adjusted basis of certain 
qualified property that is placed in service before January 1, 
2005. The additional depreciation deduction is allowed for both 
regular tax and alternative minimum tax purposes for the 
taxable year in which the property is placed in service. The 
basis of the property and the depreciation allowances in the 
year of purchase and later years is appropriately adjusted to 
reflect the additional first-year depreciation deduction. A 
taxpayer can elect not to claim the additional first-year 
depreciation for qualified property.
    In general, property will qualify for the additional first-
year depreciation deduction if the property is (1) property to 
which the modified accelerated cost recovery system (``MACRS'') 
applies with a recovery period of 20 years or less except for 
leasehold improvements, (2) water utility property as defined 
in section 168(e)(5), or (3) computer software other than 
computer software covered by section 197. In order to be 
qualified property, the original use of the property must 
commence with the taxpayer on or after September 11, 2001. A 
special rule precludes the additional first-year depreciation 
deduction for property that is required to be depreciated under 
the alternative depreciation system of MACRS. In addition, 
generally qualified property is required to be acquired by the 
taxpayer after September 10, 2001 and before September 11, 
2004.

Number of affected taxpayers

    It is estimated that more than 10 percent of small 
businesses will be affected by the provision.

Discussion

    It is not anticipated that small businesses will have to 
keep additional records due to this provision, nor will 
additional regulatory guidance be necessary to implement this 
provision. It is not anticipated that the provision will result 
in an increase in disputes between small businesses and the 
IRS. However, small businesses will have to perform additional 
analysis to determine whether property qualifies for the 
provision. In addition, for qualified property, small 
businesses will be required to perform additional calculations 
to determine the proper amount of allowable depreciation. 
Complexity may also be increased because the provision is 
temporary. For example, different tax treatment will apply for 
identical equipment based on the acquisition and placed in 
service date. Further, the Secretary of the Treasury is 
expected to have to make appropriate revisions to the 
applicable depreciation tax forms.

2. Accelerate the 25-Percent Rate Bracket to 2002 (sec. 201(a) of the 
        bill)

Summary description of provision

    The Economic Growth and Tax Relief Reconciliation Act of 
2001 reduced the prior-law 28-percent individual regular income 
tax rate to 25 percent. This rate reduction is phased-in over 
six years. The rate is 27 percent for taxable years beginning 
in calendar years 2001-2003, 26 percent for taxable years 
beginning in calendar years 2004-2005, and 25 percent for 
taxable years beginning in calendar years 2006 and thereafter. 
The bill accelerates this reduction. Therefore, the 25-percent 
rate is effective for taxable years beginning in calendar years 
2002 and thereafter.

Number of affected taxpayers

    It is estimated that the provision will affect 
approximately 37 million individual tax returns per year.

Discussion

    It is not anticipated that individuals will need to keep 
additional records due to this provision. It should not result 
in an increase in disputes with the IRS, nor will regulatory 
guidance be necessary to implement this provision. In addition, 
the provision should not increase the tax preparation costs for 
most individuals.

3. Simplify Individual Capital Gains Rates (sec. 202 of the bill)

Summary description of provision

    The provision repeals the special rules for certain gain 
from property held more than five years and repeals the mark to 
market election for certain property held on January 1, 2001. 
Thus, the present-law eight and 18 percent rates on adjusted 
net capital gains would apply to assets held more than one 
year.

Number and type of affected taxpayers

    It is estimated that reducing the tax rates on capital 
gains will affect over 20 million taxpayers per year. It is 
estimated that, of this number, over ten million individual 
income tax returns have incomes of less than $75,000.

Discussion

    It is not anticipated that individuals will need to keep 
additional records due to this provision, because the provision 
is only a rate change. Additional regulatory guidance should 
not be necessary to implement this provision. The provision 
should not increase the tax preparation cost of individuals 
using a tax preparation service, except possibly for the year 
2001 when both the eight-percent and ten-percent rate schedules 
will be in effect for certain taxpayers. After 2001, the 
provision should result in simplification in computing the tax 
on capital gains (e.g. the tax form for computation of capital 
gains will be shortened and the calculation simplified). It is 
anticipated that eliminating the mark-to-market election will 
also reduce the record keeping and reporting burden on 
taxpayers. It is also anticipated that it will ease the 
administrative burden on the IRS.

4. Supplemental Rebate (sec. 401 of the bill)

Summary description of provision

    The bill provides a supplemental rebate. Individuals who 
filed income tax returns for 2000 (regardless of whether they 
had any income tax liability or any payroll tax liability) are 
eligible for this supplemental rebate. The amount of the rebate 
is calculated in the following manner: taxpayers are eligible 
for the maximum rebate amount for their filing status ($300 
single or married filing separately, $500 head of household, 
$600 joint filers) minus the amount (if any) of any previous 
rebate check issued.

Number of affected taxpayers

    It is estimated that the provision will affect 
approximately 38 million individual tax returns per year.

Discussion

    It is not anticipated that individuals will need to keep 
additional records due to this provision. In addition, the 
provision should not increase the tax preparation costs for 
most individuals. It should not result in an increase in 
disputes with the IRS, nor will regulatory guidance be 
necessary to implement this provision. It may, however, 
increase the number of questions that taxpayers ask the IRS, 
such as when taxpayers will receive their checks. This 
increased volume of questions could have an adverse impact on 
other elements of IRS' operations, such as the levels of 
taxpayer service. The IRS is expected to send notices to 
taxpayers who will be receiving supplemental rebates, which may 
reduce the number of questions from taxpayers.
    The IRS will have a very short period of time in which to 
program its computers, test those programs, determine who 
should receive a supplemental rebate and in what amount, notify 
those taxpayers, and authorize the issuance of the supplemental 
rebates.\36\ This may be difficult to do. In addition, doing 
these tasks may have unforeseen adverse consequences for other 
IRS responsibilities, such as the 2002 filing season.
---------------------------------------------------------------------------
    \36\ The Financial Management Service of the Department of the 
Treasury, not the Internal Revenue Service, prints and mails the 
checks.

                        Department of the Treasury,
                                   Interal Revenue Service,
                                  Washington, DC, October 17, 2001.
Ms. Lindy L. Paull,
Chief of Staff, Joint Committee on Taxation,
Washington, DC
    Dear Ms. Paull: Enclosed are the combined comments of the 
Internal Revenue Service and the Treasury Department on the 
four provisions from the House Committee on Ways and Means 
markup of the ``Economic Security and Recovery Act of 2001,'' 
that you identified for complexity analysis in your letter of 
October 12, 2001.
    Our comments on provisions other than the supplemental 
rebate are based on the description of those provisions in JCX-
69-01, Joint Committee on Taxation, Description of the Economic 
Security and Recovery Act of 2001, as introduced, October 11, 
2001, and the statutory language contained in H.R. 3090, as 
modified by the Amendment in the Nature of a Substitute Offered 
by Mr. Thomas. Our description and comments on the supplemental 
rebate provision are based solely on the description of that 
provision provided in the attachment to your letter of October 
12.
    Due to the short turnaround time, our comments are 
provisional and subject to change upon a more complete and in-
depth analysis of the provisions.
            Sincerely,
                                               Charles O. Rossotti.
    Enclosure.

  Complexity Analysis of Provisions From the ``Economic Security and 
                         Recovery Act of 2001''


          Special Depreciation Allowance for Certain Property

    Provision: The proposal would allow an additional first-
year depreciation deduction of 30 percent, for both regular and 
AMT property acquired after September 10, 2001 and before 
September 11, 2004, and placed in service before January 1, 
2005. The basis of the property and depreciation in subsequent 
years would be appropriately adjusted to reflect the additional 
first-year depreciation. Taxpayers would be allowed to elect 
out of the additional first-year depreciation.

IRS and Treasury comments

     The special depreciation allowance would require 
changes to Form 4562 for 2001. One line would be added to Part 
I of the form. In addition, changes to the instructions for 
Form 2106 and 4562 would be necessary to explain the new rules. 
Taxpayers would be required to keep records of the amount of 
additional depreciation claimed on each asset in order to 
figure depreciation in later years.

                          Supplemental Rebate

    Provision: A supplemental rebate would be available for 
individuals who filed income tax returns for 2000, even if they 
did not have any income tax liability, payroll tax liability, 
or wages for 2000. The amount of the rebate would be calculated 
in the following manner: taxpayers would be eligible for the 
maximum rebate amount for their filing status ($300 single or 
married filing separately, $500 head of household, $600 joint 
filers) minus the amount (if any) of any previous rebate check 
issued. Thus, if a single filer received $100 earlier this year 
as his or her rate reduction credit, he or she would receive an 
additional $200. Those who earlier received the full amounts 
for their filing status would not receive any supplemental 
rebate. Dependents and nonresident aliens would not be eligible 
for the supplemental rebates.

IRS and Treasury comments

     A mechanism for delivering the supplemental credit 
would have to be developed.
     Providing rebate checks to affected taxpayers 
before the end of 2001 may not be a viable delivery option.
     In order to compute, account for, control, and 
produce rebate checks, certain complex computer programs and 
systems must be modified, tested, integrated with existing 
programs, and put into place, IRS would also need to modify the 
notice programs to reflect these new calculations and 
coordinate the issuance of checks with FMS.
     Revisions of this kind late in the calendar year 
always create extremely high risk of major errors in processing 
taxpayer returns. The problem is especially severe this year 
because significant technical and management resources were 
diverted from our development of programs for the 2002 filing 
season to accommodate the advance payments provided by the 
Economic Growth and Tax Relief Reconciliation Act of 2001, and 
the delayed due dates for certain taxpayers affected by the 
terrorist attacks of September 11, 2001. Currently, every 
available technical and management resource is operating at 
maximum capacity to ensure that programming for the 2002 filing 
season is completed timely. Attempting to implement programs to 
issue a ``supplemental rebate'' by December 31, 2001 would 
create serious risks of delay in the start of the 2002 filing 
season.
     Another approach would be to issue the 
supplemental rebate during the processing of an individual's 
2001 tax return. This could be done by computing the additional 
rebate on the 2001 return and adjusting the 2001 balance due or 
refund to reflect the additional amount.

             Accelerate the 25-percent Rate Bracket to 2002

    Provision: The 25-percent rate (provided by the Economic 
Growth and Tax Relief Reconciliation Act of 2001) would be 
effective for taxable years beginning in calendar years 2002 
and thereafter.

IRS and Treasury comments

     This tax rate change would be incorporated in the 
tax tables, tax rate schedules, withholding tables, and 
withholding rate schedules for 2002 during IRS' annual update 
of these items. Changes to the tax rates shown in the 
instructions for Forms 1040, 1040A, 1040EZ, and 1040NR, and on 
Forms 1040-ES and W-4V would be required for 2002. No new forms 
would be required. Programming changes to the tax computation 
process would be required to reflect the new rates.

                Simplify Individual Capital Gains Rates

    Provision: The proposal would reduce the 10 and 20 percent 
rates on adjusted net capital gain to 8 and 18 percent rates, 
respectively. (The special rules allowing reduced rates for 
property held for more than 5 years, and related election to 
recognize certain gain on property held on January 1, 2001 
would be repealed because they are no longer necessary.) The 
reduced capital gain rates would apply, generally, to capital 
assets sold or exchanged on or after October 12, 2001.

IRS and Treasury comments

                               tax forms

     Applying the reduced rates to gains after October 
11, 2001 would require the following major changes to the 2001 
Schedule D (Form 1040) and the worksheets in its Instructions 
and the instructions for Forms 1040 and 1040A:
     In Part I of Schedule D, a new column with 5 lines 
for short-term gain or loss after October 11, 2001 would be 
added.
     In Part II, column (g) would be redesignated for 
gain or loss after October 11, 2001, and one entry space in 
that column would be removed.
     A new 8-line worksheet would be added to the 
Schedule D Instructions to determine 28 percent rate gain or 
loss (previously figured in column (g), Part II).
     In Part IV, 4 lines would be added to the 
computation of the amount taxed at 8 percent, and 8 lines would 
be added to figure the amount taxed at 18 percent and 20 
percent. One line would be removed because its calculation 
would be done in the new worksheet for 28 percent rate gain or 
loss. The same changes (a net increase of 11 lines) would also 
be required for the new Schedule D Tax Worksheet in the 
Instructions for Schedule D.
     The two 15-line Capital Gain Tax Worksheets in the 
Instructions for Forms 1040 and 1040A could not be used and 
would have to be deleted. Most taxpayers whose only capital 
gains are capital gain distributions can now figure their tax 
on that worksheet instead of completing Schedule D. This change 
would require approximately 2 million taxpayers who file Form 
1040A to instead file Form 1040 and complete Schedule D. Also, 
approximately 6 million Form 1040 filers would have to file 
Schedule D instead of using the worksheet. IRS could not allow 
taxpayers to use the worksheets because IRS would not have the 
information regarding gains and losses after October 11, 2001 
necessary to math-verify the taxpayer's tax computation. IRS 
can only get this information by requiring the taxpayer to file 
Schedule D. IRS would also have to delete the checkbox from 
Form 1040 that indicates that the taxpayer had only capital 
gain distributions and used the Capital Gain Tax Worksheet 
instead of filing Schedule D.
     The October 12, 2001 effective date would also 
require conforming changes for the following 2001 forms: 
Schedule D-1 (Form 1040); Schedules D for Forms 1041, 1065, and 
1120S; and Forms 2439, 4797, 6251, and 6781. In addition, the 
2001 Schedules K-1 for Forms 1041, 1065, and 1120S would need 
to be revised to add lines for short-term, and section 1231 
gain or loss after October 11, 2001. Finally, the 2001 Forms 
1099-DIV and 1099-B should be revised to reflect the change. 
However, because they have already been printed and 
distributed, the IRS would have to issue an announcement 
explaining how the filers of those forms must report gain or 
loss after October 11, 2001 to the recipients on a substitute 
or separate statement. No new forms would be required.
     The added complexity of the 2001 Schedule D would 
lead to increased taxpayer error. During processing, these 
returns would have to be sent to Error Resolution for 
correction. This could cause additional delay in return 
processing and in the issuance of refunds. It also would 
increase IRS processing costs.
     Generally, the above changes apply only to the 
2001 forms and instructions. The forms and instructions for 
2002 and later years, including 2006, would be simpler than 
they would be absent this legislation. The four new lines in 
Part IV necessary to figure the amount taxed at 8 percent for 
2001 (absent this legislation), as well as the new 7-line 
Qualified 5-Year Gain Worksheet, would no longer be necessary. 
Also, IRS would not have to add similar additional lines and 
another worksheet in 2006 to accommodate the 18 percent tax 
rate on post-2000 qualified 5-year gain.
     Fiscal year 2000-2001 taxpayers with a taxable 
year ending after October 11, 2001 may also be affected. These 
taxpayers file 2000 tax forms, which are already in print. The 
IRS would have to issue an announcement similar to Announcement 
97-109, 1997-45 I.R.B. 12, which was issued to reflect new 
reporting requirements mandated by the 1997 capital gains tax 
rate changes. The announcement would explain how taxpayers must 
complete their 2000 forms to reflect the reduced rates for net 
capital gain after October 11, 2001. The affected 2000 forms 
include Schedules D for Forms 1040 and 1041 and Schedules K-1 
for Forms 1041, 1065, and 1120S.

                       PROGRAMMING AND PROCESSING

     The changes needed to the 2001 forms caused by the 
October 12, 2001 effective date would require extensive 
revision of computer programs and record layouts for processing 
those returns. Revisions of this kind late in the calendar year 
always pose extreme difficulties. The problem is especially 
severe this year because of the additional resources required 
to implement the Economic Growth and Tax Relief Reconciliation 
Act of 2001 (enacted in June 2001), conforming changes to that 
Act approved by the leadership of the tax writing committees in 
September 2001, and the delayed due dates for certain taxpayers 
affected by the terrorist acts on September 11, 2001.
     The IRS is currently working on these programming 
changes in preparation for the 2002 filing season. These 
changes are scheduled for completion by November 19, 2001. By 
mid-November 2001, all systems need to be frozen in order to 
allow for final end-to-end testing of IRS systems. The IRS also 
must work with independent vendors of tax preparation software 
to test their systems so that it can correctly receive 
electronically filed returns beginning shortly after January 1, 
2002.
     If the October 12, 2001 effective date is 
retained, the IRS would be forced to complete testing of 
computer programs for processing during the 2002 filing season 
using existing law and would be unable to process 2001 returns 
reporting capital gains under the new law until later in the 
filing season, possibly not until March 2002. At a minimum, 
this means that taxpayers (including taxpayers who file 
electronically) who have capital gains and who are due refunds 
would not be able to receive their refunds until late in the 
filing season. In addition, since the over 28 million returns 
that include Schedule D would not be processed until late in 
the season during the peak filing period, processing of some 
other returns might be delayed. With delays for so many 
returns, the IRS would expect an increased number of taxpayer 
phone calls concerning, refunds, thereby reducing the 
opportunity for other taxpayers to get assistance.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


        Part I. Tax on individuals.
     * * * * * * *
        [Part VII. Environmental tax.]

PART I--TAX ON INDIVIDUALS

           *       *       *       *       *       *       *


SEC. 1. TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Maximum Capital Gains Rate.--
          (1) In general.--If a taxpayer has a net capital gain 
        for any taxable year, the tax imposed by this section 
        for such taxable year shall not exceed the sum of--
                  (A) * * *
                  (B) [10] 8 percent of so much of the adjusted 
                net capital gain (or, if less, taxable income) 
                as does not exceed the excess (if any) of--
                          (i) the amount of taxable income 
                        which would (without regard to this 
                        paragraph) be taxed at a rate below 25 
                        percent, over
                          (ii) the taxable income reduced by 
                        the adjusted net capital gain;

           *       *       *       *       *       *       *

                  (C) [20] 18 percent of the adjusted net 
                capital gain (or, if less, taxable income) in 
                excess of the amount on which a tax is 
                determined under subparagraph (B);

           *       *       *       *       *       *       *

          [(2) Reduced capital gain rates for qualified 5-year 
        gain.--
                  [(A) Reduction in 10-percent rate.--In the 
                case of any taxable year beginning after 
                December 31, 2000, the rate under paragraph 
                (1)(B) shall be 8 percent with respect to so 
                much of the amount to which the 10-percent rate 
                would otherwise apply as does not exceed 
                qualified 5-year gain, and 10 percent with 
                respect to the remainder of such amount.
                  [(B) Reduction in 20-percent rate.--The rate 
                under paragraph (1)(C) shall be 18 percent with 
                respect to so much of the amount to which the 
                20-percent rate would otherwise apply as does 
                not exceed the lesser of--
                          [(i) the excess of qualified 5-year 
                        gain over the amount of such gain taken 
                        into account under subparagraph (A) of 
                        this paragraph; or
                          [(ii) the amount of qualified 5-year 
                        gain (determined by taking into account 
                        only property the holding period for 
                        which begins after December 31, 2000), 
                        and 20 percent with respect to the 
                        remainder of such amount. For purposes 
                        of determining under the preceding 
                        sentence whether the holding period of 
                        property begins after December 31, 
                        2000, the holding period of property 
                        acquired pursuant to the exercise of an 
                        option (or other right or obligation to 
                        acquire property) shall include the 
                        period such option (or other right or 
                        obligation) was held.]
          [(3)] (2) Net capital gain taken into account as 
        investment income.--For purposes of this subsection, 
        the net capital gain for any taxable year shall be 
        reduced (but not below zero) by the amount which the 
        taxpayer takes into account as investment income under 
        section 163(d)(4)(B)(iii).
          [(4)] (3) Adjusted net capital gain.--For purposes of 
        this subsection, the term ``adjusted net capital gain'' 
        means net capital gain reduced (but not below zero) by 
        the sum of--
                  (A) unrecaptured section 1250 gain; and
                  (B) 28-percent rate gain.
          [(5)] (4) 28-Percent rate gain.--For purposes of this 
        subsection, the term ``28-percent rate gain'' means the 
        excess (if any) of--
                  (A) the sum of--
                          (i) collectibles gain; and

           *       *       *       *       *       *       *

          [(6)] (5) Collectibles gain and loss.--For purposes 
        of this subsection--
                  (A) * * *

           *       *       *       *       *       *       *

          [(7)] (6) Unrecaptured section 1250 gain.--For 
        purposes of this subsection--
                  (A) * * *

           *       *       *       *       *       *       *

          [(8)] (7) Section 1202 gain.--For purposes of this 
        subsection, the term ``section 1202 gain'' means the 
        excess of--
                  (A) * * *

           *       *       *       *       *       *       *

          [(9) Qualified 5-year gain.--For purposes of this 
        subsection, the term ``qualified 5-year gain'' means 
        the aggregate long-term capital gain from property held 
        for more than 5 years. The determination under the 
        preceding sentence shall be made without regard to 
        collectibles gain, gain described in paragraph 
        (7)(A)(i), and section 1202 gain.]
          [(10)] (8) Coordination with recapture of net 
        ordinary losses under section 1231.--If any amount is 
        treated as ordinary income under section 1231(c), such 
        amount shall be allocated among the separate categories 
        of net section 1231 gain (as defined in section 
        1231(c)(3)) in such manner as the Secretary may by 
        forms or regulations prescribe.
          [(11)] (9) Regulations.--The Secretary may prescribe 
        such regulations as are appropriate (including 
        regulations requiring reporting) to apply this 
        subsection in the case of sales and exchanges by pass-
        thru entities and of interests in such entities.
          [(12)] (10) Pass-thru entity defined.--For purposes 
        of this subsection, the term ``pass-thru entity'' 
        means--
                  (A) * * *

           *       *       *       *       *       *       *

  (i) Rate Reductions After 2000.--
          (1) * * *
          (2) Reductions in rates after june 30, 2001.--In the 
        case of taxable years beginning in a calendar year 
        after 2000, the corresponding percentage specified for 
        such calendar year in the following table shall be 
        substituted for the otherwise applicable tax rate in 
        the tables under subsections (a), (b), (c), (d), and 
        (e).


------------------------------------------------------------------------
               In the case of    The corresponding percentages shall be
               taxable years         substituted for  the following
                 beginning                    percentages:
              during calendar ------------------------------------------
                   year:             28%         31%      36%     39.6%
------------------------------------------------------------------------
              2001...........       27.5%       30.5%    35.5%    39.1%
              2002 and 2003..   [27.0%] 25.0%   30.0%    35.0%    38.6%
              2004 and 2005..   [26.0%] 25.0%   29.0%    34.0%    37.6%
              2006 and              25.0%       28.0%    33.0%    35.0%
               thereafter.
------------------------------------------------------------------------

                                                                 

           *       *       *       *       *       *       *
PART II--TAX ON CORPORATIONS

           *       *       *       *       *       *       *



SEC. 11. TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Foreign Corporations.--In the case of a foreign 
corporation, [the taxes imposed by subsection (a) and section 
55] the tax imposed by subsection (a) shall apply only as 
provided by section 882.

SEC. 12. CROSS REFERENCES RELATING TO TAX ON CORPORATIONS.

          (1) * * *

           *       *       *       *       *       *       *

          [(7) For alternative minimum tax, see section 55.]

           *       *       *       *       *       *       *


PART IV--CREDIT AGAINST TAX

           *       *       *       *       *       *       *



Subpart A--Nonrefundable Personal Credits

           *       *       *       *       *       *       *



SEC. 24. CHILD TAX CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Portion of Credit Refundable.--
          (1) In general.--The aggregate credits allowed to a 
        taxpayer under subpart C shall be increased by the 
        lesser of--
                  (A) * * *
                  (B) the amount by which the [amount of credit 
                allowed by this section] aggregate amount of 
                credits allowed by this subpart (determined 
                without regard to this subsection) would 
                increase if the limitation imposed by section 
                26(a) were increased by the greater of--
                          (i) * * *

           *       *       *       *       *       *       *


SEC. 26. LIMITATION BASED ON TAX LIABILITY; DEFINITION OF TAX 
                    LIABILITY.

  (a) Limitation Based on Amount of Tax.--
          (1) * * *
          (2) Special [rule for 2000 and 2001.--] rule for 
        2000, 2001, 2002, and 2003.--For purposes of any 
        taxable year beginning [during 2000 or 2001,] during 
        2000, 2001, 2002, or 2003, the aggregate amount of 
        credits allowed by this subpart for the taxable year 
        shall not exceed the sum of--
                  (A) * * *

           *       *       *       *       *       *       *

  (b) Regular Tax Liability.--For purposes of this part--
          (1) * * *
          (2) Exception for certain taxes.--For purposes of 
        paragraph (1), any tax imposed by any of the following 
        provisions shall not be treated as tax imposed by this 
        chapter:
                  (A) section 55 (relating to minimum tax),
                  [(B) section 59A (relating to environmental 
                tax),]
                  [(C)] (B) subsection (m)(5)(B), (q), (t), or 
                (v) of section 72 (relating to additional taxes 
                on certain distributions),
                  [(D)] (C) section 143(m) (relating to 
                recapture of proration of Federal subsidy from 
                use of mortgage bonds and mortgage credit 
                certificates),
                  [(E)] (D) section 530(d)(3) (relating to 
                additional tax on certain distributions from 
                education individual retirement accounts),
                  [(F)] (E) section 531 (relating to 
                accumulated earnings tax),
                  [(G)] (F) section 541 (relating to personal 
                holding company tax),
                  [(H)] (G) section 1351(d)(1) (relating to 
                recoveries of foreign expropriation losses),
                  [(I)] (H) section 1374 (relating to tax on 
                certain built-in gains of S corporations),
                  [(J)] (I) section 1375 (relating to tax 
                imposed when passive investment income of 
                corporation having subchapter C earnings and 
                profits exceeds 25 percent of gross receipts),
                  [(K)] (J) subparagraph (A) of section 
                7518(g)(6) (relating to nonqualified 
                withdrawals from capital construction funds 
                taxed at highest marginal rate),
                  [(L)] (K) sections 871(a) and 881 (relating 
                to certain income of nonresident aliens and 
                foreign corporations),
                  [(M)] (L) section 860E(e) (relating to taxes 
                with respect to certain residual interests),
                  [(N)] (M) section 884 (relating to branch 
                profits tax),
                  [(O)] (N) sections 453(l)(3) and 453A(c) 
                (relating to interest on certain deferred tax 
                liabilities),
                  [(P)] (O) section 860K (relating to treatment 
                of transfers of high-yield interests to 
                disqualified holders), and,
                  [(Q)] (P) section 220(f)(4) (relating to 
                additional tax on Archer MSA distributions not 
                used for qualified medical expenses).

           *       *       *       *       *       *       *


Subpart B--Other Credits

           *       *       *       *       *       *       *



SEC. 29. CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL SOURCE.

  (a) * * *
  (b) Limitations and Adjustments.--
          (1) * * *

           *       *       *       *       *       *       *

          [(6) Application with other credits.--The credit 
        allowed by subsection (a) for any taxable year shall 
        not exceed the excess (if any) of--
                  [(A) the regular tax for the taxable year 
                reduced by the sum of the credits allowable 
                under subpart A and section 27, over
                  [(B) the tentative minimum tax for the 
                taxable year.]
          (6) Application with other credits.--The credit 
        allowed by subsection (a) for any taxable year shall 
        not exceed the excess (if any) of the regular tax for 
        the taxable year reduced by the sum of the credits 
        allowable under subpart A and section 27. In the case 
        of a taxpayer other than a corporation, such excess 
        shall be further reduced (but not below zero) by the 
        tentative minimum tax for the taxable year.

           *       *       *       *       *       *       *


SEC. 30. CREDIT FOR QUALIFIED ELECTRIC VEHICLES.

  (a) * * *
  (b) Limitations.--
          (1)  * * *
          (2) Phaseout.--In the case of any qualified electric 
        vehicle placed in service after December 31, [2001] 
        2003, the credit otherwise allowable under subsection 
        (a) (determined after the application of paragraph (1)) 
        shall be reduced by--
                  (A) 25 percent in the case of property placed 
                in service in calendar year [2002] 2004,
                  (B) 50 percent in the case of property placed 
                in service in calendar year [2003] 2005, and
                  (C) 75 percent in the case of property placed 
                in service in calendar year [2004] 2006.
          [(3) Application with other credits.--The credit 
        allowed by subsection (a) for any taxable year shall 
        not exceed the excess (if any) of--
                  [(A) the regular tax for the taxable year 
                reduced by the sum of the credits allowable 
                under subpart A and sections 27 and 29, over--
                  [(B) the tentative minimum tax for the 
                taxable year.]
          (3) Application with other credits.--The credit 
        allowed by subsection (a) for any taxable year shall 
        not exceed the excess (if any) of the regular tax for 
        the taxable year reduced by the sum of the credits 
        allowable under subpart A and sections 27 and 29. In 
        the case of a taxpayer other than a corporation, such 
        excess shall be further reduced (but not below zero) by 
        the tentative minimum tax for the taxable year.

           *       *       *       *       *       *       *

  (e) Termination.--This section shall not apply to any 
property placed in service after December 31, [2004] 2006.

SEC. 30A. PUERTO RICO ECONOMIC ACTIVITY CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Credit Not Allowed Against Certain Taxes.--The credit 
provided by subsection (a) shall not be allowed against the tax 
imposed by--
          [(1) section 59A (relating to environmental tax),]
          [(2)] (1) section 531 (relating to the tax on 
        accumulated earnings),
          [(3)] (2) section 541 (relating to personal holding 
        company tax), or
          [(4)] (3) section 1351 (relating to recoveries of 
        foreign expropriation losses).

           *       *       *       *       *       *       *


Subpart D--Business Related Credits

           *       *       *       *       *       *       *



SEC. 38. GENERAL BUSINESS CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Limitation Based on Amount of Tax.--
          [(1) In general.--The credit allowed under subsection 
        (a) for any taxable year shall not exceed the excess 
        (if any) of the taxpayer's net income tax over the 
        greater of--
                  [(A) the tentative minimum tax for the 
                taxable year, or
                  [(B) 25 percent of so much of the taxpayer's 
                net regular tax liability as exceeds $25,000.
        For purposes of the preceding sentence, the term ``net 
        income tax'' means the sum of the regular tax liability 
        and the tax imposed by section 55, reduced by the 
        credits allowable under subparts A and B of this part, 
        and the term ``net regular tax liability'' means the 
        regular tax liability reduced by the sum of the credits 
        allowable under subparts A and B of this part.]
          (1) In general.--
                  (A) Corporations.--In the case of a 
                corporation, the credit allowed under 
                subsection (a) for any taxable year shall not 
                exceed the excess (if any) of the taxpayer's 
                net income tax over 25 percent of so much of 
                the taxpayer's net regular tax liability as 
                exceeds $25,000.
                  (B) Taxpayers other than corporations.--In 
                the case of a taxpayer other than a 
                corporation, the credit allowed under 
                subsection (a) for any taxable year shall not 
                exceed the excess (if any) of the taxpayer's 
                net income tax over the greater of--
                          (i) the tentative minimum tax for the 
                        taxable year, or
                          (ii) 25 percent of so much of the 
                        taxpayer's net regular tax liability as 
                        exceeds $25,000.
                  (C) Definitions.--For purposes of this 
                paragraph--
                          (i) the term ``net income tax'' means 
                        the sum of the regular tax liability 
                        and the tax imposed by section 55, 
                        reduced by the credits allowable under 
                        subparts A and B of this part, and
                          (ii) the term ``net regular tax 
                        liability'' means the regular tax 
                        liability reduced by the sum of the 
                        credits allowable under subparts A and 
                        B of this part.
          (2) Empowerment zone employment credit may offset 25 
        percent of minimum tax.--
                  (A) In general.--In the case of the 
                empowerment zone employment credit--
                          (i) this section and section 39 shall 
                        be applied separately with respect to 
                        such credit, and
                          [(ii) for purposes of applying 
                        paragraph (1) to such credit
                                  [(I) 75 percent of the 
                                tentative minimum tax shall be 
                                substituted for the tentative 
                                minimum tax under subparagraph 
                                (A) thereof, and
                                  [(II) the limitation under 
                                paragraph (1) (as modified by 
                                subclause (I)) shall be reduced 
                                by the credit allowed under 
                                subsection (a) for the taxable 
                                year (other than the 
                                empowerment zone employment 
                                credit).]
                          (ii) for purposes of applying 
                        paragraph (1) to such credit--
                                  (I) the applicable limitation 
                                under paragraph (1) (as 
                                modified by subclause (II) in 
                                the case of a taxpayer other 
                                than a corporation) shall be 
                                reduced by the credit allowed 
                                under subsection (a) for the 
                                taxable year (other than the 
                                empowerment zone employment 
                                credit), and
                                  (II) in the case of a 
                                taxpayer other than a 
                                corporation, 75 percent of the 
                                tentative minimum tax shall be 
                                substituted for the tentative 
                                minimum tax under subparagraph 
                                (B)(i) thereof.

           *       *       *       *       *       *       *

          (3) Special rules.--
                  (A) Married individuals.--In the case of a 
                husband or wife who files a separate return, 
                the amount specified under [subparagraph (B) 
                of] paragraph (1) shall be $12,500 in lieu of 
                $25,000. This subparagraph shall not apply if 
                the spouse of the taxpayer has no business 
                credit carryforward or carryback to, and has no 
                current year business credit for, the taxable 
                year of such spouse which ends within or with 
                the taxpayer's taxable year.
                  (B) Controlled groups.--In the case of a 
                controlled group, the $25,000 amount specified 
                under [subparagraph (B) of] paragraph (1) shall 
                be reduced for each component member of such 
                group by apportioning $25,000 among the 
                component members of such group in such manner 
                as the Secretary shall by regulations 
                prescribe. For purposes of the preceding 
                sentence, the term ``controlled group'' has the 
                meaning given to such term by section 1563(a).
                  (C) Limitations with respect to certain 
                persons.--In the case of a person described in 
                subparagraph (A) or (B) of section 46(e)(1) (as 
                in effect on the day before the date of the 
                enactment of the Revenue Reconciliation Act of 
                1990), the $25,000 amount specified under 
                [subparagraph (B) of] paragraph (1) shall equal 
                such person's ratable share (as determined 
                under section 46(e)(2) (as so in effect) of 
                such amount.
                  (D) Estates and trusts.--In the case of an 
                estate or trust, the $25,000 amount specified 
                under [subparagraph (B) of] paragraph (1) shall 
                be reduced to an amount which bears the same 
                ratio to $25,000 as the portion of the income 
                of the estate or trust which is not allocated 
                to beneficiaries bears to the total income of 
                the estate or trust.

           *       *       *       *       *       *       *


SEC. 45. ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE RESOURCES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Definitions.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (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 
                January 1, [2002] 2004.
                  (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 January 1, 
                [2002] 2004.
                  (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 January 1, [2002] 2004.

           *       *       *       *       *       *       *


Subpart F--Rules for Computing Work Opportunity Credit

           *       *       *       *       *       *       *



SEC. 51. AMOUNT OF CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Wages Defined.--For purposes of this subpart--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Termination.--The term ``wages'' shall not 
        include any amount paid or incurred to an individual 
        who begins work for the employer--
                  (A) after December 31, 1994, and before 
                October 1, 1996, or
                  (B) after December 31, [2001] 2003.

           *       *       *       *       *       *       *


SEC. 51A. TEMPORARY INCENTIVES FOR EMPLOYING LONG-TERM FAMILY 
                    ASSISTANCE RECIPIENTS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Termination.--This section shall not apply to individuals 
who begin work for the employer after December 31, [2001] 2003.

           *       *       *       *       *       *       *


   Subpart G--Credit Against Regular Tax for Prior Year Minimum Tax 
Liability

           *       *       *       *       *       *       *



SEC. 53. CREDIT FOR PRIOR YEAR MINIMUM TAX LIABILITY.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Definitions.--For purposes of this section--
          (1) Net minimum tax
                  (A) * * *
                  (B) Credit not allowed for exclusion 
                preferences.--
                          (i) * * *
                          (ii) Specified items.--The following 
                        are specified in this clause--
                                  (I) the adjustments provided 
                                for in subsection [(b)(1)] 
                                (a)(8) of section 56, and

           *       *       *       *       *       *       *

                          [(iv) Credit allowable for exclusion 
                        preferences of corporations.--In the 
                        case of a corporation--
                                  [(I) the preceding provisions 
                                of this subparagraph shall not 
                                apply, and
                                  [(II) the adjusted net 
                                minimum tax for any taxable 
                                year is the amount of the net 
                                minimum tax for such year 
                                increased in the manner 
                                provided in clause (iii).]

           *       *       *       *       *       *       *


                PART VI--MINIMUM TAX FOR TAX PREFERENCES

        [Sec. 55. Alternative minimum tax imposed.]
        Sec. 55. Alternative minimum tax for taxpayers other than 
                  corporations.

           *       *       *       *       *       *       *


[SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

  [(a) General Rule.--There is hereby imposed (in addition to 
any other tax imposed by this subtitle) a tax equal to the 
excess (if any) of--
          [(1) the tentative minimum tax for the taxable year, 
        over
          [(2) the regular tax for the taxable year.
  [(b) Tentative Minimum Tax.--For purposes of this part--
          [(1) Amount of tentative tax.--
                  [(A) Noncorporate taxpayers.--
                          [(i) In general.--In the case of a 
                        taxpayer other than a corporation, the 
                        tentative minimum tax for the taxable 
                        year is the sum of--
                                  [(I) 26 percent of so much of 
                                the taxable excess as does not 
                                exceed $175,000, plus
                                  [(II) 28 percent of so much 
                                of the taxable excess as 
                                exceeds $175,000.
                        The amount determined under the 
                        preceding sentence shall be reduced by 
                        the alternative minimum tax foreign tax 
                        credit for the taxable year.
                          [(ii) Taxable excess.--For purposes 
                        of this subsection, the term ``taxable 
                        excess'' means so much of the 
                        alternative minimum taxable income for 
                        the taxable year as exceeds the 
                        exemption amount.
                          [(iii) Married individual filing 
                        separate return.--In the case of a 
                        married individual filing a separate 
                        return, clause (i) shall be applied by 
                        substituting ``$87,500'' for 
                        ``$175,000'' each place it appears. For 
                        purposes of the preceding sentence, 
                        marital status shall be determined 
                        under section 7703.
                  [(B) Corporations.--In the case of a 
                corporation, the tentative minimum tax for the 
                taxable year is--
                          [(i) 20 percent of so much of the 
                        alternative minimum taxable income for 
                        the taxable year as exceeds the 
                        exemption amount, reduced by
                          [(ii) the alternative minimum tax 
                        foreign tax credit for the taxable 
                        year.]

SEC. 55. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN CORPORATIONS.

  (a) In General.--In the case of a taxpayer other than a 
corporation, there is hereby imposed (in addition to any other 
tax imposed by this subtitle) a tax equal to the excess (if 
any) of--
          (1) the tentative minimum tax for the taxable year, 
        over
          (2) the regular tax for the taxable year.
  (b) Tentative Minimum Tax.--For purposes of this part--
          (1) Amount of tentative tax.--
                  (A) In general.--The tentative minimum tax 
                for the taxable year is the sum of--
                          (i) 26 percent of so much of the 
                        taxable excess as does not exceed 
                        $175,000, plus
                          (ii) 28 percent of so much of the 
                        taxable excess as exceeds $175,000.
                The amount determined under the preceding 
                sentence shall be reduced by the alternative 
                minimum tax foreign tax credit for the taxable 
                year.
                  (B) Taxable excess.--For purposes of this 
                subsection, the term ``taxable excess'' means 
                so much of the alternative minimum taxable 
                income for the taxable year as exceeds the 
                exemption amount.
                  (C) Married individual filing separate 
                return.--In the case of a married individual 
                filing a separate return, clause (i) shall be 
                applied by substituting ``$87,500'' for 
                ``$175,000'' each place it appears. For 
                purposes of the preceding sentence, marital 
                status shall be determined under section 7703.

           *       *       *       *       *       *       *

          (3) Maximum of tax on net capital gain of 
        noncorporate taxpayers.--The amount determined under 
        the first sentence of paragraph [(1)(A)(i)] (1)(A) 
        shall not exceed the sum of--
                  (A) * * *
                  (B) [10] 8 percent of so much of the adjusted 
                net capital gain (or, if less, taxable excess) 
                as does not exceed the amount on which a tax is 
                determined under section 1(h)(1)(B), plus
                  (C) [20] 18 percent of the adjusted net 
                capital gain (or, if less, taxable excess) in 
                excess of the amount on which tax is determined 
                under subparagraph (B), plus
        [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).] 
        Terms used in this paragraph which are also used in 
        section 1(h) shall have the respective meanings given 
        such terms by section 1(h) but computed with the 
        adjustments under this part.
  (c) Regular Tax.--
          (1) In general.--For purposes of this section, the 
        term ``regular tax'' means the regular tax liability 
        for the taxable year (as defined in section 26(b)) 
        reduced by the foreign tax credit allowable under 
        section 27(a)[, the section 936 credit allowable under 
        section 27(b), and the Puerto Rico economic activity 
        credit under section 30A]. Such term shall not include 
        any increase in tax under section 49(b) or 50(a) or 
        subsection (j) or (k) of section 42.

           *       *       *       *       *       *       *

  (d) Exemption Amount.--For purposes of this section--
          (1) Exemption amount [for taxpayers other than 
        corporations.--In the case of a taxpayer other than a 
        corporation, the].--The term ``exemption amount'' 
        means--
                  (A) $45,000 [($49,000 in the case of taxable 
                years beginning in 2001, 2002, 2003, and 2004)] 
                ($49,000 in the case of taxable years beginning 
                in 2001, $52,200 in the case of taxable years 
                beginning in 2002 or 2003, and $50,700 in the 
                case of taxable years beginning in 2004) in the 
                case of--
                          (i) a joint return, or
                          (ii) a surviving spouse,
                  (B) $33,750 [($35,750 in the case of taxable 
                years beginning in 2001, 2002, 2003, and 2004)] 
                ($35,750 in the case of taxable years beginning 
                in 2001, $37,350 in the case of taxable years 
                beginning in 2002 or 2003, and $36,600 in the 
                case of taxable years beginning in 2004) in the 
                case of an individual who--
                          (i) is not a married individual, and
                          (ii) is not a surviving spouse,
          [(2) Corporations.--In the case of a corporation, the 
        term ``exemption amount'' means $40,000.]
          [(3)] (2) Phase-out of exemption amount.--The 
        exemption amount of any taxpayer shall be reduced (but 
        not below zero) by an amount equal to 25 percent of the 
        amount by which the alternative minimum taxable income 
        of the taxpayer exceeds--
                  (A) $150,000 in the case of a taxpayer 
                described in paragraph (1)(A) [or (2)],

           *       *       *       *       *       *       *

  [(e) Exemption for Small Corporations.--
          [(1) In general.--
                  [(A) $7,500,000 gross receipts test.--The 
                tentative minimum tax of a corporation shall be 
                zero for any taxable year if the corporation's 
                average annual gross receipts for all 3-
                taxable-year periods ending before such taxable 
                year does not exceed $7,500,000. For purposes 
                of the preceding sentence, only taxable years 
                beginning after December 31, 1993, shall be 
                taken into account.
                  [(B) $5,000,000 gross receipts test for first 
                3-year period.--Subparagraph (A) shall be 
                applied by substituting ``$5,000,000'' for 
                ``$7,500,000'' for the first 3-taxable-year 
                period (or portion thereof) of the corporation 
                which is taken into account under subparagraph 
                (A).
                  [(C) First taxable year coporation in 
                existence.--If such taxable year is the first 
                taxable year that such corporation is in 
                existence, the tentative minimum tax of such 
                corporation for such year shall be zero.
                  [(D) Special rules.--For purposes of this 
                paragraph, the rules of paragraphs (2) and (3) 
                of section 448(c) shall apply.
          [(2) Prospective application of minimum tax if small 
        corporation ceases to be small.--In the case of a 
        corporation whose tentative minimum tax is zero for any 
        prior taxable year by reason of paragraph (1), the 
        application of this part for taxable years beginning 
        with the first taxable year such corporation ceases to 
        be described in paragraph (1) shall be determined with 
        the following modifications:
                  [(A) Section 56(a)(1) (relating to 
                depreciation) and section 56(a)(5) (relating to 
                pollution control facilities) shall apply only 
                to property placed in service on or after the 
                change date.
                  [(B) Section 56(a)(2) (relating to mining 
                exploration and development costs) shall apply 
                only to costs paid or incurred on or after the 
                change date.
                  [(C) Section 56(a)(3) (relating to treatment 
                of long-term contracts) shall apply only to 
                contracts entered into on or after the change 
                date.
                  [(D) Section 56(a)(4) (relating to 
                alternative net operating loss deduction) shall 
                apply in the same manner as if, in section 
                56(d)(2), the change date were substituted for 
                ``January 1, 1987'' and the day before the 
                change date were substituted for ``December 31, 
                1986'' each place it appears.
                  [(E) Section 56(g)(2)(B) (relating to 
                limitation on allowance of negative adjustments 
                based on adjusted current earnings) shall apply 
                only to prior taxable years beginning on or 
                after the change date.
                  [(F) Section 56(g)(4)(A) (relating to 
                adjustment for depreciation to adjusted current 
                earnings) shall not apply.
                  [(G) Subparagraphs (D) and (F) of section 
                56(g)(4) (relating to other earnings and 
                profits adjustments and depletion) shall apply 
                in the same manner as if the day before the 
                change date were substituted for ``December 31, 
                1989'' each place it appears therein.
          [(3) Exception.--The modifications in paragraph (2) 
        shall not apply to--
                  [(A) any item acquired by the corporation in 
                a transaction to which section 381 applies, and
                  [(B) any property the basis of which in the 
                hands of the corporation is determined by 
                reference to the basis of the property in the 
                hands of the transferor, if such item or 
                property was subject to any provision referred 
                to in paragraph (2) while held by the 
                transferor.
          [(4) Change date.--For purposes of paragraph (2), the 
        change date is the first day of the first taxable year 
        for which the taxpayer ceases to be described in 
        paragraph (1).
          [(5) Limitation on use of credit for prior year 
        minimum tax liability.--In the case of a taxpayer whose 
        tentative minimum tax for any taxable year is zero by 
        reason of paragraph (1), section 53(c) shall be applied 
        for such year by reducing the amount otherwise taken 
        into account under section 53(c)(1) by 25 percent of so 
        much of such amount as exceeds $25,000. Rules similar 
        to the rules of section 38(c)(3)(B) shall apply for 
        purposes of the preceding sentence.]

SEC. 56. ADJUSTMENTS IN COMPUTING ALTERNATIVE MINIMUM TAXABLE INCOME.

  [(a) Adjustments Applicable to All Taxpayers.--] (a) General 
Rules.--In determining the amount of the alternative minimum 
taxable income for any taxable year the following treatment 
shall apply (in lieu of the treatment applicable for purposes 
of computing the regular tax):
          (1) Depreciation.--
                  (A) In general.--
                          (i) Property other than certain 
                        personal property.--Except as provided 
                        in [clause (ii)] clauses (ii) and 
                        (iii), the depreciation deduction 
                        allowable under section 167 with 
                        respect to any tangible property placed 
                        in service after December 31, 1986, 
                        shall be determined under the 
                        alternative system of section 168(g). 
                        In the case of property placed in 
                        service after December 31, 1998, the 
                        preceding sentence shall not apply but 
                        [clause (ii)] clauses (ii) and (iii) 
                        shall continue to apply.

           *       *       *       *       *       *       *

                          (iii) Additional allowance for 
                        certain property acquired after 
                        september 10, 2001, and before 
                        september 11, 2004.--The deduction 
                        under section 168(k) shall be allowed.

           *       *       *       *       *       *       *

                  [(D) Normalization rules.--With respect to 
                public utility property described in section 
                168(i)(10), the Secretary shall prescribe the 
                requirements of a normalization method of 
                accounting for this section.]

           *       *       *       *       *       *       *

          (6) Adjusted basis.--The adjusted basis of any 
        property to which paragraph (1) or (5) applies (or with 
        respect to which there are any expenditures to which 
        [paragraph (2) or subsection (b)(2)] paragraph (2) or 
        (9) applies) shall be determined on the basis of the 
        treatment prescribed in paragraph (1), (2), [or (5), or 
        subsection (b)(2)] (5), or (9), whichever applies.

           *       *       *       *       *       *       *

  [(b) Adjustments Applicable to Individuals.--In determining 
the amount of the alternative minimum taxable income of any 
taxpayer (other than a corporation), the following treatment 
shall apply (in lieu of the treatment applicable for purposes 
of computing the regular tax):]
          [(1)] (8) Limitation on deductions.--
                  (A) * * *

           *       *       *       *       *       *       *

          [(2)] (9) Circulation and research and experimental 
        expenditures.--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(C) Special rule for personal holding 
                companies.--In the case of circulation 
                expenditures described in section 173, the 
                adjustments provided in this paragraph shall 
                apply also to a personal holding company (as 
                defined in section 542).]
                  [(D)] (C) Exception for certain research and 
                experimental expenditures.--If the taxpayer 
                materially participates (within the meaning of 
                section 469(h)) in an activity, this paragraph 
                shall not apply to any amount allowable as 
                deduction under section 174(a) for expenditures 
                paid or incurred in connection with such 
                activity.
          [(3)] (10) Treatment of incentive stock options.--
        Section 421 shall not apply to the transfer of stock 
        acquired pursuant to the exercise of an incentive stock 
        option (as defined in section 422). Section 422(c)(2) 
        shall apply in any case where the disposition and the 
        inclusion for purposes of this part are within the same 
        taxable year and such section shall not apply in any 
        other case. The adjusted basis of any stock so acquired 
        shall be determined on the basis of the treatment 
        prescribed by this paragraph.
  [(c) Adjustments Applicable to Corporations.--In determining 
the amount of the alternative minimum taxable income of a 
corporation, the following treatment shall apply:
          [(1) Adjustment for adjusted current earnings.--
        Alternative minimum taxable income shall be adjusted as 
        provided in subsection (g).
          [(2) Merchant marine capital construction funds.--In 
        the case of a capital construction fund established 
        under section 607 of the Merchant Marine Act, 1936 (46 
        U.S.C. 1177)--
                  [(A) subparagraphs (A), (B), and (C) of 
                section 7518(c)(1) (and the corresponding 
                provisions of such section 607 shall not apply 
                to--
                          [(i) any amount deposited in such 
                        fund after December 31, 1986, or
                          [(ii) any earnings (including gains 
                        and losses) after December 31, 1986, on 
                        amounts in such fund, and
                  [(B) no reduction in basis shall be made 
                under section 7518(f) (or the corresponding 
                provisions of such section 607 with respect to 
                the withdrawal from the fund of any amount to 
                which subparagraph (A) applies.
        For purposes of this paragraph, any withdrawal of 
        deposits or earnings from the fund shall be treated as 
        allocable first to deposits made before (and earnings 
        received or accrued before) January 1, 1987.
          [(3) Special deduction for certain organizations not 
        allowed.--The deduction determined under section 833(b) 
        shall not be allowed.]
  [(d)] (b) Alternative Tax Net Operating Loss Deduction 
Defined.--
          (1) In general.--For purposes of subsection (a)(4), 
        the term ``alternative tax net operating loss 
        deduction'' means the net operating loss deduction 
        allowable for the taxable year under section 172, 
        except that--
                  [(A) the amount of such deduction shall not 
                exceed 90 percent of alternate minimum taxable 
                income determined without regard to such 
                deduction, and]
                  (A) the amount of such deduction shall not 
                exceed the sum of--
                          (i) the lesser of--
                                  (I) the amount of such 
                                deduction attributable to net 
                                operating losses (other than 
                                the deduction attributable to 
                                carrybacks described in clause 
                                (ii)(I)), or
                                  (II) 90 percent of alternate 
                                minimum taxable income 
                                determined without regard to 
                                such deduction, plus
                          (ii) the lesser of--
                                  (I) the amount of such 
                                deduction attributable to 
                                carrybacks of net operating 
                                losses for taxable years ending 
                                after September 10, 2001, and 
                                before September 11, 2004, or
                                  (II) alternate minimum 
                                taxable income determined 
                                without regard to such 
                                deduction reduced by the amount 
                                determined under clause (i), 
                                and

           *       *       *       *       *       *       *

  [(e)] (c) Qualified Housing Interest.--For purposes of this 
part--
          (1) In general.--The term ``qualified housing 
        interest'' means interest which is qualified residence 
        interest (as defined in section 163(h)(3)) and is paid 
        or accrued during the taxable year on indebtedness 
        which is incurred in acquiring, constructing, or 
        substantially improving any property which--
                  (A) * * *

           *       *       *       *       *       *       *

  [(g) Adjustments Based on Adjusted Current Earnings.--
          [(1) In general.--The alternative minimum taxable 
        income of any corporation for any taxable year shall be 
        increased by 75 percent of the excess (if any) of--
                  [(A) the adjusted current earnings of the 
                corporation, over
                  [(B) the alternative minimum taxable income 
                (determined without regard to this subsection 
                and the alternative tax net operating loss 
                deduction).
          [(2) Allowance of negative adjustments.--
                  [(A) In general.--The alternative minimum 
                taxable income for any corporation of any 
                taxable year, shall be reduced by 75 percent of 
                the excess (if any) of--
                          [(i) the amount referred to in 
                        subparagraph (B) of paragraph (1), over
                          [(ii) the amount referred to in 
                        subparagraph (A) of paragraph (1).
                  [(B) Limitation.--The reduction under 
                subparagraph (A) for any taxable year shall not 
                exceed the excess (if any) of--
                          [(i) the aggregate increases in 
                        alternative minimum taxable income 
                        under paragraph (1) for prior taxable 
                        years, over
                          [(ii) the aggregate reductions under 
                        subparagraph (A) of this paragraph for 
                        prior taxable years.
          [(3) Adjusted current earnings.--For purposes of this 
        subsection, the term ``adjusted current earnings'' 
        means the alternative minimum taxable income for the 
        taxable year--
                  [(A) determined with the adjustments provided 
                in paragraph (4), and
                  [(B) determined without regard to this 
                subsection and the alternative tax net 
                operating loss deduction.
          [(4) Adjustments.--In determining adjusted current 
        earnings, the following adjustments shall apply:
                  [(A) Depreciation.--
                          [(i) Property placed in service after 
                        1989.--The depreciation deduction with 
                        respect to any property placed in 
                        service in a taxable year beginning 
                        after 1989 shall be determined under 
                        the alternative system of section 
                        168(g). The preceding sentence shall 
                        not apply to any property placed in 
                        service after December 31, 1993, and 
                        the depreciation deduction with respect 
                        to such property shall be determined 
                        under the rules of subsection 
                        (a)(1)(A).
                          [(ii) Property to which new acrs 
                        system applies.--In the case of any 
                        property to which the amendments made 
                        by section 201 of the Tax Reform Act of 
                        1986 apply and which is placed in 
                        service in a taxable year beginning 
                        before 1990, the depreciation deduction 
                        shall be determined--
                                  [(I) by taking into account 
                                the adjusted basis of such 
                                property (as determined for 
                                purposes of computing 
                                alternative minimum taxable 
                                income) as of the close of the 
                                last taxable year beginning 
                                before January 1, 1990, and
                                  [(II) by using the straight-
                                line method over the remainder 
                                of the recovery period 
                                applicable to such property 
                                under the alternative system of 
                                section 168(g).
                          [(iii) Property to which original 
                        acrs system applies.--In the case of 
                        any property to which section 168 (as 
                        in effect on the day before the date of 
                        the enactment of the Tax Reform Act of 
                        1986 and without regard to subsection 
                        (d)(1)(A)(ii) thereof) applies and 
                        which is placed in service in a taxable 
                        year beginning before 1990, the 
                        depreciation deduction shall be 
                        determined--
                                  [(I) by taking into account 
                                the adjusted basis of such 
                                property (as determined for 
                                purposes of computing the 
                                regular tax) as of the close of 
                                the last taxable year beginning 
                                before January 1, 1990, and
                                  [(II) by using the straight 
                                line method over the remainder 
                                of the recovery period which 
                                would apply to such property 
                                under the alternative system of 
                                section 168(g).
                          [(iv) Property placed in service 
                        before 1981.--In the case of any 
                        property not described in clause (i), 
                        (ii), or (iii), the amount allowable as 
                        depreciation or amortization with 
                        respect to such property shall be 
                        determined in the same manner as for 
                        purposes of computing taxable income.
  [(v) Special rule for certain property.--In the case of any 
property described in paragraph (1), (2), (3), or (4) of 
section 168(f), the amount of depreciation allowable for 
purposes of the regular tax shall be treated as the amount 
allowable under the alternative system of section 168(g).
                  [(B) Inclusion of items included for purposes 
                of computing earnings and profits.--
                          [(i) In general.--In the case of any 
                        amount which is excluded from gross 
                        income for purposes of computing 
                        alternative minimum taxable income but 
                        is taken into account in determining 
                        the amount of earnings and profits--
                                  [(I) such amount shall be 
                                included in income in the same 
                                manner as if such amount were 
                                includible in gross income for 
                                purposes of computing 
                                alternative minimum taxable 
                                income, and
                                  [(II) the amount of such 
                                income shall be reduced by any 
                                deduction which would have been 
                                allowable in computing 
                                alternative minimum taxable 
                                income if such amount were 
                                includible in gross income.
                        The preceding sentence shall not apply 
                        in the case of any amount excluded from 
                        gross income under section 108 (or the 
                        corresponding provisions of prior law) 
                        or under section 114. In the case of 
                        any insurance company taxable under 
                        section 831(b), this clause shall not 
                        apply to any amount not described in 
                        section 834(b).
                          [(ii) Inclusion of buildup in life 
                        insurance contracts.--In the case of 
                        any life insurance contract--
                                  [(I) the income on such 
                                contract (as determined under 
                                section 7702(g)) for any 
                                taxable year shall be treated 
                                as includible in gross income 
                                for such year, and
                                  [(II) there shall be allowed 
                                as a deduction that portion of 
                                any premium which is 
                                attributable to insurance 
                                coverage.
                  [(C) Disallowance of items not deductible in 
                computing earnings and profits.--
                          [(i) In general.--A deduction shall 
                        not be allowed for any item if such 
                        item would not be deductible for any 
                        taxable year for purposes of computing 
                        earnings and profits.
                          [(ii) Special rule for certain 
                        dividends.--
                                  [(I) In general.--Clause (i) 
                                shall not apply to any 
                                deduction allowable under 
                                section 243 or 245 for any 
                                dividend which is a 100-percent 
                                dividend or which is received 
                                from a 20-percent owned 
                                corporation (as defined in 
                                section 243(c)(2)), but only to 
                                the extent such dividend is 
                                attributable to income of the 
                                paying corporation which is 
                                subject to tax under this 
                                chapter (determined after the 
                                application of sections 30A, 
                                936 (including subsections 
                                (a)(4), (i) and (j) thereof) 
                                and 921).
                                  [(II) 100-percent dividend.--
                                For purposes of subclause (I), 
                                the term ``100 percent 
                                dividend'' means any dividend 
                                if the percentage used for 
                                purposes of determining the 
                                amount allowable as a deduction 
                                under section 243 or 245 with 
                                respect to such dividend is 100 
                                percent.
                          [(iii) Treatment of taxes on 
                        dividends from 936 corporations.--
                                  [(I) In general.--For 
                                purposes of determining the 
                                alternative minimum foreign tax 
                                credit, 75 percent of any 
                                withholding or income tax paid 
                                to a possession of the United 
                                States with respect to 
                                dividends received from a 
                                corporation eligible for the 
                                credit provided by section 936 
                                shall be treated as a tax paid 
                                to a foreign country by the 
                                corporation receiving the 
                                dividend.
                                  [(II) Limitation.--If the 
                                aggregate amount of the 
                                dividends referred to in 
                                subclause (I) for any taxable 
                                year exceeds the excess 
                                referred to in paragraph (1), 
                                the amount treated as tax paid 
                                to a foreign country under 
                                subclause (I) shall not exceed 
                                the amount which would be so 
                                treated without regard to this 
                                subclause multiplied by a 
                                fraction the numerator of which 
                                is the excess referred to in 
                                paragraph (1) and the 
                                denominator of which is the 
                                aggregate amount of such 
                                dividends.
                                  [(III) Treatment of taxes 
                                imposed on 936 corporation.--
                                For purposes of this clause, 
                                taxes paid by any corporation 
                                eligible for the credit 
                                provided by section 936 to a 
                                possession of the United States 
                                shall be treated as a 
                                withholding tax paid with 
                                respect to any dividend paid by 
                                such corporation to the extent 
                                such taxes would be treated as 
                                paid by the corporation 
                                receiving the dividend under 
                                rules similar to the rules of 
                                section 902 (and the amount of 
                                any such dividend shall be 
                                increased by the amount so 
                                treated).
                                  [(IV) Separate application of 
                                foreign tax credit 
                                limitations.--In determining 
                                the alternative minimum foreign 
                                tax credit, section 904(d) 
                                shall be applied as if 
                                dividends from a corporation 
                                eligible for the credit 
                                provided by section 936 were a 
                                separate category of income 
                                referred to in a subparagraph 
                                of section 904(d)(1).
                  [(V) Coordination with limitation on 936 
                credit.--Any reference in this clause to a 
                dividend received from a corporation eligible 
                for the credit provided by section 936 shall be 
                treated as a reference to the portion of any 
                such dividend for which the dividends received 
                deduction is disallowed under clause (i) after 
                the application of clause (ii)(I).
                                  [(VI) Applications to section 
                                30A corporations.--References 
                                in this clause to section 936 
                                shall be treated as including 
                                references to section 30A.
                          [(iv) Special rule for certain 
                        dividends received by certain 
                        cooperatives.--In the case of a 
                        cooperative described in section 
                        927(a)(4), clause (i) shall not apply 
                        to any amount allowable as a deduction 
                        under section 245(c).
                  [(D) Certain other earnings and profits 
                adjustments.--
                          [(i) Intangible drilling costs.--The 
                        adjustments provided in section 
                        312(n)(2)(A) shall apply in the case of 
                        amounts paid or incurred in taxable 
                        years beginning after December 31, 
                        1989. In the case of a taxpayer other 
                        than an integrated oil company (as 
                        defined in section 291(b)(4), in the 
                        case of any oil or gas well, this 
                        clause shall not apply in the case of 
                        amounts paid or incurred in taxable 
                        years beginning after December 31, 
                        1992.
                          [(ii) Certain amortization provisions 
                        not to apply.--Sections 173 and 248 
                        shall not apply to expenditures paid or 
                        incurred in taxable years beginning 
                        after December 31, 1989.
                          [(iii) Lifo inventory adjustments.--
                        The adjustments provided in section 
                        312(n)(4) shall apply, but only with 
                        respect to taxable years beginning 
                        after December 31, 1989.
                          [(iv) Installment sales.--In the case 
                        of any installment sale in a taxable 
                        year beginning after December 31, 1989, 
                        adjusted current earnings shall be 
                        computed as if the corporation did not 
                        use the installment method. The 
                        preceding sentence shall not apply to 
                        the applicable percentage (as 
                        determined under section 453A) of the 
                        gain from any installment sale with 
                        respect to which section 453A(a)(1) 
                        applies.
                  [(E) Disallowance of loss on exchange of debt 
                pools.--No loss shall 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.
                  [(F) Depletion.--
                          [(i) In general.--The allowance for 
                        depletion with respect to any property 
                        placed in service in a taxable year 
                        beginning after December 31, 1989, 
                        shall be cost depletion determined 
                        under section 611.
                          [(ii) Exception for independent oil 
                        and gas producers and royalty owners.--
                        In the case of any taxable year 
                        beginning after December 31, 1992, 
                        clause (i) (and subparagraph (C)(i)) 
                        shall not apply to any deduction for 
                        depletion computed in accordance with 
                        section 613A(c).
                  [(G) Treatment of certain ownership 
                changes.--If--
                          [(i) there is an ownership change 
                        (within the meaning of section 382) in 
                        a taxable year beginning after 1989 
                        with respect to any corporation, and
                          [(ii) there is a net unrealized 
                        built-in loss (within the meaning of 
                        section 382(h)) with respect to such 
                        corporation, then the adjusted basis of 
                        each asset of such corporation 
                        (immediately after the ownership 
                        change) shall be its proportionate 
                        share (determined on the basis of 
                        respective fair market values) of the 
                        fair market value of the assets of such 
                        corporation (determined under section 
                        382(h)) immediately before the 
                        ownership change.
                  [(H) Adjusted basis.--The adjusted basis of 
                any property with respect to which an 
                adjustment under this paragraph applies shall 
                be determined by applying the treatment 
                prescribed in this paragraph.
                                  [(I) Treatment of charitable 
                                contributions.--Notwithstanding 
                                subparagraphs (B) and (C), no 
                                adjustment related to the 
                                earnings and profits effects of 
                                any charitable contribution 
                                shall be made in computing 
                                adjusted current earnings.
          [(5) Other definitions.--For purposes of paragraph 
        (4)--
                  [(A) Earnings and profits.--The term 
                ``earnings and profits'' means earnings and 
                profits computed for purposes of subchapter C.
                  [(B) Treatment of alternative minimum taxable 
                income.--The treatment of any item for purposes 
                of computing alternative minimum taxable income 
                shall be determined without regard to this 
                subsection.
          [(6) Exception for certain corporations.--This 
        subsection shall not apply to any S corporation, 
        regulated investment company, real estate investment 
        trust, REMIC, or FASIT.]

SEC. 57. ITEMS OF TAX PREFERENCE.

  (a) General Rule.--For purposes of this part, the items of 
tax preference determined under this section are--
          (1) * * *
          (2) Intangible drilling costs.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) Exception [for independent producers].--
                In the case of any oil or gas well--
                          [(i) In general.--In the case of any 
                        taxable year beginning after December 
                        31, 1992, this paragraph shall not 
                        apply to any taxpayer which is not an 
                        integrated oil company (as defined in 
                        section 291(b)(4)).]
                          (i) In general.--This paragraph shall 
                        not apply to any taxable year beginning 
                        after December 31, 1992.

           *       *       *       *       *       *       *

          (7) Exclusion for gains on sale of certain small 
        business stock.--An amount equal to [42] 28 percent of 
        the amount excluded from gross income for the taxable 
        year under section 1202. [In the case of stock the 
        holding period of which begins after December 31, 2000 
        (determined with the application of the last sentence 
        of section 1(h)(2)(B)), the preceding sentence shall be 
        applied by substituting ``28 percent'' for ``42 
        percent''.]

           *       *       *       *       *       *       *


SEC. 58. DENIAL OF CERTAIN LOSSES.

  (a) Denial of Farm Loss.--
          (1) * * *

           *       *       *       *       *       *       *

          [(3) Application to personal service corporations.--
        For purposes of paragraph (1), a personal service 
        corporation (within the meaning of section 469(j)(2)) 
        shall be treated as a taxpayer other than a 
        corporation.]
          [(4)] (3) Determination of loss.--In determining the 
        amount of the loss from any tax shelter farm activity, 
        the adjustments of sections 56 and 57 shall apply.

           *       *       *       *       *       *       *


SEC. 59. OTHER DEFINITIONS AND SPECIAL RULES.

  (a) * * *
  [(b) Minimum Tax Not to Apply to Income Eligible for Credits 
Under Section 30A or 936.--In the case of any corporation for 
which a credit is allowable for the taxable year under section 
30A or 936, alternative minimum taxable income shall not 
include any income with respect to which a credit is determined 
under section 30A or 936.]
  [(c)] (b) Treatment of Estates and Trusts.--In the case of 
any estate or trust, the alternative minimum taxable income of 
such estate or trust and any beneficiary thereof shall be 
determined by applying part I of subchapter J with the 
adjustments provided in this part.
  [(d)] (c) Apportionment of Differently Treated Items in Case 
of Certain Entities.--
          (1) * * *

           *       *       *       *       *       *       *

  [(e)] (d) Optional 10-Year Write-Off of Certain Tax 
Preferences.--
          (1) * * *
          (2) Qualified expenditure.--For purposes of this 
        subsection, the term ``qualified expenditure'' means 
        any amount which, but for an election under this 
        subsection, would have been allowable as a deduction 
        [(determined without regard to section 291)] for the 
        taxable year in which paid or incurred under--
                  (A) * * *

           *       *       *       *       *       *       *

  [(f) Coordination with Section 291.--Except as otherwise 
provided in this part, section 291 (relating to cutback of 
corporate preferences) shall apply before the application of 
this part.]
  [(g)] (e) Tax Benefit Rule.--The Secretary may prescribe 
regulations under which differently treated items shall be 
properly adjusted where the tax treatment giving rise to such 
items will not result in the reduction of the taxpayer's 
regular tax for the taxable year for which item is taken into 
account or for any other taxable year.
  [(h)] (f) Coordination with Certain Limitations.--The 
limitations of sections 704(d), 465, and 1366(d) (and such 
other provisions as may be specified in regulations) shall be 
applied for purposes of computing the alternative minimum 
taxable income of the taxpayer for the taxable year with the 
adjustments of sections 56, 57, and 58.
  [(i)] (g) Special Rule for Amounts Treated as Tax 
Preference.--For purposes of this subtitle (other than this 
part), any amount shall not fail to be treated as wholly exempt 
from tax imposed by this subtitle solely by reason of being 
included in alternative minimum taxable income.
  [(j)] (h) Treatment of Unearned Income of Minor Children.--
          (1) In general.--In the case of a child to whom 
        section 1(g) applies, the exemption amount for purposes 
        of section 55 shall not exceed the sum of--

           *       *       *       *       *       *       *


                      [PART VII--ENVIRONMENTAL TAX

        [59A.  Environmental tax.

[SEC. 59A. ENVIRONMENTAL TAX.

  [(a) Imposition of Tax.--In the case of a corporation, there 
is hereby imposed (in addition to any other tax imposed by this 
subtitle) a tax equal to 0.12 percent of the excess of--
          [(1) the modified alternative minimum taxable income 
        of such corporation for the taxable year, over
          [(2) $2,000,000.
  [(b) Modified Alternative Minimum Taxable Income.--For 
purposes of this section, the term ``modified alternative 
minimum taxable income'' means alternative minimum taxable 
income (as defined in section 55(b)(2) but determined without 
regard to--
          [(1) the alternative tax net operating loss deduction 
        (as defined in section 56(d)) and
          [(2) the deduction allowed under section 164(a)(5).
  [(c) Exception for RIC's and REIT's.--The tax imposed by 
subsection (a) shall not apply to--
          [(1) a regulated investment company to which part I 
        of subchapter M applies, and
          [(2) a real estate investment trust to which part II 
        of subchapter M applies.
  [(d) Special Rules.--
          [(1) Short taxable years.--The application of this 
        section to taxable years of less than 12 months shall 
        be in accordance with regulations prescribed by the 
        Secretary.
          [(2) Section 15 not to apply.--Section 15 shall not 
        apply to the tax imposed by this section.
  [(e) Application of Tax.--
          [(1) In general.--The tax imposed by this section 
        shall apply to taxable years beginning after December 
        31, 1986, and before January 1, 1996.
          [(2) Earlier termination.--The tax imposed by this 
        section shall not apply to taxable years--
                  [(A) beginning during a calendar year during 
                which no tax is imposed under section 4611(a) 
                by reason of paragraph (2) of section 4611(e), 
                and
                  [(B) beginning after the calendar year which 
                includes the termination date under paragraph 
                (3) of section 4611(e).]

Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *


SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE 
                    CONTRACTS.

  (a) * * *

           *       *       *       *       *       *       *

  (t) 10-percent Additional Tax on Early Distributions from 
Qualified Retirement Plans.--
          (1) * * *
          (2) Subsection not to apply to certain 
        distributions.--Except as provided in paragraphs (3) 
        and (4), paragraph (1) shall not apply to any of the 
        following distributions:
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Distributions to unemployed individuals 
                for health insurance premiums.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iv) Special rules for individuals 
                        receiving unemployment compensation 
                        after september 10, 2001, and before 
                        january 1, 2003.--In the case of an 
                        individual who receives unemployment 
                        compensation for 4 consecutive weeks 
                        after September 10, 2001, and before 
                        January 1, 2003--
                                  (I) clause (i) shall apply to 
                                distributions from all 
                                qualified retirement plans (as 
                                defined in section 4974(c)), 
                                and
                                  (II) such 4 consecutive weeks 
                                shall be substituted for the 12 
                                consecutive weeks referred to 
                                in subclause (I) of clause (i).

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 108. INCOME FROM DISCHARGE OF INDEBTEDNESS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Meaning of Terms; Special Rules Relating to Certain 
Provisions.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Special rules for s corporation.--
                  (A) Certain provisions to be applied at 
                corporate level.--In the case of an S 
                corporation, subsections (a), (b), (c), and (g) 
                shall be applied at the corporate level, 
                including by not taking into account under 
                section 1366(a) any amount excluded under 
                subsection (a) of this section.

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *


SEC. 164. TAXES.

  (a) General Rule.--Except as otherwise provided in this 
section, the following taxes shall be allowed as a deduction 
for the taxable year within which paid or accrued:
          (1) * * *

           *       *       *       *       *       *       *

          [(5) The environmental tax imposed by section 59a.--
        In addition, there shall be allowed as a deduction 
        State and local, and foreign, taxes not described in 
        the preceding sentence which are paid or accrued within 
        the taxable year in carrying on a trade or business or 
        an activity described in section 212 (relating to 
        expenses for production of income). Notwithstanding the 
        preceding sentence, any tax (not described in the first 
        sentence of this subsection) which is paid or accrued 
        by the taxpayer in connection with an acquisition or 
        disposition of property shall be treated as part of the 
        cost of the acquired property or, in the case of a 
        disposition, as a reduction in the amount realized on 
        the disposition.]

           *       *       *       *       *       *       *


SEC. 168. ACCELERATED COST RECOVERY SYSTEM.

  (a) * * *
  (b) Applicable Depreciation Method.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Property to which straight line method applies.--
        The applicable depreciation method shall be the 
        straight line method in the case of the following 
        property:
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) Qualified leasehold improvement property 
                described in subsection (e)(6).

           *       *       *       *       *       *       *

  (e) Classification of Property.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Classification of certain property.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) 15-year property.--The term ``15-year 
                property'' includes--
                          (i) any municipal wastewater 
                        treatment plant,
                          (ii) any telephone distribution plant 
                        and comparable equipment used for 2-way 
                        exchange of voice and data 
                        communications, [and]
                          (iii) any section 1250 property which 
                        is a retail motor fuels outlet (whether 
                        or not food or other convenience items 
                        are sold at the outlet)[.], and
                          (iv) any qualified leasehold 
                        improvement property.

           *       *       *       *       *       *       *

          (6) Qualified leasehold improvement property.--
                  (A) In general.--The term ``qualified 
                leasehold improvement property'' means any 
                improvement to an interior portion of a 
                building which is nonresidential real property 
                if--
                          (i) such improvement is made under or 
                        pursuant to a lease (as defined in 
                        subsection (h)(7))--
                                  (I) by the lessee (or any 
                                sublessee) of such portion, or
                                  (II) by the lessor of such 
                                portion,
                          (ii) such portion is to be occupied 
                        exclusively by the lessee (or any 
                        sublessee) of such portion, and
                          (iii) such improvement is placed in 
                        service more than 3 years after the 
                        date the building was first placed in 
                        service.
                  (B) Certain improvements not included.--Such 
                term shall not include any improvement for 
                which the expenditure is attributable to--
                          (i) the enlargement of the building,
                          (ii) any elevator or escalator,
                          (iii) any structural component 
                        benefiting a common area, and
                          (iv) the internal structural 
                        framework of the building.
                  (C) Definitions and special rules.--For 
                purposes of this paragraph--
                          (i) Commitment to lease treated as 
                        lease.--A commitment to enter into a 
                        lease shall be treated as a lease, and 
                        the parties to such commitment shall be 
                        treated as lessor and lessee, 
                        respectively.
                          (ii) Related persons.--A lease 
                        between related persons shall not be 
                        considered a lease. For purposes of the 
                        preceding sentence, the term ``related 
                        persons'' means--
                                  (I) members of an affiliated 
                                group (as defined in section 
                                1504), and
                                  (II) persons having a 
                                relationship described in 
                                subsection (b) of section 267; 
                                except that, for purposes of 
                                this clause, the phrase ``80 
                                percent or more'' shall be 
                                substituted for the phrase 
                                ``more than 50 percent'' each 
                                place it appears in such 
                                subsection.
                  (D) Improvements made by lessor.--
                          (i) In general.--In the case of an 
                        improvement made by the person who was 
                        the lessor of such improvement when 
                        such improvement was placed in service, 
                        such improvement shall be qualified 
                        leasehold improvement property (if at 
                        all) only so long as such improvement 
                        is held by such person.
                          (ii) Exception for changes in form of 
                        business.--Property shall not cease to 
                        be qualified leasehold improvement 
                        property under clause (i) by reason 
                        of--
                                  (I) death,
                                  (II) a transaction to which 
                                section 381(a) applies, or
                                  (III) a mere change in the 
                                form of conducting the trade or 
                                business so long as the 
                                property is retained in such 
                                trade or business as qualified 
                                leasehold improvement property 
                                and the taxpayer retains a 
                                substantial interest in such 
                                trade or business.

           *       *       *       *       *       *       *

  (g) Alternative depreciation system for certain property
          (1) * * *

           *       *       *       *       *       *       *

          (3) Special rules for determining class life.--
                  (A) * * *
                  (B) Special rule for certain property 
                assigned to classes.--For purposes of paragraph 
                (2), in the case of property described in any 
                of the following subparagraphs of subsection 
                (e)(3), the class life shall be determined as 
                follows:

        If property is described                               The class
          in subparagraph:                                      life is:
          (A)(ii).............................................        4 
          (B)(ii).............................................        5 
          (B)(iii)............................................      9.5 
          (C)(i)..............................................       10 
          (D)(i)..............................................       15 
          (D)(ii).............................................       20 
          (E)(i)..............................................       24 
          (E)(ii).............................................       24 
          (E)(iii)............................................       20 
          (E)(iv).............................................       15 
     * * * * * * *
  (k) Special Allowance for Certain Property Acquired After 
September 10, 2001, and Before September 11, 2004.--
          (1) Additional allowance.--In the case of any 
        qualified property--
                  (A) the depreciation deduction provided by 
                section 167(a) for the taxable year in which 
                such property is placed in service shall 
                include an allowance equal to 30 percent of the 
                adjusted basis of the qualified property, and
                  (B) the adjusted basis of the qualified 
                property shall be reduced by the amount of such 
                deduction before computing the amount otherwise 
                allowable as a depreciation deduction under 
                this chapter for such taxable year and any 
                subsequent taxable year.
          (2) Qualified property.--For purposes of this 
        subsection--
                  (A) In general.--The term ``qualified 
                property'' means property--
                          (i)(I) to which this section applies 
                        which has a recovery period of 20 years 
                        or less or which is water utility 
                        property, or
                          (II) which is computer software (as 
                        defined in section 167(f)(1)(B)) for 
                        which a deduction is allowable under 
                        section 167(a) without regard to this 
                        subsection,
                          (ii) the original use of which 
                        commences with the taxpayer after 
                        September 10, 2001,
                          (iii) which is--
                                  (I) acquired by the taxpayer 
                                after September 10, 2001, and 
                                before September 11, 2004, but 
                                only if no written binding 
                                contract for the acquisition 
                                was in effect before September 
                                11, 2001, or
                                  (II) acquired by the taxpayer 
                                pursuant to a written binding 
                                contract which was entered into 
                                after September 10, 2001, and 
                                before September 11, 2004, and
                          (iv) which is placed in service by 
                        the taxpayer before January 1, 2005.
                  (B) Exceptions.--
                          (i) Alternative depreciation 
                        property.--The term ``qualified 
                        property'' shall not include any 
                        property to which the alternative 
                        depreciation system under subsection 
                        (g) applies, determined--
                                  (I) without regard to 
                                paragraph (7) of subsection (g) 
                                (relating to election to have 
                                system apply), and
                                  (II) after application of 
                                section 280F(b) (relating to 
                                listed property with limited 
                                business use).
                          (ii) Election out.--If a taxpayer 
                        makes an election under this clause 
                        with respect to any class of property 
                        for any taxable year, this subsection 
                        shall not apply to all property in such 
                        class placed in service during such 
                        taxable year.
                          (iii) Repaired or reconstructed 
                        property.--Except as otherwise provided 
                        in regulations, the term ``qualified 
                        property'' shall not include any 
                        repaired or reconstructed property.
                          (iv) Qualified leasehold improvement 
                        property.--The term ``qualified 
                        property'' shall not include any 
                        qualified leasehold improvement 
                        property (as defined in section 
                        168(e)(6)).
                  (C) Special rules relating to original use.--
                          (i) Self-constructed property.--In 
                        the case of a taxpayer manufacturing, 
                        constructing, or producing property for 
                        the taxpayer's own use, the 
                        requirements of clause (iii) of 
                        subparagraph (A) shall be treated as 
                        met if the taxpayer begins 
                        manufacturing, constructing, or 
                        producing the property after September 
                        10, 2001, and before September 11, 
                        2004.
                          (ii) Sale-leasebacks.--For purposes 
                        of subparagraph (A)(ii), if property--
                                  (I) is originally placed in 
                                service after September 10, 
                                2001, by a person, and
                                  (II) is sold and leased back 
                                by such person within 3 months 
                                after the date such property 
                                was originally placed in 
                                service,
                        such property shall be treated as 
                        originally placed in service not 
                        earlier than the date on which such 
                        property is used under the leaseback 
                        referred to in subclause (II).
                  (D) Coordination with section 280f.--For 
                purposes of section 280F--
                          (i) Automobiles.--In the case of a 
                        passenger automobile (as defined in 
                        section 280F(d)(5)) which is qualified 
                        property, the Secretary shall increase 
                        the limitation under section 
                        280F(a)(1)(A)(i) by $4,600.
                          (ii) Listed property.--The deduction 
                        allowable under paragraph (1) shall be 
                        taken into account in computing any 
                        recapture amount under section 
                        280F(b)(2).

           *       *       *       *       *       *       *


SEC. 172. NET OPERATING LOSS DEDUCTION.

  (a) * * *
  (b) Net operating carrybacks and carryovers.--
          (1) Years to which loss may be carried.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) In the case of a taxpayer which has a net 
                operating loss for any taxable year ending 
                after September 10, 2001, and before September 
                11, 2004, subparagraph (A)(i) shall be applied 
                by substituting ``5'' for ``2'' and 
                subparagraph (F) shall not apply.

           *       *       *       *       *       *       *

  (j) Election to Disregard 5-Year Carryback for Certain Net 
Operating Losses.--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). Such election shall be 
made in such manner as may be prescribed by the Secretary and 
shall be made by the due date (including extensions of time) 
for filing the taxpayer's return for the taxable year of the 
net operating loss. Such election, once made for any taxable 
year, shall be irrevocable for such taxable year.
  [(j)] (k) Cross references
          (1) * * *
     * * * * * * *

SEC. 173. CIRCULATION EXPENDITURES.

  (a) * * *
  (b) Cross reference
          For election of 3-year amortization of expenditures allowable 
        as a deduction under subsection (a), see section [59(e)] 59(d).

SEC. 174. RESEARCH AND EXPERIMENTAL EXPENDITURES.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Cross References.--
          (1) * * *
          (2) For election of 10-year amortization of expenditures 
        allowable as a deduction under subsection (a), see section 
        [59(e)] 59(d).

           *       *       *       *       *       *       *


SEC. 179. ELECTION TO EXPENSE CERTAIN DEPRECIABLE BUSINESS ASSETS.

  (a) * * *
  (b) Limitations.--
          (1) Dollar limitation.--The aggregate cost which may 
        be taken into account under subsection (a) for any 
        taxable year shall not exceed the following applicable 
        amount:

        [If the taxable year                              The applicable
          begins in:                                          amount is:
          1997................................................   18,000 
          1998................................................   18,500 
          1999................................................   19,000 
          2000................................................   20,000 
          2001 or 2002........................................   24,000 
          2003 or thereafter..................................   25,000]
    If the taxable year                                   The applicable
      begins in:                                              amount is:
          2001................................................  $24,000 
          2002 or 2003........................................  $35,000 
          2004 or thereafter..................................  $25,000.
          (2) Reduction in limitation.--The limitation under 
        paragraph (1) for any taxable year shall be reduced 
        (but not below zero) by the amount by which the cost of 
        section 179 property placed in service during such 
        taxable year exceeds $200,000 ($325,000 in the case of 
        taxable years beginning during 2002 or 2003).

           *       *       *       *       *       *       *


SEC. 179A. DEDUCTION FOR CLEAN-FUEL VEHICLES AND CERTAIN REFUELING 
                    PROPERTY.

  (a) * * *
  (b) Limitations.--
          (1) Qualified clean-fuel vehicle property.--
                  (A) * * *
                  (B) Phaseout.--In the case of any qualified 
                clean-fuel vehicle property placed in service 
                after December 31, [2001] 2003, the limit 
                otherwise applicable under subparagraph (A) 
                shall be reduced by--
                          (i) 25 percent in the case of 
                        property placed in service in calendar 
                        year [2002] 2004,
                          (ii) 50 percent in the case of 
                        property placed in service in calendar 
                        year [2003] 2005, and
                          (iii) 75 percent in the case of 
                        property placed in service in calendar 
                        year [2004] 2006.

           *       *       *       *       *       *       *

  (f) Termination.--This section shall not apply to any 
property placed in service after December 31, [2004] 2006.

           *       *       *       *       *       *       *


PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

           *       *       *       *       *       *       *



SEC. 220. ARCHER MSAS.

  (a) * * *

           *       *       *       *       *       *       *

  (i) Limitation on Number of Taxpayers Having Archer MSAs.--
          (1) * * *
          (2) Cut-off year.--For purposes of paragraph (1), the 
        term ``cut-off year'' means the earlier of
                  (A) calendar year [2002] 2003, or
                  (B) the first calendar year before [2002] 
                2003 for which the Secretary determines under 
                subsection (j) that the numerical limitation 
                for such year has been exceeded.
          (3) Active msa participant.--For purposes of this 
        subsection--
                  (A) * * *
                  (B) Special rule for cut-off years before 
                [2002] 2003.--In the case of a cut-off year 
                before [2002] 2003--
                          (i) * * *

           *       *       *       *       *       *       *

  (j) Determination of Whether Numerical Limits Are Exceeded.--
          (1) * * *
          (2) Determination of whether limit exceeded for 
        [1998, 1999, or 2001] 1998, 1999, 2001, or 2002.--
                  (A) In general.--The numerical limitation for 
                [1998, 1999, or 2001] 1998, 1999, 2001, or 2002 
                is exceeded if the sum of--
                          (i) the number of MSA returns filed 
                        on or before April 15 of such calendar 
                        year for taxable years ending with or 
                        within the preceding calendar year, 
                        plus
                          (ii) the Secretary's estimate 
                        (determined on the basis of the returns 
                        described in clause (i)) of the number 
                        of MSA returns for such taxable years 
                        which will be filed after such 
                        date,exceeds 750,000 (600,000 in the 
                        case of 1998). For purposes of the 
                        preceding sentence, the term ``MSA 
                        return'' means any return on which any 
                        exclusion is claimed under section 
                        106(b) or any deduction is claimed 
                        under this section.
                  (B) Alternative computation of limitation.--
                The numerical limitation for [1998, 1999, or 
                2001] 1998, 1999, 2001, or 2002 is also 
                exceeded if the sum of--
                          (i) * * *

           *       *       *       *       *       *       *

          (4) Reporting by msa trustees.--
                  (A) In general.--Not later than August 1 of 
                1997, 1998, 1999, [and 2001] 2001, and 2002 
                each person who is the trustee of an Archer MSA 
                established before July 1 of such calendar year 
                shall make a report to the Secretary (in such 
                form and manner as the Secretary shall specify) 
                which specifies--
                          (i) * * *

           *       *       *       *       *       *       *


PART IX--ITEMS NOT DEDUCTABLE

           *       *       *       *       *       *       *



SEC. 263. CAPITAL EXPENDITURES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Intangible Drilling and Development Costs in the Case of 
Oil and Gas Wells and Geothermal Wells.--Notwithstanding 
subsection (a), and except as provided in subsection (i), 
regulations shall be prescribed by the Secretary under this 
subtitle corresponding to the regulations which granted the 
option to deduct as expenses intangible drilling and 
development costs in the case of oil and gas wells and which 
were recognized and approved by the Congress in House 
Concurrent Resolution 50, Seventy-ninth Congress. Such 
regulations shall also grant the option to deduct as expenses 
intangible drilling and development costs in the case of wells 
drilled for any geothermal deposit (as defined in section 
613(e)(2)) to the same extent and in the same manner as such 
expenses are deductible in the case of oil and gas wells. This 
subsection shall not apply with respect to any costs to which 
any deduction is allowed under section [59(e)] 59(d) or 291.

           *       *       *       *       *       *       *


SEC. 263A. CAPITALIZATION AND INCLUSION IN INVENTORY COSTS OF CERTAIN 
                    EXPENSES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) General Exceptions
          (1) * * *

           *       *       *       *       *       *       *

          (6) Coordination with section [59(e)] 59(d).--
        Paragraphs (2) and (3) shall apply to any amount 
        allowable as a deduction under section [59(e)] 59(d) 
        for qualified expenditures described in subparagraphs 
        (B), (C), (D), and (E) of paragraph (2) thereof.

           *       *       *       *       *       *       *


SEC. 275. CERTAIN TAXES.

  (a) General Rule.--No deduction shall be allowed for the 
following taxes:
          (1) * * *

           *       *       *       *       *       *       *

        Paragraph (1) shall not apply to any taxes to the 
        extent such taxes are allowable as a deduction under 
        section 164(f). [Paragraph (1) shall not apply to the 
        tax imposed by section 59A.] A rule similar to the rule 
        of section 943(d) shall apply for purposes of paragraph 
        (4)(C)

           *       *       *       *       *       *       *


SEC. 280F. LIMITATION ON DEPRECIATION FOR LUXURY AUTOMOBILES; 
                    LIMITATION WHERE CERTAIN PROPERTY USED FOR PERSONAL 
                    PURPOSES.

  (a) Limitation on Amount of Depreciation for Luxury 
Automobiles.--
          (1) Depreciation.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Special rule for certain clean-fuel 
                passenger automobiles.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) Application of subparagraph.--
                        This subparagraph shall apply to 
                        property placed in service after August 
                        5, 1997, and before January 1, 2007.

           *       *       *       *       *       *       *


Subchapter C--Corporate Distributions and Adjustments

           *       *       *       *       *       *       *


PART V--CARRYOVERS

           *       *       *       *       *       *       *


SEC. 382. LIMITATION ON NET OPERATING LOSS CARRYFORWARDS AND CERTAIN 
                    BUILT-IN LOSSES FOLLOWING OWNERSHIP CHANGE.

  (a) * * *

           *       *       *       *       *       *       *

  (l) Certain Additional Operating Rules.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          [(7) Coordination with alternative minimum tax.--The 
        Secretary shall by regulation provide for the 
        application of this section to the alternative tax net 
        operating loss deduction under section 56(d).]
          [(8)] (7) Predecessor and successor entities.--Except 
        as provided in regulations, any entity and any 
        predecessor or successor entities of such entity shall 
        be treated as 1 entity.

           *       *       *       *       *       *       *


Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *



Subpart A--Methods of Accounting in General

           *       *       *       *       *       *       *



SEC. 448. LIMITATION ON USE OF CASH METHOD OF ACCOUNTING.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Definitions and Special Rules.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          [(5) Special rule for services.--In the case of any 
        person using an accrual method of accounting with 
        respect to amounts to be received for the performance 
        of services by such person, such person shall not be 
        required to accrue any portion of such amounts which 
        (on the basis of experience) will not be collected. 
        This paragraph shall not apply to any amount if 
        interest is required to be paid on such amount or there 
        is any penalty for failure to timely pay such amount.]
          (5) Special rule for certain services.--
                  (A) In general.--In the case of any person 
                using an accrual method of accounting with 
                respect to amounts to be received for the 
                performance of services by such person, such 
                person shall not be required to accrue any 
                portion of such amounts which (on the basis of 
                such person's experience) will not be collected 
                if--
                          (i) such services are in fields 
                        referred to in paragraph (2)(A), or
                          (ii) such person meets the gross 
                        receipts test of subsection (c) for all 
                        prior taxable years.
                  (B) Exception.--This paragraph shall not 
                apply to any amount if interest is required to 
                be paid on such amount or there is any penalty 
                for failure to timely pay such amount.
                  (C) Regulations.--The Secretary shall 
                prescribe regulations to permit taxpayers to 
                determine amounts referred to in subparagraph 
                (A) using computations or formulas which, based 
                on experience, accurately reflect the amount of 
                income that will not be collected by such 
                person. A taxpayer may adopt, or request 
                consent of the Secretary to change to, a 
                computation or formula that clearly reflects 
                the taxpayer's experience. A request under the 
                preceding sentence shall be approved only if 
                such computation or formula clearly reflects 
                the taxpayer's experience.

           *       *       *       *       *       *       *


Subchapter I--Natural Resources

           *       *       *       *       *       *       *


PART I--DEDUCTIONS

           *       *       *       *       *       *       *



SEC. 613A. LIMITATIONS ON PERCENTAGE DEPLETION IN CASE OF OIL AND GAS 
                    WELLS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Exemption for Independent Producers and Royalty Owners.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Oil and natural gas produced from marginal 
        properties.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) Temporary suspension of taxable income 
                limit with respect to marginal production.--The 
                second sentence of subsection (a) of section 
                613 shall not apply to so much of the allowance 
                for depletion as is determined under 
                subparagraph (A) for any taxable year beginning 
                after December 31, 1997, and before January 1, 
                [2002] 2004.

           *       *       *       *       *       *       *


SEC. 616. DEVELOPMENT EXPENDITURES.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Cross Reference.--
          For election of 10-year amortization of expenditures allowable 
        as a deduction under subsection (a), see section [59(e)] 59(d).

SEC. 617. DEDUCTION AND RECAPTURE OF CERTAIN MINING EXPLORATION 
                    EXPENDITURES.

  (a) * * *

           *       *       *       *       *       *       *

  (i) Cross Reference.--
          For election of 10-year amortization of expenditures allowable 
        as a deduction under this section, see section [59(e)] 59(d).

           *       *       *       *       *       *       *


Subchapter L--Insurance Companies

           *       *       *       *       *       *       *


PART I--LIFE INSURANCE COMPANIES

           *       *       *       *       *       *       *



Subpart D--Accounting, Allocation, and Foreign Provisions

           *       *       *       *       *       *       *



SEC. 815. DISTRIBUTIONS TO SHAREHOLDERS FROM PRE-1984 POLICYHOLDERS 
                    SURPLUS ACCOUNT.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Shareholders Surplus Account.--
          (1) * * *
          (2) Additions to account.--The amount added to the 
        shareholders surplus account for any taxable year 
        beginning after December 31, 1983, shall be the excess 
        of--
                  (A) * * *

           *       *       *       *       *       *       *

[If for any taxable year a tax is imposed by section 55, under 
regulations proper adjustments shall be made for such year and 
all subsequent taxable years in the amounts taken into account 
under subparagraphs (A) and (B) of this paragraph and 
subparagraph (B) of subsection (d)(3).]

           *       *       *       *       *       *       *


PART III--PROVISIONS OF GENERAL APPLICATION

           *       *       *       *       *       *       *



SEC. 847. SPECIAL ESTIMATED TAX PAYMENTS.

  In the case of taxable years beginning after December 31, 
1987, of an insurance company required to discount unpaid 
losses (as defined in section 846)--
          (1) * * *

           *       *       *       *       *       *       *

          (9) Effect on earnings and profits. In determining 
        the earnings and profits--
                  (A) * * *

           *       *       *       *       *       *       *

  [Nothing in the preceding sentence shall be construed to 
affect the application of section 56(g) (relating to 
adjustments based on adjusted current earnings).]
          (10) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry 
        out the purposes of this section, including 
        regulations--
                  (A) providing for the separate application of 
                this section with respect to each accident 
                year, and
                  [(B) such adjustments in the application of 
                this section as may be necessary to take into 
                account the tax imposed by section 55, and]
                  [(C)] (B) providing for the application of 
                this section in cases where the deduction 
                allowed under paragraph (1) for any taxable 
                year is less than the excess referred to in 
                paragraph (1) for such year.

SEC. 848. CAPITALIZATION OF CERTAIN POLICY ACQUISITION EXPENSES.

  (a) * * *

           *       *       *       *       *       *       *

  [(i) Treatment of Qualified Foreign Contracts Under Adjusted 
Current Earnings Preference.--For purposes of determining 
adjusted current earnings under section 56(g), acquisition 
expenses with respect to contracts described in clause (iii) of 
subsection (e)(1)(B) shall be capitalized and amortized in 
accordance with the treatment generally required under 
generally accepted accounting principles as if this subsection 
applied to such contracts for all taxable years.]
  [(j)] (i) Transitional Rule.--In the case of any taxable year 
which includes September 30, 1990, the amount taken into 
account as the net premiums (or negative capitalization amount) 
with respect to any category of specified insurance contracts 
shall be the amount which bears the same ratio to the amount 
which (but for this subsection) would be so taken into account 
as the number of days in such taxable year on or after 
September 30, 1990, bears to the total number of days in such 
taxable year.

           *       *       *       *       *       *       *


 Subchapter N--Tax Based on Income From Sources Within or Without the 
United States

           *       *       *       *       *       *       *


PART II--NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

           *       *       *       *       *       *       *



Subpart B--Foreign Corporations

           *       *       *       *       *       *       *



SEC. 882. TAX ON INCOME OF FOREIGN CORPORATIONS CONNECTED WITH UNITED 
                    STATES BUSINESS.

  (a) Imposition of tax.--
          (1) In general.--A foreign corporation engaged in 
        trade or business within the United States during the 
        taxable year shall be taxable as provided in section 
        11, [55, 59A,] or 1201(a) on its taxable income which 
        is effectively connected with the conduct of a trade or 
        business within the United States.

           *       *       *       *       *       *       *


PART III--INCOME FROM SOURCES WITHOUT THE UNITED STATES

           *       *       *       *       *       *       *



Subpart A--Foreign Tax Credit

           *       *       *       *       *       *       *



SEC. 904. LIMITATION ON CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Coordination With Nonrefundable Personal Credits.--In the 
case of an individual, for purposes of subsection (a), the tax 
against which the credit is taken is such tax reduced by the 
sum of the credits allowable under subpart A of part IV of 
subchapter A of this chapter. This subsection shall not apply 
to taxable years beginning [during 2000 or 2001] during 2000, 
2001, 2002, or 2003.

           *       *       *       *       *       *       *


Subpart D--Possessions of the United States

           *       *       *       *       *       *       *



SEC. 936. PUERTO RICO AND POSSESSION TAX CREDIT.

  (a) Allowance of Credit.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Credit not allowed against certain taxes.--The 
        credit provided by paragraph (1) shall not be allowed 
        against the tax imposed by--
                  [(A) section 59A (relating to environmental 
                tax),]
                  [(B)] (A) section 531 (relating to the tax on 
                accumulated earnings),
                  [(C)] (B) section 541 (relating to personal 
                holding company tax), or
                  [(D)] (C) section 1351 (relating to 
                recoveries of foreign expropriation losses).

           *       *       *       *       *       *       *


Subpart F--Controlled Foreign Corporations

           *       *       *       *       *       *       *



SEC. 953. INSURANCE INCOME.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Exempt Insurance Income.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (10) Application.--This subsection and section 954(i) 
        shall apply only to taxable years of a foreign 
        corporation beginning after December 31, 1998[, and 
        before January 1, 2002,] and to taxable years of United 
        States shareholders with or within which any such 
        taxable year of such foreign corporation ends. [If this 
        subsection does not apply to a taxable year of a 
        foreign corporation beginning after December 31, 2001 
        (and taxable years of United States shareholders ending 
        with or within such taxable year), then, 
        notwithstanding the preceding sentence, subsection (a) 
        shall be applied to such taxable years in the same 
        manner as it would if the taxable year of the foreign 
        corporation began in 1998.]

           *       *       *       *       *       *       *


SEC. 954. FOREIGN BASE COMPANY INCOME.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Special Rule for Income Derived in the Active Conduct of 
Banking, Financing, or Similar Businesses.--For purposes of 
subsection (c)(1), foreign personal holding company income 
shall not include qualified banking or financing income of an 
eligible controlled foreign corporation.
          (2) * * *

           *       *       *       *       *       *       *

          (9) Application.--This subsection, subsection 
        (c)(2)(C)(ii), and the last sentence of subsection 
        (e)(2) shall apply only to taxable years of a foreign 
        corporation beginning after December 31, 1998[, and 
        before January 1, 2002,] and to taxable years of United 
        States shareholders with or within which any such 
        taxable year of such foreign corporation ends.
  (i) Special Rule for Income Derived in the Active Conduct of 
Insurance Business.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Methods for determining unearned premiums and 
        reserves.--For purposes of paragraph (2)(A)--
                  (A) * * *
                  [(B) Life insurance and annuity contracts.--
                The amount of the reserve of a qualifying 
                insurance company or qualifying insurance 
                company branch for any life insurance or 
                annuity contract shall be equal to the greater 
                of--
                          [(i) the net surrender value of such 
                        contract (as defined in section 
                        807(e)(1)(A)), or
                          [(ii) the reserve determined under 
                        paragraph (5).]
                  (B) Life insurance and annuity contracts.--
                          (i) In general.--Except as provided 
                        in clause (ii), the amount of the 
                        reserve of a qualifying insurance 
                        company or qualifying insurance company 
                        branch for any life insurance or 
                        annuity contract shall be equal to the 
                        greater of--
                                  (I) the net surrender value 
                                of such contract (as defined in 
                                section 807(e)(1)(A)), or
                                  (II) the reserve determined 
                                under paragraph (5).
                          (ii) Ruling request.--The amount of 
                        the reserve under clause (i) shall be 
                        the foreign statement reserve for the 
                        contract (less any catastrophe, 
                        deficiency, equalization, or similar 
                        reserves), if, pursuant to a ruling 
                        request submitted by the taxpayer, the 
                        Secretary determines that the factors 
                        taken into account in determining the 
                        foreign statement reserve provide an 
                        appropriate means of measuring income.

           *       *       *       *       *       *       *


SEC. 962. ELECTION BY INDIVIDUALS TO BE SUBJECT TO TAX AT CORPORATE 
                    RATES.

  (a) General Rule.--Under regulations prescribed by the 
Secretary, in the case of a United States shareholder who is an 
individual and who elects to have the provisions of this 
section apply for the taxable year--
          (1) the tax imposed under this chapter on amounts 
        which are included in his gross income under section 
        951(a) shall (in lieu of the tax determined under 
        sections 1 and 55) be an amount equal to the tax which 
        would be imposed under [sections 11 and 55] section 11 
        if such amounts were received by a domestic 
        corporation, and

           *       *       *       *       *       *       *


Subchapter O--Gain or Loss on Disposition of Property

           *       *       *       *       *       *       *


PART II--BASIS RULES OF GENERAL APPLICATION

           *       *       *       *       *       *       *



SEC. 1016. ADJUSTMENTS TO BASIS.

  (a) General Rule.--Proper adjustment in respect of the 
property shall in all cases be made--
          (1) * * *

           *       *       *       *       *       *       *

          (20) for amounts allowed as deductions under section 
        [59(e)] 59(d) (relating to optional 10-year write-off 
        of certain tax preferences);

           *       *       *       *       *       *       *


Subchapter P--Capital Gains and Losses

           *       *       *       *       *       *       *


PART II--TREATMENT OF CAPITAL LOSSES

           *       *       *       *       *       *       *



SEC. 1211. LIMITATION ON CAPITAL LOSSES.

  (a) * * *
  (b) Other Taxpayers.--In the case of a taxpayer other than a 
corporation, losses from sales or exchanges of capital assets 
shall be allowed only to the extent of the gains from such 
sales or exchanges, plus (if such losses exceed such gains) the 
lower of--
          (1) * * *

           *       *       *       *       *       *       *

Paragraph (1) shall be applied by substituting ``$4,000'' for 
``$3,000'' and ``$2,000'' for ``$1,500'' in the case of taxable 
years beginning in 2001, and by substituting ``$5,000'' for 
``$3,000'' and ``$2,500'' for ``$1,500'' in the case of taxable 
years beginning in 2002.

           *       *       *       *       *       *       *


     Subchapter U--Designation and Treatment of Empowerment Zones, 
Enterprise Communities, and Rural Development Investment Areas

           *       *       *       *       *       *       *


  PART IV--INCENTIVES FOR EDUCATION ZONES

           *       *       *       *       *       *       *



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

  (a) * * *

           *       *       *       *       *       *       *

  (e) Limitation on Amount of Bonds Designated.--
          (1) National limitation.--There is a national zone 
        academy bond limitation for each calendar year. Such 
        limitation is $400,000,000 for 1998, 1999, [2000, and 
        2001] 2000, 2001, 2002, and 2003, and, except as 
        provided in paragraph (4), zero thereafter.

           *       *       *       *       *       *       *


    CHAPTER 3--WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN 
CORPORATIONS

           *       *       *       *       *       *       *


Subchapter A--Nonresident Aliens and Foreign Corporations

           *       *       *       *       *       *       *


SEC. 1445. WITHHOLDING OF TAX ON DISPOSITIONS OF UNITED STATES REAL 
                    PROPERTY INTERESTS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Special Rules Relating to Distributions, Etc., By 
Corporations, Partnerships, Trusts, or Estates.--
          (1) Certain domestic partnerships, trusts, and 
        estates.--In the case of any disposition of a United 
        States real property interest as defined in section 
        897(c) (other than a disposition described in paragraph 
        (4) or (5)) by a domestic partnership, domestic trust, 
        or domestic estate, such partnership, the trustee of 
        such trust, or the executor of such estate (as the case 
        may be) shall be required to deduct and withhold under 
        subsection (a) a tax equal to 35 percent (or, to the 
        extent provided in regulations, [20] 18 percent) of the 
        gain realized to the extent such gain--
                  (A) * * *

           *       *       *       *       *       *       *


CHAPTER 6--CONSOLIDATED RETURNS

           *       *       *       *       *       *       *


Subchapter B--Related Rules

           *       *       *       *       *       *       *


PART II--CERTAIN CONTROLLED CORPORATIONS

           *       *       *       *       *       *       *



SEC. 1561. LIMITATIONS ON CERTAIN MULTIPLE TAX BENEFITS IN THE CASE OF 
                    CERTAIN CONTROLLED CORPORATIONS.

  (a) General Rule.--The component members of a controlled 
group of corporations on a December 31 shall, for their taxable 
years which include such December 31, be limited for purposes 
of this subtitle to--
          (1) * * *
          (2) one $250,000 ($150,000 if any component member is 
        a corporation described in section 535(c)(2)(B) amount 
        for purposes of computing the accumulated earnings 
        credit under section 535(c)(2) and (3), and
          (3) one $40,000 exemption amount for purposes of 
        computing the amount of the minimum tax[, and].
          [(4) one $2,000,000 amount for purposes of computing 
        the tax imposed by section 59A.]
The amounts specified in paragraph (1), the amount specified in 
paragraph (3), and the amount specified in paragraph (4) shall 
be divided equally among the component members of such group on 
such December 31 unless all of such component members consent 
(at such time and in such manner as the Secretary shall by 
regulations prescribe) to an apportionment plan providing for 
an unequal allocation of such amounts. The amounts specified in 
paragraph (2) shall be divided equally among the component 
members of such group on such December 31 unless the Secretary 
prescribes regulations permitting an unequal allocation of such 
amounts. Notwithstanding paragraph (1), in applying the last 2 
sentences of section 11(b)(1) to such component members, the 
taxable income of all such component members shall be taken 
into account and any increase in tax under such last sentence 
shall be divided among such component members in the same 
manner as amounts under paragraph (1). [In applying section 
55(d)(3), the alternative minimum taxable income of all 
component members shall be taken into account and any decrease 
in the exemption amount shall be allocated to the component 
members in the same manner as under paragraph (3).]

           *       *       *       *       *       *       *


Subtitle C--Employment Taxes

           *       *       *       *       *       *       *


CHAPTER 23--FEDERAL UNEMPLOYMENT TAX ACT

           *       *       *       *       *       *       *


SEC. 3304. APPROVAL OF STATE LAWS.

  (a) Requirements.--The Secretary of Labor shall approve any 
State law submitted to him, within 30 days of such submission, 
which he finds provides that--
          (1) * * *

           *       *       *       *       *       *       *

          (4) all money withdrawn from the unemployment fund of 
        the State shall be used solely in the payment of 
        unemployment compensation, exclusive of expenses of 
        administration, and for refunds of sums erroneously 
        paid into such fund and refunds paid in accordance with 
        the provisions of section 3305(b); except that--
                  (A) * * *
                  (B) the amounts specified by section 
                903(c)(2) or 903(d)(4) of the Social Security 
                Act may, subject to the conditions prescribed 
                in such section, be used for expenses incurred 
                by the State for administration of its 
                unemployment compensation law and public 
                employment offices;

           *       *       *       *       *       *       *


SEC. 3306. DEFINITIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Unemployment Fund.--For purposes of this chapter, the 
term ``unemployment fund'' means a special fund, established 
under a State law and administered by a State agency, for the 
payment of compensation. Any sums standing to the account of 
the State agency in the Unemployment Trust Fund established by 
section 904 of the Social Security Act, as amended (42 U.S.C. 
1104), shall be deemed to be a part of the unemployment fund of 
the State, and no sums paid out of the Unemployment Trust Fund 
to such State agency shall cease to be a part of the 
unemployment fund of the State until expended by such State 
agency. An unemployment fund shall be deemed to be maintained 
during a taxable year only if throughout such year, or such 
portion of the year as the unemployment fund was in existence, 
no part of the moneys of such fund was expended for any purpose 
other than the payment of compensation (exclusive of expenses 
of administration) and for refunds of sums erroneously paid 
into such fund and refunds paid in accordance with the 
provisions of section 3305(b); except that--
          (1) * * *
          (2) the amounts specified by section 903(c)(2) or 
        903(d)(4) of the Social Security Act may, subject to 
        the conditions prescribed in such section, be used for 
        expenses incurred by the State for administration of 
        its unemployment compensation law and public employment 
        offices;

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


Subchapter B--Rules for Special Application

           *       *       *       *       *       *       *


SEC. 6425. ADJUSTMENT OF OVERPAYMENT OF ESTIMATED INCOME TAX BY 
                    CORPORATION.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Definitions.--For purposes of this section and section 
6655(h) (relating to excessive adjustment)--
          (1) The term ``income tax liability'' means the 
        excess of--
                  [(A) The sum of--
                          [(i) the tax imposed by section 11 or 
                        1201(a), or subchapter L of chapter 1, 
                        whichever is applicable,
                          [(ii) the tax imposed by section 55, 
                        plus
                          [(iii) the tax imposed by section 
                        59A, over]
                  (A) the tax imposed by section 11 or 1201(a), 
                or subchapter L of chapter 1, whichever is 
                applicable, over

           *       *       *       *       *       *       *


SEC. 6428. ACCELERATION OF 10 PERCENT INCOME TAX RATE BRACKET BENEFIT 
                    FOR 2001.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Special Rules.--
          (1) Coordination with advance refunds of credit.--
                  (A) In general.--The amount of credit which 
                would (but for this paragraph) be allowable 
                under this section shall be reduced (but not 
                below zero) by the aggregate refunds and 
                credits made or allowed to the taxpayer under 
                [subsection (e)] subsections (e) and (f). Any 
                failure to so reduce the credit shall be 
                treated as arising out of a mathematical or 
                clerical error and assessed according to 
                section 6213(b)(1).
                  (B) Joint returns.--In the case of a refund 
                or credit made or allowed under [subsection 
                (e)] subsection (e) or (f) with respect to a 
                joint return, half of such refund or credit 
                shall be treated as having been made or allowed 
                to each individual filing such return.

           *       *       *       *       *       *       *

  (e) Advance Refunds of Credit Based on Prior Year Data.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Timing of payments.--In the case of any 
        overpayment attributable to this subsection, the 
        Secretary shall, subject to the provisions of this 
        title, refund or credit such overpayment as rapidly as 
        possible and, to the extent practicable, before October 
        1, 2001. No refund or credit shall be made or allowed 
        under this subsection after [December 31, 2001] the 
        date of the enactment of the Economic Security and 
        Recovery Act of 2001.

           *       *       *       *       *       *       *

  (f) Supplemental Rebate.--
          (1) In general.--Each individual who was an eligible 
        individual for such individual's first taxable year 
        beginning in 2000 and who, before October 16, 2001, 
        filed a return of tax imposed by subtitle A for such 
        taxable year shall be treated as having made a payment 
        against the tax imposed by chapter 1 for such first 
        taxable year in an amount equal to the supplemental 
        refund amount for such taxable year.
          (2) Supplemental refund amount.--For purposes of this 
        subsection, the supplemental refund amount is an amount 
        equal to the excess (if any) of--
                  (A)(i) $600 in the case of taxpayers to whom 
                section 1(a) applies,
                  (ii) $500 in the case of taxpayers to whom 
                section 1(b) applies, and
                  (iii) $300 in the case of taxpayers to whom 
                subsections (c) or (d) of section 1 applies, 
                over
                  (B) the taxpayer's advance refund amount 
                under subsection (e).
          (3) Timing of payments.--In the case of any 
        overpayment attributable to this subsection, the 
        Secretary shall, subject to the provisions of this 
        title, refund or credit such overpayment as rapidly as 
        possible.
          (4) No interest.--No interest shall be allowed on any 
        overpayment attributable to this subsection.

           *       *       *       *       *       *       *


 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
PENALTIES

           *       *       *       *       *       *       *


Subchapter A--Additions to the Tax, Additional Amounts

           *       *       *       *       *       *       *


PART I--GENERAL PROVISIONS

           *       *       *       *       *       *       *



SEC. 6655. FAILURE BY CORPORATION TO PAY ESTIMATED INCOME TAX.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Lower Required Installment Where Annualized Income 
Installment or Adjusted Seasonal Installment is Less Than 
Amount Determined Under Subsection (d).--
          (1) * * *
          (2) Determination of annualized income installment.--
                  (A) In general.--In the case of any required 
                installment, the annualized income installment 
                is the excess (if any) of--
                          (i) an amount equal to the applicable 
                        percentage of the tax for the taxable 
                        year computed by placing on an 
                        annualized basis the taxable income[, 
                        alternative minimum taxable income, and 
                        modified alternative minimum taxable 
                        income]--
                                  (I) for the first 3 months of 
                                the taxable year, in the case 
                                of the 1st required 
                                installment,
                                  (II) for the first 3 months 
                                of the taxable year, in the 
                                case of the 2nd required 
                                installment,
                                  (III) for the first 6 months 
                                of the taxable year in the case 
                                of the 3rd required 
                                installment, and
                                  (IV) for the first 9 months 
                                of the taxable year, in the 
                                case of the 4th required 
                                installment, over
                          (ii) the aggregate amount of any 
                        prior required installments for the 
                        taxable year.
                  (B) Special rules.--For purposes of this 
                paragraph--
                          (i) Annualization.--The taxable 
                        income[, alternative minimum taxable 
                        income, and modified alternative 
                        minimum taxable income] shall be placed 
                        on an annualized basis under 
                        regulations prescribed by the 
                        Secretary.

           *       *       *       *       *       *       *

                          [(iii) Modified alternative minimum 
                        taxable income.--The term ``modified 
                        alternative minimum taxable income'' 
                        has the meaning given to such term by 
                        section 59A(b).]

           *       *       *       *       *       *       *

  (g) Definitions and Special Rules.--
          (1) Tax.--For purposes of this section, the term 
        ``tax'' means the excess of--
                  [(A) the sum of--
                          [(i) the tax imposed by section 11 or 
                        1201(a), or subchapter L of chapter 1, 
                        whichever applies,
                          [(ii) the tax imposed by section 55,
                          [(iii) the tax imposed by section 
                        59A, plus
                          [(iv) the tax imposed by section 887, 
                        over]
                  (A) the sum of--
                          (i) the tax imposed by section 11 or 
                        1201(a), or subchapter L of chapter 1, 
                        whichever applies, plus
                          (ii) the tax imposed by section 887, 
                        over

           *       *       *       *       *       *       *


CHAPTER 77--MISCELLANEOUS PROVISIONS

           *       *       *       *       *       *       *


SEC. 7518. TAX INCENTIVES RELATING TO MERCHANT MARINE CAPITAL 
                    CONSTRUCTION FUNDS.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Tax Treatment of Nonqualified Withdrawals.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Nonqualified withdrawals taxed at highest 
        marginal rate.--
                  (A) In general.--In the case of any taxable 
                year for which there is a nonqualified 
                withdrawal (including any amount so treated 
                under paragraph (5)), the tax imposed by 
                chapter 1 shall be determined--
                          (i) * * *

           *       *       *       *       *       *       *

                With respect to the portion of any nonqualified 
                withdrawal made out of the capital gain account 
                during a taxable year to which section 1(h) or 
                1201(a) applies, the rate of tax taken into 
                account under the preceding sentence shall not 
                exceed [20] 18 percent (34 percent in the case 
                of a corporation).

           *       *       *       *       *       *       *


CHAPTER 78--DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE

           *       *       *       *       *       *       *


Subchapter D--Possessions

           *       *       *       *       *       *       *


SEC. 7652. SHIPMENTS TO THE UNITED STATES.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Limitation on Cover Over of Tax on Distilled Spirits.--
For purposes of this section, with respect to taxes imposed 
under section 5001 or this section on distilled spirits, the 
amount covered into the treasuries of Puerto Rico and the 
Virgin Islands shall not exceed the lesser of the rate of--
          (1) $10.50 ($13.25 in the case of distilled spirits 
        brought into the United States after June 30, 1999, and 
        before January 1, [2002] 2004), or

           *       *       *       *       *       *       *


Subtitle K--Group Health Plan Requirements

           *       *       *       *       *       *       *


CHAPTER 100--GROUP HEALTH PLAN REQUIREMENTS

           *       *       *       *       *       *       *


Subchapter B--Other Requirements

           *       *       *       *       *       *       *


SEC. 9812. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH 
                    BENEFITS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Sunset.--This section shall no apply to benefits for 
services furnish on or after September 30, [2001] 2003.

           *       *       *       *       *       *       *

                              ----------                              


              SECTION 607 OF THE MERCHANT MARINE ACT, 1936

Sec. 607. (a) * * *

           *       *       *       *       *       *       *

(h) Tax Treatment of Nonqualified Withdrawals.
  (1) * * *

           *       *       *       *       *       *       *

          (6) Nonqualified withdrawals taxed at highest 
        marginal rate.--
                  (A) In general.--In the case of any taxable 
                year for which there is a nonqualified 
                withdrawal (including any amount so treated 
                under paragraph (5)), the tax imposed by 
                chapter 1 of the Internal Revenue Code of 1986 
                shall be determined--
                          (i) * * *

           *       *       *       *       *       *       *

                With respect to the portion of any nonqualified 
                withdrawal made out of the capital gain account 
                during a taxable year to which section l(h) or 
                1201(a) of such Code applies, the rate of tax 
                taken into account under the preceding sentence 
                shall not exceed [20] 18 percent (34 percent in 
                the case of a corporation).

           *       *       *       *       *       *       *

                              ----------                              


TAXPAYER RELIEF ACT OF 1997

           *       *       *       *       *       *       *



TITLE III--SAVINGS AND INVESTMENT INCENTIVES

           *       *       *       *       *       *       *


                       Subtitle B--Capital Gains

SEC. 311. MAXIMUM CAPITAL GAINS RATES FOR INDIVIDUALS.

  (a) * * *

           *       *       *       *       *       *       *

  [(e) Election To Recognize Gain on Assets Held on January 1, 
2001.--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 a 
                capital asset) held by such taxpayer on January 
                1, 2001, 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 capital asset or property used 
                in the trade or business (as defined in section 
                1231(b) of the Internal Revenue Code of 1986) 
                held by the taxpayer on January 1, 2001, 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. Such an election shall not apply to any 
        asset which is disposed of (in a transaction in which 
        gain or loss is recognized in whole or in part) before 
        the close of the 1-year period beginning on the date 
        that the asset would have been treated as sold under 
        such election.
          [(4) Readily tradable stock.--For purposes of this 
        subsection, the term ``readily tradable stock'' means 
        any stock which, as of January 1, 2001, is readily 
        tradable on an established securities market or 
        otherwise.]

           *       *       *       *       *       *       *


TITLE IX--MISCELLANEOUS PROVISIONS

           *       *       *       *       *       *       *


Subtitle G--Other Provisions

           *       *       *       *       *       *       *


SEC. 971. EXEMPTION OF THE INCREMENTAL COST OF A CLEAN FUEL VEHICLE 
                    FROM THE LIMITS ON DEPRECIATION FOR VEHICLES.

  (a) * * *

           *       *       *       *       *       *       *

  (b) Effective Date.--The amendments made by this section 
shall apply to property placed in service after the date of 
enactment of this Act [and before January 1, 2005].

           *       *       *       *       *       *       *


TITLE X--REVENUES

           *       *       *       *       *       *       *


Subtitle D--Excise and Employment Tax Provisions

           *       *       *       *       *       *       *


SEC. 1032. KEROSENE TAXED AS DIESEL FUEL.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Effective Dates.--
          (1) Except as provided in paragraph (2), the 
        amendments made by this section shall take effect on 
        July 1, 1998.
          (2) The amendment made by subsection (d) shall take 
        effect on January 1, [2002] 2004.

           *       *       *       *       *       *       *

                              ----------                              


SOCIAL SECURITY ACT

           *       *       *       *       *       *       *



       TITLE III--GRANTS TO STATES FOR UNEMPLOYMENT COMPENSATION 
ADMINISTRATION

           *       *       *       *       *       *       *



                        provisions of state laws

  Sec. 303. (a) The Secretary of Labor shall make no 
certification for payment to any State unless he finds that the 
law of such State, approved by the Secretary of Labor under the 
Federal Unemployment Tax Act, includes provision for--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Expenditure of all money withdrawn from an 
        unemployment fund of such State, in the payment of 
        unemployment compensation, exclusive of expenses of 
        administration, and for refunds of sums erroneously 
        paid into such fund and refunds paid in accordance with 
        the provisions of 3305(b) of the Federal Unemployment 
        Tax Act: Provided, That an amount equal to the amount 
        of employee payments in to the unemployment fund of a 
        State may be used in the payment of cash benefits to 
        individuals with respect to their disability, exclusive 
        of expenses of administration: Provided further, That 
        the amounts specified by section 903(c)(2) or 903(d)(4) 
        may, subject to the conditions prescribed in such 
        section, be used for expenses incurred by the State for 
        administration of its unemployment compensation law and 
        public employment offices: Provided further, That 
        nothing in this paragraph shall be construed to 
        prohibit deducting an amount from unemployment 
        compensation otherwise payable to an individual and 
        using the amount so deducted to pay for health 
        insurance, or the withholding of Federal, State, or 
        local individual income tax, if the individual elected 
        to have such deduction made and such deduction was made 
        under a program approved by the Secretary of Labor: 
        Provided further, That amounts may be deducted from 
        unemployment benefits and used to repay overpayments as 
        provided in subsection (g): Provided further, That 
        amounts may be withdrawn for the payment of short-time 
        compensation under a plan approved by the Secretary of 
        Labor: Provided further, That amounts may be withdrawn 
        for the payment of allowances under a self-employment 
        assistance program (as defined in section 3306(t) of 
        the Internal Revenue Code of 1986); and

           *       *       *       *       *       *       *


TITLE IX--MISCELLANEOUS PROVISIONS RELATING TO EMPLOYMENT SECURITY

           *       *       *       *       *       *       *



                 amounts transferred to state accounts

                               In General

  Sec. 903. (a)(1) * * *

           *       *       *       *       *       *       *

  [(3)(A) Notwithstanding any other provision of this section, 
for purposes of carrying out this subsection with respect to 
any excess amount (referred to in paragraph (1)) remaining in 
the employment security administration account as of the close 
of fiscal year 1999, 2000, or 2001, such amount shall--
          [(i) to the extent of any amounts not in excess of 
        $100,000,000, be subject to subparagraph (B), and
          [(ii) to the extent of any amounts in excess of 
        $100,000,000, be subject to subparagraph (C).
  [(B) Paragraphs (1) and (2) shall apply with respect to any 
amounts described in subparagraph (A)(i), except that--
          [(i) in carrying out the provisions of paragraph 
        (2)(B) with respect to such amounts (to determine the 
        portion of such amounts which is to be allocated to a 
        State for a succeeding fiscal year), the ratio to be 
        applied under such provisions shall be the same as the 
        ratio that--
                  [(I) the amount of funds to be allocated to 
                such State for such fiscal year pursuant to the 
                base allocation formula under title III, bears 
                to
                  [(II) the total amount of funds to be 
                allocated to all States for such fiscal year 
                pursuant to the base allocation formula under 
                title III,
        as determined by the Secretary of Labor, and
          [(ii) the amounts allocated to a State pursuant to 
        this subparagraph shall be available to such State, 
        subject to the last sentence of subsection (c)(2).
Nothing in this paragraph shall preclude the application of 
subsection (b) with respect to any allocation determined under 
this subparagraph.
  [(C) Any amounts described in clause (ii) of subparagraph (A) 
(remaining in the employment security administration account as 
of the close of any fiscal year specified in such subparagraph) 
shall, as of the beginning of the succeeding fiscal year, 
accrue to the Federal unemployment account, without regard to 
the limit provided in section 902(a).]

           *       *       *       *       *       *       *


                       Use of Transferred Amounts

  (c)(1) * * *
  (2) A State may, pursuant to a specific appropriation made by 
the legislative body of the State, use money withdrawn from its 
account in the payment of expenses incurred by it for the 
administration of its unemployment compensation law and public 
employment offices if and only if--
          (A) * * *

           *       *       *       *       *       *       *

[Any amount allocated to a State under this section for fiscal 
year 2000, 2001, or 2002 may be used by such State only to pay 
expenses incurred by it for the administration of its 
unemployment compensation law, and may be so used by it without 
regard to any of the conditions prescribed in any of the 
preceding provisions of this paragraph.]

           *       *       *       *       *       *       *


                  Special Transfer in Fiscal Year 2002

  (d)(1) The Secretary of the Treasury shall transfer (as of 
the date determined under paragraph (5)(A)) from the Federal 
unemployment account to the account of each State in the 
Unemployment Trust Fund the amount determined with respect to 
such State under paragraph (2).
  (2) The amount to be transferred under this subsection to a 
State account shall (as determined by the Secretary of Labor 
and certified by such Secretary to the Secretary of the 
Treasury) be equal to--
          (A) the amount which would have been required to have 
        been transferred under this section to such account at 
        the beginning of fiscal year 2002 if section 402(a)(1) 
        of the Economic Security and Recovery Act of 2001 had 
        been enacted before the close of fiscal year 2001, 
        minus
          (B) the amount which was in fact transferred under 
        this section to such account at the beginning of fiscal 
        year 2002.
  (3)(A) Except as provided in paragraph (4), amounts 
transferred to a State account pursuant to this subsection may 
be used only in the payment of cash benefits--
          (i) to individuals with respect to their 
        unemployment, and
          (ii) which are allowable under subparagraph (B) or 
        (C).
  (B)(i) At the option of the State, cash benefits under this 
paragraph may include amounts which shall be payable as regular 
or additional compensation for individuals eligible for regular 
compensation under the unemployment compensation law of such 
State.
  (ii) Any additional compensation under clause (i) may not be 
taken into account for purposes of any determination relating 
to the amount of any extended compensation for which an 
individual might be eligible.
  (C)(i) At the option of the State, cash benefits under this 
paragraph may include amounts which shall be payable to 1 or 
more categories of individuals not otherwise eligible for 
regular compensation under the unemployment compensation law of 
such State.
  (ii) The benefits paid under this subparagraph to any 
individual may not, for any period of unemployment, exceed the 
maximum amount of regular compensation authorized under the 
unemployment compensation law of such State for that same 
period, plus any additional benefits (described in subparagraph 
(B)(i)) which could have been paid with respect to that amount.
  (D) Amounts transferred to a State account under this 
subsection may be used in the payment of cash benefits to 
individuals only for weeks of unemployment--
          (i) beginning after the date of enactment of this 
        subsection, and
          (ii) ending on or before March 11, 2003.
  (4) Amounts transferred to a State account under this 
subsection may be used for the administration of its 
unemployment compensation law and public employment offices 
(including in connection with benefits described in paragraph 
(3) and any recipients thereof), subject to the same conditions 
as set forth in subsection (c)(2) (excluding subparagraph (B) 
thereof, and deeming the reference to ``subsections (a) and 
(b)'' in subparagraph (D) thereof to include this subsection).
  (5) Transfers under this subsection--
          (A) shall be made on such date as the Secretary of 
        Labor (in consultation with the Secretary of the 
        Treasury) shall determine, but in no event later than 
        10 days after the date of enactment of this subsection, 
        and
          (B) may, notwithstanding any other provision of this 
        subsection, be made only to the extent that they do not 
        to exceed--
                  (i) the balance in the Federal unemployment 
                account as of the date determined under 
                subparagraph (A), or
                  (ii) the total amount that was transferred 
                under this section to the Federal unemployment 
                account at the beginning of fiscal year 2002,
        whichever is less.

           *       *       *       *       *       *       *


TITLE XX--BLOCK GRANTS TO STATES FOR SOCIAL SERVICES

           *       *       *       *       *       *       *


SEC. 2008. GRANTS FOR HEALTH CARE ASSISTANCE FOR THE UNEMPLOYED.

  (a) Funding.--For purposes of section 2003, the amount 
specified in section 2003(c) for fiscal year 2002 is increased 
by $3,000,000,000.
  (b) Use of Funds.--Notwithstanding any other provision of 
this title, to the extent that an amount paid to a State under 
section 2002 is attributable to funds made available by reason 
of subsection (a) of this section--
          (1) the State shall use the amount to assist an 
        unemployed individual who is not eligible for Federal 
        health coverage to purchase health care coverage for 
        the individual or any member of the family of the 
        individual who is not so eligible; and
          (2) the amount--
                  (A) shall be used to supplement, not 
                supplant, any other Federal, State, or local 
                funds that are used for the provision of health 
                care coverage; and
                  (B) may not be included in determining the 
                amount of non-Federal contributions required 
                under any program.
  (c) Definitions.--In this section:
          (1) Unemployed individual.--The term ``unemployed 
        individual'' means an individual who--
                  (A) is without a job (determined in 
                accordance with the criteria used by the Bureau 
                of Labor Statistics of the Department of Labor 
                in defining individuals as unemployed);
                  (B) is seeking and available for work; and
                  (C) has or had a benefit year (within the 
                meaning of section 205 of the Federal-State 
                Extended Unemployment Compensation Act of 1970) 
                beginning on or after January 1, 2001.
          (2) Federal health coverage.--
                  (A) In general.--Subject to subparagraph (B), 
                the term ``Federal health coverage'' means 
                coverage under any medical care program 
                described in--
                          (i) title XVIII, XIX, or XXI of this 
                        Act (other than under section 1928);
                          (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 (other than coverage which 
                        is comparable to continuation coverage 
                        under section 4980B of the Internal 
                        Revenue Code of 1986); or
                          (v) the Indian Health Care 
                        Improvement Act.
                  (B) Special rule.--Such term does not include 
                coverage under a qualified long-term care 
                insurance contract.

           *       *       *       *       *       *       *

                              ----------                              


                         VII. DISSENTING VIEWS

    Democrats support a balanced, fiscally-responsible economic 
recovery package. It should provide vital relief for laid-off 
workers and temporary tax cuts for businesses and individuals 
that will directly stimulate the economy. It should leave room 
for essential security priorities. It should not hurt our 
ability to restore Social Security and Medicare surpluses and 
rebuild long-term confidence in our economy.
    A bipartisan stimulus package should help those people in 
need because of the economic downturn. Hundreds of thousands of 
Americans have lost their jobs in recent weeks and, as a 
result, many lack health insurance and unemployment benefits. 
They are worried about basic needs like paying the rent and 
feeding their families. They care about both their personal and 
their economic security.
    The American people are depending on Members of Congress to 
cooperate and work with each other. They should expect and get 
no less. While we are fighting a war against terrorism, we can 
not afford to fight a political war against each other.
    The Democrats will continue, in every possible way, to 
cooperate with our Republican friends. There already have been 
some post-September 11th bipartisan agreements, such as the 
Cardin-Houghton Unemployment Insurance bill. In contrast, 
Committee Chairman Thomas has spurned attempts at bipartisan 
cooperation in developing an economic stimulus bill. The 
Committee bill neither addresses the priorities of the House 
and Senate Democrats, House and Senate Republicans, or the 
President, based on his comments. Chairman Thomas has forced a 
partisan debate by preparing unilaterally his own version of an 
economic stimulus package (one that both the Committee 
Democrats and Committee Republicans did not see until shortly 
before the markup.)
    We are very concerned that the Committee bill violates the 
bipartisan principles for economic stimulus signed by the House 
and Senate budget committee Chairmen and Ranking Members and 
supported by many Members of both Congressional bodies. This 
was the basis of our ongoing bipartisan discussions and 
guidance for how we would act quickly to develop the economic 
stimulus package for which all Americans are waiting. That 
agreement stipulates that the stimulus package should be 
temporary and have immediate, short-term stimulus impact; be 
directly related to economic stimulus and relief; and be 
disciplined in size and paid for over time through offsets. The 
Committee bill does not fulfill these important bipartisan 
principles. As a result, the Committee's bill does not provide 
for an effective economic stimulus package which we can all 
support.
    The Committee bill is not temporary. The provisions do not 
provide ``economic stimulus'' along the lines recommended by 
Federal Reserve Chairman Greenspan. Instead of temporary tax 
cuts, many of the Committee tax provisions are permanent and 
provide little or nothing in terms of stimulus within the next 
15 months. Further, the Committee bill will not help rebuild 
long-term confidence in the economy. It creates new budgetary 
pressures which will threaten efforts to strengthen Social 
Security and Medicare, pay down debt, and restore economic 
confidence.
    The Committee bill is not directly related to economic 
stimulus and relief. The proposal's tax cuts do not maximize 
consumer demand by focusing on those low- and middle-income 
households most likely to spend the money. The lion's share of 
individual tax cuts in the Committee bill goes to the wealthy, 
and many of the business tax cuts go to businesses that are 
least in need of relief. The Committee bill includes permanent 
tax cuts that have nothing to do with the terrorist attack or 
its economic aftermath. Rather, the bill provides special 
interests with tax cuts they have wanted for years.
    The Committee bill will cost nearly $160 billion over the 
next ten years and is not paid for through offsets. The bill 
ignores the need for out-year offsets to make up over time for 
the cost of near-term economic stimulus. This is not fiscally 
responsible. Our economic stimulus package should be focused 
and be paid for through short- and long-term revenue offsets.
    There are provisions about which the Democrats feel very 
strongly. An economic stimulus package must include measures 
that benefits all Americans in need. Among them are proposals 
to address our Nation's security concerns, to expand 
unemployment insurance benefits, and to make health insurance 
available to those who have lost their jobs.
    The Committee bill does not allow us to address Americans' 
security concerns. The bill puts tax cuts first. Such an 
approach does not leave room for vital improvements in the 
security of airports, seaports, dams, power plants, public 
buildings, roads, railroads, bridges and tunnels throughout the 
country. The American public has spoken loudly and clearly that 
its priority is to significantly increase security in the U.S. 
and to protect American families.
    The Committee bill fails to guarantee any unemployed worker 
increased or extended unemployment compensation. In fact, the 
bill's special Reed Act transfer of funding to the states 
ensures that almost no action will occur over the next six 
months to help jobless Americans because state legislatures 
will take at least that long to meet and decide how to allocate 
the funding. Additionally, there is nothing in the legislation 
that would prevent states from using the Reed Act money to 
replace state funding for unemployment benefits--meaning the 
net result could be no new assistance for displaced workers.
    The Committee bill does not protect newly unemployed 
individuals and their families and other affected by the 
terrorist attacks from the very real danger that they will lose 
their health insurance and join the ranks of the nearly 40 
million uninsured Americans. Many unemployed are eligible to 
stay on their former employers' insurance plans, but at a cost 
of 102 percent of the premium. (In 2002, this is projected to 
average $600 per month, or $7,200 per year.) Unfortunately, few 
can afford to maintain this coverage under current law. The 
Committee bill fails to provide meaningful assistance with 
health insurance. Use of the Social Services Block Grant will 
needlessly delay distribution of funds, and the Committee 
allocation of $3 billion offers too little for too few.
    The most effective and efficient manner by which to provide 
quick, short-term assistance with health insurance coverage is 
to build on existing programs, namely a subsidy for COBRA 
coverage for those who are eligible and a temporary expansion 
of Medicaid and CHIP for those who are not.
    Importantly, the Committee bill is not bipartisan. This 
means the bill will not be enacted into law. There is no excuse 
for unilateral action by the Ways and Means Committee Chairman 
at a time when the House, the Senate, and the President are 
meeting on a bipartisan basis to hammer out a meaningful 
economic stimulus package. Unfortunately, the Committee bill 
may be effective in ``stimulating increased campaign 
contributions,'' but not effective in ``stimulating the 
economy.''
    The several bipartisan meetings held during the past weeks 
among the bicameral leaders of both tax-writing Committees and 
the Administration were very encouraging. It is unfortunate 
that the Committee Chairman decided to pull out and act before 
the bipartisan process was complete. However, it is not too 
late. Our House leaders, Democrats and Republicans, are 
committed to moving forward a bipartisan economic stimulus 
bill. We will continue to follow their lead.
    We look forward to the development of an effective, 
bipartisan package to stimulate our economy and to address the 
needs of Americans after the horrific events of September 11, 
2001. One thing is clear: the bipartisan bill will not be H.R. 
3090. It does not address what Americans need and want.

                                   Charles B. Rangel.
                                   William J. Coyne.
                                   Jim McDermott.
                                   John Lewis.
                                   Sander M. Levin.
                                   John Tanner.
                                   Earl Pomeroy.
                                   Michael R. McNulty.
                                   Pete Stark.
                                   Robert T. Matsui.
                                   Gerald D. Kleczka.
                                   Xavier Becerra.
                                   Ben Cardin.
                                   William J. Jefferson.
                                   Richard E. Neal.
                                   Lloyd Doggett.
                                   Karen L. Thurman.